<PAGE>
PROSPECTUS SUPPLEMENT [GRAPHIC OMITTED]
(To Prospectus dated March 23, 1999)
$365,000,000 (Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 1999-1
[GRAPHIC OMITTED]
Chase Funding Trust, Series 1999-1
Issuer
Chase Funding, Inc.
Depositor
Advanta Mortgage Corp. USA
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------
Investing in these certificates Chase Funding Trust, Series 1999-1 will issue fourteen classes of
involves risks. You should not certificates, thirteen of which are offered by this prospectus supplement
purchase these certificates and the attached prospectus. The table on page S-3 identifies the various
unless you fully understand classes and specifies certain characteristics of each class, including each
their risks and structure. See class's initial certificate principal balance, interest rate and rating.
"Risk Factors" beginning on
page S-14 of this prospectus The trust fund will consist primarily of sub-prime mortgage loans
supplement and page 8 of the secured by first liens on real properties which were originated or
attached prospectus. acquired by Chase Manhattan Mortgage Corporation.
These certificates will be
beneficial interests in a trust
fund, and will be backed only Underwriting Proceeds to
by the assets of the trust. Price to Public(1) Discount(1) Depositor(2)
Neither these certificates nor the ------------------ ------------- ------------
assets of the trust will be $364,989,552 $912,500 $364,077,052
obligations of Chase Funding, 99.9971375% 0.25%
Inc., Advanta Mortgage Corp.
USA, Chase Manhattan ------------
Mortgage Corporation or any of (1) The price to public and underwriting discount shown are for all
their affiliates. These certificates classes of offered certificates in the aggregate. This information is
will not be insured or shown for each individual class on page S-77. See "Underwriting."
guaranteed by any governmental (2) Less expenses (estimated at $556,000) and plus accrued interest. See
agency. "Underwriting."
- --------------------------------------
</TABLE>
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. Lehman Brothers
Morgan Stanley Dean Witter
The date of this Prospectus Supplement is March 23, 1999.
<PAGE>
Where to Find Information in this Prospectus Supplement
and the Attached Prospectus
Information about the offered certificates is contained in (a) the attached
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
addition, an index of defined terms can be found beginning on page S-79 of this
prospectus supplement.
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 1999-1 CERTIFICATES ................................ S-3
SUMMARY INFORMATION ........................................... S-4
Principal Parties ........................................... S-4
Cut-off Date ................................................ S-4
Closing Date ................................................ S-4
Distribution Date ........................................... S-4
The Trust Fund .............................................. S-4
The Series 1999-1 Certificates .............................. S-4
Interest Distributions ...................................... S-4
Principal Distributions ..................................... S-5
Denominations ............................................... S-5
Book-Entry Registration ..................................... S-5
Credit Enhancement .......................................... S-5
Optional Termination ........................................ S-6
Legal Investment ............................................ S-6
Federal Income Tax Consequences ............................. S-6
ERISA Considerations ........................................ S-7
Ratings ..................................................... S-7
The Mortgage Loans .......................................... S-7
RISK FACTORS .................................................. S-14
Forward-Looking Statements .................................. 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 Group II
Certificates Pass-Through Rate; Basis Risk ............... S-15
Pass-Through Rate With Respect to the Class IB
Certificates ............................................. S-16
Subordination--Limited Protection Afforded to
Offered Certificates ..................................... S-16
Subordination--Allocation of Losses to the Class M
and Class B Certificates ................................. S-16
Cash Flow Considerations and Risks .......................... S-16
Certificate Rating on the Certificates ...................... S-17
Bankruptcy and Insolvency Risks ............................. S-17
Certificates May Not Be Appropriate For Individual
Investors ................................................ S-17
Geographic Concentration .................................... S-18
Risk of Higher Default Rates for Mortgage Loans
with Balloon Payments .................................... S-18
Delinquent Mortgage Loans ................................... S-18
Optional Termination Could Reduce Benefits of Cross-
collateralization ........................................ S-18
Limited Liquidity; Lack of SMMEA Eligibility ................ S-18
Risks Associated with Year 2000 Compliance .................. S-19
THE MORTGAGE POOL ............................................. S-20
General ..................................................... S-20
<PAGE>
Mortgage Loans .............................................. S-22
Assignment of the Mortgage Loans ............................ S-36
Representations and Warranties .............................. S-36
CHASE MANHATTAN MORTGAGE
CORPORATION ................................................. S-36
Underwriting Standards ...................................... S-36
SERVICING OF THE MORTGAGE LOANS ............................... S-40
General ..................................................... S-40
The Subservicer ............................................. S-40
Servicing Compensation and Payment of Expenses .............. S-42
Adjustment to Servicing Fee in Connection with
Certain Prepaid Mortgage Loans ........................... S-43
Advances .................................................... S-43
Master Servicer ............................................. S-43
DESCRIPTION OF THE CERTIFICATES ............................... S-45
General ..................................................... S-45
Book-Entry Certificates ..................................... S-45
Payments on Mortgage Loans; Collection Account;
Certificate Account; Distribution Account ................ S-49
Distributions ............................................... S-50
Overcollateralization and Crosscollateralization
Provisions ............................................... S-55
Calculation of One-Month LIBOR .............................. S-57
Reports to Certificateholders ............................... S-58
Amendment ................................................... S-59
Optional Termination ........................................ S-59
Optional Purchase of Defaulted Loans ........................ S-59
Events of Default ........................................... S-59
Rights upon Event of Default ................................ S-60
The Trustee ................................................. S-60
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS .............................................. S-60
General ..................................................... S-60
Prepayments and Yields for Offered Certificates ............. S-61
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
INDEX OF DEFINED TERMS ........................................ S-79
ANNEX I ....................................................... A-1
S-2
<PAGE>
THE SERIES 1999-1 CERTIFICATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class IA-1 Class IA-2 Class IA-3 Class IA-4
Loan Group: Fixed Fixed Fixed Fixed
Initial Certificate Principal
Balance(1): $56,600,000 $23,800,000 $12,900,000 $12,000,000
Pass Through Rate: 5.972% 6.050% 6.355% 6.780%(2)
ERISA Eligible: Yes Yes Yes Yes
Prepayment Assumption(5): 23% HEP 23% HEP 23% HEP 23% HEP
First Principal Payment Date(6): 4/99 6/01 4/03 7/05
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 1.14 3.04 5.03 8.13
to maturity (yrs.)(6): 1.14 3.04 5.03 10.51
Expected Maturity (to call)(6): 6/01 4/03 7/05 9/07
Expected Maturity (to maturity)(6) 6/01 4/03 7/05 12/15
Last Scheduled Distribution Date: 12/13 5/22 5/26 11/28
Interest Accrual Method: 30/360 30/360 30/360 30/360
Interest Rate Index Reset Date: N/A N/A N/A N/A
Payment Delay: 24 days 24 days 24 days 24 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AAA/AAA AAA/AAA AAA/AAA
Class IA-5 Class IM-1 Class IM-2 Class IB Class IIA-1
Loan Group: Fixed Fixed Fixed Fixed Adjustable
Initial Certificate Principal
Balance(1): $13,000,000 $6,987,000 $2,275,000 $2,438,000 $138,650,000
Pass Through Rate: 6.310% 6.790% 7.235% 8.365%(3) (4)
ERISA Eligible: Yes No No No Yes
Prepayment Assumption(5): 23% HEP 23% HEP 23% HEP 23% HEP 27% CPR
First Principal Payment Date(6): 4/02 4/02 4/02 4/02 4/99
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 6.48 5.65 5.65 5.08 2.50
to maturity (yrs.)(6): 6.63 6.09 5.83 5.08 2.81
Expected Maturity (to call)(6): 9/07 9/07 9/07 9/07 5/06
Expected Maturity (to maturity)(6) 12/13 4/12 8/09 10/07 5/15
Last Scheduled Distribution Date: 12/13 5/28 6/27 10/25 1/29
Interest Accrual Method: 30/360 30/360 30/360 30/360 actual/360
Interest Rate Index Reset Date: N/A N/A N/A N/A (7)
Payment Delay: 24 days 24 days 24 days 24 days 0 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AA/AA A/A BBB/BBB AAA/AAA
Class IIA-2 Class IIM-1 Class IIM-2 Class IIB
Loan Group: Adjustable Adjustable Adjustable Adjustable
Initial Certificate Principal
Balance(1): $58,750,000 $17,625,000 $11,750,000 $8,225,000
Pass Through Rate: 5.947% (4) (4) (4)
ERISA Eligible: Yes No No No
Prepayment Assumption(5): 27% CPR 27% CPR 27% CPR 27% CPR
First Principal Payment Date(6): 7/00 7/02 5/02 4/02
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 1.98 4.90 4.83 4.79
to maturity (yrs.)(6): 1.98 5.41 5.25 4.98
Expected Maturity (to call)(6): 3/02 5/06 5/06 5/06
Expected Maturity (to maturity)(6) 3/02 5/12 10/10 10/08
Last Scheduled Distribution Date: 6/17 12/28 10/28 6/28
Interest Accrual Method: 30/360 actual/360 actual/360 actual/360
Interest Rate Index Reset Date: N/A (7) (7) (7)
Payment Delay: 24 days 0 days 0 days 0 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AA/AA A/A BBB/BBB
</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-4 Certificates will increase to 7.28%.
(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 the applicable pass through margin. 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-63 and 23% HEP or 27%
CPR, as applicable.
(7) Two business days prior to the start of each interest accrual period.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Credit Enhancement:
Group I Group II
Excess Interest Excess Interest
Overcollateralization Overcollateralization
Crosscollateralization Crosscollateralization
Subordination Subordination
Overcollateralization Requirements:
Group I Group II
Initial Percentage: 0.00% Initial Percentage: 0.00%
Stepdown Percentage: 1.30% of current balance Stepdown Percentage: 4.00% of current balance
Targeted Percentage: 0.65% of original balance Targeted Percentage: 2.00% of original balance
Minimum Required Percentage: 0.50% of original balance Minimum Required Percentage: 0.50% of original balance
Earliest Possible Stepdown Date: April 2002 Earliest Possible Stepdown Date: April 2002
</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 1999-1.
Depositor: Chase Funding, Inc., a New York corporation. The Depositor's
address is 343 Thornall Street, Edison, NJ 08837 and its telephone number is
(732) 205-0600.
Seller and Master Servicer: Chase Manhattan Mortgage Corporation, a New
Jersey corporation whose address is 343 Thornall Street, Edison, NJ 08837 and
whose telephone number is (732) 205-0600. See "Chase Manhattan Mortgage
Corporation."
Subservicer: Advanta Mortgage Corp. USA, a Delaware corporation whose
address is 10790 Rancho Bernardo Road, San Diego, CA 92127 and whose telephone
number is (619) 674-1800. See "Servicing of the Mortgage Loans--The
Subservicer."
Trustee: Citibank, N.A., a national banking association. The corporate
trust office of the Trustee is 111 Wall Street, New York, NY 10043 and its
telephone number is (212) 495-7276.
Cut-off Date
The cut-off date will be March 1, 1999.
Closing Date
The closing date will be on or about March 26, 1999.
Distribution Date
The 25th day of each month, beginning in April 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 Trust, Series 1999-1. 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 1999-1 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 March 1, 1999 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 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 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, Class IIM-1, Class IIM-2 and Class IIB Certificates) during the
calendar month preceding each distribution date. Interest will accrue on the
Class IIA-1, Class IIM-1, Class IIM-2 and Class IIB Certificates from the prior
distribution date (or the closing date, in the case of the first distribution
date) to the day prior to the current distribution date.
The pass-through rate on the Class IB, Class IIA-1, Class IIM-1, Class IIM-2 and
Class IIB Certificates will be subject to an available amount interest rate cap.
If the amount of interest due on the mortgage loans in group I or group II, as
applicable, less certain amounts, is insufficient to pay the interest accrued on
the group I certificates or group II certificates, as applicable, the interest
payable on the Class IB Certificates or the Class IIA-1, Class IIM-1, Class
IIM-2 and Class IIB Certificates, as applicable, on the related distribution
date will be reduced by the amount of such interest shortfall for the related
loan group. Instead, in the case of the group II certificates, interest
shortfall will be carried over on a subordinated basis with accrued interest at
the then applicable pass-through rate and paid from excess cash flow in a later
distribution, if available. The Class IB Certificates will not carry over or be
reimbursed for interest shortfalls. The pass-through rate on the Class IIA-1,
Class IIM-1, Class IIM-2 and Class IIB Certificates will be also subject to a
maximum interest rate cap based on the weighted average of 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 Cedelbank, societe anonyme 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 the overcollateralization,
crosscollateralization and subordination features described in this prospectus
supplement.
Overcollateralization. Generally, because more interest is required to be
paid by the mortgagors than is necessary to pay the interest accrued on the
certificates and the expenses of the trust fund, there is expected to be excess
interest each month. The trust fund will apply some or all of such excess
interest as principal payments on the certificates until certain
overcollateralization targets are reached, 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 stepdown criteria of the
trust have been met or, in the case of the group II certificates, whether a
step-up trigger exists. This could result in a temporarily faster or slower
S-5
<PAGE>
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 application of excess interest generated by
one loan group to fund shortfalls in available funds 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 more junior classes of
certificates relating to each loan group to receive distributions will be
subordinated to the rights of the holders of the more senior classes of
certificates relating to such loan group to receive distributions. See
"Description of the Certificates--Distributions."
In general, the protection afforded the holders of more senior classes of
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) 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 until
their respective certificate principal balances have been reduced to zero.
The chart below summarizes the relative seniority of the various classes of
certificates and indicates the initial level of credit support provided to the
various classes of certificates:
Group I Initial Credit
Class(es) Credit Support Support
- ----------- ---------------- ---------------
IA Class IM-1, 9.00%
Class IM-2
and Class IB
IM-1 Class IM-2 3.625%
and Class IB
IM-2 Class IB 1.875%
Group II Initial Credit
Class(es) Credit Support Support
- ----------- ---------------- ---------------
IIA Class IIM-1, 16.00%
Class IIM-2
and Class IIB
IIM-1 Class IIM-2 8.50%
and Class IIB
IIM-2 Class IIB 3.50%
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 March 1, 1999. See "Description of the
Certificates--Optional Termination."
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. See "Risk Factors--Limited Liquidity; Lack
of SMMEA Eligibility" and "Legal Investment Matters" in this prospectus
supplement and "Legal Investment Matters" 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
S-6
<PAGE>
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, Class IB,
Class IIM-1, Class IIM-2 and Class IIB 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 prospectus
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.
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 March 1, 1999. 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 March 1, 1999.
The mortgage pool as of the closing date will include approximately $108,000,000
in aggregate principal balance of mortgage loans (approximately $43,000,000 of
fixed rate mortgage loans and approximately $65,000,000 of adjustable rate
mortgage loans) that are not included in the statistical information in this
prospectus supplement; furthermore, approximately $11,000,000 in aggregate
principal balance of mortgage loans (approximately $4,000,000 of fixed rate
mortgage loans and $7,000,000 of adjustable rate mortgage loans) that are
included in the statistical information in this prospectus supplement will be
deleted from the final mortgage pool. Other than having the effect of increasing
the aggregate principal balance of the mortgage loans, we do not expect that the
inclusion or deletion of these 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 Pool -- Mortgage Loans."
S-7
<PAGE>
Fixed Rate Mortgage Loan Group
Number of loans 1,165
Aggregate outstanding principal balance $91,098,579
Number of loans with prepayment penalties 828
<TABLE>
<CAPTION>
Average or
Weighted Average Range
------------------ -------------------
<S> <C> <C>
Outstanding principal balance $78,196 $11,069 - $511,764
Original principal balance $78,365 $11,250 - $512,000
Mortgage rate 10.032% 6.450% - 14.500%
Loan-to-value ratio 71.11% 16.00% - 95.00%
Stated remaining term to maturity 263 112 - 360
</TABLE>
[GRAPHIC OMITTED]
S-8
<PAGE>
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
S-9
<PAGE>
[GRAPHIC OMITTED]
For a description of the credit grades shown
in the above table, see "Chase Manhattan Mortgage
Corporation -- Underwriting Standards."
