<PAGE>
PROSPECTUS SUPPLEMENT [GRAPHIC OMITTED]
(To Prospectus dated June 16, 1999)
$370,000,000(Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 1999-4
[GRAPHIC OMITTED]
Chase Funding Trust, Series 1999-4
Issuer
Chase Funding, Inc.
Depositor
Advanta Mortgage Corp. USA
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------- Chase Funding Trust, Series 1999-4 will issue fourteen classes of
certificates, thirteen of which are offered by this prospectus supplement
Investing in these certificates and the attached prospectus. The table on page S-3 identifies the various
involves risks. You should not classes and specifies certain characteristics of each class, including each
purchase these certificates unless class's initial certificate principal balance, interest rate and rating.
you fully understand their risks and
structure. See "Risk Factors" The trust fund will consist primarily of sub-prime mortgage loans secured by
beginning on page S-16 of this first liens on real properties which were originated or acquired by Chase
prospectus supplement and page 8 of Manhattan Mortgage Corporation.
the attached prospectus.
Underwriting Proceeds to
These certificates will be Price to Public(1) Discount(1) Depositor(2)
beneficial interests in a trust -------------------- -------------- ---------------
fund, and will be backed only by the $ 369,960,157 $ 925,000 $369,035,157
assets of the trust. Neither these 99.9892316% 0.25%
certificates nor the assets of the
trust will be obligations of Chase (1) The price to public and underwriting discount shown are for all classes
Funding, Inc., Advanta Mortgage of offered certificates in the aggregate. This information is shown for each
Corp. USA, Chase Manhattan Mortgage individual class on page S-80. See "Method of Distribution."
Corporation or any of their
affiliates. These certificates will (2) Less expenses (estimated at $525,000) and plus accrued interest. See
not be insured or guaranteed by any "Method of Distribution."
governmental agency.
- --------------------------------------
</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.
Bear, Stearns & Co. Inc.
First Union Securities, Inc.
Donaldson, Lufkin & Jenrette
The date of this Prospectus Supplement is December 20, 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-82 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 1999-4 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 1999-4 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-16
Forward-Looking Statements .................................. S-16
Overcollateralization Provisions ............................ S-16
Prepayment Considerations and Risks ......................... S-16
Risk of Higher Delinquencies Associated with
Underwriting Guidelines .................................. S-17
Effect of Mortgage Loan Yield on the Group II
Certificates Pass-Through Rate; Basis Risk ............... S-17
Pass-Through Rates With Respect to the Class IA-1,
Class IA-5, Class IA-6, Class IM-1, Class IM-2
and Class IB Certificates ................................ S-18
Subordination--Limited Protection Afforded to
Offered Certificates ..................................... S-18
Subordination--Allocation of Losses to the Class M
and Class B Certificates ................................. S-19
Cash Flow Considerations and Risks .......................... S-19
Certificate Rating on the Certificates ...................... S-19
Bankruptcy and Insolvency Risks ............................. S-19
Certificates May Not Be Appropriate For Individual
Investors ................................................ S-19
Geographic Concentration .................................... S-20
Risk of Higher Default Rates for Mortgage Loans
with Balloon Payments .................................... S-20
Delinquent Mortgage Loans ................................... S-21
Optional Termination Could Reduce Benefits of
Crosscollateralization ................................... S-21
Limited Liquidity; Lack of SMMEA Eligibility ................ S-21
Risks Associated with Year 2000 Compliance .................. S-21
Year 2000 Legislation May Affect Timely Exercise of
Remedies ................................................. S-22
<PAGE>
THE MORTGAGE POOL ............................................. S-23
General ..................................................... S-23
Mortgage Loans .............................................. S-26
Assignment of the Mortgage Loans ............................ S-39
Representations and Warranties .............................. S-39
CHASE MANHATTAN MORTGAGE
CORPORATION ................................................. S-39
Underwriting Standards ...................................... S-40
SERVICING OF THE MORTGAGE LOANS ............................... S-42
General ..................................................... S-42
The Subservicer ............................................. S-42
Servicing Compensation and Payment of Expenses .............. S-45
Adjustment to Servicing Fee in Connection with
Certain Prepaid Mortgage Loans ........................... S-46
Advances .................................................... S-46
Master Servicer ............................................. S-47
DESCRIPTION OF THE CERTIFICATES ............................... S-47
General ..................................................... S-47
Book-Entry Certificates ..................................... S-48
Payments on Mortgage Loans; Collection Account;
Certificate Account; Distribution Account ................ S-51
Distributions ............................................... S-52
Overcollateralization and Crosscollateralization
Provisions ............................................... S-57
Calculation of One-Month LIBOR. ............................. S-59
Reports to Certificateholders ............................... S-59
Amendment ................................................... S-60
Optional Termination ........................................ S-61
Optional Purchase of Defaulted Loans ........................ S-61
Events of Default ........................................... S-61
Rights upon Event of Default ................................ S-61
The Trustee ................................................. S-62
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS .............................................. S-62
General ..................................................... S-62
Prepayments and Yields for Offered Certificates ............. S-63
Additional Information ...................................... S-75
FEDERAL INCOME TAX CONSEQUENCES ............................... S-75
Original Issue Discount ..................................... S-75
Special Tax Attributes of the Offered Certificates .......... S-75
Prohibited Transactions Tax and Other Taxes ................. S-76
STATE TAXES ................................................... S-76
ERISA CONSIDERATIONS .......................................... S-76
LEGAL INVESTMENT MATTERS ...................................... S-78
USE OF PROCEEDS ............................................... S-79
METHOD OF DISTRIBUTION ........................................ S-79
LEGAL MATTERS ................................................. S-80
RATINGS ....................................................... S-81
INDEX OF DEFINED TERMS ........................................ S-82
ANNEX I ....................................................... A-1
S-2
<PAGE>
THE SERIES 1999-4 CERTIFICATES
<TABLE>
<CAPTION>
Class IA-1 Class IA-2 Class IA-3 Class IA-4
<S> <C> <C> <C> <C>
Loan Group: Fixed Fixed Fixed Fixed
Initial Certificate Principal
Balance(1): $43,000,000 $18,500,000 $18,500,000 $16,000,000
Pass Through Rate: (4) 7.120% 7.194% 7.494%
ERISA Eligible: Yes Yes Yes Yes
Prepayment Assumption(5): 23% HEP 23% HEP 23% HEP 23% HEP
First Principal Payment Date(6): 1/00 9/01 7/02 12/03
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 0.95 2.13 3.18 5.13
to maturity (yrs.)(6): 0.95 2.13 3.18 5.13
Expected Maturity (to call)(6): 9/01 7/02 12/03 9/06
Expected Maturity (to maturity)(6): 9/01 7/02 12/03 9/06
Last Scheduled Distribution Date: 11/14 11/14 4/20 10/26
Interest Accrual Method: actual/360 30/360 30/360 30/360
Interest Rate Index Reset Date: (7) N/A N/A N/A
Payment Delay: 0 days 24 days 24 days 24 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AAA/AAA AAA/AAA AAA/AAA
Class IA-5 Class IA-6 Class IM-1 Class IM-2
Loan Group: Fixed Fixed Fixed Fixed
Initial Certificate Principal
Balance(1): $11,640,000 $11,960,000 $4,550,000 $2,925,000
Pass Through Rate: 7.744%(2)(3) 7.407% 7.733%(3) 8.276%(3)
ERISA Eligible: Yes Yes No No
Prepayment Assumption(5): 23% HEP 23% HEP 23% HEP 23% HEP
First Principal Payment Date(6): 9/06 1/03 1/03 1/03
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 8.37 6.48 5.73 5.73
to maturity (yrs.)(6): 10.89 6.54 6.19 6.06
Expected Maturity (to call)(6): 7/08 7/08 7/08 7/08
Expected Maturity (to maturity)(6): 2/16 5/09 1/13 7/11
Last Scheduled Distribution Date: 10/29 9/11 10/29 10/29
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 AA/AA A/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class IB Class IIA-1 Class IIM-1 Class IIM-2 Class IIB
<S> <C> <C> <C> <C> <C>
Loan Group: Fixed Adjustable Adjustable Adjustable Adjustable
Initial Certificate Principal
Balance(1): $2,925,000 $205,200,000 $14,760,000 $10,440,000 $9,600,000
Pass Through Rate: 9.000%(3) (2)(4) (2)(4) (2)(4) (2)(4)
ERISA Eligible: No Yes No No No
Prepayment Assumption(5): 23% HEP 27% CPR 27% CPR 27% CPR 27% CPR
First Principal Payment Date(6): 1/03 1/00 4/03 2/03 1/03
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 5.66 2.38 4.93 4.88 4.84
to maturity (yrs.)(6): 5.73 2.60 5.43 5.31 5.12
Expected Maturity (to call)(6): 7/08 3/07 3/07 3/07 3/07
Expected Maturity (to maturity)(6): 12/09 3/16 2/13 10/11 4/10
Last Scheduled Distribution Date: 10/29 11/29 11/29 11/29 11/29
Interest Accrual Method: 30/360 actual/360 actual/360 actual/360 actual/360
Interest Rate Index Reset Date: N/A (7) (7) (7) (7)
Payment Delay: 24 days 0 days 0 days 0 days 0 days
Anticipated Ratings (S&P/Fitch): BBB/BBB 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-5, Class IIA-1, Class IIM-1, Class IIM-2 and Class IIB
Certificates will increase.
(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 beginning on page S-65 and 23%
HEP or 27% CPR, as applicable. (7) Two business days prior to the start of
each interest accrual period.
<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: 3.10% of current balance Stepdown Percentage: 5.80% of current balance
Targeted Percentage: 1.55% of original balance Targeted Percentage: 2.90% of original balance
Minimum Required Percentage: 0.50% of original balance Minimum Required Percentage: 0.50% of original balance
Earliest Possible Stepdown Date: January 2003 Earliest Possible Stepdown Date: January 2003
</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 1999-4.
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 December 1, 1999.
Closing Date
The closing date will be on or about December 22, 1999.
Distribution Date
The 25th day of each month, beginning in January 2000. If the 25th day is not a
business day, then the distribution date will be the next business day.
<PAGE>
The Trust Fund
The name of the trust fund is Chase Funding Trust, Series 1999-4. 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 1999-4 Certificates
The certificates represent beneficial ownership interests in the underlying
trust fund assets. The certificates will have the original certificate principal
balance, pass-through rate and other features set forth in the table on page
S-3. The trust fund will issue the certificates under a Pooling and Servicing
Agreement dated as of December 1, 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 mortgage loans 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
S-4
<PAGE>
accrue on each class of certificates (other than the Class IA-1 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 IA- 1, 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 rates on the Class IA-1, Class IA-5, Class IM-1, Class IM-2 and
Class IB Certificates will be subject to a cap based on the weighted average net
mortgage rate of the fixed rate mortgage loans and such Certificates will not
carry over or be reimbursed for interest shortfalls resulting from the
imposition of that interest rate cap. The pass-through rates on the 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 II, less certain amounts, is insufficient to pay the
interest accrued on the group II certificates, the interest payment on 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 such loan group. 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 pass-through rates on the Class
IIA-1, Class IIM-1, Class IIM-2 and Class IIB Certificates will also be subject
to a maximum interest rate cap based on the weighted average of the net 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.
<PAGE>
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 senior certificates in the related loan
group (commencing with the distribution date occurring in April 2000) 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
S-5
<PAGE>
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. This could result in a temporarily
faster or slower amortization of one or both groups of the certificates. See
"Description of the Certificates-- Overcollateralization and
Crosscollateralization Provisions."
Crosscollateralization. The trust fund provides for
crosscollateralization through the 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.
<PAGE>
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, 8.00%
Class IM-2
and Class IB
IM-1 Class IM-2 4.50%
and Class IB
IM-2 Class IB 2.25%
Group II Initial Credit
Class(es) Credit Support Support
- ----------- ---------------- ---------------
IIA Class IIM-1, 14.50%
Class IIM-2
and Class IIB
IIM-1 Class IIM-2 8.35%
and Class IIB
IIM-2 Class IIB 4.00%
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 principal balance of the
certificates in such loan group as of the closing date. See "Description of the
Certificates--Optional Termination."
Legal Investment
As of the closing date, the Class IA, Class IIA, Class IM-1 and Class IIM-1
Certificates will constitute "mortgage related securities" under the Secondary
Mortgage Market Enhancement Act of 1984, as amended. The Class IM-2, Class IB,
Class IIM-2 and Class IIB Certificates will not constitute "mortgage related
securities." You should consult your own counsel as to whether you have the
legal authority to invest in securities such as the offered 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
S-6
<PAGE>
Mortgage Investment Conduits. The certificates will represent ownership of
regular interests in the trust fund and will generally be treated as debt
instruments of the trust fund for federal income tax purposes. You will be
required to include in income all interest and original issue discount, if any,
on your certificates in accordance with the accrual method of accounting
regardless of your usual method of accounting. See "Federal Income Tax
Consequences" in this prospectus supplement and in the attached prospectus.
ERISA Considerations
In general, the certificates (except for the Class IM-1, Class IM-2, 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 December 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
December 1, 1999, which we refer to as the statistical mortgage pool. The
mortgage pool as of the closing date will include certain mortgage loans that
are not included in the mortgage pool in this prospectus supplement;
furthermore, certain mortgage loans that are included in the statistical
information in this prospectus supplement will be deleted from the final
mortgage pool. Other than increasing the aggregate principal balance of the
mortgage loans to approximately $370,000,000, we do not expect the inclusion or
deletion of these mortgage loans to change the material characteristics of
either 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 mortgage pool. For additional information on
the mortgage loans, see "The Mortgage Loans."
S-7
<PAGE>
FIXED RATE MORTGAGE LOAN GROUP
(STATISTICAL MORTGAGE POOL)
Number of loans 1,446
Aggregate outstanding principal balance $120,881,092
Number of loans with prepayment penalties 1,148
Average or
Weighted Average Range
------------------ --------------------
Outstanding principal balance $83,597 $ 9,977 - $560,657
Original principal balance $83,694 $10,000 - $561,105
Mortgage rate 9.881% 5.950% - 14.250%
Loan-to-value ratio 72.76% 12.77% - 95.00%
Stated remaining term to maturity 250 118 - 360
Credit Score 620 461 - 803
[GRAPHIC OMITTED]
S-8
<PAGE>
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
S-9
<PAGE>
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
S-10
<PAGE>
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
S-11
<PAGE>
ADJUSTABLE RATE MORTGAGE
LOAN GROUP
(STATISTICAL MORTGAGE POOL)
Number of loans 1,956
Aggregate outstanding principal balance $232,662,785
Number of loans with prepayment penalties 1,153
<TABLE>
<CAPTION>
Average or
Weighted Average Range
------------------ ---------------------
<S> <C> <C>
Outstanding principal balance $118,948 $ 18,428 - $1,000,000
Original principal balance $119,010 $ 18,445 - $1,000,000
Current mortgage rates 9.960% 6.500% - 13.750%
Maximum mortgage rates 16.933% 13.500% - 20.750%
Minimum mortgage rates 9.961% 6.500% - 13.750%
Loan-to-value ratio 77.31% 16.73% - 95.00%
Stated remaining term to maturity 359 352 - 360
Credit Score 601 450 - 791
Gross Margin 5.674% 3.250% - 8.250%
Initial Rate Cap 2.922% 1.000% - 3.000%
Periodic Rate Cap 1.472% 1.000% - 2.000%
</TABLE>
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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 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. In addition, no
excess interest will be applied to overcollateralization until the distribution
date in April 2000, which will delay the time until the group I and group II
certificates reach their respective required overcollateralization levels.
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
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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 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 and the Class IA-1
Certificates will also be sensitive to the level of one-month LIBOR, the level
of the mortgage index and the additional limitations on the pass-through rate
for such class described 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 80.3% of the fixed rate
mortgage loans and approximately 57.8% 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 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 an available amount interest rate cap and a maximum rate cap.
The available amount interest rate cap effectively limits the amount of
interest accrued on each class of group II certificates to the amount of
interest accruing on the adjustable rate mortgage loans. Various factors may
cause the interest rate cap described above to limit the amount of interest that
would otherwise accrue on
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the group II certificates. First, this can result if one-month LIBOR increases
more rapidly than six month LIBOR. In addition, the pass-through rates on the
group II 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. The
adjustable rate mortgage loans are also 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. 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 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 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 during the related period. Furthermore, if the interest rate cap
described above determines the pass-through rates for the group II 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, is
subject to a maximum rate 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 rate cap may
limit increases in the pass-through rates on such classes of the group II Class
A Certificates. This can occur even if there is sufficient interest collected on
the adjustable rate mortgage loans, net of trust fund expenses, to pay interest
on the Group II Certificates without giving effect to such maximum rate cap.
Pass-Through Rates With Respect to the Class IA-1, Class IA-5, Class IM-1,
Class IM-2 and Class IB Certificates
On any distribution date, the pass-through rate for the Class IA-1
Certificates will equal the lesser of (i) one month LIBOR plus 0.19% and (ii)
the weighted average net mortgage rate on the fixed rate mortgage loans.
Therefore, to the extent that the weighted average net mortgage rate on the
fixed rate mortgage loans is ever reduced to less than one month LIBOR plus
0.19%, investors in the Class IA-1 Certificates may experience a lower than
anticipated yield. In addition, on any distribution date, the pass-through rates
for the Class IA-5, Class IM-1, Class IM-2 and Class IB Certificates will equal
the lesser of (A) the rate set forth for such class in the table on page S-3 and
(B) the weighted average net mortgage rate on the fixed rate mortgage loans.
Therefore, to the extent that the weighted average net mortgage rate on the
fixed rate mortgage loans is ever reduced to less than the applicable rate
described in clause (A), investors in the Class IA-5, Class IM-1, Class IM-2 or
Class IB Certificates may experience a lower than anticipated yield.
This limitation on the payment of interest on such group I Certificates can
occur even if there is sufficient interest collected on the fixed rate mortgage
loans, net of trust fund expenses, to pay interest on the Class IA-1, Class
IA-5, Class IM-1, Class IM-2 and Class IB Certificates without giving effect to
such weighted average net interest rate caps.
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.
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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 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 such mortgage loan sales as a borrowing by such company, secured
by a pledge of the applicable mortgage loans. If the trustee in bankruptcy
decided to challenge such transfers, 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;
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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."
Geographic Concentration
As of the cut-off date, approximately 17.7% of the mortgaged properties of
the fixed rate mortgage loan group and approximately 9.4% of the mortgaged
properties of the adjustable rate mortgage loan group were located in the State
of Florida. As of the cut-off date, approximately 9.6% of the mortgaged
properties of the fixed rate mortgage loan group and approximately 11.8% of the
mortgaged properties of the adjustable rate mortgage loans were located in the
State of California. As of the cut-off date, approximately 4.3% of the mortgaged
properties of the fixed rate mortgage loans and approximately 9.0% of the
mortgaged properties of the adjustable rate mortgage loans were located in the
State of Michigan. As of the cut-off date, approximately 13.5% of the mortgaged
properties of the fixed rate mortgage loans and approximately 7.2% of the
mortgaged properties of the adjustable rate mortgage loans were located in the
State of New York. As of the cut-off date, approximately 4.9% of the mortgaged
properties of the fixed rate mortgage loans and approximately 5.3% of the
mortgaged properties of the adjustable rate mortgage loans were located in the
State of Illinois. As of the cut-off date, approximately 7.2% of the mortgaged
properties of the fixed rate mortgage loans and approximately 2.8% of the
mortgaged properties of the adjustable rate mortgage loans were located in
Tennessee. An overall decline in the Florida, California, Michigan, New York,
Illinois or Tennessee 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, California, Michigan, New York, Illinois or Tennessee residential
real estate market will not weaken. If the Florida, California, Michigan, New
York, Illinois or Tennessee 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 40.9% of the aggregate principal balance of the fixed rate
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.
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Delinquent Mortgage Loans
The trust fund may include mortgage loans which are 59 or fewer days
delinquent as of the cut-off date. 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 the aggregate principal balance of the certificates
of such loan group as of the closing date. 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 Class IM-2, Class IB, Class IIM-2 and Class IIB certificates
will not constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, as amended. Accordingly, many
institutions with legal authority to invest in SMMEA securities will not be able
to invest in such certificates, thereby limiting the market for such
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 Class IM-2, Class IB, Class IIM-2 and Class IIB 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 and
Citibank, N.A. that they are each 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. In addition, we have
been advised by Advanta Mortgage Corp. USA that as of September 30, 1999, it had
completed implementation of project plans to modify existing computer programs,
convert to new programs and replace systems to the extent necessary to cause its
internal and external mission critical programs and systems to be year 2000
compliant 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
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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.
Year 2000 Legislation May Affect Timely Exercise of Remedies
In July 1999, Congress approved, and the President signed into law,
legislation that limits legal liability for losses due to year 2000
computer-related errors. This legislation, among other things, also protects
mortgagors from foreclosure if their residential mortgage loans become
delinquent because an actual year 2000 failure results in the inability to
accurately or timely process their mortgage payments.
This legislation is not intended to extinguish or otherwise affect a
mortgagor's payment obligations but instead delays the enforcement of
obligations on an otherwise defaulted mortgage loan. Mortgagors seeking
foreclosure protection under this legislation must provide timely written notice
and documentation to the servicer of the failure of their mortgage payments to
be accurately or timely applied. Absent an extension from the servicer,
mortgagors will then have four weeks to make up late payments on their loans.
This legislation does not apply to mortgage loans for which a default occurred
before December 15, 1999, or for which an imminent default is foreseeable before
that date. Moreover, this legislation does not protect mortgagors who deliver
notice of a year 2000 failure after March 15, 2000. Mortgage loans that remain
in default after the applicable grace period will be subject to foreclosure or
other enforcement.
This legislation could delay the servicer's ability to foreclose on some
loans during the first quarter of the year 2000. These delays could consequently
affect the timing of payments on your certificates.
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 December 1, 1999 (the "Cut-off Date") of 3,402 conventional
mortgage loans (the "Mortgage Loans") evidenced by promissory notes (each, a
"Mortgage Note") having an aggregate principal balance of approximately
$353,543,878 (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 December 22, 1999 (the "Closing Date") will include certain Mortgage Loans
that are not included in the Statistical Mortgage Pool; furthermore, certain
Mortgage Loans that are included in the Statistical Mortgage Pool will be
deleted from the Statistical Mortgage Pool. Other than increasing the aggregate
principal balance of the Mortgage Loans to approximately $370,000,000, we do not
expect the inclusion or deletion of these Mortgage Loans to change the material
characteristics of either Loan Group. Updated statistical information on the
final composition of the 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 to percentages of Mortgaged Properties (defined herein) refer,
in each case, to the percentages of aggregate principal balances of the related
Mortgage Loans in the Statistical Mortgage Pool (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, manufactured housing and small mixed use properties. The Trust
Fund 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
"Pooling and Servicing Agreement") to be dated as of December 1, 1999, by and
among Chase Funding, Inc., as depositor (the "Depositor"), Advanta Mortgage
Corp. USA, as subscriber ("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.
Approximately 15.9% of the Fixed Rate Mortgage Loans in the Statistical
Mortgage Pool and approximately 0.5% of the Adjustable Rate Mortgage Loans in
the Statistical Mortgage Pool were purchased by the Seller under its small
lender program (the "Small Lender Program"). All loans purchased under this
program were originated by third parties and subsequently purchased by the
Seller on an individual loan basis or included in small bulk acquisitions of
generally less than $5,000,000. Each Mortgage Loan purchased through the Small
Lender Program was re-underwritten substantially in accordance with the B&C
Underwriting Guidelines, as described herein under "Chase Mortgage
Corporation--Underwriting Standards--B&C Quality Mortgage Loans."