[GRAPHIC OMITTED]
S-10
<PAGE>
Adjustable Rate Loan Group
Number of loans 1,468
Aggregate outstanding principal balance $177,111,657
Number of loans with prepayment penalties 787
Average or
Weighted Average Range
------------------ -------------------
Outstanding principal balance $120,648 $11,994 - $799,250
Original principal balance $120,769 $12,000 - $800,000
Current mortgage rate 9.743% 6.400% - 14.250%
Maximum mortgage rate 16.632% 12.700% - 20.250%
Minimum mortgage rate 9.737% 6.400% - 14.250%
Loan-to-value ratio 76.38% 17.10% - 95.00%
Stated remaining term to maturity 358 340 - 360
Gross Margin 5.734% 2.000%-10.000%
Initial Rate Cap 2.759% 1.000%-3.000%
Periodic Rate Cap 1.403% 1.000%-3.000%
[GRAPHIC OMITTED]
S-11
<PAGE>
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
S-12
<PAGE>
[GRAPHIC OMITTED]
For a description of the credit grades shown
in the above table, see "Chase Manhattan Mortgage
Corporation -- Underwriting Standards."
[GRAPHIC OMITTED]
S-13
<PAGE>
RISK FACTORS
Forward-Looking Statements
In this prospectus supplement and the attached prospectus, we use certain
forward-looking statements. Such forward-looking statements are found in the
material, including each of the tables, set forth under "Risk Factors" and
"Yield, Prepayment and Maturity Considerations." Forward-looking statements are
also found elsewhere in this prospectus supplement and prospectus and include
words like "expects," "intends," "anticipates," "estimates" and other similar
words. Such statements are inherently subject to a variety of risks and
uncertainties. Actual results differ materially from those we anticipate due to
changes in, among other things:
o economic conditions and industry competition; political, social and
economic conditions;
o the law and government regulatory initiatives; and
o interest rate fluctuations.
We will not update or revise any forward-looking statements to reflect
changes in our expectations or changes in the conditions or circumstances on
which such statements were originally based.
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 and, due to the cross-collateralization feature, in
some cases the other mortgage 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 the certificates in the related
certificate group. 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" in this prospectus supplement and "Yield, Maturity and
Weighted Average Life Considerations" in the attached 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" in this prospectus
supplement and "Material Legal Aspects of the Mortgage Loans-Enforceability of
Due-on-Sale Clauses" in the attached Prospectus for a description of certain
provisions of the mortgage loans that may affect the prepayment
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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 group II certificates (other than the Class
IIA-2 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 in this prospectus supplement. 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 approximately 73.2% of the fixed rate
mortgage loans and approximately 52.6% of the adjustable rate 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. See "Material Legal Aspects of the Mortgage Loans--Late
Charges, Default Interest and Limitations on Prepayment" in the attached
Prospectus. We cannot make any representation as to the anticipated rate of
prepayments on the mortgage loans, the amount and timing of losses on the loans,
the level of one-month LIBOR or the mortgage index or the resulting yield to
maturity of any offered certificates. Any 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 in this prospectus
supplement. See "Yield, Prepayment and Maturity Considerations" in this
prospectus supplement and "Yield, Maturity and Weighted Average Life
Considerations" in the attached Prospectus.
Risk of Higher Delinquencies Associated with Underwriting Guidelines
The B&C Underwriting Guidelines (as described 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 FNMA 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 FNMA 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 Group II Certificates Pass-Through Rate;
Basis Risk
The calculation of the pass-through rates on the group II certificates
(other than the Class IIA-2 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. This cap
effectively limits the amount of interest accrued on each class of group II
certificates (other than the Class IIA-2 Certificates) to the amount of interest
accruing on the adjustable rate mortgage loans at a rate equal to the weighted
average of the mortgage rates of such mortgage loans, less the servicing fee
rate and the master servicer fee rate. 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 group II certificates (other than the Class IIA-2 Certificates),
especially if some of the adjustable rate mortgage loans
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are not yet subject to adjustment. In particular, the pass-through rates on the
group II certificates (other than the Class IIA-2 Certificates) adjust 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 rates for the group II
certificates (other than the Class IIA-2 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 group II
certificates (other than the Class IIA-2 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 rates for the
group II certificates (other than the Class IIA-2 Certificates) in certain
periods. Consequently, the interest which becomes due on the adjustable rate
mortgage loans (net of the sum of the servicing fee and the master servicer fee)
with respect to any distribution date may not equal the amount of interest that
would accrue at one-month LIBOR plus the applicable margin on the group II
certificates (other than the Class IIA-2 Certificates) during the related
period. Furthermore, if the interest rate cap described above determines the
pass-through rates for the group II certificates (other than the Class IIA-2
Certificates) for a distribution date, the market value of such class of
certificates may be temporarily or permanently reduced. In addition, the
pass-through rate on each class of group II certificates, (other than the Class
IIA-2 Certificates) is subject to a maximum funds cap, which limits such
pass-through rates based on the maximum lifetime interest rates on the
adjustable rate mortgage loans less the servicing fee rate and the master
servicing fee rate. This maximum funds cap may limit increases in the
pass-through rates on such classes of the group II Class A Certificates.
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) 8.365% 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 8.365% per annum, investors in the Class IB Certificates may
experience a lower than anticipated yield.
Subordination--Limited Protection Afforded to Offered Certificates
The rights of the Class M-1 Certificates of each certificate group to
receive distributions with respect to the mortgage loans of the related loan
group will be subordinate to the rights of the Class A Certificates of such
certificate group to receive such distributions; the rights of the Class M-2
Certificates of each certificate group to receive distributions with respect to
the mortgage loans of the related loan group will be subordinate to the rights
of the Class A and the Class M-1 Certificates of such certificate group to
receive such distributions; and the rights of the Class B Certificates of each
certificate group to receive distributions with respect to the mortgage loans of
the related loan group will be subordinate to the rights of the Class A, Class
M-1 and Class M-2 Certificates of such certificate group 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 M and Class B Certificates
If realized losses are incurred with respect to the mortgage loans in a
loan group to the extent that the aggregate principal balance of the
certificates of the related certificate group exceeds the stated principal
balances of the mortgage loans in such loan group, the principal balances of the
Class M and Class B Certificates of the related certificate group will be
reduced in reverse order of seniority (first Class B, second Class M-2 and third
Class M-1) by the amount of the excess. Consequently, the yields to maturity on
the Class M Certificates and Class B Certificates of each certificate group will
be sensitive, in varying degrees, to defaults on the mortgage loans in such loan
group (and the timing thereof). Investors should fully consider the risks
associated with an investment in the Class M 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
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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 Certificates
The rating of each class of 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
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 qualified, lowered or withdrawn by the rating agencies. In general, the
ratings address credit risk and do not address the likelihood of prepayments or
the likelihood that any interest carryforward amounts will be paid. See
"Ratings."
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. Regardless of whether a successor subservicer is appointed, any
termination of Advanta Mortgage Corp. USA as subservicer (whether due to
bankruptcy or insolvency or otherwise) could adversely affect the servicing of
the mortgage loans, including the delinquency experience of the mortgage loans.
Certificates May Not Be Appropriate For Individual Investors
The certificates may not be an appropriate investment for individual
investors who do not have sufficient resources or expertise to evaluate the
particular characteristics of the applicable class of certificates. This may be
the case because, among other things:
o The yield to maturity of offered certificates purchased at a price other
than par will be sensitive to the uncertain rate and timing of principal
prepayments on the mortgage loans;
o The rate of principal distributions on, and the weighted average life of,
the offered certificates will be sensitive to the uncertain rate and timing
of principal prepayments on the mortgage loans and the priority of
principal distributions among the classes of certificates, and as such the
certificates may be inappropriate investments for you if you require a
distribution of a particular amount of principal on a specific date or an
otherwise predictable stream of distributions;
o You may not be able to reinvest amounts distributed in respect of principal
on a certificate (which, in general, are expected to be greater during
periods of relatively low interest rates) at a rate at least as high as the
pass-through rates on the certificates; or
o It is possible that a secondary market for the certificates will not
develop or that your investment may not be liquid. Lack of liquidity could
result in a substantial decrease in the market value of your certificates.
You should also carefully consider the further risks and other special
considerations discussed above and under the heading "Yield, Prepayment and
Maturity Considerations" in this prospectus supplement and in the attached
prospectus under the heading "Risk Factors."
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Geographic Concentration
As of the cut-off date, approximately 13.0% of the mortgaged properties of
the fixed rate mortgage loan group and approximately 9.3% of the mortgaged
properties of the adjustable rate mortgage loan group were located in the State
of Florida and approximately 11.4% of the mortgaged properties of the fixed rate
mortgage loan group and approximately 5.8% of the adjustable rate mortgage loan
group were located in the State of New York. An overall decline in the Florida
or New York 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 or New
York residential real estate market will not weaken. If the Florida or New York
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.
Risk of Higher Default Rates for Mortgage Loans with Balloon Payments
Approximately 11.6% of the aggregate principal balance of the mortgage
loans as of the cut-off date are "balloon loans" that provide for the payment of
the unamortized principle balance of such mortgage loan in a single payment at
maturity. The balloon loans provide for equal monthly payments, consisting of
principal and interest, generally based on a 30-year amortization schedule, and
a single payment of the remaining balance of the balloon loan generally up to 15
years after origination. Amortization of a balloon loan based on a scheduled
period that is longer than the term of the loan results in a remaining principal
balance at maturity that is substantially larger than the regular scheduled
payments. We do not have any information regarding the default history or
prepayment history of payments on balloon loans. Because borrowers of balloon
loans are required to make substantial single payments upon maturity, it is
possible that the default risk associated with the balloon loans is greater than
that associated with fully-amortizing loans.
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 1.4% 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.
Optional Termination Could Reduce Benefits of Crosscollateralization
As described in this prospectus supplement under "Description of the
Certificates -- Optional Termination," Chase Manhattan Mortgage Corporation will
have the option to repurchase all of the remaining mortgage loans in either
mortgage group when the principal balance of those mortgage loans is reduced to
less than or equal to 10% of their principal balance as of March 1, 1999. To the
extent that such mortgage loans were providing credit enhancement in the form of
crosscollateralization to the certificates related to the mortgage loans in the
other mortgage group, the exercise by Chase Manhattan Mortgage Corporation of
its repurchase option will reduce the amount of credit enhancement then
available to the remaining classes of certificates.
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
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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 Matters" in
this prospectus supplement and in the attached 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.
With respect to the year 2000 problem, The Depository Trust Company has
informed members of the financial community that it has developed and is
implementing a program so that its systems, as they relate to the timely payment
of distributions, including principal and interest payments, to security
holders, book-entry deliveries, and settlement of trades within The Depository
Trust Company, continue to function appropriately on and after January 1, 2000.
This program includes a technical assessment and a remediation plan, each of
which is complete. Additionally, The Depository Trust Company's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, The Depository Trust Company's ability to perform properly its
services is also dependent upon other parties, including but not limited to, its
participating organizations, through which you will hold your Certificates, as
well as the computer systems of third party service providers. The Depository
Trust Company has informed the financial community that it is contacting and
will continue to contact third party vendors from whom The Depository Trust
Company acquires services to:
o impress upon them the importance of such services being year 2000
compliant; and
o determine the extent of their efforts for year 2000 remediation, and, as
appropriate, testing, of their services.
In addition, The Depository Trust Company has stated that it is in the process
of developing such contingency plans as it deems appropriate.
If problems associated with the year 2000 problem were to occur with
respect to The Depository Trust Company and the services described above,
payments to you could be delayed or otherwise adversely affected.
For a discussion of additional risks pertaining to the offered
certificates, see "Risk Factors" in the attached Prospectus.
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THE MORTGAGE POOL
General
The mortgage pool with respect to the Certificates (the "Mortgage Pool")
consisted as of March 1, 1999 (the "Cut-off Date") of approximately 2,633
conventional mortgage loans (the "Mortgage Loans") evidenced by promissory notes
(each, a "Mortgage Note") having an aggregate principal balance of approximately
$268,210,236 (the "Statistical Mortgage Pool"). 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 March 26, 1999 (the "Closing Date") will include approximately $108,000,000
in aggregate principal balance of Mortgage Loans (approximately $43,000,000 of
Fixed Rate Mortgage Loans and approximately $65,000,000 of Adjustable Rate
Mortgage Loans) that are not included in the Statistical Mortgage Pool;
furthermore, approximately $11,000,000 in aggregate principal balance of
Mortgage Loans (approximately $4,000,000 of Fixed Rate Mortgage Loans and
$7,000,000 of Adjustable Rate Mortgage Loans) that are included in the
Statistical Mortgage Pool will be deleted from the final Mortgage Pool. Updated
statistical information on the final Mortgage Pool (giving effect to such
additions and deletions) 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 in the Statistical
Mortgage Pool or, as the case may be, the Mortgage Loans in the Statistical
Mortgage Pool in the applicable Loan Group, as of the Cut-off Date, based on the
outstanding principal balances of the Mortgage Loans as of the Cut-off Date,
after giving effect to Scheduled Payments (defined herein) 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 March 1, 1999 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 and (iv) 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 73.2% of the Fixed Rate Mortgage Loans and approximately
52.6% 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 40 months with respect to the Fixed
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Rate Mortgage Loans which have prepayment penalties and approximately 31 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. Prepayment penalties will be
paid to the Master Servicer as additional servicing compensation. See "Material
Legal Aspects of the Mortgage Loans--Late Charges, Default Interest and
Limitations on Prepayment" in the attached Prospectus.
Approximately 7.2% 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 8.6% 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, have a Maximum Mortgage Rate equal
to the initial Mortgage Rate plus 7.00% and have a Minimum Mortgage Rate equal
to the initial Mortgage Rate.
Approximately 59.8% 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, have a Maximum Mortgage Rate equal
to the initial Mortgage Rate plus 7.00% and have a Minimum Mortgage Rate equal
to the initial Mortgage Rate.
Approximately 22.7% 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, have a Maximum Mortgage Rate equal
to the initial Mortgage Rate plus 7.00% and have a Minimum Mortgage Rate equal
to the initial Mortgage Rate.
Approximately 1.8% 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.
S-21
<PAGE>
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, have a Maximum Mortgage Rate equal
to the initial Mortgage Rate plus 7.00% and have a Minimum Mortgage Rate equal
to the initial Mortgage Rate.
Fixed Rate Mortgage Loan Group. As of the Cut-off Date, the aggregate
principal balance of the Fixed Rate Mortgage Loans was approximately
$91,098,579. As of the Cut-off Date, the average outstanding principal balance
of the Fixed Rate Mortgage Loans was approximately $78,196, the minimum
outstanding principal balance was approximately $11,069, the maximum outstanding
principal balance was approximately $511,764, the lowest Mortgage Rate and the
highest Mortgage Rate were 6.450% and 14.500% per annum, respectively, and the
weighted average Mortgage Rate was approximately 10.032% per annum.
Approximately 34.2% 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
$177,111,657. As of the Cut-off Date the average outstanding principal balance
of the Adjustable Rate Mortgage Loans was approximately $120,648, the minimum
outstanding principal balance was approximately $11,994, the maximum outstanding
principal balance was approximately $799,250, the lowest current Mortgage Rate
and the highest current Mortgage Rate were approximately 6.400% and 14.250% per
annum, respectively, and the weighted average Mortgage Rate was approximately
9.743% 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 71.11% and the weighted average
Loan-to-Value Ratio as of the Cut-off Date for the Adjustable Rate Mortgage
Loans was approximately 76.38%.
The Depositor will represent that, as of the Cut-off Date, not more than
approximately 1.4% of the Mortgage Loans were contractually delinquent between
30 to 59 days and that none of the Mortgage Loans were contractually delinquent
for greater than 59 days.
Mortgage Loans
The following tables describe the Mortgage Loans and the related Mortgaged
Properties as of the close of business on the Cut-off Date. The sum of the
columns below may not equal the total indicated due to rounding.
S-22
<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>
6.000%-6.499% ........... 1 $ 35,000 0.0%
6.500%-6.999% ........... 1 149,772 0.2
7.000%-7.499% ........... 6 643,883 0.7
7.500%-7.999% ........... 38 3,571,179 3.9
8.000%-8.499% ........... 52 3,930,906 4.3
8.500%-8.999% ........... 148 12,039,990 13.2
9.000%-9.499% ........... 105 8,341,299 9.2
9.500%-9.999% ........... 231 18,347,634 20.1
10.000%-10.499% ......... 125 9,831,215 10.8
10.500%-10.999% ......... 179 15,000,546 16.5
11.000%-11.499% ......... 117 8,550,140 9.4
11.500%-11.999% ......... 69 4,363,465 4.8
12.000%-12.499% ......... 42 3,156,905 3.5
12.500%-12.999% ......... 26 2,002,607 2.2
13.000%-13.499% ......... 8 319,007 0.4
13.500%-13.999% ......... 12 591,657 0.6
14.000%-14.499% ......... 2 87,336 0.1
14.500%-14.999% ......... 3 136,039 0.1
----- ----------- -----
Totals ............... 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the interest rates (the "Mortgage Rates") borne by
the Fixed Rate Mortgage Loans ranged from 6.450% per annum to 14.500% per
annum and the weighted average Mortgage Rate of the Fixed Rate Mortgage
Loans was approximately 10.032% 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 ......... 8 $ 324,401 0.4%
145 to 156 ......... 1 33,251 0.0
157 to 168 ......... 5 355,504 0.4
169 to 180 ......... 560 42,344,156 46.5
229 to 240 ......... 101 6,716,267 7.4
289 to 300 ......... 3 159,402 0.2
337 to 348 ......... 2 292,092 0.3
349 to 360 ......... 485 40,873,507 44.9
----- ----------- -----
Totals .......... 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the remaining terms to stated maturity of the Fixed
Rate Mortgage Loans ranged from 112 months to 360 months and the weighted
average remaining term to stated maturity of the Fixed Rate Mortgage Loans
was approximately 263 months.
S-23
<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 $100,000...................................... 917 $52,437,144 57.6%
$100,001-$150,000................................... 165 20,020,605 22.0
$150,001-$200,000................................... 45 7,842,726 8.6
$200,001-$250,000................................... 20 4,581,156 5.0
$250,001-$300,000................................... 8 2,129,916 2.3
$300,001-$350,000................................... 3 989,710 1.1
$350,001-$400,000................................... 3 1,165,203 1.3
$400,001-$450,000................................... 1 422,226 0.5
$450,001-$500,000................................... 2 998,129 1.1
$500,001-$550,000................................... 1 511,764 0.6
----- ----------- -----
Totals ............................................ 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the outstanding principal balances of the Fixed Rate
Mortgage Loans ranged from approximately $11,069 to approximately $511,764
and the average outstanding principal balance of the Fixed Rate Mortgage
Loans was approximately $78,196.
Product Type for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Loan Type Mortgage Loans Balance Outstanding Loan Group
- --------- ---------------- --------------------- -----------
<S> <C> <C> <C>
10 year Fixed ......... 8 $ 324,401 0.4%
15 year Fixed ......... 208 11,620,982 12.8
20 year Fixed ......... 101 6,716,267 7.4
25 year Fixed ......... 3 159,402 0.2
30 year Fixed ......... 487 41,165,600 45.2
Balloon Loan .......... 358 31,111,929 34.2
----- ----------- -----
1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
S-24
<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 ...................... 16 $ 1,118,068 1.2%
Arkansas ..................... 5 293,459 0.3
California ................... 30 4,054,878 4.5
Colorado ..................... 37 3,668,239 4.0
Connecticut .................. 20 1,960,241 2.2
District of Columbia ......... 7 453,678 0.5
Florida ...................... 154 11,808,399 13.0
Georgia ...................... 46 3,462,544 3.8
Idaho ........................ 5 356,288 0.4
Illinois ..................... 30 2,080,142 2.3
Indiana ...................... 52 3,682,558 4.0
Iowa ......................... 5 231,318 0.3
Kansas ....................... 2 218,678 0.2
Kentucky ..................... 12 870,914 1.0
Louisiana .................... 25 1,559,927 1.7
Maine ........................ 4 205,821 0.2
Maryland ..................... 15 1,250,391 1.4
Massachusetts ................ 28 3,140,993 3.4
Michigan ..................... 66 4,380,945 4.8
Minnesota .................... 15 1,154,918 1.3
Mississippi .................. 8 518,027 0.6
Missouri ..................... 18 841,834 0.9
Montana ...................... 3 224,052 0.2
Nebraska ..................... 3 144,212 0.2
Nevada ....................... 3 211,668 0.2
New Hampshire ................ 5 440,152 0.5
New Jersey ................... 24 2,687,821 3.0
New Mexico ................... 33 2,226,721 2.4
New York ..................... 102 10,356,724 11.4
North Carolina ............... 41 2,940,995 3.2
Ohio ......................... 77 4,536,354 5.0
Oklahoma ..................... 10 578,692 0.6
Oregon ....................... 23 2,022,696 2.2
Pennsylvania ................. 43 2,086,647 2.3
Rhode Island ................. 8 833,097 0.9
South Carolina ............... 18 1,135,240 1.2
South Dakota ................. 6 400,673 0.4
Tennessee .................... 74 5,282,016 5.8
Texas ........................ 24 1,528,717 1.7
Utah ......................... 6 542,227 0.6
Vermont ...................... 4 365,273 0.4
Virginia ..................... 14 1,153,189 1.3
Washington ................... 24 3,039,381 3.3
West Virginia ................ 7 426,622 0.5
Wisconsin .................... 12 560,919 0.6
Wyoming ...................... 1 62,231 0.1
----- ----------- -----
Totals ...................... 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
- ------------
(1) No more than approximately 0.56% of the Fixed Rate Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code area.
S-25
<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>
50.00% or less ............... 125 $ 8,568,729 9.4%
50.01%-55.00% ................ 50 4,045,198 4.4
55.01%-60.00% ................ 83 5,700,528 6.3
60.01%-65.00% ................ 91 6,801,191 7.5
65.01%-70.00% ................ 137 10,991,335 12.1
70.01%-75.00% ................ 182 14,516,531 15.9
75.01%-80.00% ................ 304 25,065,357 27.5
80.01%-85.00% ................ 114 9,012,835 9.9
85.01%-90.00% ................ 73 5,877,991 6.5
90.01%-95.00% ................ 6 518,886 0.6
----- ----------- -----
Totals ...................... 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Loan-to-Value Ratios of the Fixed Rate Mortgage
Loans ranged from 16.00% to 95.00% and the weighted average Loan-to-Value
Ratio of the Fixed Rate Mortgage Loans was approximately 71.11%.
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 ..................... 249 $19,911,751 21.9%
Refinance--Rate/Term ......... 138 10,899,097 12.0
Refinance--Cashout ........... 778 60,287,731 66.2
----- ----------- -----
Totals ...................... 1,165 $91,098,579 100.0%
===== =========== =====
</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 Detached .................... 917 $71,796,371 78.8%
Two- to Four-Family Dwelling Unit ......... 94 8,246,257 9.1
Planned Unit Development .................. 20 1,265,868 1.4
Detached Planned Unit Development ......... 22 2,525,077 2.8
Condominium ............................... 35 2,233,428 2.5
Small Mixed Use ........................... 10 1,066,419 1.2
Manufactured Housing ...................... 67 3,965,158 4.4
----- ----------- -----
Totals ................................... 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
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 .............. 871 $62,993,184 69.1%
24 Month Bank Statement ......... 103 10,971,705 12.0
Reduced Documentation ........... 36 3,450,311 3.8
Stated Documentation ............ 155 13,683,379 15.0
----- ----------- -----
Totals ......................... 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
S-26
<PAGE>
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 ......... 1,023 81,840,909 89.8%
Second Home ............ 10 680,173 0.7
Investment ............. 132 8,577,497 9.4
----- ---------- -----
Totals ................ 1,165 $91,098,579 100.0%
===== =========== =====
</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 .......................... 79 $ 6,663,501 7.3%
1 .......................... 353 28,156,357 30.9
2 .......................... 382 30,503,868 33.5
3 .......................... 73 5,316,064 5.8
4 .......................... 83 6,077,665 6.7
5 .......................... 65 4,741,689 5.2
6 .......................... 52 4,015,074 4.4
7 .......................... 32 2,338,482 2.6
8 .......................... 16 961,024 1.1
9 .......................... 9 664,100 0.7
10 ......................... 8 612,360 0.7
11 ......................... 6 400,799 0.4
12 ......................... 2 83,598 0.1
13 ......................... 4 478,998 0.5
17 ......................... 1 85,000 0.1
----- ----------- -----
Totals .................... 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
- ------------
(1) The weighted average age of the Fixed Rate Mortgage Loans is approximately 2
months.
Credit Grade Summary for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
- ------------ -------------- ------------------- ----------
<S> <C> <C> <C>
AO .............. 378 $31,743,701 34.8%
A- .............. 434 32,616,610 35.8
B ............... 148 12,118,595 13.3
B- .............. 76 5,816,165 6.4
C ............... 84 6,150,088 6.8
C- .............. 32 1,840,697 2.0
D ............... 13 812,723 0.9
----- ----------- -----
Totals ......... 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
S-27
<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 ................ 1 $ 85,000 0.1%
1998 ................ 727 55,435,160 60.9
1999 ................ 437 35,578,419 39.1
----- ----------- -----
Totals ............. 1,165 $91,098,579 100.0%
===== =========== =====
</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>
None .................... 337 $24,404,791 26.8%
12 months ............... 102 10,158,045 11.2
24 months ............... 31 2,728,725 3.0
36 months ............... 424 31,622,226 34.7
60 months ............... 271 22,184,792 24.4
----- ----------- -----
Totals ................. 1,165 $91,098,579 100.0%
===== =========== =====
</TABLE>
- ------------
(1) The weighted average prepayment penalty term with respect to the Fixed Rate
Mortgage Loans having prepayment penalties is approximately 40 months.
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>
6.000%-6.499% ........... 1 $ 360,917 0.2%
6.500%-6.999% ........... 2 169,353 0.1
7.000%-7.499% ........... 7 764,681 0.4
7.500%-7.999% ........... 43 5,073,900 2.9
8.000%-8.499% ........... 94 12,847,115 7.3
8.500%-8.999% ........... 180 25,001,249 14.1
9.000%-9.499% ........... 207 27,253,097 15.4
9.500%-9.999% ........... 281 33,247,253 18.8
10.000%-10.499% ......... 230 28,280,397 16.0
10.500%-10.999% ......... 225 24,224,014 13.7
11.000%-11.499% ......... 97 9,678,918 5.5
11.500%-11.999% ......... 51 5,335,772 3.0
12.000%-12.499% ......... 28 2,980,083 1.7
12.500%-12.999% ......... 13 1,160,387 0.7
13.000%-13.499% ......... 8 666,714 0.4
14.000%-14.499% ......... 1 67,807 0.0
----- ------------ -----
Totals ............... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the current Mortgage Rates borne by the Adjustable
Rate Mortgage Loans ranged from 6.400% per annum to 14.250% per annum and
the weighted average Mortgage Rate borne by the Adjustable Rate Mortgage
Loans was approximately 9.743% per annum.
S-28
<PAGE>
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>
337 to 348 ......... 5 $ 671,008 0.4%
349 to 360 ......... 1,463 176,440,649 99.6
----- ------------ -----
Totals .......... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the remaining terms to stated maturity of the
Adjustable Rate Mortgage Loans ranged from 340 months to 360 months and the
weighted average remaining term to stated maturity of the Adjustable Rate
Mortgage Loans was approximately 358 months.
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 $100,000...................................... 752 $ 50,068,261 28.3%
$100,001-$150,000................................... 372 45,543,947 25.7
$150,001-$200,000................................... 159 27,525,644 15.5
$200,001-$250,000................................... 90 20,356,312 11.5
$250,001-$300,000................................... 40 10,974,252 6.2
$300,001-$350,000................................... 13 4,172,111 2.4
$350,001-$400,000................................... 22 8,246,248 4.7
$400,001-$450,000................................... 4 1,700,234 1.0
$450,001-$500,000................................... 11 5,353,385 3.0
$500,001-$550,000................................... 1 514,500 0.3
$550,001-$600,000................................... 1 559,435 0.3
$600,001-$650,000................................... 1 636,903 0.4
$650,001-$700,000................................... 1 661,175 0.4
$700,001-$800,000................................... 1 799,250 0.5
----- ------------ -----
Totals .......................................... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the outstanding principal balances of the Adjustable
Rate Mortgage Loans ranged from approximately $11,994 to approximately
$799,250 and the average outstanding principal balance of the Adjustable
Rate Mortgage Loans was approximately $120,648.
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 ...................... 30 $ 4,353,894 2.5%
Arkansas ..................... 3 206,622 0.1
California ................... 77 15,615,961 8.8
Colorado ..................... 88 12,010,043 6.8
Connecticut .................. 46 6,202,890 3.5
Delaware ..................... 6 585,152 0.3
District of Columbia ......... 6 736,871 0.4
Florida ...................... 139 16,447,610 9.3
Georgia ...................... 51 6,505,495 3.7
Idaho ........................ 10 689,257 0.4
Illinois ..................... 50 5,563,976 3.1
Indiana ...................... 26 2,016,411 1.1
Kansas ....................... 1 93,141 0.1
Kentucky ..................... 18 1,512,028 0.9
Louisiana .................... 12 1,428,931 0.8
Maryland ..................... 18 2,547,980 1.4
Massachusetts ................ 56 7,545,004 4.3
Michigan ..................... 142 13,306,074 7.5
Minnesota .................... 41 4,045,567 2.3
Mississippi .................. 9 1,104,665 0.6
Missouri ..................... 32 2,937,803 1.7
Montana ...................... 2 170,487 0.1
Nebraska ..................... 1 47,761 0.0
Nevada ....................... 5 785,754 0.4
New Hampshire ................ 19 1,929,039 1.1
New Jersey ................... 85 11,801,241 6.7
New Mexico ................... 12 837,812 0.5
New York ..................... 68 10,278,859 5.8
North Carolina ............... 27 3,109,356 1.8
Ohio ......................... 73 6,078,281 3.4
Oklahoma ..................... 8 1,121,913 0.6
Oregon ....................... 25 2,606,404 1.5
Pennsylvania ................. 25 2,410,896 1.4
Rhode Island ................. 11 1,202,568 0.7
South Carolina ............... 11 747,716 0.4
Tennessee .................... 36 3,417,923 1.9
Texas ........................ 43 6,084,526 3.4
Utah ......................... 62 8,990,978 5.1
Vermont ...................... 10 981,854 0.6
Virginia ..................... 11 1,739,164 1.0
Washington ................... 29 3,596,438 2.0
West Virginia ................ 2 226,513 0.1
Wisconsin .................... 41 3,241,084 1.8
Wyoming ...................... 1 249,717 0.1
----- ------------ -----
Totals .................... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
- ------------
(1) No more than approximately 0.45% 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>
50.00% or less ............... 59 $ 4,839,342 2.7%
50.01%-55.00% ................ 34 3,289,446 1.9
55.01%-60.00% ................ 66 8,230,092 4.6
60.01%-65.00% ................ 94 10,123,004 5.7
65.01%-70.00% ................ 155 18,543,675 10.5
70.01%-75.00% ................ 214 24,357,134 13.8
75.01%-80.00% ................ 452 56,370,456 31.8
80.01%-85.00% ................ 231 30,449,482 17.2
85.01%-90.00% ................ 151 19,509,322 11.0
90.01%-95.00% ................ 12 1,399,703 0.8
----- ------------ -----
Totals .................... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Loan-to-Value Ratios of the Adjustable Rate
Mortgage Loans ranged from 17.10% to 95.00% and the weighted average
Loan-to-Value Ratio of the Adjustable Rate Mortgage Loans was approximately
76.38%.