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 80.3% of the Fixed Rate Mortgage Loans in the
S-23
<PAGE>
Statistical Mortgage Pool and approximately 57.8% of the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool 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 42 months with respect to the Fixed
Rate Mortgage Loans in the Statistical Mortgage Pool which have prepayment
penalties and approximately 32 months with respect to the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool 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 2.4% of the Adjustable Rate Mortgage Loans in the Statistical
Mortgage Pool as of the Cut-off Date (the "Six Month LIBOR Loans") will have a
Mortgage Rate which is generally 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 on
substantially all the Six Month LIBOR Loans 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 2.9% of the Adjustable Rate Mortgage Loans in the Statistical
Mortgage Pool 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 57.8% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool 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 34.8% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool 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
S-24
<PAGE>
respect to the first Adjustment Date and a 1.50% Periodic Rate Cap with respect
to each Adjustment Date there-after, 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 2.1% of the Adjustable Rate Mortgage Loans in the Statistical
Mortgage Pool as of the Cut-off Date (the "5/25 Loans"), bear interest at a
fixed rate for a period of five years after origination and thereafter
substantially all have semiannual interest rate and payment adjustments in
substantially the same manner as the Six-Month LIBOR Loans. Substantially all of
the 5/25 Loans are subject to a 3.00% Periodic Rate Cap with respect to the
first Adjustment Date and a 1.50% Periodic Rate Cap with respect to each
Adjustment Date thereafter, 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 in the Statistical Mortgage
Pool was approximately $120,881,092. As of the Cut-off Date, the average
outstanding principal balance of the Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool was approximately $83,597, the minimum outstanding
principal balance was approximately $9,977, the maximum outstanding principal
balance was approximately $560,657, the lowest Mortgage Rate and the highest
Mortgage Rate were 5.950% and 14.250% per annum, respectively, and the weighted
average Mortgage Rate was approximately 9.881% per annum. Approximately 40.9% of
the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool (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 in the Statistical
Mortgage Pool was approximately $232,662,785. As of the Cut-off Date the average
outstanding principal balance of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool was approximately $118,948, the minimum outstanding
principal balance was approximately $18,428, the maximum outstanding principal
balance was approximately $1,000,000 the lowest current Mortgage Rate and the
highest current Mortgage Rate were approximately 6.500% and 13.750% per annum,
respectively, and the weighted average Mortgage Rate was approximately 9.960%
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 Cutoff Date for the Fixed
Rate Mortgage Loans in the Statistical Mortgage Pool was approximately 72.76%
and the weighted average Loan-to-Value Ratio as of the Cut-off Date for the
Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately 77.31%.
The weighted average Credit Score as of the Cut-off Date of the Fixed Rate
Mortgage Loans that were scored was approximately 620 and the weighted average
Credit Score as of the Cut-off Date of the Adjustable Rate Mortgage Loans that
were scored was approximately 601. "Credit Scores" are statistical credit scores
obtained by many mortgage lenders in connection with the loan application. The
B&C Underwriting Guidelines (defined herein) generally limit the use of Credit
Scores to evaluating borrowers for exceptions to such underwriting guidelines.
Credit Scores are generated by models developed by a third party and are made
available to lenders through three national credit bureaus. The models were
derived by analyzing data on consumers in order to establish patterns which are
believed to be indicative of the borrower's probability of default. The Credit
Score is based on a borrower's historical credit data, including, among other
things, payment history, delinquencies on accounts, levels of outstanding
indebtedness, length of credit history, types of credit, and bankruptcy
experience. Credit Scores range from approximately 250 to approximately 900,
with higher scores indicating an individual with a more favorable credit history
compared to an individual with a lower score. However, a Credit
S-25
<PAGE>
Score purports only to be a measurement of the relative degree of risk a
borrower represents to a lender, i.e., that a borrower with a higher score is
statistically expected to be less likely to default in payment than a borrower
with a lower score. In addition, it should be noted that Credit Scores were
developed to indicate a level of default probability over a two-year period
which does not correspond to the life of a Mortgage Loan. Furthermore, Credit
Scores were not developed specifically for use in connection with mortgage
loans, but for consumer loans in general. Therefore, a Credit Score does not
take into consideration the effect of mortgage loan characteristics on the
probability of repayment by the borrower. Neither the Depositor, the Seller nor
the Subservicer makes any representations or warranties as to the actual
performance of any Mortgage Loan or that a particular Credit Score should be
relied upon as a basis for an expectation that the borrower will repay the
Mortgage Loan according to its terms.
As used herein, the Credit Score of a Mortgage Loan is generally equal to
the score provided by the dominant repository for the primary borrower as
reflected on such borrower's credit report, except for Mortgage Loans purchased
by Seller under the Small Lender Program. The Credit Score of borrowers under
Mortgage Loans purchased by the Seller under the Small Lender Program is
generally the lower of two credit scores or the middle of three scores for
two-file and three-file credit reports, respectively. The credit report is
generated during the underwriting of the Mortgage Loan and generally within 45
days of the origination date. The credit report used is generated by the Seller
on all Mortgage Loans with the exception of Mortgage Loans purchased by the
Seller under the Small Lender Program. The credit report is provided by third
party originators and reviewed by Seller for Mortgage Loans purchased by Seller
under the Small Lender Program. The "primary borrower" is defined as the
mortgagor with the highest verified income for loans originated under the Full
documentation, 24 Month Bank Statement, and Reduced Documentation programs, and
the borrower with the highest stated income as provided on the loan application
for loans originated under the Stated Documentation program.
Mortgage Loans
The following tables describe the Mortgage Loans in the Statistical
Mortgage Pool 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.
FIXED RATE MORTGAGE LOAN GROUP
(STATISTICAL MORTGAGE POOL)
Mortgage Rates for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Range of Number of Aggregate Principal Percent of
Mortgage Rates Mortgage Loans Balance Outstanding Loan Group
- -------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
5.500%-5.999% ........... 1 $ 109,185 0.1%
6.000%-6.499% ........... 1 79,174 0.1
6.500%-6.999% ........... 5 315,846 0.3
7.000%-7.499% ........... 16 1,694,824 1.4
7.500%-7.999% ........... 57 4,951,612 4.1
8.000%-8.499% ........... 60 5,818,941 4.8
8.500%-8.999% ........... 180 17,318,461 14.3
9.000%-9.499% ........... 139 13,273,859 11.0
9.500%-9.999% ........... 271 23,954,043 19.8
10.000%-10.499% ......... 199 15,319,752 12.7
10.500%-10.999% ......... 211 17,030,235 14.1
11.000%-11.499% ......... 111 7,950,971 6.6
11.500%-11.999% ......... 117 7,895,570 6.5
12.000%-12.499% ......... 48 2,972,012 2.5
12.500%-12.999% ......... 17 1,146,602 0.9
13.000%-13.499% ......... 9 884,508 0.7
13.500%-13.999% ......... 3 142,753 0.1
14.000%-14.499% ......... 1 22,746 0.0
----- ------------ -----
Totals ............... 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the interest rates (the "Mortgage Rates") borne by
the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool ranged from
5.950% per annum to 14.250% per annum and the weighted average Mortgage Rate
of the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately 9.881% per annum.
S-26
<PAGE>
Remaining Months to Stated Maturity for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Remaining Terms (Months) Mortgage Loans Balance Outstanding Loan Group
- ----------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
109 to 120 ........................ 28 $ 1,314,252 1.1%
169 to 180 ........................ 831 68,790,849 56.9
181 to 192 ........................ 1 41,546 0.0
229 to 240 ........................ 51 3,090,525 2.6
289 to 300 ........................ 3 263,774 0.2
349 to 360 ........................ 532 47,380,147 39.2
----- ------------ -----
Totals ......................... 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the remaining terms to stated maturity of the Fixed
Rate Mortgage Loans in the Statistical Mortgage Pool ranged from 118 months
to 360 months and the weighted average remaining term to stated maturity of
the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately 250 months.
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>
$100,000 or less.................................... 1,056 $ 58,339,971 48.3%
$100,001-$150,000................................... 229 27,600,993 22.8
$150,001-$200,000................................... 94 16,396,755 13.6
$200,001-$250,000................................... 34 7,636,297 6.3
$250,001-$300,000................................... 16 4,494,070 3.7
$300,001-$350,000................................... 9 2,902,453 2.4
$350,001-$400,000................................... 3 1,116,394 0.9
$400,001-$450,000 .................................. 2 881,452 0.7
$450,001-$500,000................................... 2 952,051 0.8
$500,001-$600,000................................... 1 560,657 0.5
----- ------------ -----
Totals .......................................... 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the outstanding principal balances of the Fixed Rate
Mortgage Loans in the Statistical Mortgage Pool ranged from approximately
$9,977 to approximately $560,657 and the average outstanding principal
balance of the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool
was approximately $83,597.
Product Types for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Product Types Mortgage Loans Balance Outstanding Loan Group
- ------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
10 year Fixed .......... 28 $ 1,314,252 1.1%
15 year Fixed. ......... 313 19,291,349 16.0
20 year Fixed .......... 51 3,090,525 2.6
25 year Fixed .......... 3 263,774 0.2
30 year Fixed .......... 532 47,380,147 39.2
Balloon Loan ........... 518 49,499,500 40.9
Other .................. 1 41,546 0.0
----- ------------ -----
Totals .............. 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
S-27
<PAGE>
State Distributions of Mortgaged Properties in the Fixed Rate Mortgage Loan
Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
State Mortgage Loans Balance Outstanding Loan Group
- ----- ---------------- --------------------- -----------
<S> <C> <C> <C>
Arizona ...................... 16 $ 1,085,722 0.9%
Arkansas ..................... 14 760,307 0.6
California ................... 77 11,588,524 9.6
Colorado ..................... 36 3,688,598 3.1
Connecticut .................. 11 1,128,212 0.9
Delaware ..................... 3 189,981 0.2
District of Columbia ......... 2 175,949 0.1
Florida ...................... 256 21,426,099 17.7
Georgia ...................... 54 3,291,653 2.7
Idaho ........................ 1 84,532 0.1
Illinois ..................... 64 5,970,399 4.9
Indiana ...................... 59 3,556,746 2.9
Iowa ......................... 7 445,090 0.4
Kansas ....................... 4 296,408 0.2
Kentucky ..................... 21 1,565,209 1.3
Louisiana .................... 56 3,671,806 3.0
Maine ........................ 2 185,846 0.2
Maryland ..................... 14 956,616 0.8
Massachusetts ................ 28 3,594,811 3.0
Michigan ..................... 82 5,151,897 4.3
Minnesota .................... 16 1,424,350 1.2
Mississippi .................. 19 1,067,774 0.9
Missouri ..................... 38 1,984,280 1.6
Montana ...................... 3 426,571 0.4
Nebraska ..................... 2 120,062 0.1
Nevada ....................... 2 247,342 0.2
New Hampshire ................ 2 233,463 0.2
New Jersey ................... 25 2,911,979 2.4
New Mexico ................... 11 909,916 0.8
New York ..................... 138 16,336,333 13.5
North Carolina ............... 16 1,566,009 1.3
North Dakota ................. 3 85,928 0.1
Ohio ......................... 53 3,340,010 2.8
Oklahoma ..................... 36 1,830,304 1.5
Oregon ....................... 16 1,569,535 1.3
Pennsylvania ................. 25 1,202,110 1.0
Rhode Island ................. 8 706,382 0.6
South Carolina ............... 33 1,687,098 1.4
South Dakota ................. 1 80,000 0.1
Tennessee .................... 115 8,656,875 7.2
Texas ........................ 28 1,822,928 1.5
Utah ......................... 5 637,678 0.5
Vermont ...................... 1 42,574 0.0
Virginia ..................... 15 997,282 0.8
Washington ................... 9 1,118,367 0.9
West Virginia ................ 2 165,381 0.1
Wisconsin. ................... 16 806,157 0.7
Wyoming ...................... 1 90,000 0.1
----- ------------ -----
Totals ...................... 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
- ------------
(1) No more than approximately 0.5% of the Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool will be secured by Mortgaged Properties located in
any one zip code area.