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 ..................... 565 $ 68,954,871 38.9%
Refinance--Rate/Term ......... 132 17,410,754 9.8
Refinance--Cashout ........... 771 90,746,032 51.2
----- ------------ -----
Totals .................... 1,468 $177,111,657 100.0%
===== ============ =====
</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 Detached .................... 1,188 $139,872,789 79.0%
Two- to Four-Family Dwelling Unit ......... 123 13,255,216 7.5
Detached Planned Unit Development ......... 80 15,841,049 8.9
Condominium ............................... 38 3,803,552 2.1
Small Mixed ............................... 1 182,000 0.1
Planned Unit Development .................. 25 3,327,600 1.9
Manufactured Housing ...................... 13 829,450 0.5
----- ------------ -----
Totals ................................. 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
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 .............. 1,071 $118,541,808 66.9%
24 Month Bank Statement ......... 150 25,399,387 14.3
Reduced Documentation ........... 78 13,208,587 7.5
Stated Documentation ............ 169 19,961,875 11.3
----- ------------ -----
Totals ....................... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
S-31
<PAGE>
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 ......... 1,291 $161,477,430 91.2%
Second Home ............ 16 1,553,356 0.9
Investment ............. 161 14,080,871 8.0
----- ------------ -----
Totals .............. 1,468 $177,111,657 100.0%
===== ============ =====
</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 .......................... 170 $ 21,322,823 12.0%
1 .......................... 553 62,804,172 35.5
2 .......................... 592 74,821,693 42.2
3 .......................... 13 1,286,260 0.7
4 .......................... 18 1,861,045 1.1
5 .......................... 16 1,330,610 0.8
6 .......................... 48 5,874,734 3.3
7 .......................... 27 3,037,166 1.7
8 .......................... 12 1,583,632 0.9
9 .......................... 6 1,181,580 0.7
10 ......................... 3 634,357 0.4
11 ......................... 5 702,576 0.4
12 ......................... 1 67,807 0.0
18 ......................... 3 429,562 0.2
20 ......................... 1 173,639 0.1
----- ------------ -----
Totals .................. 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The weighted average age of the Fixed Rate Mortgage Loans is approximately 2
months.
Credit Grade Summary for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
- ------------ -------------- ------------------- ----------
<S> <C> <C> <C>
AO ......................... 437 $ 57,247,889 32.3%
A- ......................... 519 65,630,220 37.1
B .......................... 268 30,557,184 17.3
B- ......................... 75 8,217,761 4.6
C .......................... 111 10,176,111 5.7
C- ......................... 38 3,671,266 2.1
D .......................... 20 1,611,226 0.9
----- ------------ -----
Totals .................. 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
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>
1997 ................ 4 $ 603,201 0.3%
1998 ................ 728 90,828,580 51.3
1999 ................ 736 85,679,876 48.4
----- ------------ -----
Totals ........... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
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>
12.500%-12.999% ................. 2 $ 169,353 0.1%
13.000%-13.499% ................. 2 440,803 0.2
13.500%-13.999% ................. 9 1,199,486 0.7
14.000%-14.499% ................. 18 2,395,144 1.4
14.500%-14.999% ................. 63 7,716,137 4.4
15.000%-15.499% ................. 104 14,769,653 8.3
15.500%-15.999% ................. 184 24,954,152 14.1
16.000%-16.499% ................. 201 25,936,274 14.6
16.500%-16.999% ................. 259 30,998,625 17.5
17.000%-17.499% ................. 216 26,156,299 14.8
17.500%-17.999% ................. 223 23,582,352 13.3
18.000%-18.499% ................. 94 9,407,789 5.3
18.500%-18.999% ................. 44 4,754,964 2.7
19.000%-19.499% ................. 30 2,936,048 1.7
19.500%-19.999% ................. 13 1,160,387 0.7
20.000%-20.499% ................. 6 534,189 0.3
----- ------------ -----
Totals ....................... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Maximum Mortgage Rates for the Adjustable Rate
Mortgage Loans ranged from 12.700% per annum to 20.250% per annum and the
weighted average Maximum Mortgage Rate for the Adjustable Rate Mortgage
Loans was 16.632% per annum.
S-33
<PAGE>
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>
None .................... 681 $ 83,885,660 47.4%
12 months ............... 27 3,472,812 2.0
24 months ............... 364 48,378,676 27.3
36 months ............... 326 33,817,928 19.1
60 months ............... 70 7,556,580 4.3
----- ------------ -----
Totals ............... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The weighted average prepayment penalty term with respect to the Adjustable
Rate Mortgage Loans having prepayment penalties is approximately 31 months.
Product Type for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Loan Type Mortgage Loans Balance Outstanding Loan Group
- --------- -------------- ------------------- ----------
<S> <C> <C> <C>
Six Month LIBOR Loan ......... 84 $ 12,688,034 7.2%
1/29 Loan .................... 124 15,227,430 8.6
2/28 Loan .................... 868 105,906,961 59.8
3/27 Loan .................... 370 40,139,202 22.7
5/25 Loan .................... 22 3,150,030 1.8
----- ------------ -----
Totals .................... 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
S-34
<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>
April 1999 ............. 2 $ 228,994 0.1%
May 1999 ............... 3 565,963 0.3
July 1999 .............. 37 5,778,578 3.3
August 1999 ............ 37 4,884,430 2.8
September 1999 ......... 14 2,920,578 1.6
November 1999 .......... 1 53,432 0.0
January 2000 ........... 44 5,397,294 3.0
February 2000 .......... 55 5,988,661 3.4
March 2000 ............. 19 2,700,734 1.5
April 2000 ............. 4 632,230 0.4
May 2000 ............... 2 266,096 0.2
June 2000 .............. 4 793,755 0.4
July 2000 .............. 7 1,092,264 0.6
August 2000 ............ 21 2,530,400 1.4
September 2000 ......... 44 5,081,646 2.9
October 2000 ........... 13 1,071,708 0.6
November 2000 .......... 14 1,466,110 0.8
December 2000 .......... 12 1,249,568 0.7
January 2001 ........... 346 44,109,489 24.9
February 2001 .......... 305 35,718,086 20.2
March 2001 ............. 92 11,292,409 6.4
April 2001 ............. 1 70,347 0.0
June 2001 .............. 1 41,827 0.0
July 2001 .............. 3 339,238 0.2
August 2001 ............ 1 65,821 0.0
October 2001 ........... 1 29,908 0.0
November 2001 .......... 1 143,801 0.1
December 2001 .......... 1 36,692 0.0
January 2002 ........... 158 18,252,415 10.3
February 2002 .......... 153 15,693,043 8.9
March 2002 ............. 50 5,466,110 3.1
June 2003 .............. 1 345,998 0.2
January 2004 ........... 10 1,609,685 0.9
February 2004 .......... 8 960,897 0.5
March 2004 ............. 3 233,450 0.1
----- ------------ -----
Totals .............. 1,468 $177,111,657 100.0%
===== ============ =====
</TABLE>
S-35
<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 as of the close of business on the Cut-off
Date, the original principal balance and the unpaid principal balance; the
Monthly 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 Pooling and Servicing Agreement--Assignment of Mortgage
Loans; Warranties" 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 Pooling and Servicing Agreement--Assignment of
Mortgage Loans; Warranties" in the Prospectus.
CHASE MANHATTAN MORTGAGE CORPORATION
Chase Manhattan Mortgage Corporation ("Chase Manhattan Mortgage") 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-36
<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, the type
and use of the property, the creditworthiness of the borrower and the
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 of the mortgage
loan or the replacement cost of the mortgaged property, whichever is less. Flood
insurance is also required for any mortgage loan if 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 under the B&C Underwriting Guidelines
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 loan-to-value ratio for
non-self employed 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 verification (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, for all others. The maximum loan-to-value
for non-self employed 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: "AO"
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.
Bankruptcy/Foreclosure: Must be discharged over three years from the date of
application; substantial re-establishment of credit required.
S-37
<PAGE>
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.
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.
S-38
<PAGE>
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.
S-39
<PAGE>
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
December 31, 1998 of approximately $3.7 billion.
Advanta Parent, through its subsidiaries (including Advanta) had managed
assets (including mortgage loans) in excess of $12.3 billion as of December 31,
1998.
Recent Developments related to Advanta Parent
On January 25, 1999 Advanta Parent reported that on Friday, January 22,
1999, Fleet Financial Group, Inc. and certain of its affiliates ("Fleet") filed
a complaint (the "Complaint") against Advanta Parent and certain other
affiliates (including Advanta National Bank) relating to the transaction with
Fleet which closed on February 20, 1998 in which Advanta Parent contributed most
of its consumer credit card business to a limited liability company owned by
Fleet (the "Fleet Transaction"). The complaint centers around post-closing
adjustments and other matters relating to the Fleet Transaction.
Advanta Parent believes that the lawsuit is inappropriate and without merit
and, on February 16, 1999, it filed its answer and counterclaims in which it
denies all of the substantive allegations in the Complaint and seeks damages
from Fleet. Advanta Parent does not expect this suit to have any material
adverse financial impact on its business.
This Prospectus Supplement contains forward-looking statements that are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. The most significant among these risks
and uncertainties is the uncertainty of the legal process. Additional risks that
may affect Advanta Parent's performance are detailed in Advanta Parent's filings
with the Securities and Exchange Commission, including its most recent Annual
Report on Form 10-K and its Quarterly Reports on Form 10-Q.
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. To the
extent that Advanta's ability to perform such obligations is adversely affected,
the Mortgage Loans may experience an increased level of delinquencies and
losses.
As of December 31, 1998, Advanta and its subsidiaries were servicing
approximately 111,700 mortgage loans in the Owned and Managed Servicing
Portfolio representing an aggregate outstanding principal balance of
approximately $7.7 billion, and approximately 124,000 mortgage loans in the
Third-Party Servicing Portfolio representing an aggregate outstanding principal
balance of approximately $8.3 billion.
S-40
<PAGE>
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"). The tables describe fixed and adjustable rate mortgage
loans as of December 31, 1998, for each of the four prior years ended December
31. In addition to the Owned and Managed Servicing Portfolio, Advanta serviced
as of December 31, 1998, approximately 124,000 mortgage loans with an aggregate
principal balance as of such date of approximately $8.3 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)
Year Ended December 31,
--------------------------------------------------------
1995 1996
--------------------------- ---------------------------
By By
Dollar Dollar
By No. Amount By No. Amount
of Loans of Loans of Loans of Loans
---------- --------------- ---------- ---------------
Portfolio 32,592 $ 1,797,582 43,303 $ 2,595,981
Delinquency
percentage(1)
30-59 days 2.67% 2.44% 3.07% 2.90%
60-89 days 0.72 0.71 0.85 0.90
90 days or more 1.69 1.23 1.45 1.26
------ ----------- ------ -----------
Total 5.08% 4.38% 5.37% 5.06%
Foreclosure
rate(2) 1.29% 1.53% 1.62% 1.92%
REO properties(3) 0.52% -- 0.42% --
Year Ended December 31,
--------------------------------------------------------
1997 1998
--------------------------- ---------------------------
By By
Dollar Dollar
By No. Amount By No. Amount
of Loans of Loans of Loans of Loans
---------- --------------- ---------- ---------------
Portfolio 74,525 $ 4,888,936 111,707 $ 7,664,919
Delinquency
percentage(1)
30-59 days 3.13% 2.99% 3.05% 2.76%
60-89 days 0.98 0.98 1.10 1.08
90 days or more 1.39 1.28 1.45 1.22
------ ----------- ------- -----------
Total 5.50% 5.25% 5.60% 5.06%
Foreclosure
rate(2) 2.10% 2.32% 2.85% 2.98%
REO properties(3) 0.40% -- 0.78% --
- ------------
(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 cases 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-41
<PAGE>
LOAN LOSS EXPERIENCE
OF ADVANTA'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS*
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1995 1996 1997 1998
--------------- --------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average amount outstanding(1) .............. $ 1,540,238 $ 2,102,643 $ 3,677,342 $ 6,233,870
Gross losses(2) ............................ $ 13,978 $ 15,184 $ 18,836 $ 35,571
Recoveries(3) .............................. $ 148 $ 117 $ 401 $ 1,734
Net losses(4) .............................. $ 13,830 $ 15,067 $ 18,435 $ 33,837
Net losses as a percentage of average amount
outstanding(s) ............................ 0.90% 0.72% 0.50% 0.54%
</TABLE>
- ------------
(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."
There can be no assurance that the delinquency, foreclosure and loss
experience on the Mortgage Loans will correspond to the delinquency, foreclosure
and loss experience set forth in the foregoing tables. In general, during
periods in which the residential real estate market is experiencing an overall
decline in property values such that the principal balances of the Mortgage
Loans and any secondary financing on the related Mortgaged Properties become
equal to or greater than the value of the related Mortgaged Properties, rates of
delinquencies, foreclosure and losses could be significantly higher than might
otherwise be the case. In addition, adverse economic conditions (which may
affect real property values) may affect the timely payment by Mortgagors of
Monthly Payments, and accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to the Mortgage Pool.
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)
generally equal to the unpaid principal balance thereof (after giving effect to
any Advances (defined herein) made with respect thereto) (the "Stated Principal
Balance") 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 below 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.
S-42
<PAGE>
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 such prepayment. Prepayments received
during the prior Prepayment Period (defined herein) are included in the
distribution to Certificateholders on the related Distribution Date thereby
causing a shortfall in interest. In order to mitigate the effect of any such
shortfall in interest distributions to Certificateholders 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 Certificateholders
on such Distribution Date (the amount of such deposit, "Compensating Interest").
However, any such reduction in the Servicing Fee otherwise payable with respect
to such Distribution Date will be limited to the product of (i) one-twelfth of
0.35% and (ii) the aggregate Stated 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 Certificateholders
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 described below, 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 subject to the Servicer's
determination of nonrecoverability. In the event the Subservicer previously made
Advances which later are determined to be nonrecoverable, the Subservicer will
be entitled to reimbursement of such Advances prior to distributions to
Certificateholders. 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
S-43
<PAGE>
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 0.0091% per annum.
S-44
<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 1999-1
(the "Certificates") will consist of: (a) the Class IA-1, Class IA-2, Class
IA-3, Class IA-4 and Class IA-5 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 Class A Group II Certificates," and together with the Class A Group I
Certificates, the "Class A Certificates"), the Class IIM-1 Certificates (the
"Class IIM-1 Certificates" and together with the Class IM-1 Certificates, the
"Class M-1 Certificates") and Class IIM-2 Certificates (the "Class IIM-2
Certificates" and together with the Class IIM-1 Certificates, the "Mezzanine
Group II Certificates," and together with the Class IM-2 Certificates, the
"Class M-2 Certificates") and the Class IIB Certificates (the "Class IIB
Certificates," and together with the Mezzanine Group II Certificates, the
"Subordinated Group II Certificates," and together with the Class IB
Certificates, the "Class B Certificates", and the Subordinated Group II
Certificates together with the Class A Group II Certificates, the "Group II
Certificates"); and (c) the Class R Certificates (the "Residual Certificates").
The Mezzanine Group I Certificates and the Mezzanine Group II Certificates are
referred to collectively as the "Mezzanine Certificates". The Subordinated Group
I Certificates and the Subordinated Group II Certificates are referred to
collectively as the "Subordinated 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 Cedelbank,
societe anonyme ("CEDEL") or the Euroclear System ("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
S-45
<PAGE>
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.
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--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.
S-46
<PAGE>
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 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
S-47
<PAGE>
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 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--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
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<PAGE>
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 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 "The
Pooling and Servicing Agreement--Payments on Mortgage Loans; Collection Account"
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 and Fitch (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 and (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.
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
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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 and (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.
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 Chase
Manhattan Bank, as 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 April
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 Group II
Certificates (other than with respect to the Class IIA-2 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 Group II
Certificates (other than the Class IIA-2 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 each Loan Group 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 Certificates of the Certificate Group
related to such Loan Group, 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
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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 Certificates of such
Certificate Group to (y) the total amount of Current Interest and any
Interest Carry Forward Amount for the Class A Certificates of such
Certificate Group;
(ii) to the Class M-1 Certificates of such Certificate Group, the Current
Interest for such Class and any Interest Carry Forward Amount with respect to
such Class;
(iii) to the Class M-2 Certificates of such Certificate Group, the
Current Interest for such Class and any Interest Carry Forward Amount with
respect to such Class;
(iv) to the Class B Certificates of such Certificate Group, 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".
"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 as of the first day of such
Accrual Period (after giving effect to all distributions of principal made or
deemed to be made as of such first day) 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. For purposes of
calculating interest on the Group I Certificates and Class IIA-2
Certificates, principal distributions on a Distribution Date will be deemed
to have been made on the first day of the Accrual Period in which such
Distribution Date occurs.
"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, if applicable)
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 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-4 Certificates
on any Distribution Date after the Optional Termination Date will equal
7.28%. The "Pass Through Rate" with respect to each Class of Group II
Certificates will be determined as described below.
The "Pass-Through Rate" for the Group II Certificates (other than the
Class IIA-2 Certificates) will be equal to the least of (i) the London
interbank offered rate for one month United States dollar deposits,
calculated as described below under "--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 and the Master Servicer Fee Rate and (iii) the
"Available Funds Cap" for the Group II Certificates, which is defined as a
per annum rate equal to 12 times the quotient of (x) 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, divided by (y) the aggregate principal balance of the Group II
Certificates as of the first day of the applicable Accrual Period. The
"Pass-Through Rate" with respect to the Class IIA-2 Certificates will be
equal to 5.947% per annum.
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 and (ii) the Master Servicer Fee Rate.
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The "Pass-Through Margin" for each Class of Group II Certificates (other
than the Class IIA-2 Certificates) is as follows: for any Distribution Date on
or before the applicable Optional Termination Date: Class IIA-1, 0.26%; Class
IIM-1, 0.58%; Class IIM-2, 1.10% and Class IIB, 2.75%; and for any Distribution
Date after the applicable Optional Termination Date: Class IIA-1, 0.52%; Class
IIM-1, 0.87%; Class IIM-2, 1.65%; and Class IIB, 4.125%.
If on any Distribution Date, the Pass-Through Rate for a Class of Group II
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 such Class. 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 Group II Certificates
do not address the likelihood of the payment of any Adjustable Rate Certificate
Carryover.
Distributions of Principal. On each Distribution Date, the Principal
Distribution Amount (as defined below) with respect to each Certificate Group
for such Distribution Date is required to be distributed as follows until such
Principal Distribution Amount has been fully distributed:
(i)(a) with respect to Class A Group I Certificates, Class A Principal
Distribution Amount for the Group I Certificates is required to be
distributed as follows: first, the Class IA-5 Distribution Amount to the
Class IA-5 Certificates, and second, the remaining Class A Principal
Distribution Amount shall be paid sequentially to the Class IA-1, Class IA-2,
Class IA-3, Class IA-4 and Class IA-5 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; and (b)
with respect to Class A Group II Certificates, Class A Principal Distribution
Amount for the Group II Certificates is required to be distributed as
follows: first, the Class IIA-2 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, the Class A Principal Distribution Amount
for the Class A Group II Certificates will be distributed pro rata and not as
described above;
(ii) to the Class M-1 Certificates of each Certificate Group, the Class M-1
Principal Distribution Amount for such Certificate Group;
(iii) to the Class M-2 Certificates of each Certificate Group, the Class
M-2 Principal Distribution Amount for such Certificate Group;
(iv) to the Class B Certificates of each Certificate Group, the Class B
Principal Distribution Amount for such Certificate Group; and
(v) any remainder to 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 a Certificate Group is (i)
with respect to any Distribution Date prior to the related Stepdown Date
(defined below) or as to which a Trigger Event (defined below) exists, 100% of
the Principal Distribution Amount for such Certificate Group for such
Distribution Date and (ii)
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with respect to any Distribution Date on or after the Stepdown Date and as to
which a Trigger Event does not exist, the excess of (A) the Certificate
Principal Balance of the Class A Certificates for such Certificate Group
immediately prior to such Distribution Date over (B) the lesser of (i)
approximately 80.70% for the Fixed Rate Mortgage Loan Group and approximately
64.00% (or approximately 62.80%, if a Stepup Trigger Event (defined below) has
occurred) for the Adjustable Rate Mortgage Loan Group, of the Stated Principal
Balances of the Mortgage Loans in such Loan Group on the preceding Due Date and
(ii) the Stated Principal Balances of the Mortgage Loans in such Loan Group on
the preceding Due Date less approximately $650,000 for the Fixed Rate Mortgage
Loan Group and approximately $1,175,000 for the Adjustable Rate Mortgage Loan
Group.
The "Class IA-5 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-5 Certificates and the denominator of which is the
aggregate Certificate Principal Balance of all Class A Group I Certificates, 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
April 1999 through March 2002 ......... 0%
April 2002 through March 2004 ......... 45%
April 2004 through March 2005 ......... 80%
April 2005 through March 2006 ......... 100%
April 2006 and thereafter ............. 300%
The "Class IIA-2 Principal Distribution Amount", for any Distribution Date
prior to the Distribution Date occurring in March 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 Class A Group II 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
April 1999 through June 2000 ............ 0%
July 2000 through February 2002 ......... 500%
With respect to the Distribution Date occurring in March 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 M-1 Principal Distribution Amount", for a Certificate Group and
with respect to any Distribution Date on or after the related Stepdown Date is
100% of the Principal Distribution Amount for the related Certificate Group if
the Certificate Principal Balance of each Class of Class A Certificates for such
Certificate Group has been reduced to zero and a Trigger Event exists, or, if
any Class A Certificates for such Certificate Group are still outstanding, and
as long as a Trigger Event does not exist for such Certificate Group, is the
excess of (i) the sum for such Certificate Group of (A) the Certificate
Principal Balance of the related Class A Certificates (after taking into account
distributions of the Class A Principal Distribution Amount to such Class A
Certificates for such Distribution Date) and (B) the Certificate Principal
Balance of the related Class M-1 Certificates immediately prior to such
Distribution Date over (ii) the lesser of (A) approximately 91.45% for the Fixed
Rate Mortgage Loan Group and approximately 79.00% (or approximately 77.80%, if a
Stepup Trigger Event has occurred) for the Adjustable Rate Mortgage Loan Group
of the Stated Principal Balances of the Mortgage Loans in such Loan Group on the
preceding Due Date and (B) the Stated Principal Balances of the Mortgage Loans
in such Loan Group on the preceding Due Date less approximately $650,000 for the
Fixed Rate Mortgage Loan Group and approximately $1,175,000 for the Adjustable
Rate Mortgage Loan Group. Notwithstanding the foregoing, on any Distribution
Date prior to the Stepdown Date on which the Certificate Principal
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Balance of each Class of Class A Certificates for a Certificate Group has been
reduced to zero, the Class M-1 Principal Distribution Amount for such
Certificate Group will equal the lesser of (A) the outstanding Certificate
Principal Balance of the related Class M-1 Certificates and (B) 100% of the
Principal Distribution Amount for such Certificate Group remaining after any
distributions on such Class A Certificates.
The "Class M-2 Principal Distribution Amount", for a Certificate Group and
with respect to any Distribution Date on or after the related Stepdown Date, is
100% of the Principal Distribution Amount for the related Certificate Group if
the Certificate Principal Balance of each Class of Class A and Class M-1
Certificates for such Certificate Group has been reduced to zero and a Trigger
Event exists, or, if the Class A and Class M-1 Certificates for such Certificate
Group are still outstanding and as long as a Trigger Event does not exist for
such Certificate Group, is the excess of (i) of the sum for such Certificate
Group of (A) the Certificate Principal Balance of the Class A Certificates
(after taking into account distributions of the Class A Principal Distribution
Amount to such Class A Certificates for such Distribution Date), (B) the
Certificate Principal Balance of the related Class M-1 Certificates (after
taking into account distribution of the Class M-1 Principal Distribution Amount
to such Class M-1 Certificates for such Distribution Date) and (C) the
Certificate Principal Balance of the related Class M-2 Certificates immediately
prior to such Distribution Date over (ii) the lesser of (A) approximately 94.95%
for the Fixed Rate Mortgage Loan Group and approximately 89.00% (or
approximately 87.80%, if a Stepup Trigger Event has occurred) for the Adjustable
Rate Mortgage Loan Group, of the aggregate Stated Principal Balances of the
Mortgage Loans in such Loan Group on the preceding Due Date and (B) the Stated
Principal Balances of the Mortgage Loans in such Loan Group on the preceding Due
Date less approximately $650,000 for the Fixed Rate Mortgage Loan Group and
approximately $1,175,000 for the Adjustable Rate Mortgage Loan Group.
Notwithstanding the foregoing, on any Distribution Date prior to the Stepdown
Date on which the aggregate Certificate Principal Balance of each class of Class
A Certificates and the Class M-1 Certificates for a Certificate Group has been
reduced to zero, the Class M-2 Principal Distribution Amount for such
Certificate Group will equal the lesser of (A) the outstanding Certificate
Principal Balance of the related Class M-2 Certificates and (B) 100% of the
Principal Distribution Amount for such Certificate Group remaining after any
distributions on such Class A and Class M-1 Certificates.
The "Class B Principal Distribution Amount", for a Certificate Group and
with respect to any Distribution Date on or after the related Stepdown Date and
as long as a Trigger Event does not exist for such Certificate Group, is the
excess of (i) of the sum for such Certificate Group of (A) the Certificate
Principal Balance of the related Class A Certificates (after taking into account
distributions of the Class A Principal Distribution Amount for such Distribution
Date), (B) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account distribution of the Class M-1 Principal Distribution
Amount to such Class M-1 Certificates for such Distribution Date), (C) the
Certificate Principal Balance of the related Class M-2 Certificates (after
taking into account distributions of the Class M-2 Principal Distribution Amount
to such Class M-2 Certificates for such Distribution Date) and (D) the
Certificate Principal Balance of the related Class B Certificates immediately
prior to such Distribution Date over (ii) the lesser of (A) approximately 98.70%
for the Fixed Rate Mortgage Loan Group and approximately 96.00% (or
approximately 94.80%, if a Stepup Trigger Event has occurred) for the Adjustable
Rate Mortgage Loan Group, of the Stated Principal Balances of the Mortgage Loans
in such Loan Group on the preceding Due Date and (B) the Stated Principal
Balances of the Mortgage Loans in such Loan Group on the preceding Due Date less
approximately $650,000 for the Fixed Rate Mortgage Loan Group and approximately
$1,175,000 for the Adjustable Rate Mortgage Loan Group, provided, however, that
after the Certificate Principal Balances of the Class A, Class M-1 and Class M-2
Certificates for such Certificate Group are reduced to zero, the Class B
Principal Distribution Amount for such Distribution Date will equal 100% of the
Principal Distribution Amount for the related Loan Group remaining after any
distributions on such Class A, Class M-1 and Class M-2 Certificates.
The "Extra Principal Distribution Amount", for a Mortgage Loan Group and
with respect to any Distribution Date, is (i) prior to the Stepdown Date, the
excess of (A) the sum of (i) the aggregate Certificate Principal Balances of the
Certificates of the related Certificate Group and (ii) approximately $845,000
for the Fixed Rate Mortgage Loan Group and approximately $4,700,000 (or
$6,110,000, if a Stepup Trigger Event has occurred) for the Adjustable Rate
Mortgage Loan Group over (B) the Stated Principal Balances of the Mortgage Loans
in such Loan Group and (ii) on and after the Stepdown Date, the excess of (A)
the sum of (i) the aggregate Certificate Principal Balances of the Certificates
of such Certificate Group and (II) the greater of (x) 1.3%
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for the Fixed Rate Mortgage Loan Group and 4.0% (or 5.2%, if a Stepup Trigger
Event has occurred) for the Adjustable Rate Mortgage Loan Group of the Stated
Principal Balances of the Mortgage Loans in the related Loan Group and (y)
approximately $650,000 for the Fixed Rate Mortgage Loan Group and approximately
$1,175,000 for the Adjustable Rate Mortgage Loan Group over (B) the Stated
Principal Balances of the Mortgage Loans in the related Certificate Group.
The "Stepdown Date", with respect to each Certificate Group, is the later
to occur of (i) the Distribution Date in April 2002 or (ii) the first
Distribution Date on which (A) the Certificate Principal Balance of the Class A
Certificates in such Certificate Group is less than or equal to (B) 80.70%, for
the Fixed Rate Mortgage Loan Group, and 64.00% (or 62.80%, if a Stepup Trigger
Event has occurred), for the Adjustable Rate Mortgage Loan Group, of the Stated
Principal Balances of the Mortgage Loans in the related Loan Group.
A "Trigger Event", with respect to each Certificate Group and a
Distribution Date after the Stepdown Date, exists if the product of (i) 2.0, for
the Fixed Rate Mortgage Loan Group, and 2.5, for the Adjustable Rate Mortgage
Loan Group and (ii) the quotient of (A) the aggregate Stated Principal Balance
of all Mortgage Loans 60 or more days delinquent for each Loan Group (including
Mortgage Loans in foreclosure and REO Properties) and (B) the Stated Principal
Balance of that Loan Group as of the preceding Servicer Advance Date equals or
exceeds the Required Percentage. The "Required Percentage," with respect to each
Certificate Group and a Distribution Date after the Stepdown Date is equal to
the quotient of (x) the excess of (i) the Stated Principal Balances of the
Mortgage Loans in such Loan Group over (ii) the Certificate Principal Balance of
the most senior Class of Certificates of such Certificate Group outstanding as
of the preceding Servicer Advance Date and (y) the Stated Principal Balances of
the Mortgage Loans in such Loan Group. As used herein, the Certificate Principal
Balance of the most senior Class of Certificates of the Group I Certificates
will equal the aggregate Certificate Principal Balance of the Class A Group I
Certificates for such date of calculation.
With respect to the Adjustable Rate Mortgage Loan Group, a "Stepup Trigger
Event" exists with respect to a Distribution Date (and thereafter will exist
with respect to each subsequent Distribution Date) if either
(A) Realized Losses with respect to the Adjustable Rate Mortgage Loans as
of such Distribution Date equal or exceed the following levels (expressed as
a percentage of aggregate principal balance of the Adjustable Rate Mortgage
Loans as of the Cut-off Date)
Distribution Date Occurring In Percentage
April 1999 through March 2001 ......... 1.00%
April 2001 through March 2002 ......... 1.25%
April 2002 through March 2003 ......... 2.00%
April 2003 through March 2004 ......... 3.00%
April 2004 and thereafter ............. 4.00%
or (B) the three month rolling average of Adjustable Rate Mortgage Loans
that are 60 days or more delinquent (calculated as set forth in the Pooling
and Servicing Agreement) as of such Distribution Date equals or exceeds the
following levels (expressed as a percentage of the aggregate principal
balance of the Adjustable Rate Mortgage Loans as of such Distribution Date):
Distribution Date Occurring In Percentage
April 1999 through March 2003 ......... 8.00%
April 2003 through March 2005 ......... 10.00%
April 2005 through March 2006 ......... 12.00%
April 2006 through March 2007 ......... 14.00%
April 2007 and thereafter ............. 16.00%
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
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<PAGE>
("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 a Mortgage Loan Group
exceed the Stated Principal Balances of the Mortgage Loans in the related Loan
Group, the Certificate Principal Balances of the Subordinated Certificates of
such Group will be reduced, in inverse order of seniority (beginning with the
Class B Certificates) by an amount equal to such excess.