S-28
<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 Ratios Mortgage Loans Balance Outstanding Loan Group
- ------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
50.00% or less ................ 161 $ 8,889,754 7.4%
50.01%-55.00% ................. 58 4,472,876 3.7
55.01%-60.00% ................. 122 9,521,086 7.9
60.01%-65.00% ................. 100 8,634,054 7.1
65.01%-70.00% ................. 164 13,068,390 10.8
70.01%-75.00% ................. 183 15,697,685 13.0
75.01%-80.00% ................. 352 32,183,576 26.6
80.01%-85.00% ................. 198 17,450,243 14.4
85.01%-90.00% ................. 100 9,897,387 8.2
90.01%-95.00% ................. 8 1,066,042 0.9
----- ------------ -----
Totals ....................... 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Loan-to-Value Ratios of the Fixed Rate Mortgage
Loans in the Statistical Mortgage Pool ranged from 12.77% to 95.00% and the
weighted average Loan-to-Value Ratio of the Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool was approximately 72.76%.
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 ..................... 356 $ 33,064,590 27.4%
Refinance--Rate/Term ......... 157 13,047,496 10.8
Refinance--Cashout ........... 933 74,769,007 61.9
----- ------------ -----
Totals ...................... 1,446 $120,881,092 100.0%
===== ============ =====
</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 .................... 1,159 $ 93,413,366 77.3%
Two- to Four-Family Dwelling Unit ......... 129 13,006,785 10.8
Planned Unit Development .................. 59 7,520,546 6.2
Condominium. .............................. 37 3,248,801 2.7
Small Mixed Use ........................... 14 1,287,346 1.1
Manufactured Housing ...................... 48 2,404,249 2.0
----- ------------ -----
Totals ................................... 1,446 $120,881,092 100.0%
===== ============ =====
</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 .............. 1,144 $ 91,620,489 75.8%
24 Month Bank Statement ......... 97 11,173,222 9.2
Reduced Documentation ........... 42 4,227,015 3.5
Stated Documentation ............ 163 13,860,366 11.5
----- ------------ -----
Totals ......................... 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
S-29
<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 ......... 1,263 $109,562,256 90.6%
Second Home ............ 20 1,250,736 1.0
Investment ............. 163 10,068,101 8.3
----- ------------ -----
Totals ................ 1,446 $120,881,092 100.0%
===== ============ =====
</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 .......................... 367 $ 29,514,001 24.4%
1 .......................... 552 45,110,308 37.3
2 .......................... 423 36,750,800 30.4
3 .......................... 68 6,073,872 5.0
4 .......................... 19 1,600,538 1.3
5 .......................... 5 998,100 0.8
6 .......................... 10 722,448 0.6
7 .......................... 2 111,025 0.1
----- ------------ -----
Totals .................... 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the weighted average age of the Fixed Rate Mortgage
Loans in the Statistical Mortgage Pool was approximately 1 month.
Credit Grade Summary for the Fixed Rate Mortgage Loan Group
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
- ------------ ---------------- --------------------- -----------
AO .............. 569 $ 50,553,631 41.8%
A- .............. 460 41,709,469 34.5
B ............... 257 19,789,519 16.4
B- .............. 63 4,184,893 3.5
C ............... 84 3,976,124 3.3
C- .............. 13 667,457 0.6
----- ------------ -----
Totals ......... 1,446 $120,881,092 100.0%
===== ============ =====
Year of Origination for the Fixed Rate Mortgage Loan Group
Number of Aggregate Principal Percent of
Year of Origination Mortgage Loans Balance Outstanding Loan Group
- --------------------- ---------------- --------------------- -----------
1999 ................ 1,446 $120,881,092 100.0%
----- ------------ -----
Totals ............. 1,446 $120,881,092 100.0%
===== ============ =====
S-30
<PAGE>
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 .................... 298 $ 23,773,328 19.7%
12 months ............... 125 14,806,349 12.2
24 months ............... 26 2,935,169 2.4
36 months ............... 484 37,698,890 31.2
60 months ............... 513 41,667,355 34.5
----- ------------ -----
Totals ................. 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The weighted average prepayment penalty term with respect to the Fixed Rate
Mortgage Loans in the Statistical Mortgage Pool having prepayment penalties
is approximately 42 months. With respect to those Fixed Rate Mortgage Loans
in the Statistical Mortgage Pool (exclusive of the Fixed Rate Mortgage Loans
in the Statistical Mortgage Pool that were purchased by the Seller under its
Small Lender Program) which have prepayment penalties, 86.4% of such
Mortgage Loans are subject to a prepayment penalty which will equal 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
principal balance of such mortgage loan.
Credit Scores for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Credit Scores Mortgage Loans Balance Outstanding Loan Group
- ------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
Not Scored ............. 47 $ 3,290,777 2.7%
461 to 500 ............. 20 1,728,570 1.4
501 to 550 ............. 155 11,129,348 9.2
551 to 600 ............. 449 37,517,768 31.0
601 to 650 ............. 388 32,931,489 27.2
651 to 700 ............. 239 21,428,131 17.7
701 to 750 ............. 98 8,376,635 6.9
751 to 803 ............. 50 4,478,374 3.7
----- ------------ -----
Totals ................ 1,446 $120,881,092 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The Credit Scores of the Fixed Rate Mortgage Loans in the Statistical
Mortgage Pool that were scored as of the Cut-off Date ranged from 461 to 803
and the weighted average Credit Score of the Fixed Rate Mortgage Loans in
the Statistical Mortgage Pool that were scored as of the Cut-off Date was
approximately 620.
S-31
<PAGE>
ADJUSTABLE RATE LOAN GROUP
(STATISTICAL MORTGAGE POOL)
Current Mortgage Rates for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Range of Number of Aggregate Principal Percent of
Mortgage Rates Mortgage Loans Balance Outstanding Loan Group
- -------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
6.500%-6.999% ........... 2 $ 192,847 0.1%
7.000%-7.499% ........... 8 1,053,266 0.5
7.500%-7.999% ........... 35 5,193,875 2.2
8.000%-8.499% ........... 64 10,049,958 4.3
8.500%-8.999% ........... 197 30,335,540 13.0
9.000%-9.499% ........... 203 27,077,152 11.6
9.500%-9.999% ........... 389 48,515,128 20.9
10.000%-10.499% ......... 290 33,097,870 14.2
10.500%-10.999% ......... 354 37,965,587 16.3
11.000%-11.499% ......... 183 17,930,923 7.7
11.500%-11.999% ......... 156 14,970,980 6.4
12.000%-12.499% ......... 55 4,335,479 1.9
12.500%-12.999% ......... 11 821,623 0.4
13.000%-13.499% ......... 6 455,356 0.2
13.500%-13.999% ......... 3 667,201 0.3
----- ------------ -----
Totals ................. 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the current Mortgage Rates borne by the Adjustable
Rate Mortgage Loans in the Statistical Mortgage Pool ranged from 6.500% per
annum to 13.750% per annum and the weighted average Mortgage Rate borne by
the Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately 9.960% per annum.
Remaining Months to Stated Maturity for the Adjustable Rate Mortgage Loan
Group(1)
<TABLE>
<CAPTION>
Range of Number of Aggregate Principal Percent of
Remaining Terms (Months) Mortgage Loans Balance Outstanding Loan Group
- -------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
349 to 360 ............... 1,956 $232,662,785 100.0%
----- ------------ -----
Totals .................. 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the remaining terms to stated maturity of the
Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool ranged from
352 months to 360 months and the weighted average remaining term to stated
maturity of the Adjustable Rate Mortgage Loans in the Statistical Mortgage
Pool was approximately 359 months.
S-32
<PAGE>
Original Mortgage Loan Principal Balances for the Adjustable Rate Mortgage(1)
<TABLE>
<CAPTION>
Range of Original Mortgage Number of Aggregate Principal Percent of
Loan Principal Balances Mortgage Loans Balance Outstanding Loan Group
- ---------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
$100,000 or less............ 1,032 $ 68,274,081 29.3%
$100,001-$150,000........... 496 61,436,853 26.4
$150,001-$200,000........... 200 34,556,106 14.9
$200,001-$250,000........... 111 25,107,683 10.8
$250,001-$300,000........... 52 14,495,417 6.2
$300,001-$350,000 .......... 17 5,621,772 2.4
$350,001-$400,000 .......... 14 5,285,947 2.3
$400,001-$450,000 .......... 7 2,986,528 1.3
$450,001-$500,000........... 23 11,196,330 4.8
$700,001-$750,000........... 1 747,500 0.3
$950,001-$1,000,000......... 3 2,954,568 1.3
----- ------------ -----
Totals .................... 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the outstanding principal balances of the Adjustable
Rate Mortgage Loans in the Statistical Mortgage Pool ranged from
approximately $18,428 to approximately $1,000,000 and the average
outstanding principal balance of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool was approximately $118,948.
Product Types for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Product Types Mortgage Loans Balance Outstanding Loan Group
- ------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Six Month LIBOR Loan ......... 31 $ 5,627,808 2.4%
1/29 Loan .................... 45 6,717,893 2.9
2/28 Loan .................... 1,098 134,376,733 57.8
3/27 Loan .................... 738 80,988,229 34.8
5/25 Loan .................... 42 4,773,185 2.1
Other ........................ 2 178,937 0.1
----- ------------ -----
Totals ...................... 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
S-33
<PAGE>
State Distributions of Mortgaged Properties in the Adjustable Rate Mortgage
Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
State Mortgage Loans Balance Outstanding Loan Group
- ----- ---------------- --------------------- -----------
<S> <C> <C> <C>
Arizona ...................... 31 $ 2,819,494 1.2%
Arkansas ..................... 6 379,044 0.2
California ................... 141 27,548,095 11.8
Colorado ..................... 115 14,928,584 6.4
Connecticut .................. 23 2,885,162 1.2
Delaware ..................... 1 107,893 0.0
District of Columbia ......... 4 616,108 0.3
Florida ...................... 203 21,804,498 9.4
Georgia ...................... 55 9,293,639 4.0
Hawaii ....................... 2 645,000 0.3
Idaho ........................ 6 523,248 0.2
Illinois ..................... 112 12,227,579 5.3
Indiana ...................... 29 2,400,659 1.0
Iowa ......................... 3 200,376 0.1
Kansas ....................... 2 269,871 0.1
Kentucky ..................... 9 837,360 0.4
Louisiana .................... 13 1,401,937 0.6
Maine ........................ 3 240,782 0.1
Maryland ..................... 27 3,367,701 1.4
Massachusetts ................ 59 8,930,540 3.8
Michigan ..................... 230 20,997,716 9.0
Minnesota .................... 50 5,489,601 2.4
Mississippi .................. 11 648,668 0.3
Missouri ..................... 75 5,354,600 2.3
Montana ...................... 7 795,194 0.3
Nebraska ..................... 2 101,305 0.0
Nevada ....................... 7 899,703 0.4
New Hampshire ................ 10 914,895 0.4
New Jersey ................... 65 10,150,746 4.4
New Mexico ................... 11 1,035,273 0.4
New York ..................... 103 16,763,118 7.2
North Carolina ............... 29 3,125,683 1.3
Ohio ......................... 79 7,583,308 3.3
Oklahoma ..................... 10 979,485 0.4
Oregon ....................... 16 2,040,665 0.9
Pennsylvania ................. 20 2,009,521 0.9
Rhode Island ................. 14 1,770,876 0.8
South Carolina ............... 33 2,911,116 1.3
Tennessee .................... 68 6,550,799 2.8
Texas ........................ 75 7,688,079 3.3
Utah ......................... 18 2,686,876 1.2
Vermont ...................... 12 962,945 0.4
Virginia ..................... 24 4,387,173 1.9
Washington ................... 54 8,199,463 3.5
West Virginia ................ 3 140,924 0.1
Wisconsin .................... 83 6,793,531 2.9
Wyoming ...................... 3 253,952 0.1
----- ------------ -----
Totals ..................... 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) No more than approximately 0.4% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool will be secured by Mortgaged Properties located in
any one zip code area.
S-34
<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 Ratios Mortgage Loans Balance Outstanding Loan Group
- ------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
50.00% or less ................ 67 $ 6,415,558 2.8%
50.01%-55.00% ................. 21 2,471,356 1.1
55.01%-60.00% ................. 68 8,345,093 3.6
60.01%-65.00% ................. 85 9,675,960 4.2
65.01%-70.00% ................. 225 28,042,865 12.1
70.01%-75.00% ................. 279 32,553,299 14.0
75.01%-80.00% ................. 523 66,109,033 28.4
80.01%-85.00% ................. 407 46,966,391 20.2
85.01%-90.00% ................. 276 31,660,897 13.6
90.01%-95.00% ................. 5 422,334 0.2
----- ------------ -----
Totals ..................... 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Loan-to-Value Ratios of the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool ranged from 16.73% to 95.00%
and the weighted average Loan-to-Value Ratio of the Adjustable Rate Mortgage
Loans in the Statistical Mortgage Pool was approximately 77.31%.
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 ..................... 867 $ 104,980,208 45.1%
Refinance--Rate/Term ......... 182 19,352,684 8.3
Refinance--Cashout ........... 907 108,329,893 46.6
----- ------------- -----
Totals .................... 1,956 $ 232,662,785 100.0%
===== ============= =====
</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 ................... 1,553 $184,895,114 79.5%
Two-to Four Family-Dwelling Unit ......... 157 17,968,298 7.7
Planned Unit Development ................. 125 18,763,159 8.1
Condominium .............................. 78 7,672,571 3.3
Manufactured Housing ..................... 42 3,202,592 1.4
Small Mixed Use .......................... 1 161,053 0.1
----- ------------ -----
Totals ................................ 1,956 $232,662,785 100.0%
===== ============ =====
</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 .............. 1,437 $157,287,972 67.6%
24 Month Bank Statement ......... 199 31,337,724 13.5
Reduced Documentation ........... 71 12,559,342 5.4
Stated Documentation ............ 249 31,477,748 13.5
----- ------------ -----
Totals .......................... 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
S-35
<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 ......... 1,770 $215,941,369 92.8%
Second Home ............ 19 2,104,883 0.9
Investment ............. 167 14,616,533 6.3
----- ------------ -----
Totals .............. 1,956 $232,662,785 100.0%
===== ============ =====
</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 .......................... 599 $ 72,309,279 31.1%
1 .......................... 768 92,347,490 39.7
2 .......................... 527 61,511,573 26.4
3 .......................... 33 3,507,320 1.5
4 .......................... 19 1,843,607 0.8
5 .......................... 3 349,276 0.2
6 .......................... 4 491,771 0.2
7 .......................... 1 105,857 0.0
8 .......................... 2 196,612 0.1
----- ------------ -----
Totals .................. 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the weighted average age of the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool was approximately 1 month.
Credit Grade Summary for the Adjustable Rate Mortgage Loan Group
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
- ------------ ---------------- --------------------- -----------
AO ................ 592 $ 77,768,577 33.4%
A- ................ 674 84,637,110 36.4
B ................. 380 41,956,755 18.0
B- ................ 104 9,654,783 4.1
C ................. 156 14,583,914 6.3
C- ................ 50 4,061,646 1.7
----- ------------ -----
Totals ......... 1,956 $232,662,785 100.0%
===== ============ =====
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>
1999 ................ 1,956 $232,662,785 100.0%
----- ------------ -----
Totals ........... 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
S-36
<PAGE>
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>
13.500%-13.999% ................. 4 $ 417,614 0.2%
14.000%-14.499% ................. 10 1,860,021 0.8
14.500%-14.999% ................. 38 5,627,496 2.4
15.000%-15.499% ................. 68 10,091,331 4.3
15.500%-15.999% ................. 202 31,462,520 13.5
16.000%-16.499% ................. 201 26,976,550 11.6
16.500%-16.999% ................. 383 47,249,605 20.3
17.000%-17.499% ................. 287 32,600,345 14.0
17.500%-17.999% ................. 354 37,908,655 16.3
18.000%-18.499% ................. 183 17,735,908 7.6
18.500%-18.999% ................. 152 14,508,068 6.2
19.000%-19.499% ................. 54 4,280,493 1.8
19.500%-19.999% ................. 11 821,623 0.4
20.000%-20.499% ................. 6 455,356 0.2
20.500%-20.999% ................. 3 667,201 0.3
----- ------------ -----
Totals ....................... 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Maximum Mortgage Rates for the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool ranged from 13.500% per
annum to 20.750% per annum and the weighted average Maximum Mortgage Rate
for the Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool was
16.933% per annum.
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 .................... 803 $ 98,097,157 42.2%
12 months ............... 13 1,852,448 0.8
24 months ............... 431 58,797,448 25.3
36 months ............... 596 63,538,302 27.3
60 months ............... 113 10,377,431 4.5
----- ------------ -----
Totals ............... 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The weighted average prepayment penalty term with respect to the Adjustable
Rate Mortgage Loans in the Statistical Mortgage Pool having prepayment
penalties is approximately 32 months. With respect to those Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool (exclusive of the Adjustable
Rate Mortgage Loans in the Statistical Mortgage Pool that were purchased by
the Seller under its Small Lender Program) which have prepayment penalties,
approximately 76.8% of such Mortgage Loans are subject to a prepayment
penalty which will equal 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 principal balance of such mortgage loan.
S-37
<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 2000 ............. 12 $ 1,998,157 0.9%
May 2000 ............... 15 2,914,852 1.3
June 2000 .............. 4 714,800 0.3
September 2000 ......... 1 49,954 0.0
October 2000 ........... 19 2,785,890 1.2
November 2000 .......... 16 2,379,529 1.0
December 2000 .......... 9 1,502,520 0.6
April 2001 ............. 1 69,495 0.0
May 2001 ............... 1 105,857 0.0
June 2001 .............. 4 491,771 0.2
July 2001 .............. 2 202,851 0.1
August 2001 ............ 13 1,227,261 0.5
September 2001 ......... 22 2,107,483 0.9
October 2001 ........... 290 34,498,476 14.8
November 2001 .......... 429 52,066,332 22.4
December 2001 .......... 336 43,607,207 18.7
April 2002 ............. 1 127,116 0.1
July 2002 .............. 1 146,425 0.1
August 2002 ............ 6 616,346 0.3
September 2002 ......... 10 1,349,883 0.6
October 2002 ........... 194 21,014,942 9.0
November 2002 .......... 290 32,946,342 14.2
December 2002 .......... 238 24,966,112 10.7
October 2004 ........... 12 1,214,109 0.5
November 2004 .......... 18 2,040,435 0.9
December 2004 .......... 12 1,518,640 0.7
----- ------------ -----
Totals .............. 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
S-38
<PAGE>
Credit Scores for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of
Range of Credit Scores Mortgage Loans Balance Outstanding Loan Group
- ------------------------ ---------------- --------------------- --------------
<S> <C> <C> <C>
Not Scored ............. 44 $ 5,600,839 2.4%
450 to 500 ............. 62 6,594,723 2.8
501 to 550 ............. 331 37,751,537 16.2
551 to 600 ............. 661 79,545,143 34.2
601 to 650 ............. 468 56,116,928 24.1
651 to 700 ............. 259 31,499,755 13.5
701 to 750 ............. 108 13,160,085 5.7
751 to 791 ............. 23 2,393,776 1.0
----- ------------ -----
Totals .............. 1,956 $232,662,785 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The Credit Scores of the Adjustable Rate Mortgage Loans in the Statistical
Mortgage Pool that were scored as of the Cut-off Date ranged from 450 to 791
and the weighted average Credit Score of the Adjustable Rate Mortgage Loans
in the Statistical Mortgage Pool that were scored as of the Cut-off Date was
approximately 601.
Assignment of the Mortgage Loans
On the Closing Date, 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 related Mortgage Loans after the Cut-off Date
other than interest accrued on such Mortgage Loans prior to the Cut-off Date.
The Chase Manhattan Bank, as authenticating agent, will, concurrently with the
assignment of the Mortgage Loans, authenticate and deliver the Certificates.
Each Mortgage Loan will be identified in a schedule (the "Mortgage Loan
Schedule") appearing as an exhibit to the Pooling and Servicing Agreement. 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
S-39
<PAGE>
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
loan-to-value ratio, relatively low debt-to-income ratio, stable employment,
relatively high credit score 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 C- 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 ratio for non-self employed borrowers is 70%. Income from the
application as stated by the borrower is used to qualify.
S-40
<PAGE>
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.
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.
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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.
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.
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, which may be affiliates of the Subservicer.
Notwithstanding any such subservicing arrangement, the Subservicer will remain
liable for its servicing duties and obligations under the Pooling and Servicing
Agreement as if the Subservicer alone were servicing the Mortgage Loans.
The Subservicer
The information set forth below concerning the Subservicer has been
provided to the Depositor by the Subservicer. Neither the Depositor, the Seller,
the Trustee, the Underwriters nor any of their respective affiliates have made
any independent investigation of such information.
Advanta
Advanta Mortgage Corp. USA ("Advanta") will act as the Subservicer of the
Mortgage Loans pursuant to the Pooling and Servicing Agreement. Advanta is an
indirect subsidiary of Advanta Corp., a Delaware corporation ("Advanta Parent"),
a publicly traded company based in Springhouse, Pennsylvania with assets as of
September 30, 1999 in excess of $3.5 billion.
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Advanta Parent, through its subsidiaries (including Advanta) had managed
assets (including mortgage loans) in excess of $12.2 billion as of September 30,
1999.
As of September 30, 1999, Advanta and its subsidiaries were servicing
approximately 110,471 closed-end fixed rate and adjustable rate mortgage loans
in the Owned and Managed Servicing Portfolio (defined below) representing an
aggregate outstanding principal balance of approximately $7.5 billion, and
approximately 157,164 mortgage loans in the Third-Party Servicing Portfolio
(defined below) representing an aggregate outstanding principal balance of
approximately $10.5 billion.
Recent Developments related to Advanta Parent
On January 22, 1999, Fleet Financial Group, Inc. and some of its affiliates
("Fleet") filed a complaint (the "Complaint") against Advanta Parent and some of
its subsidiaries (but not including Advanta) in Delaware Chancery Court bringing
a lawsuit relating to the transaction between Advanta Parent and some of its
affiliates and Fleet, which closed on February 20, 1998. Pursuant to the
transaction Advanta Parent contributed substantially all of its consumer credit
card business to a limited liability company controlled by Fleet (the "Fleet
Transaction"). The lawsuit centers around post-closing adjustments and other
matters relating to the Fleet Transaction. Fleet seeks damages of approximately
$141 million.
On February 16, 1999 Advanta Parent filed an answer to the Complaint
denying the material allegations of the Complaint. Advanta Parent also filed
counterclaims against Fleet seeking damages of approximately $101 million from
Fleet. Although the outcome of this litigation cannot be determined, Advanta
Parent does not expect this litigation to have a material adverse effect on the
financial position or future operating results of Advanta Parent or Advanta.
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. 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.
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,
foreclosure and loan loss experience of Advanta for its servicing portfolio,
excluding certain loans serviced by Advanta that were not originated or
purchased and re-underwritten by affiliates of Advanta (the "Owned and Managed
Servicing Portfolio"), of closed-end fixed and adjustable rate mortgage loans as
of September 30, 1999, and for each of the three prior year ends. The Owned and
Managed Servicing Portfolio includes, but is not limited to, the mortgage loans
originated or purchased on or prior to September 30, 1999. In addition to the
Owned and Managed Servicing Portfolio, Advanta serviced as of September 30,
1999, approximately 157,164 mortgage loans with an aggregate principal balance
as of such date of approximately $10.5 billion; such loans were not originated
by Advanta or affiliates of Advanta but are being serviced for third parties,
including the Seller, 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.