If the Certificate Principal Balance of a Class of Subordinated
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 each Loan Group not otherwise required to be distributed with respect to
principal of and interest on the Certificates in the related Certificate Group
as described above will be required to be distributed in respect of the
following amounts until fully distributed:
(i) the Extra Principal Distribution Amount for such Loan Group;
(ii) to the Class M-1 Certificates of such Certificate Group, any Unpaid
Realized Loss Amount for such Class;
(iii) to the Class M-2 Certificates of such Certificate Group, any Unpaid
Realized Loss Amount for such Class;
(iv) to the Class B Certificates of such Certificate Group, the Unpaid
Realized Loss Amount for such Class;
(v) except in the case of Optional Termination Amounts (defined herein),
for distribution to the Certificates in the other Certificate Group to the
extent that any of the following amounts with respect to the other
Certificate Group have not otherwise been funded in full for such
Distribution Date in accordance with the priorities set forth herein;
(A) to each Class of the Class A Certificates of such other Loan
Group, the Current Interest and any Interest Carry Forward Amount for
such Class;
(B) the Extra Principal Distribution Amount for such other Loan
Group;
(C) to the Class M-1 Certificates of such other Certificate Group, the
Current Interest and any Interest Carry Forward Amount for such Class;
(D) to the Class M-1 Certificates of such other Certificate Group any
Unpaid Realized Loss Amount for such Class;
(E) to the Class M-2 Certificates of such other Certificate Group, the
Current Interest and any Interest Carry Forward Amount for such Class;
(F) to the Class M-2 Certificates of such other Certificate Group any
Unpaid Realized Loss Amount for such Class;
(G) to the Class B Certificates of such other Certificate Group, the
Current Interest and any Interest Carry Forward Amount for such Class;
(H) to the Class B Certificates of such other Certificate Group any
Unpaid Realized Loss Amount for such Class;
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(vi) in the case of the Adjustable Rate Mortgage Loan Group, to the Group
II Certificates, on a pro rata basis, the Adjustable Rate Certificate
Carryover; and
(vii) to the Residual Certificates, the remaining amount.
"Unpaid Realized Loss Amount", with respect to any Class of the
Subordinated 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
Certificates in respect of any Unpaid Realized Loss Amount will not be applied
to reduce the Certificate Principal Balance of such Class.
"Applied Realized Loss Amount", with respect to any Class of the
Subordinated 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.
"Optional Termination Amount" with respect to either Loan Group, is the
Repurchase Price (defined herein) paid by the Master Servicer in connection with
any repurchase of all of the Mortgage Loans in such Loan Group.
Calculation of One-Month LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Group II Certificates, other than
the Class IIA-2 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 Group II Certificates, other than the Class IIA-2 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 Group II 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
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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 Group II Certificates, other than the Class IIA-2
Certificates, for the related Accrual Period for such Group II 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 and the Depositor a statement
generally setting forth with respect to each Loan Group or Certificate Group,
where applicable, among other information:
(i) the amount of the related distribution to holders of each Class of
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 each Class of
Certificates allocable to interest;
(iii) the Interest Carry-Forward Amount for each Class of Certificates;
(iv) the Certificate Principal Balance of each Class of Certificates after
giving effect to the distribution of principal on such Distribution Date;
(v) the aggregate outstanding principal balance of each Class of
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 Pass-Through Rate for each Class of Certificates for such
Distribution Date;
(viii) the amount of Advances included in the distribution on such
Distribution Date;
(ix) 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;
(x) 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;
(xi) with respect to each Loan Group, whether a Trigger Event or, if
applicable, a Stepup Trigger Event has occurred;
(xii) 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
(xiii) any Adjustable Rate Certificate Carryover paid and all remaining
Adjustable Rate Certificate Carryover remaining on each Class of the
Adjustable Rate Certificate 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.
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Amendment
The Pooling and Servicing Agreement may be amended by the Depositor, the
Subservicer, the Master Servicer and the Trustee, without the consent of
Certificateholders, for any of the purposes set forth under "The Pooling and
Servicing Agreement-Amendment" in the Prospectus. In addition, the Pooling and
Servicing Agreement may be amended by the Depositor, the Subservicer, the Master
Servicer 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.
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 Master Servicer, the repurchase will be made at a
price (the "Repurchase 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, (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 any unreimbursed 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.
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.
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 five 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 or the Depositor, or to the Subservicer, the Depositor, the Master
Servicer and the Trustee by
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the holders of Certificates evidencing not less than 25% of the Voting Rights
evidenced by the Certificates or (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. 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, but only upon the receipt of instructions
from the holders of Certificates having not less than 25% of the Voting Rights
evidenced by the Certificates, 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 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.
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
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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 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
Certificates--Overcollateralization and Crosscollateralization Provisions."
The Class IA-5 Certificates are not expected to receive distributions of
principal until the Distribution Date in April 2002 (except as otherwise
described herein). Thereafter, the relative entitlement of the Class IA-5
Certificates to payments in respect of principal is subject to increase in
accordance with the calculation of the Class IA-5 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 July 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 any interest rate adjustment.
Nevertheless, no assurance can be given as to the level of prepayment that the
Mortgage Loans will experience.
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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 Group II 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 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 Group II Certificates. See "The Mortgage Pool."
The calculation of the Pass-Through Rate on each Class of the Group II
Certificates (other than the Class IIA-2 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 the Adjustable Rate Mortgage Loans (Six-Month
LIBOR) as described under "The Mortgage Pool--General" and is subject to the
Available Funds Cap. The Available Funds Cap effectively limits the amount of
interest accrued on each Class of the Group II Certificates (other than the
Class IIA-2 Certificates) to the amount of interest accruing on the Adjustable
Rate Mortgage Loans at a rate equal to the weighted average of the Mortgage
Rates of such Mortgage Loans, less the Servicing Fee Rate and the Master
Servicer Fee Rate. Furthermore, even if One-Month LIBOR and Six-Month LIBOR were
at the same level, various factors may cause the Available Funds Cap to limit
the amount of interest that would otherwise accrue on each Class of the Group II
Certificates (other than the Class IIA-2 Certificates). In particular, the
Pass-Through Rate on each Class of the Group II Certificates (other than the
Class IIA-2 Certificates) adjusts monthly, while the interest rates of the
Adjustable Rate Mortgage Loans adjust less frequently, with the result that the
operation of the Available Funds Cap 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., semiannual)
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
Available Funds Cap limiting increases in the Pass-Through Rate for such Classes
of the Group II 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 each Class of the Group II
Certificates (other than the Class IIA-2 Certificates) will be made on the basis
of the actual number of days elapsed in the related Accrual Period and a year of
360 days. This may result in the Available Funds Cap limiting the Pass-Through
Rate for such Classes of Certificates in Accrual Periods that have more than 30
days. Consequently, the interest which becomes due on the Adjustable Rate
Mortgage Loans (net of the sum of the Servicing Fee and the Master Servicer Fee)
with respect to any Distribution Date may not equal the amount of interest that
would accrue at One-Month LIBOR plus the margin on each Class of the Group II
Certificates (other than the Class IIA-2 Certificates) and the Pass-Through Rate
with respect to the Class IIA-2 Certificates during the related Accrual Period.
Furthermore, if the Available Funds Cap determines the Pass-Through Rate for a
Class of the Group II Certificates for a Distribution Date, the market value of
such Class of Certificates may be temporarily or permanently reduced. Although
the Pooling and Servicing Agreement provides a mechanism to pay, on a
subordinated basis, any Adjustable Rate Certificate Carryover, there is no
assurance that funds will be available to pay such amount. The ratings assigned
to the Group II Certificates do not address the likelihood of the payment of any
such amount. In addition, the Pass-Through Rate on each Class of the Group II
Certificates (other than the Class IIA-2 Certificates) is subject to 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
and the Master Servicing Fee Rate. The Maximum Funds Cap may limit increases in
the Pass-Through Rates on such Classes of the Group II Certificates and any
shortfall of interest will not be recovered.
On any Distribution Date, the Pass-Through Rate for the Class IB
Certificates will equal the lesser of (i) 8.365% 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 8.365% per annum, investors in the Class IB Certificates may
experience a lower than anticipated yield and any shortfall of interest will not
be recovered.
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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 and (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 Cutoff Date Principal Balance of such
Loan Group.
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 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, the solicitation of mortgagors to refinance their mortgage loans
and the existence of prepayment penalties. In the case of mortgage loans in
general, if prevailing interest rates fall significantly below the interest
rates on
S-63
<PAGE>
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 April 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 April
1, 1999, and prepayments represent payment in full of individual Mortgage Loans
and are assumed to be received on the last day of each month, commencing in
March 1999, and include 30 days' interest thereon; (v) the level of Six-Month
LIBOR remains constant at 5.060%, and the level of One-Month LIBOR remains
constant at 4.93625%; (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 March 26, 1999;
(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:
Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Original
Amortization
Net Mortgage Original Term Term Remaining Term
Current Balance Mortgage Rate Rate (in months) (in months) (in months)
- ------------------------- --------------- -------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 44,397,517.01 10.183% 9.683% 180 360 177
462,928.44 9.435% 8.935% 120 120 117
16,583,437.79 9.527% 9.027% 180 180 178
9,584,284.04 9.459% 8.959% 240 240 237
58,971,832.71 10.159% 9.659% 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>
$ 37,839,892.89 9.313% 8.813% 360 357
139,721,936.26 9.743% 9.243% 360 358
53,258,563.90 10.073% 9.573% 360 359
4,179,606.95 9.438% 8.938% 360 358
Number of
Reset Months Until
Current Gross Periodic Change Next Rate
Balance Margin Cap Frequency Adjustment Date Index
- ------------------- ----------- ---------- ----------- ----------------- ------------
$ 37,839,892.89 5.382% 1.016% 6 8 6 mo. LIBOR
139,721,936.26 5.941% 1.468% 6 22 6 mo. LIBOR
53,258,563.90 5.471% 1.498% 6 35 6 mo. LIBOR
4,179,606.95 5.340% 1.500% 6 58 6 mo. LIBOR
</TABLE>
S-64
<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
March 25, 2000 .................. 96 62 53 31 9
March 25, 2001 .................. 94 24 9 0 0
March 25, 2002 .................. 91 0 0 0 0
March 25, 2003 .................. 88 0 0 0 0
March 25, 2004 .................. 85 0 0 0 0
March 25, 2005 .................. 81 0 0 0 0
March 25, 2006 .................. 78 0 0 0 0
March 25, 2007 .................. 75 0 0 0 0
March 25, 2008 .................. 71 0 0 0 0
March 25, 2009 .................. 67 0 0 0 0
March 25, 2010 .................. 63 0 0 0 0
March 25, 2011 .................. 58 0 0 0 0
March 25, 2012 .................. 53 0 0 0 0
March 25, 2013 .................. 46 0 0 0 0
March 25, 2014 .................. 0 0 0 0 0
March 25, 2015 .................. 0 0 0 0 0
March 25, 2016 .................. 0 0 0 0 0
March 25, 2017 .................. 0 0 0 0 0
March 25, 2018 .................. 0 0 0 0 0
March 25, 2019 .................. 0 0 0 0 0
March 25, 2020 .................. 0 0 0 0 0
March 25, 2021 .................. 0 0 0 0 0
March 25, 2022 .................. 0 0 0 0 0
March 25, 2023 .................. 0 0 0 0 0
March 25, 2024 .................. 0 0 0 0 0
March 25, 2025 .................. 0 0 0 0 0
March 25, 2026 .................. 0 0 0 0 0
March 25, 2027 .................. 0 0 0 0 0
March 25, 2028 .................. 0 0 0 0 0
March 25, 2029 .................. 0 0 0 0 0
Weighted Average Life in years(1) 11.1 1.4 1.1 0.8 0.6
Class IA-2
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
Initial ......................... 100 100 100 100 100
March 25, 2000 .................. 100 100 100 100 100
March 25, 2001 .................. 100 100 100 38 0
March 25, 2002 .................. 100 86 42 0 0
March 25, 2003 .................. 100 40 2 0 0
March 25, 2004 .................. 100 6 0 0 0
March 25, 2005 .................. 100 0 0 0 0
March 25, 2006 .................. 100 0 0 0 0
March 25, 2007 .................. 100 0 0 0 0
March 25, 2008 .................. 100 0 0 0 0
March 25, 2009 .................. 100 0 0 0 0
March 25, 2010 .................. 100 0 0 0 0
March 25, 2011 .................. 100 0 0 0 0
March 25, 2012 .................. 100 0 0 0 0
March 25, 2013 .................. 100 0 0 0 0
March 25, 2014 .................. 72 0 0 0 0
March 25, 2015 .................. 65 0 0 0 0
March 25, 2016 .................. 57 0 0 0 0
March 25, 2017 .................. 47 0 0 0 0
March 25, 2018 .................. 37 0 0 0 0
March 25, 2019 .................. 27 0 0 0 0
March 25, 2020 .................. 19 0 0 0 0
March 25, 2021 .................. 10 0 0 0 0
March 25, 2022 .................. 0 0 0 0 0
March 25, 2023 .................. 0 0 0 0 0
March 25, 2024 .................. 0 0 0 0 0
March 25, 2025 .................. 0 0 0 0 0
March 25, 2026 .................. 0 0 0 0 0
March 25, 2027 .................. 0 0 0 0 0
March 25, 2028 .................. 0 0 0 0 0