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DELINQUENCY AND FORECLOSURE EXPERIENCE OF
ADVANTA'S OWNED AND MANAGED SERVICING PORTFOLIO
OF CLOSED-END MORTGAGE LOANS
(Dollars in Thousands)
As of December 31,
--------------------------------------------------------
1996 1997
--------------------------- ---------------------------
By By
Dollar Dollar
By No. Amount By No. Amount
of Loans of Loans of Loans of Loans
---------- --------------- ---------- ---------------
Portfolio 43,303 $ 2,595,981 74,525 $ 4,888,936
Delinquency
percentage(1)
30-59 days 3.07% 2.90% 3.13% 2.99%
60-89 days 0.85 0.90 0.98 0.98
90 days or more 1.45 1.26 1.39 1.28
------ ----------- ------ -----------
Total 5.37% 5.06% 5.50% 5.25%
Foreclosure Rate(2) 1.62% 1.92% 2.10% 2.32%
REO Properties(3) 0.42% -- 0.40% --
Nine Months Ended
As of December 31, September 30
--------------------------- -------------------------
1998 1999
--------------------------- ---------------------------
By By
Dollar Dollar
By No. Amount By No. Amount
of Loans of Loans of Loans of Loans
---------- --------------- ---------- ---------------
Portfolio 111,707 $ 7,664,919 110,471 $ 7,467,932
Delinquency
percentage(1)
30-59 days 3.05% 2.76% 2.47% 2.26%
60-89 days 1.10 1.08 0.95 0.86
90 days or more 1.45 1.22 1.82 1.71
------- ----------- ------- -----------
Total 5.60% 5.06% 5.24% 4.83%
Foreclosure Rate(2) 2.85% 2.98% 3.64% 3.52%
REO Properties(3) 0.78% -- 1.14% --
- ------------
(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 foreclosed mortgages 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.
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<PAGE>
LOAN LOSS EXPERIENCE
OF ADVANTA'S OWNED AND MANAGED SERVICING PORTFOLIO
OF CLOSED-END MORTGAGE LOANS
<TABLE>
<CAPTION>
Nine Months
As of December 31, Ended September 30
--------------------------------------------------- -------------------
1996 1997 1998 1999
--------------- --------------- --------------- -------------------
<S> <C> <C> <C> <C>
Average amount outstanding(1) .............. $ 2,102,643 $ 3,677,342 $ 6,233,870 $ 7,686,918
Net losses(2) .............................. $ 15,067 $ 18,435 $ 35,640 $ 40,103
Net losses as a percentage of average amount
outstanding(s) ............................ 0.72% 0.50% 0.57% 0.70%
</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) "Net Losses" are amounts relating to mortgage loans which have been
determined by Advanta to be uncollectible less amounts received by Advanta
as recoveries from liquidation proceeds and deficiency judgments. (3) This
represents an annualized number.
There can be no assurance that the delinquency, foreclosure and loan loss
experience on the Mortgage Loans will correspond to the delinquency, foreclosure
and loan loss experience set forth in the foregoing tables, in part because the
mortgage loans reflected in the foregoing tables may have been underwritten
pursuant to different underwriting guidelines and may represent mortgage loans
of a different character and mix than the Mortgage Loans, which may impact the
delinquency, foreclosure and loan loss experience of such mortgage loans and how
such mortgage loans are serviced. In addition, while the Mortgage Loans will be
serviced in accordance with accepted servicing practices, Advanta may from time
to time service each portfolio or group of mortgage loans (whether the Owned and
Managed Portfolio or Third Party Servicing Portfolio) differently based in part
on the seasoning, character and mix of the mortgage loans. Therefore, the
delinquency, foreclosure and loan loss experience set forth in the foregoing
tables may not necessarily be material to your decision to invest.
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
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. Pursuant to accepted servicing practices, foreclosures are processed
within individual state guidelines and in accordance with the provisions of the
mortgage and applicable state law. However, the Master Servicer may sell
delinquent or charged-off Mortgage Loans from the Trust Fund from time to time.
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
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herein) made with respect thereto) (the "Stated Principal Balance") multiplied
by one-twelfth of the Servicing Fee Rate (such product, together with any
amounts payable as described in the second succeeding sentence, the "Servicing
Fee"). The "Servicing Fee Rate" for each Mortgage Loan will equal 0.50% per
annum. In addition, the Subservicer will receive as additional servicing
compensation, certain fees (generally not in excess of $500) with respect to any
Mortgage Loan for which the Subservicer has engaged in certain loss mitigation
activities such as modifying the Mortgage Loan, accepting a short payoff, or
acquiring the related Mortgaged Property by deed in lieu of foreclosure. 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.
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 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
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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, (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 and (d) at its option, sell delinquent or charged-off Mortgage Loans from
the Trust Fund and remit the proceeds of any such sale to the Trust Fund. The
Master Servicer will pay certain administrative expenses of the Trust including
the fees of the Trustee. The Master Servicer will be entitled to a monthly
"Master Servicer Fee" with respect to each Mortgage Loan, payable with respect
to each Distribution Date, in an amount equal to the sum of (i) one-twelfth of
the Master Servicer Fee Rate multiplied by the principal balance of such
Mortgage Loan and (ii) all late payment fees and prepayment penalties and all
investment income earned on funds in the Certificate Account and the
Distribution Account. The "Master Servicer Fee Rate" is 0.0091% per annum.
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 1999-4
(the "Certificates") will consist of: (a) the Class IA-1, Class IA-2, Class
IA-3, Class IA-4, Class IA-5 and Class IA-6 Certificates (collectively, the
"Class A Group I Certificates"), the Class IM-1 Certificates (the "Class IM-1
Certificates") and Class IM-2 Certificates (the "Class IM-2 Certificates" and
together with the Class IM-1 Certificates, the "Mezzanine Group I Certificates")
and the Class IB Certificates (the "Class IB Certificates" and together with the
Mezzanine Group I Certificates, the "Subordinated Group I Certificates" and the
Subordinated Group I Certificates together with the Class A Group I
Certificates, the "Group I Certificates"); (b) the Class IIA-1 Certificates (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.
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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 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
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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
(as defined in the Pooling and Servicing Agreement, a "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.
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,
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including United States dollars. Euroclear includes various other services,
including securities lending and borrowing and interfaces with domestic markets
in several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing 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
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be, will take any other action permitted to be taken by a Holder of an Offered
Certificate under the Pooling and Servicing Agreement on behalf of a CEDEL
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC. DTC may take actions, at the direction
of the related Participants, with respect to some Offered Certificates which
conflict with actions taken with respect to other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depositary with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor at its sole
option, elects to terminate a book-entry system through DTC or (c) after the
occurrence of an Event of Default (as defined herein), beneficial owners having
not less than 51% of the voting rights evidenced by the Offered Certificates
advise the Trustee and DTC through the Financial Intermediaries and the DTC
participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interests of beneficial owners
of such Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
holders of the Offered Certificates under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Payments on Mortgage Loans; Collection Account; Certificate Account;
Distribution Account
The Pooling and Servicing Agreement provides that the Subservicer for the
benefit of the Certificateholders shall establish and maintain a Collection
Account (the "Collection Account"), into which the Subservicer is 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 12:00 noon 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 maintained with the institution holding such account, 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.
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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 maintained with the institution holding such account, 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 due 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 due during the related Due
Period and received before the related Servicer Remittance Date or advanced on
or before the related Servicer Remittance Date, (ii) prepayments collected in
the related Prepayment Period, (iii) the Stated Principal Balance of each
Mortgage Loan that was repurchased by the Depositor, (iv) the amount, if any, by
which the aggregate unpaid principal balance of any replacement Mortgage Loans
is less than the aggregate unpaid principal balance of any Mortgage Loans
delivered by the Seller in connection with a substitution of a Mortgage Loan 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 January
2000 (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 (other than the Class
IA-1 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
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Date occurs less Prepayment Interest Shortfalls, if any, and the interest
distributable with respect to the Group II Certificates and the Class IA-1
Certificates is the interest which has accrued thereon at the then applicable
related Pass-Through Rate from and including the preceding Distribution Date (or
from the Closing Date in the case of the first Distribution Date) to and
including the day prior to the current Distribution Date less Prepayment
Interest Shortfalls, if any. Each period referred to in the prior sentence
relating to the accrual of interest is the "Accrual Period" for the related
Class of Offered Certificates.
All calculations of interest of the Group I Certificates (other than the
Class IA-1 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 and the Class IA-1 Certificates will be made on the basis of a
360-day year and the actual number of days elapsed in the applicable Accrual
Period.
On each Distribution Date, the Interest Funds for such Distribution Date
with respect to 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 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 (other than the Class IA-1 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 the Class IA-2, Class IA-3, Class
IA-4 and Class IA-6 Certificates is the per annum rate set forth for each such
Class in the table on page S-3; the "Pass-Through Rate" for the Class IA-5,
Class IM-1, Class IM-2 and 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 the "Pass-Through Rate" for the Class IA-1 Certificates will
equal the lesser of (i) One-Month LIBOR (defined below) plus the Pass-Through
Margin (defined
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below) for such Class and (ii) the weighted average Net Mortgage Rates on the
Fixed Rate Mortgage Loans; provided, further, that the Pass-Through Rate for the
Class IA-5 Certificates on any Distribution Date after the Optional Termination
Date will equal 8.244%. 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 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 for such Class, (ii)
the "Group II Maximum Rate 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 "Group II
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.
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.
The "Pass-Through Margin" for each Class of Group II Certificates is as
follows: for any Distribution Date on or before the applicable Optional
Termination Date: Class IIA-1, 0.30%; Class IIM-1, 0.60%; Class IIM-2, 0.95% and
Class IIB, 2.40% and for any Distribution Date after the applicable Optional
Termination Date: Class IIA-1, 0.60%; Class IIM-1, 0.90%; Class IIM-2, 1.425%
and Class IIB, 3.60%. The "Pass-Through Margin" for the Class IA-1 Certificates
is 0.19%.
If on any Distribution Date, the Pass-Through Rate for a Class of Group II
Certificates is based upon its Group II 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 Group II Available Funds Cap, up to but not exceeding
the Group II Maximum Rate Cap over (ii) the amount of interest such Class
received on such Distribution Date based on the Group II Available Funds Cap, up
to but not exceeding the Group II Maximum Rate 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
Group II 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, the Class A Principal
Distribution Amount for the Group I Certificates is required to be
distributed as follows: first, the Class IA-6 Distribution Amount to the
Class IA-6 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, Class IA-5 and Class IA-6 Certificates, in that
order, until the respective Certificate Principal Balances thereof have been
reduced to zero; provided, however, that, on any Distribution Date on which
the aggregate Certificate Principal Balances of the Class A Group I
Certificates are equal to or greater than the Stated Principal Balances of
the Fixed Rate Mortgage Loans, the Class A Principal Distribution Amount for
the Class A Group I Certificates will be distributed pro rata and not as
described above; and (b) with respect to Class A Group II Certificates, the
Class A Principal Distribution Amount for the Group II Certificates is
required to be distributed to the Class IIA-1 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(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;
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(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) 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 80.90% for the Fixed Rate Mortgage Loan Group and
approximately 65.20% 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 excess of the Stated Principal Balances of the Mortgage Loans
in such Loan Group on the preceding Due Date over approximately $650,000 for the
Fixed Rate Mortgage Loan Group and approximately $1,200,000 for the Adjustable
Rate Mortgage Loan Group; provided, however, that in no event will the Class A
Principal Distribution Amount for a Certificate Group with respect to any
Distribution Date exceed the Certificate Principal Balance of the related Class
A Certificates.
The "Class IA-6 Distribution Amount", for any Distribution Date prior to
the Distribution Date in January 2009, is the product of (i) a fraction, the
numerator of which is the Certificate Principal Balance of the Class IA-6
Certificates and the denominator of which is the aggregate Certificate Principal
Balance of all Class A 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
January 2000 through December 2002 ......... 0%
January 2003 through December 2004 ......... 45%
January 2005 through December 2005 ......... 80%
January 2006 through December 2006 ......... 100%
January 2007 through December 2008 ......... 300%
With respect to the Distribution Date occurring in January 2009 and each
Distribution Date thereafter until the Certificate Principal Balance of the
Class IA-6 Certificates has been reduced to zero, the Class IA-6 Principal
Distribution Amount will equal the Class A Principal Distribution Amount with
respect to the Fixed 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 87.90% for the Fixed
Rate Mortgage Loan Group and approximately 77.50% 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 excess of the Stated
Principal Balances of the Mortgage Loans in such Loan Group on the preceding Due
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Date over approximately $650,000 for the Fixed Rate Mortgage Loan Group and
approximately $1,200,000 for the Adjustable Rate Mortgage Loan Group.
Notwithstanding the foregoing, (i) on any Distribution Date prior to the
Stepdown Date on which the Certificate Principal 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
and (ii) in no event will the Class M-1 Principal Distribution Amount for a
Certificate Group with respect to any Distribution Date exceed the Certificate
Principal Balance of the related Class M-1 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 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),
(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 92.40%
for the Fixed Rate Mortgage Loan Group and approximately 86.20% 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
excess of the Stated Principal Balances of the Mortgage Loans in such Loan Group
on the preceding Due Date over approximately $650,000 for the Fixed Rate
Mortgage Loan Group and approximately $1,200,000 for the Adjustable Rate
Mortgage Loan Group. Notwithstanding the foregoing, (i) 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 and (ii) in no
event will the Class M-2 Principal Distribution Amount for a Certificate Group
with respect to any Distribution Date exceed the Certificate Principal Balance
of the related Class M-2 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 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),
(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 96.90%
for the Fixed Rate Mortgage Loan Group and approximately 94.20% 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 excess
of the Stated Principal Balances of the Mortgage Loans in such Loan Group on the
preceding Due Date over approximately $650,000 for the Fixed Rate Mortgage Loan
Group and approximately $1,200,000 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 and provided, further, however, that in no event will the Class B
Principal Distribution Amount for a Certificate Group with respect to any
Distribution Date exceed the Certificate Principal Balance of the related Class
B Certificates.
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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 $2,015,000
for the Fixed Rate Mortgage Loan Group and approximately $6,960,000 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,
(A) the sum of (i) the aggregate Certificate Principal Balances of the
Certificates of such Certificate Group and (ii) the greater of (x) 3.10% for the
Fixed Rate Mortgage Loan Group and 5.80% 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 $1,200,000 for the Adjustable Rate Mortgage Loan Group less (B)
the Stated Principal Balances of the Mortgage Loans in the related Loan Group;
provided, however, that if on any Distribution Date, a Trigger Event is in
effect, the Extra Principal Distribution Amount for the related Loan Group will
not be reduced to the applicable percentage of the then-current Stated Principal
Balance of such Loan Group (and will remain fixed at the applicable percentage
of the Stated Principal Balance of the Mortgage Loans in the related Loan Group
as of the Due Date immediately prior to the occurrence of the Trigger Event)
until the next Distribution Date on which the Trigger Event is not in effect.
Notwithstanding the foregoing, the Extra Principal Distribution Amount with
respect to each Mortgage Loan Group will be zero for each Distribution Date up
to and including the Distribution Date in March 2000.
The "Stepdown Date", with respect to each Certificate Group, is the later
to occur of (i) the Distribution Date in January 2003 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) 80.90% for
the Fixed Rate Mortgage Loan Group, and 65.20% 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.
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 ("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.
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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;
(vi) in the case of the Adjustable Rate Mortgage Loan Group, to the Group
II Certificates, the Adjustable Rate Certificate Carryover, pro rata based
upon the amount of unreimbursed Adjustable Rate Certificate Carryover for
each Class; 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 plus accrued interest over the net liquidation proceeds
with respect thereto that are allocated to principal.
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"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 and the Class
IA-1 Certificates (each such date, an "Interest Determination Date"), the Master
Servicer will determine the London interbank offered rate for one-month United
States dollar deposits ("One-Month LIBOR") for such Accrual Period on the basis
of the (i) offered rates for one-month United States dollar deposits, as such
rates appear on Telerate page 3750, as of 11:00 a.m. (London time) on such
Interest Determination Date or (ii) if such rate does not appear on Telerate
Page 3750 as of 11:00 a.m., (London time), the Master Servicer will determine
such rate on the basis of the offered rates of the Reference Banks for one-month
United States dollar deposits, as such rates appear on the Reuters Screen LIBO
Page, as of 11:00 a.m. (London time) on such Interest Determination Date. As
used in this section, "LIBOR Business Day" means a day on which banks are open
for dealing in foreign currency and exchange in London and New York City;
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks); and "Reference Banks" means leading banks selected by the
Master Servicer and engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Reuters Screen LIBO Page on the
Interest Determination Date in question, (iii) which have been designated as
such by the Master Servicer and (iv) not controlling, controlled by, or under
common control with, the Depositor, the Master Servicer, the Seller or any
successor Subservicer.
If One-Month LIBOR is determined pursuant to clause (ii) above, on each
Interest Determination Date, One-Month LIBOR for the related Accrual Period for
the Group II Certificates and the Class IA-1 Certificates, will be established
by the Master Servicer as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period for the Group II Certificates and the Class IA-1 Certificates shall be
the arithmetic mean of such offered quotations (rounded upwards if necessary
to the nearest whole multiple of 0.03125%).
(b) If on such Interest Determination Date fewer than two Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period shall be the higher of (x) One-Month LIBOR as determined on the
previous Interest Determination Date and (y) the Reserve Interest Rate. The
"Reserve Interest Rate" shall be the rate per annum that the Master Servicer
determines to be either (i) the arithmetic mean (rounded upwards if necessary
to the nearest whole multiple of 0.03125%) of the one-month United States
dollar lending rates which New York City banks selected by the Master
Servicer are quoting on the relevant Interest Determination Date to the
principal London offices of leading banks in the London interbank market or,
in the event that the Master Servicer can determine no such arithmetic mean,
(ii) the lowest one-month United States dollar lending rate which New York
City banks selected by the Master Servicer are quoting on such Interest
Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Master Servicer and the Master Servicer's calculation of the rate of
interest applicable to the Group II Certificates and the Class IA-1
Certificates, for the related Accrual Period for such Group II Certificates and
Class IA-1 Certificates shall (in the absence of manifest error) be final and
binding.
Reports to Certificateholders
On each Distribution Date, the Master Servicer will forward to each
Certificateholder, the Subservicer, the Trustee and the Depositor a statement
generally setting forth with respect to each Loan Group or Certificate Group,
where applicable, among other information:
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(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 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;
(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.
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.
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Optional Termination
The Master Servicer will have the right (but not the obligation) to
repurchase all remaining Mortgage Loans and REO Properties in either Loan Group
and thereby effect early retirement of all the Certificates of the related
Certificate Group, subject to the Stated Principal Balance of the Mortgage Loans
and REO Properties in such Loan Group at the time of repurchase being less than
or equal to 10% of the aggregate principal balance of the Certificates in such
Loan Group as of the Closing 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 in the related Loan Group (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 with respect to such Mortgage Loans. 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 on 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 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 may, or upon the receipt of instructions from
the holders of Certificates having not less than 25% of the Voting Rights
evidenced by the Certificates, shall, 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
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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 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, (iv) the Mortgage Index
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for the Adjustable Rate Mortgage Loans and (v) 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-6 Certificates are not expected to receive distributions of
principal until the Distribution Date in January 2003 (except as otherwise
described herein). Thereafter, the relative entitlement of the Class IA-6
Certificates to payments in respect of principal is subject to increase in
accordance with the calculation of the Class IA-6 Distribution Amount. See
"Description of the Certificates--Distributions."
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.
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 Group II
Available Funds Cap. See "The Mortgage Pool."
The calculation of the Pass-Through Rate on each Class of the Group II
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 Group II Available Funds Cap. The
Group II Available Funds Cap effectively limits the
S-63
<PAGE>
amount of interest accrued on each Class of the Group II 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 Group II Available Funds Cap to limit the amount of interest that
would otherwise accrue on each Class of the Group II Certificates. In
particular, the Pass-Through Rate on each Class of the Group II Certificates
adjusts monthly, while the interest rates of the Adjustable Rate Mortgage Loans
adjust less frequently, with the result that the operation of the Group II
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 Group II 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 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 Group
II 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.
Furthermore, if the Group II 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 is subject to the Group II Maximum Rate Cap, which is defined as
the weighted average of the maximum lifetime Mortgage Rate on the Adjustable
Rate Mortgage Loans less the Servicer Fee Rate and the Master Servicing Fee
Rate. The Group II Maximum Rate Cap may limit increases in the Pass-Through
Rates on such Class 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 IA-1
Certificates will equal the lesser of (i) One-Month LIBOR plus 0.19% and (ii)
the weighted average Net Mortgage Rate on the Group I Mortgage Loans. Therefore,
to the extent that the weighted average Net Mortgage Rate on the Group I
Mortgage Loans is ever reduced to less than One-Month LIBOR plus 0.19%,
investors in the Class IA-1 Certificates may experience a lower than anticipated
yield and any shortfall of interest will not be recovered.
On any Distribution Date, the Pass-Through Rates for the Class IA-5, Class
IM-1, Class IM-2 and Class IB Certificates will equal the lesser of the rate set
forth for such Class in the table on page S-3 and (ii) the weighted average Net
Mortgage Rate on the Group I Mortgage Loans. Therefore, to the extent that the
weighted average Net Mortgage Rate on the Group I Mortgage Loans is ever reduced
to less than the applicable rate described in clause (i), investors in the Class
IA-5, Class IM-1, Class IM-2 or Class IB Certificates may experience a lower
than anticipated yield and any shortfall of interest will not be recovered.
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.
S-64
<PAGE>
The "Last Scheduled Distribution Date" for each Class of the Offered
Certificates is the date on which the Certificate Principal Balance thereof
would be reduced to zero assuming, among other things, that no prepayments are
received on the Mortgage Loans in the related Loan Group and that scheduled
monthly payments of principal of and interest on each of such Mortgage Loans are
timely received and that excess interest is not used to make accelerated
payments of principal. The Last Scheduled Distribution Date for each Class of
Offered Certificates is set forth in the chart appearing on page S-3. The actual
final Distribution Date with respect to each Class of Offered Certificates could
occur significantly earlier than its Last Scheduled Distribution Date because
(i) prepayments are likely to occur which will be applied to the payment of the
Certificate Principal Balances thereof, (ii) excess interest to the extent
available will be applied as an accelerated payment of principal on the Offered
Certificates as described herein, (iii) the Master Servicer may purchase any
Mortgage Loan which is delinquent in payment by 91 days or more and (iv) 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
aggregate Certificate Principal Balance of all of the Certificates of such Loan
Group, as of the Closing Date.