March 25, 2029 .................. 0 0 0 0 0
Weighted Average Life in years(1) 17.9 3.9 3.0 1.9 1.4
</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-65
<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
March 25, 2000 .................. 100 100 100 100 100
March 25, 2001 .................. 100 100 100 100 37
March 25, 2002 .................. 100 100 100 7 0
March 25, 2003 .................. 100 100 100 0 0
March 25, 2004 .................. 100 100 45 0 0
March 25, 2005 .................. 100 68 8 0 0
March 25, 2006 .................. 100 36 0 0 0
March 25, 2007 .................. 100 26 0 0 0
March 25, 2008 .................. 100 10 0 0 0
March 25, 2009 .................. 100 0 0 0 0
March 25, 2010 .................. 100 0 0 0 0
March 25, 2011 .................. 100 0 0 0 0
March 25, 2012 .................. 100 0 0 0 0
March 25, 2013 .................. 100 0 0 0 0
March 25, 2014 .................. 100 0 0 0 0
March 25, 2015 .................. 100 0 0 0 0
March 25, 2016 .................. 100 0 0 0 0
March 25, 2017 .................. 100 0 0 0 0
March 25, 2018 .................. 100 0 0 0 0
March 25, 2019 .................. 100 0 0 0 0
March 25, 2020 .................. 100 0 0 0 0
March 25, 2021 .................. 100 0 0 0 0
March 25, 2022 .................. 99 0 0 0 0
March 25, 2023 .................. 78 0 0 0 0
March 25, 2024 .................. 55 0 0 0 0
March 25, 2025 .................. 29 0 0 0 0
March 25, 2026 .................. 1 0 0 0 0
March 25, 2027 .................. 0 0 0 0 0
March 25, 2028 .................. 0 0 0 0 0
March 25, 2029 .................. 0 0 0 0 0
Weighted Average Life in years(1) 25.2 7.0 5.0 2.8 2.0
Class IA-4
--------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial ......................... 100 100 100 100 100
March 25, 2000 .................. 100 100 100 100 100
March 25, 2001 .................. 100 100 100 100 100
March 25, 2002 .................. 100 100 100 100 0
March 25, 2003 .................. 100 100 100 71 0
March 25, 2004 .................. 100 100 100 28 0
March 25, 2005 .................. 100 100 100 0 0
March 25, 2006 .................. 100 100 82 0 0
March 25, 2007 .................. 100 100 78 0 0
March 25, 2008 .................. 100 100 0 0 0
March 25, 2009 .................. 100 92 0 0 0
March 25, 2010 .................. 100 0 0 0 0
March 25, 2011 .................. 100 0 0 0 0
March 25, 2012 .................. 100 0 0 0 0
March 25, 2013 .................. 100 0 0 0 0
March 25, 2014 .................. 100 0 0 0 0
March 25, 2015 .................. 100 0 0 0 0
March 25, 2016 .................. 100 0 0 0 0
March 25, 2017 .................. 100 0 0 0 0
March 25, 2018 .................. 100 0 0 0 0
March 25, 2019 .................. 100 0 0 0 0
March 25, 2020 .................. 100 0 0 0 0
March 25, 2021 .................. 100 0 0 0 0
March 25, 2022 .................. 100 0 0 0 0
March 25, 2023 .................. 100 0 0 0 0
March 25, 2024 .................. 100 0 0 0 0
March 25, 2025 .................. 100 0 0 0 0
March 25, 2026 .................. 100 0 0 0 0
March 25, 2027 .................. 0 0 0 0 0
March 25, 2028 .................. 0 0 0 0 0
March 25, 2029 .................. 0 0 0 0 0
Weighted Average Life in years(1) 27.5 10.5 8.1 4.6 2.5
</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-66
<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
March 25, 2000 ................... 100 100 100 100 100
March 25, 2001 ................... 100 100 100 100 100
March 25, 2002 ................... 100 100 100 100 77
March 25, 2003 ................... 99 90 89 89 0
March 25, 2004 ................... 99 82 79 73 0
March 25, 2005 ................... 97 68 63 0 0
March 25, 2006 ................... 95 55 48 0 0
March 25, 2007 ................... 88 27 20 0 0
March 25, 2008 ................... 81 14 0 0 0
March 25, 2009 ................... 73 7 0 0 0
March 25, 2010 ................... 66 0 0 0 0
March 25, 2011 ................... 58 0 0 0 0
March 25, 2012 ................... 50 0 0 0 0
March 25, 2013 ................... 43 0 0 0 0
March 25, 2014 ................... 0 0 0 0 0
March 25, 2015 ................... 0 0 0 0 0
March 25, 2016 ................... 0 0 0 0 0
March 25, 2017 ................... 0 0 0 0 0
March 25, 2018 ................... 0 0 0 0 0
March 25, 2019 ................... 0 0 0 0 0
March 25, 2020 ................... 0 0 0 0 0
March 25, 2021 ................... 0 0 0 0 0
March 25, 2022 ................... 0 0 0 0 0
March 25, 2023 ................... 0 0 0 0 0
March 25, 2024 ................... 0 0 0 0 0
March 25, 2025 ................... 0 0 0 0 0
March 25, 2026 ................... 0 0 0 0 0
March 25, 2027 ................... 0 0 0 0 0
March 25, 2028 ................... 0 0 0 0 0
March 25, 2029 ................... 0 0 0 0 0
Weighted Average Life in years(1) 12.1 6.9 6.5 5.1 3.7
Class IM-1
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
Initial .......................... 100 100 100 100 100
March 25, 2000 ................... 100 100 100 100 100
March 25, 2001 ................... 100 100 100 100 100
March 25, 2002 ................... 100 100 100 100 100
March 25, 2003 ................... 100 88 71 38 0
March 25, 2004 ................... 100 71 53 25 0
March 25, 2005 ................... 100 57 40 0 0
March 25, 2006 ................... 100 45 31 0 0
March 25, 2007 ................... 100 36 23 0 0
March 25, 2008 ................... 100 29 0 0 0
March 25, 2009 ................... 100 23 0 0 0
March 25, 2010 ................... 100 0 0 0 0
March 25, 2011 ................... 100 0 0 0 0
March 25, 2012 ................... 100 0 0 0 0
March 25, 2013 ................... 100 0 0 0 0
March 25, 2014 ................... 80 0 0 0 0
March 25, 2015 ................... 77 0 0 0 0
March 25, 2016 ................... 73 0 0 0 0
March 25, 2017 ................... 69 0 0 0 0
March 25, 2018 ................... 64 0 0 0 0
March 25, 2019 ................... 60 0 0 0 0
March 25, 2020 ................... 56 0 0 0 0
March 25, 2021 ................... 52 0 0 0 0
March 25, 2022 ................... 47 0 0 0 0
March 25, 2023 ................... 42 0 0 0 0
March 25, 2024 ................... 36 0 0 0 0
March 25, 2025 ................... 30 0 0 0 0
March 25, 2026 ................... 23 0 0 0 0
March 25, 2027 ................... 0 0 0 0 0
March 25, 2028 ................... 0 0 0 0 0
March 25, 2029 ................... 0 0 0 0 0
Weighted Average Life in years(1) 21.7 7.0 5.7 4.1 3.7
</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-67
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IM-2
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial .......................... 100 100 100 100 100
March 25, 2000 ................... 100 100 100 100 100
March 25, 2001 ................... 100 100 100 100 100
March 25, 2002 ................... 100 100 100 100 100
March 25, 2003 ................... 100 88 71 38 0
March 25, 2004 ................... 100 71 53 25 0
March 25, 2005 ................... 100 57 40 0 0
March 25, 2006 ................... 100 45 31 0 0
March 25, 2007 ................... 100 36 23 0 0
March 25, 2008 ................... 100 29 0 0 0
March 25, 2009 ................... 100 23 0 0 0
March 25, 2010 ................... 100 0 0 0 0
March 25, 2011 ................... 100 0 0 0 0
March 25, 2012 ................... 100 0 0 0 0
March 25, 2013 ................... 100 0 0 0 0
March 25, 2014 ................... 80 0 0 0 0
March 25, 2015 ................... 77 0 0 0 0
March 25, 2016 ................... 73 0 0 0 0
March 25, 2017 ................... 69 0 0 0 0
March 25, 2018 ................... 64 0 0 0 0
March 25, 2019 ................... 60 0 0 0 0
March 25, 2020 ................... 56 0 0 0 0
March 25, 2021 ................... 52 0 0 0 0
March 25, 2022 ................... 47 0 0 0 0
March 25, 2023 ................... 42 0 0 0 0
March 25, 2024 ................... 36 0 0 0 0
March 25, 2025 ................... 30 0 0 0 0
March 25, 2026 ................... 23 0 0 0 0
March 25, 2027 ................... 0 0 0 0 0
March 25, 2028 ................... 0 0 0 0 0
March 25, 2029 ................... 0 0 0 0 0
Weighted Average Life in years(1) 21.7 7.0 5.7 4.0 3.4
Class IB
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial .......................... 100 100 100 100 100
March 25, 2000 ................... 100 100 100 100 100
March 25, 2001 ................... 100 100 100 100 100
March 25, 2002 ................... 100 100 100 100 100
March 25, 2003 ................... 100 88 68 25 0
March 25, 2004 ................... 100 68 45 7 0
March 25, 2005 ................... 100 50 28 0 0
March 25, 2006 ................... 100 34 14 0 0
March 25, 2007 ................... 100 22 4 0 0
March 25, 2008 ................... 100 12 0 0 0
March 25, 2009 ................... 100 4 0 0 0
March 25, 2010 ................... 100 0 0 0 0
March 25, 2011 ................... 100 0 0 0 0
March 25, 2012 ................... 100 0 0 0 0
March 25, 2013 ................... 100 0 0 0 0
March 25, 2014 ................... 80 0 0 0 0
March 25, 2015 ................... 77 0 0 0 0
March 25, 2016 ................... 72 0 0 0 0
March 25, 2017 ................... 66 0 0 0 0
March 25, 2018 ................... 60 0 0 0 0
March 25, 2019 ................... 54 0 0 0 0
March 25, 2020 ................... 49 0 0 0 0
March 25, 2021 ................... 43 0 0 0 0
March 25, 2022 ................... 37 0 0 0 0
March 25, 2023 ................... 30 0 0 0 0
March 25, 2024 ................... 22 0 0 0 0
March 25, 2025 ................... 14 0 0 0 0
March 25, 2026 ................... 5 0 0 0 0
March 25, 2027 ................... 0 0 0 0 0
March 25, 2028 ................... 0 0 0 0 0
March 25, 2029 ................... 0 0 0 0 0
Weighted Average Life in years(1) 20.7 6.3 5.1 3.6 3.2
</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 IIA-1
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial .......................... 100 100 100 100 100
March 25, 2000 ................... 96 59 50 27 5
March 25, 2001 ................... 95 51 41 15 0
March 25, 2002 ................... 95 47 34 5 0
March 25, 2003 ................... 95 40 30 5 0
March 25, 2004 ................... 95 31 22 0 0
March 25, 2005 ................... 95 24 16 0 0
March 25, 2006 ................... 95 19 11 0 0
March 25, 2007 ................... 95 15 0 0 0
March 25, 2008 ................... 95 11 0 0 0
March 25, 2009 ................... 95 0 0 0 0
March 25, 2010 ................... 95 0 0 0 0
March 25, 2011 ................... 95 0 0 0 0
March 25, 2012 ................... 95 0 0 0 0
March 25, 2013 ................... 95 0 0 0 0
March 25, 2014 ................... 95 0 0 0 0
March 25, 2015 ................... 95 0 0 0 0
March 25, 2016 ................... 95 0 0 0 0
March 25, 2017 ................... 95 0 0 0 0
March 25, 2018 ................... 91 0 0 0 0
March 25, 2019 ................... 85 0 0 0 0
March 25, 2020 ................... 78 0 0 0 0
March 25, 2021 ................... 70 0 0 0 0
March 25, 2022 ................... 61 0 0 0 0
March 25, 2023 ................... 53 0 0 0 0
March 25, 2024 ................... 46 0 0 0 0
March 25, 2025 ................... 38 0 0 0 0
March 25, 2026 ................... 30 0 0 0 0
March 25, 2027 ................... 20 0 0 0 0
March 25, 2028 ................... 0 0 0 0 0
March 25, 2029 ................... 0 0 0 0 0
Weighted Average Life in years(1) 23.4 3.4 2.5 1.0 0.5
Class IIA-2
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial .......................... 100 100 100 100 100
March 25, 2000 ................... 100 100 100 100 100
March 25, 2001 ................... 98 50 43 32 12
March 25, 2002 ................... 96 5 0 0 0
March 25, 2003 ................... 93 0 0 0 0
March 25, 2004 ................... 90 0 0 0 0
March 25, 2005 ................... 87 0 0 0 0
March 25, 2006 ................... 83 0 0 0 0
March 25, 2007 ................... 79 0 0 0 0
March 25, 2008 ................... 75 0 0 0 0
March 25, 2009 ................... 70 0 0 0 0
March 25, 2010 ................... 64 0 0 0 0
March 25, 2011 ................... 58 0 0 0 0
March 25, 2012 ................... 51 0 0 0 0
March 25, 2013 ................... 43 0 0 0 0
March 25, 2014 ................... 34 0 0 0 0
March 25, 2015 ................... 25 0 0 0 0
March 25, 2016 ................... 14 0 0 0 0
March 25, 2017 ................... 2 0 0 0 0
March 25, 2018 ................... 0 0 0 0 0
March 25, 2019 ................... 0 0 0 0 0
March 25, 2020 ................... 0 0 0 0 0
March 25, 2021 ................... 0 0 0 0 0
March 25, 2022 ................... 0 0 0 0 0
March 25, 2023 ................... 0 0 0 0 0
March 25, 2024 ................... 0 0 0 0 0
March 25, 2025 ................... 0 0 0 0 0
March 25, 2026 ................... 0 0 0 0 0
March 25, 2027 ................... 0 0 0 0 0
March 25, 2028 ................... 0 0 0 0 0
March 25, 2029 ................... 0 0 0 0 0
Weighted Average Life in years(1) 12.2 2.1 2.0 1.8 1.6
</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 IIM-1
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial .............................. 100 100 100 100 100
March 25, 2000 ....................... 100 100 100 100 100
March 25, 2001 ....................... 100 100 100 100 100
March 25, 2002 ....................... 100 100 100 100 0
March 25, 2003 ....................... 100 74 55 93 0
March 25, 2004 ....................... 100 57 40 0 0
March 25, 2005 ....................... 100 45 29 0 0
March 25, 2006 ....................... 100 35 21 0 0
March 25, 2007 ....................... 100 27 0 0 0
March 25, 2008 ....................... 100 21 0 0 0
March 25, 2009 ....................... 100 0 0 0 0
March 25, 2010 ....................... 100 0 0 0 0
March 25, 2011 ....................... 100 0 0 0 0
March 25, 2012 ....................... 100 0 0 0 0
March 25, 2013 ....................... 100 0 0 0 0
March 25, 2014 ....................... 100 0 0 0 0
March 25, 2015 ....................... 100 0 0 0 0
March 25, 2016 ....................... 100 0 0 0 0
March 25, 2017 ....................... 100 0 0 0 0
March 25, 2018 ....................... 100 0 0 0 0
March 25, 2019 ....................... 100 0 0 0 0
March 25, 2020 ....................... 100 0 0 0 0
March 25, 2021 ....................... 100 0 0 0 0
March 25, 2022 ....................... 100 0 0 0 0
March 25, 2023 ....................... 97 0 0 0 0
March 25, 2024 ....................... 84 0 0 0 0
March 25, 2025 ....................... 70 0 0 0 0
March 25, 2026 ....................... 55 0 0 0 0
March 25, 2027 ....................... 37 0 0 0 0
March 25, 2028 ....................... 0 0 0 0 0
March 25, 2029 ....................... 0 0 0 0 0
Weighted Average Life in years(1)..... 27.1 6.0 4.9 4.3 2.5
Class IIM-2
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial .............................. 100 100 100 100 100
March 25, 2000 ....................... 100 100 100 100 100
March 25, 2001 ....................... 100 100 100 100 100
March 25, 2002 ....................... 100 100 100 100 0
March 25, 2003 ....................... 100 74 55 24 0
March 25, 2004 ....................... 100 57 40 0 0
March 25, 2005 ....................... 100 45 29 0 0
March 25, 2006 ....................... 100 35 21 0 0
March 25, 2007 ....................... 100 27 0 0 0
March 25, 2008 ....................... 100 21 0 0 0
March 25, 2009 ....................... 100 0 0 0 0
March 25, 2010 ....................... 100 0 0 0 0
March 25, 2011 ....................... 100 0 0 0 0
March 25, 2012 ....................... 100 0 0 0 0
March 25, 2013 ....................... 100 0 0 0 0
March 25, 2014 ....................... 100 0 0 0 0
March 25, 2015 ....................... 100 0 0 0 0
March 25, 2016 ....................... 100 0 0 0 0
March 25, 2017 ....................... 100 0 0 0 0
March 25, 2018 ....................... 100 0 0 0 0
March 25, 2019 ....................... 100 0 0 0 0
March 25, 2020 ....................... 100 0 0 0 0
March 25, 2021 ....................... 100 0 0 0 0
March 25, 2022 ....................... 100 0 0 0 0
March 25, 2023 ....................... 97 0 0 0 0
March 25, 2024 ....................... 84 0 0 0 0
March 25, 2025 ....................... 70 0 0 0 0
March 25, 2026 ....................... 55 0 0 0 0
March 25, 2027 ....................... 37 0 0 0 0
March 25, 2028 ....................... 0 0 0 0 0
March 25, 2029 ....................... 0 0 0 0 0
Weighted Average Life in years(1)..... 27.1 6.0 4.8 3.8 3.0
</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.
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<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IIB
-----------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial .............................. 100 100 100 100 100
March 25, 2000 ....................... 100 100 100 100 100
March 25, 2001 ....................... 100 100 100 100 100
March 25, 2002 ....................... 100 100 100 100 0
March 25, 2003 ....................... 100 74 55 24 0
March 25, 2004 ....................... 100 57 40 0 0
March 25, 2005 ....................... 100 45 29 0 0
March 25, 2006 ....................... 100 35 19 0 0
March 25, 2007 ....................... 100 27 0 0 0
March 25, 2008 ....................... 100 18 0 0 0
March 25, 2009 ....................... 100 0 0 0 0
March 25, 2010 ....................... 100 0 0 0 0
March 25, 2011 ....................... 100 0 0 0 0
March 25, 2012 ....................... 100 0 0 0 0
March 25, 2013 ....................... 100 0 0 0 0
March 25, 2014 ....................... 100 0 0 0 0
March 25, 2015 ....................... 100 0 0 0 0
March 25, 2016 ....................... 100 0 0 0 0
March 25, 2017 ....................... 100 0 0 0 0
March 25, 2018 ....................... 100 0 0 0 0
March 25, 2019 ....................... 100 0 0 0 0
March 25, 2020 ....................... 100 0 0 0 0
March 25, 2021 ....................... 100 0 0 0 0
March 25, 2022 ....................... 100 0 0 0 0
March 25, 2023 ....................... 97 0 0 0 0
March 25, 2024 ....................... 84 0 0 0 0
March 25, 2025 ....................... 70 0 0 0 0
March 25, 2026 ....................... 55 0 0 0 0
March 25, 2027 ....................... 37 0 0 0 0
March 25, 2028 ....................... 0 0 0 0 0
March 25, 2029 ....................... 0 0 0 0 0
Weighted Average Life in years(1)..... 27.1 6.0 4.8 3.6 3.0
</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-71
<PAGE>
Additional Information
The Depositor has filed certain additional yield tables and other
computational materials with respect to the 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)), to Lehman Brothers Inc. (Prohibited Transaction Exemption 91-14, 56
Fed. Reg. 7413 (1991)) and to Morgan Stanley & Co. Incorporated (Prohibited
Transaction Exemption 90-24, 55 Fed. Reg. 20548 (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;
S-74
<PAGE>
(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
(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 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 Matters" 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 dated
December 16, 1998 and the terms agreement dated March 23, 1999 (together, the
"Underwriting Agreement") between the Depositor and Chase Securities Inc.
("CSI"), as underwriter, the underwriting agreement dated March 23, 1999 and the
terms agreement dated March 23, 1999 between the Depositor and Lehman Brothers
Incorporated ("Lehman") and the underwriting agreement dated March 23, 1999 and
the terms agreement dated March 23, 1999 between the Depositor and Morgan
Stanley & Co. Incorporated ("Morgan Stanley") 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, Lehman and Morgan
Stanley is referred to herein as an "Underwriter," and together, as the
"Underwriters."
<TABLE>
<CAPTION>
Lehman Brothers Morgan Stanley
Class of Certificate Chase Securities Inc. Incorporated & Co. Incorporated
- -------------------- --------------------- ---------------- ------------------
<S> <C> <C> <C>
Class IA-1 Certificates .......... $ 24,055,000.00 $ 24,055,000.00 $ 8,490,000.00
Class IA-2 Certificates .......... 10,115,000.00 10,115,000.00 3,570,000.00
Class IA-3 Certificates .......... 5,482,500.00 5,482,500.00 1,935,000.00
Class IA-4 Certificates .......... 5,100,000.00 5,100,000.00 1,800,000.00
Class IA-5 Certificates .......... 5,525,000.00 5,525,000.00 1,950,000.00
Class IM-1 Certificates .......... 2,969,475.00 2,969,475.00 1,048,050.00
Class IM-2 Certificates .......... 966,875.00 966,875.00 341,250.00
Class IB Certificates ............ 1,036,150.00 1,036,150.00 365,700.00
Class IIA-1 Certificates ......... 58,926,250.00 58,926,250.00 20,797,500.00
Class IIA-2 Certificates ......... 24,968,750.00 24,968,750.00 8,812,500.00
Class IIM-1 Certificates ......... 7,490,625.00 7,490,625.00 2,643,750.00
Class IIM-2 Certificates ......... 4,993,750.00 4,993,750.00 1,762,500.00
Class IIB Certificates ........... 3,495,625.00 3,495,625.00 1,233,750.00
Total ......................... $ 155,125,000.00 $ 155,125,000.00 $ 54,750,000.00
</TABLE>
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<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>
Underwriting Selling Reallowance
Class of Certificate Price to Public Discount Concession Discount
- -------------------- --------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Class IA-1 Certificates .......... 99.99908% 0.150% 0.090% 0.0750%
Class IA-2 Certificates .......... 99.98730% 0.205% 0.130% 0.1000%
Class IA-3 Certificates .......... 99.98976% 0.350% 0.210% 0.1250%
Class IA-4 Certificates .......... 99.99414% 0.550% 0.330% 0.2500%
Class IA-5 Certificates .......... 99.98233% 0.375% 0.225% 0.1250%
Class IM-1 Certificates .......... 99.98080% 0.400% 0.240% 0.1250%
Class IM-2 Certificates .......... 99.98089% 0.450% 0.270% 0.1250%
Class IB Certificates ............ 99.99871% 0.600% 0.360% 0.2500%
Class IIA-1 Certificates ......... 100.00000% 0.150% 0.090% 0.0750%
Class IIA-2 Certificates ......... 99.99868% 0.315% 0.189% 0.1250%
Class IIM-1 Certificates ......... 100.00000% 0.400% 0.240% 0.1250%
Class IIM-2 Certificates ......... 100.00000% 0.450% 0.270% 0.1250%
Class IIB Certificates ........... 100.00000% 0.604% 0.360% 0.1250%
</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 no 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 any 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 Cadwalader,
Wickersham & Taft, 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 and Fitch.
S&P FITCH
CLASS RATING RATING
----- ------ ------
IA-1 .................................. AAA AAA
IA-2 .................................. AAA AAA
IA-3 .................................. AAA AAA
IA-4 .................................. AAA AAA
IA-5 .................................. AAA AAA
IM-1 .................................. AA AA
IM-2 .................................. A A
IB .................................... BBB BBB
IIA-1 ................................. AAA AAA
IIA-2 ................................. AAA AAA
IIM-1 ................................. AA AA
IIM-2 ................................. A A
IIB ................................... BBB BBB
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 or the likelihood of receipt of Interest
Carryover Amounts.
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 or address the likelihood of receipt of Interest Carryover
Amounts.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than S&P and Fitch. 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>
INDEX OF DEFINED TERMS
1/29 Loans.............................................................. S-21
2/28 Loans.............................................................. S-21
3/27 Loans.............................................................. S-21
5/25 Loans.............................................................. S-21
Accounts................................................................ S-20
Accrual Period.......................................................... S-50
Adjustable Rate Certificate Carryover................................... S-52
Adjustable Rate Mortgage Loan.......................................... .S-20
Adjustment Date......................................................... S-21
Advance................................................................. S-43
Advanta................................................................. S-20
Advanta Parent.......................................................... S-40
Applied Realized Loss Amount.............................................S-57
Available Funds Cap..................................................... S-51
B&C..................................................................... S-20
B&C Underwriting Guidelines............................................. S-36
Balloon Amount.......................................................... S-22
Balloon Loan............................................................ S-22
Book-Entry Certificates................................................. S-45
Cede.................................................................... S-45
CEDEL................................................................... S-45
CEDEL Participants...................................................... S-47
Certificate Account..................................................... S-49
Certificate Group....................................................... S-45
Certificate Owners...................................................... S-45
Certificate Principal Balances.......................................... S-45
Certificates............................................................ S-45
Chase Manhattan Mortgage................................................ S-36
Class A Certificates.................................................... S-45
Class A Group I Certificates............................................ S-45
Class A Group II Certificates.......................................... .S-45
Class A Principal Distribution Amount................................... S-52
Class B Certificates.................................................... S-45
Class B Principal Distribution Amount................................... S-54
Class IA-5 Distribution Amount.......................................... S-53
Class IB Certificates................................................... S-45
Class IIA-2 Principal Distribution Amount............................... S-53
Class IIB Certificates................................................. .S-45
Class IIM-1 Certificates............................................... .S-45
Class IIM-2 Certificates................................................ S-45
Class IM-1 Certificates................................................. S-45
Class IM-2 Certificates................................................. S-45
Class M-1 Certificates.................................................. S-45
Class M-1 Principal Distribution Amount................................. S-53
Class M-2 Certificates.................................................. S-45
Class M-2 Principal Distribution Amount................................. S-54
Closing Date............................................................ S-20
Collateral Value........................................................ S-22
Collection Account...................................................... S-49
Compensating Interest................................................... S-43
Constant Prepayment Rate................................................ S-63
Contributions Tax....................................................... S-73
<PAGE>
Cooperative............................................................. S-47
CPR..................................................................... S-63
CSI..................................................................... S-76
Current Interest........................................................ S-51
Cut-off Date............................................................ S-20
DCR..................................................................... S-74
Definitive Certificate.................................................. S-46
Depositor............................................................... S-20
Determination Date...................................................... S-58
Distribution Account.................................................... S-49
Distribution Date....................................................... S-50
DTC..................................................................... S-45
Due Dates............................................................... S-43
Due Period.............................................................. S-50
ERISA................................................................... S-73
Euroclear............................................................... S-45
Euroclear Operator...................................................... S-47
Euroclear Participants.................................................. S-47
European Depositaries................................................... S-45
Exemptions.............................................................. S-74
Extra Principal Distribution Amount..................................... S-54
Financial Intermediary................................................. .S-46
Fitch................................................................... S-74
Fixed Rate Mortgage Loan............................................... .S-20
Foreclosure Rate........................................................ S-41
Gross Margin............................................................ S-21
Group I Certificates.................................................... S-45
Group II Certificates....................................................S-45
HEP..................................................................... S-63
Home Equity Prepayment.................................................. S-63
Indirect Participants....................................................S-46
Interest Carry Forward Amount........................................... S-51
Interest Determination Date............................................. S-57
Interest Funds.......................................................... S-49
Last Scheduled Distribution Date........................................ S-63
Lehman.................................................................. S-76
LIBOR Business Day...................................................... S-57
Loan Group.............................................................. S-20
Loan-to-Value Ratio..................................................... S-22
Master REMIC............................................................ S-72
Master Servicer......................................................... S-20
Master Servicer Fee..................................................... S-44
Master Servicer Fee Rate................................................ S-44
Maximum Funds Cap....................................................... S-51
Maximum Mortgage Rate................................................... S-21
Mezzanine Certificates.................................................. S-45
Mezzanine Group I Certificates.......................................... S-45
Mezzanine Group II Certificates......................................... S-45
Minimum Mortgage Rate................................................... S-21
Modeling Assumptions.................................................... S-63
Moody's................................................................. S-74
Morgan Stanley.......................................................... S-76
Mortgage Index.......................................................... S-21
Mortgage Loan Schedule.................................................. S-36
S-79
<PAGE>
Mortgage Loans.......................................................... S-20
Mortgage Note........................................................... S-20
Mortgage Pool........................................................... S-20
Mortgage Rates.......................................................... S-23
Mortgaged Properties.................................................... S-20
Mortgagors.............................................................. S-20
Net Excess Cashflow..................................................... S-56
Net Mortgage Rate....................................................... S-51
Offered Certificates.................................................... S-45
One-Month LIBOR......................................................... S-51
Optional Termination Amount............................................. S-57
Optional Termination Date............................................... S-59
Owned and Managed Servicing Portfolio................................... S-41
Participants............................................................ S-46
Pass-Through Margin..................................................... S-52
Pass-Through Rate....................................................... S-51
Percentage Interest..................................................... S-50
Periodic Rate Cap....................................................... S-21
Plan.................................................................... S-73
Pooling and Servicing Agreement......................................... S-20
Prepayment Interest Shortfall........................................... S-43
Prepayment Models....................................................... S-63
Prepayment Period....................................................... S-50
Principal Distribution Amount........................................... S-52
Principal Funds......................................................... S-49
Prohibited Transactions Tax............................................. S-73
Prospectus.............................................................. S-45
PTCE 95-60.............................................................. S-75
Realized Loss........................................................... S-57
Record Date............................................................. S-50
Reference Banks......................................................... S-57
Relevant Depositary..................................................... S-45
<PAGE>
REO Property............................................................ S-43
Repurchase Price........................................................ S-59
Required Percentage..................................................... S-55
Reserve Interest Rate................................................... S-57
Residual Certificates................................................... S-45
Restricted Group........................................................ S-75
Reuters Screen LIBO Page................................................ S-57
Rules................................................................... S-46
S&P..................................................................... S-74
Scheduled Payments...................................................... S-20
Seller.................................................................. S-20
Servicer Advance Date................................................... S-43
Servicer Remittance Date................................................ S-49
Servicing Fee........................................................... S-42
Servicing Fee Rate...................................................... S-42
Six Month LIBOR Loans................................................... S-21
SMMEA................................................................... S-76
Stated Principal Balance................................................ S-42
Statistical Mortgage Pool............................................... S-20
Stepdown Date........................................................... S-55
Stepup Trigger Event.................................................... S-55
Subordinated Certificates............................................... S-45
Subordinated Group I Certificates....................................... S-45
Subordinated Group II Certificates...................................... S-45
Subservicer............................................................. S-20
Subsidiary REMIC........................................................ S-72
Subsidiary REMIC Regular Interests...................................... S-72
Terms and Conditions.................................................... S-47
Third Party Servicing Portfolio......................................... S-41
Trigger Event........................................................... S-55
Trust Fund.............................................................. S-45
Trustee................................................................. S-20
Underwriter............................................................. S-76
Underwriters............................................................ S-76
Underwriting Agreement...................................................S-76
Unpaid Realized Loss Amount............................................. S-57
S-80
<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 1999-1 (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,
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<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), including an
entity treated as a corporation or partnership for federal income tax purposes,
(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 United States persons have
A-3
<PAGE>
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.
<PAGE>
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 March 23, 1999.
<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.
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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
Certificate Guaranty Insurance Policies ....... 16
Overcollateralization ......................... 16
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 and Guarantees ................ 20
YIELD, MATURITY AND WEIGHTED
AVERAGE LIFE CONSIDERATIONS ................... 20
CHASE MANHATTAN ACCEPTANCE
CORPORATION ................................... 22
CHASE FUNDING, INC. .............................. 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
Forward Commitments; Pre-Refunding ............ 30
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
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<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
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<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
5
<PAGE>
(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
6
<PAGE>
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".
7
<PAGE>
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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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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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
Corporation. 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 more than the percentage of the Mortgage Loans specified in the
applicable Prospectus Supplement were more than 30 days delinquent in payment
and no more than the percentage of the Mortgage Loans specified in the
applicable Prospectus Supplement 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, or
partnership (unless, in the case of a partnership, Treasury regulations are
adopted that provide otherwise) created or organized in or under the laws of the
United States, any State thereof or the District of Columbia, including an
entity treated as a corporation or partnership for federal income tax purposes,
an estate whose income is subject to United States federal income tax regardless
of its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust, and one or
more such U.S. Persons have the authority to control all substantial decisions
of such trust (or, the extent provided in applicable Treasury regulations,
certain trusts in existence on August 20, 1996 which are elibible to elect to be
treated as U.S. Persons).
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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$365,000,000 (Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 1999-1
[GRAPHIC OMITTED]
Chase Funding, Inc.
Depositor
Advanta Mortgage Corp. USA
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
-----------------------------
PROSPECTUS SUPPLEMENT
-----------------------------
Chase Securities Inc.
Lehman Brothers
Morgan Stanley Dean Witter
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 June 21, 1999.
March 23, 1999