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 related 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 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
interest rates borne by such mortgage loans. Conversely, if prevailing interest
rates rise above the interest rates 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
S-65
<PAGE>
25th day of each month, commencing on January 25, 2000, 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 January 1,
2000, 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 December
1999, and include 30 days' interest thereon; (v) the level of Six-Month LIBOR
remains constant at 6.09125%, and the level of One-Month LIBOR remains constant
at 6.46125%; (vi) the Pass-Through Rates for the Group II Certificates remain
constant at the rates applicable prior to the related Optional Termination Date;
(vii) the Closing Date for the Certificates is December 22, 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; and (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>
$53,233,593.60 10.064% 9.554% 180 360 179
1,413,395.59 9.510% 9.000% 120 120 119
20,746,631.02 9.574% 9.064% 180 180 179
3,368,344.22 9.786% 9.276% 239 239 238
51,238,035.57 9.831% 9.321% 360 360 358
</TABLE>
Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Net Original Remaining
Current Mortgage Mortgage Term Term Gross Initial Rate
Balance Rate Rate (in months) (in months) Margin Change Cap
- ------------------- ---------- ---------- ------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 12,735,033.36 9.636% 9.126% 360 359 4.981% 1.544%
$138,614,415.28 9.960% 9.450% 360 359 5.878% 2.998%
$ 83,726,840.48 10.042% 9.532% 360 359 5.462% 3.000%
$ 4,923,710.88 9.416% 8.906% 360 359 5.326% 3.000%
Number of
Reset Months Until
Current Periodic Maximum Minimum Change Next Rate
Balance Cap Rate Rate Frequency Adjustment Date Index
- ------------------- ---------- ------------ ----------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 12,735,033.36 1.000% 16.180% 9.634% 6 8 6 mo. LIBOR
$138,614,415.28 1.498% 16.956% 9.960% 6 23 6 mo. LIBOR
$ 83,726,840.48 1.501% 17.040% 10.043% 6 35 6 mo. LIBOR
$ 4,923,710.88 1.500% 16.416% 9.416% 6 59 6 mo. LIBOR
</TABLE>
S-66
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IA-1
-----------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial .............................. 100 100 100 100 100
December 25, 2000 .................... 92 52 42 16 0
December 25, 2001 .................... 88 2 0 0 0
December 25, 2002 .................... 84 0 0 0 0
December 25, 2003 .................... 80 0 0 0 0
December 25, 2004 .................... 76 0 0 0 0
December 25, 2005 .................... 71 0 0 0 0
December 25, 2006. ................... 66 0 0 0 0
December 25, 2007 .................... 61 0 0 0 0
December 25, 2008 .................... 56 0 0 0 0
December 25, 2009 .................... 56 0 0 0 0
December 25, 2010 .................... 56 0 0 0 0
December 25, 2011 .................... 54 0 0 0 0
December 25, 2012 .................... 44 0 0 0 0
December 25, 2013 .................... 33 0 0 0 0
December 25, 2014 .................... 0 0 0 0 0
December 25, 2015 .................... 0 0 0 0 0
December 25, 2016 .................... 0 0 0 0 0
December 25, 2017 .................... 0 0 0 0 0
December 25, 2018 .................... 0 0 0 0 0
December 25, 2019 .................... 0 0 0 0 0
December 25, 2020 .................... 0 0 0 0 0
December 25, 2021 .................... 0 0 0 0 0
December 25, 2022 .................... 0 0 0 0 0
December 25, 2023 .................... 0 0 0 0 0
December 25, 2024 .................... 0 0 0 0 0
December 25, 2025 .................... 0 0 0 0 0
December 25, 2026 .................... 0 0 0 0 0
December 25, 2027 .................... 0 0 0 0 0
December 25, 2028 .................... 0 0 0 0 0
December 25, 2029 .................... 0 0 0 0 0
Weighted Average Life in years(1) .... 9.84 1.11 0.95 0.72 0.60
Class IA-2
------------------------------------------------------
Distribution Date 0% 80 % 100% 150% 200%
- ----------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial .............................. 100 100 100 100 100
December 25, 2000 .................... 100 100 100 100 76
December 25, 2001 .................... 100 100 58 0 0
December 25, 2002 .................... 100 9 0 0 0
December 25, 2003 .................... 100 0 0 0 0
December 25, 2004 .................... 100 0 0 0 0
December 25, 2005 .................... 100 0 0 0 0
December 25, 2006. ................... 100 0 0 0 0
December 25, 2007 .................... 100 0 0 0 0
December 25, 2008 .................... 100 0 0 0 0
December 25, 2009 .................... 100 0 0 0 0
December 25, 2010 .................... 100 0 0 0 0
December 25, 2011 .................... 100 0 0 0 0
December 25, 2012 .................... 100 0 0 0 0
December 25, 2013 .................... 100 0 0 0 0
December 25, 2014 .................... 0 0 0 0 0
December 25, 2015 .................... 0 0 0 0 0
December 25, 2016 .................... 0 0 0 0 0
December 25, 2017 .................... 0 0 0 0 0
December 25, 2018 .................... 0 0 0 0 0
December 25, 2019 .................... 0 0 0 0 0
December 25, 2020 .................... 0 0 0 0 0
December 25, 2021 .................... 0 0 0 0 0
December 25, 2022 .................... 0 0 0 0 0
December 25, 2023 .................... 0 0 0 0 0
December 25, 2024 .................... 0 0 0 0 0
December 25, 2025 .................... 0 0 0 0 0
December 25, 2026 .................... 0 0 0 0 0
December 25, 2027 .................... 0 0 0 0 0
December 25, 2028 .................... 0 0 0 0 0
December 25, 2029 .................... 0 0 0 0 0
Weighted Average Life in years(1) .... 14.93 2.60 2.13 1.47 1.15
</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 IA-3
------------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial .............................. 100 100 100 100 100
December 25, 2000 .................... 100 100 100 100 100
December 25, 2001 .................... 100 100 100 53 0
December 25, 2002 .................... 100 100 53 0 0
December 25, 2003 .................... 100 46 0 0 0
December 25, 2004 .................... 100 2 0 0 0
December 25, 2005 .................... 100 0 0 0 0
December 25, 2006 .................... 100 0 0 0 0
December 25, 2007 .................... 100 0 0 0 0
December 25, 2008 .................... 100 0 0 0 0
December 25, 2009 .................... 100 0 0 0 0
December 25, 2010 .................... 100 0 0 0 0
December 25, 2011 .................... 100 0 0 0 0
December 25, 2012 .................... 100 0 0 0 0
December 25, 2013 .................... 100 0 0 0 0
December 25, 2014 .................... 38 0 0 0 0
December 25, 2015 .................... 32 0 0 0 0
December 25, 2016 .................... 24 0 0 0 0
December 25, 2017 .................... 16 0 0 0 0
December 25, 2018 .................... 7 0 0 0 0
December 25, 2019 .................... 0 0 0 0 0
December 25, 2020 .................... 0 0 0 0 0
December 25, 2021 .................... 0 0 0 0 0
December 25, 2022 .................... 0 0 0 0 0
December 25, 2023 .................... 0 0 0 0 0
December 25, 2024 .................... 0 0 0 0 0
December 25, 2025 .................... 0 0 0 0 0
December 25, 2026 .................... 0 0 0 0 0
December 25, 2027 .................... 0 0 0 0 0
December 25, 2028 .................... 0 0 0 0 0
December 25, 2029 .................... 0 0 0 0 0
Weighted Average Life in years(1)..... 15.94 4.02 3.18 2.08 1.56
Class IA-4
------------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- ---------- --------- --------- --------- ---------
Initial .............................. 100 100 100 100 100
December 25, 2000 .................... 100 100 100 100 100
December 25, 2001 .................... 100 100 100 100 56
December 25, 2002 .................... 100 100 100 25 0
December 25, 2003 .................... 100 100 98 0 0
December 25, 2004 .................... 100 100 48 0 0
December 25, 2005 .................... 100 65 16 0 0
December 25, 2006 .................... 100 37 0 0 0
December 25, 2007 .................... 100 27 0 0 0
December 25, 2008 .................... 100 12 0 0 0
December 25, 2009 .................... 100 3 0 0 0
December 25, 2010 .................... 100 0 0 0 0
December 25, 2011 .................... 100 0 0 0 0
December 25, 2012 .................... 100 0 0 0 0
December 25, 2013 .................... 100 0 0 0 0
December 25, 2014 .................... 100 0 0 0 0
December 25, 2015 .................... 100 0 0 0 0
December 25, 2016 .................... 100 0 0 0 0
December 25, 2017 .................... 100 0 0 0 0
December 25, 2018 .................... 100 0 0 0 0
December 25, 2019 .................... 97 0 0 0 0
December 25, 2020 .................... 86 0 0 0 0
December 25, 2021 .................... 74 0 0 0 0
December 25, 2022 .................... 61 0 0 0 0
December 25, 2023 .................... 46 0 0 0 0
December 25, 2024 .................... 30 0 0 0 0
December 25, 2025 .................... 13 0 0 0 0
December 25, 2026 .................... 0 0 0 0 0
December 25, 2027 .................... 0 0 0 0 0
December 25, 2028 .................... 0 0 0 0 0
December 25, 2029 .................... 0 0 0 0 0
Weighted Average Life in years(1)..... 23.62 7.00 5.13 2.96 2.09
</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 IA-5
-------------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial .............................. 100 100 100 100 100
December 25, 2000 .................... 100 100 100 100 100
December 25, 2001 .................... 100 100 100 100 100
December 25, 2002 .................... 100 100 100 100 0
December 25, 2003 .................... 100 100 100 89 0
December 25, 2004 .................... 100 100 100 41 0
December 25, 2005 .................... 100 100 100 0 0
December 25, 2006 .................... 100 100 92 0 0
December 25, 2007 .................... 100 100 85 0 0
December 25, 2008 .................... 100 100 0 0 0
December 25, 2009 .................... 100 100 0 0 0
December 25, 2010 .................... 100 0 0 0 0
December 25, 2011 .................... 100 0 0 0 0
December 25, 2012 .................... 100 0 0 0 0
December 25, 2013 .................... 100 0 0 0 0
December 25, 2014 .................... 100 0 0 0 0
December 25, 2015 .................... 100 0 0 0 0
December 25, 2016 .................... 100 0 0 0 0
December 25, 2017 .................... 100 0 0 0 0
December 25, 2018 .................... 100 0 0 0 0
December 25, 2019 .................... 100 0 0 0 0
December 25, 2020 .................... 100 0 0 0 0
December 25, 2021 .................... 100 0 0 0 0
December 25, 2022 .................... 100 0 0 0 0
December 25, 2023 .................... 100 0 0 0 0
December 25, 2024 .................... 100 0 0 0 0
December 25, 2025 .................... 100 0 0 0 0
December 25, 2026 .................... 91 0 0 0 0
December 25, 2027 .................... 0 0 0 0 0
December 25, 2028 .................... 0 0 0 0 0
December 25, 2029 .................... 0 0 0 0 0
Weighted Average Life in years(1)..... 27.07 10.57 8.37 4.85 2.69
Class IA-6
-----------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- --------- --------- --------- --------- ---------
Initial .............................. 100 100 100 100 100
December 25, 2000 .................... 100 100 100 100 100
December 25, 2001 .................... 100 100 100 100 100
December 25, 2002 .................... 100 100 100 100 96
December 25, 2003 .................... 99 90 89 88 0
December 25, 2004 .................... 98 81 78 73 0
December 25, 2005 .................... 97 68 63 0 0
December 25, 2006 .................... 94 54 47 0 0
December 25, 2007 .................... 87 27 20 0 0
December 25, 2008 .................... 80 13 0 0 0
December 25, 2009 .................... 52 0 0 0 0
December 25, 2010 .................... 23 0 0 0 0
December 25, 2011 .................... 0 0 0 0 0
December 25, 2012 .................... 0 0 0 0 0
December 25, 2013 .................... 0 0 0 0 0
December 25, 2014 .................... 0 0 0 0 0
December 25, 2015 .................... 0 0 0 0 0
December 25, 2016 .................... 0 0 0 0 0
December 25, 2017 .................... 0 0 0 0 0
December 25, 2018 .................... 0 0 0 0 0
December 25, 2019 .................... 0 0 0 0 0
December 25, 2020 .................... 0 0 0 0 0
December 25, 2021 .................... 0 0 0 0 0
December 25, 2022 .................... 0 0 0 0 0
December 25, 2023 .................... 0 0 0 0 0
December 25, 2024 .................... 0 0 0 0 0
December 25, 2025 .................... 0 0 0 0 0
December 25, 2026 .................... 0 0 0 0 0
December 25, 2027 .................... 0 0 0 0 0
December 25, 2028 .................... 0 0 0 0 0
December 25, 2029 .................... 0 0 0 0 0
Weighted Average Life in years(1)..... 9.82 6.82 6.48 5.17 3.97
</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 IM-1
------------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial ................................... 100 100 100 100 100
December 25, 2000 ......................... 100 100 100 100 100
December 25, 2001 ......................... 100 100 100 100 100
December 25, 2002 ......................... 100 100 100 100 100
December 25, 2003 ......................... 100 89 72 40 0
December 25, 2004 ......................... 100 72 55 26 0
December 25, 2005 ......................... 100 57 41 0 0
December 25, 2006 ......................... 100 46 31 0 0
December 25, 2007 ......................... 100 36 23 0 0
December 25, 2008 ......................... 100 29 0 0 0
December 25, 2009 ......................... 100 23 0 0 0
December 25, 2010 ......................... 100 0 0 0 0
December 25, 2011 ......................... 100 0 0 0 0
December 25, 2012 ......................... 100 0 0 0 0
December 25, 2013 ......................... 100 0 0 0 0
December 25, 2014 ......................... 66 0 0 0 0
December 25, 2015 ......................... 64 0 0 0 0
December 25, 2016 ......................... 61 0 0 0 0
December 25, 2017 ......................... 58 0 0 0 0
December 25, 2018 ......................... 55 0 0 0 0
December 25, 2019 ......................... 52 0 0 0 0
December 25, 2020 ......................... 48 0 0 0 0
December 25, 2021 ......................... 45 0 0 0 0
December 25, 2022 ......................... 41 0 0 0 0
December 25, 2023 ......................... 36 0 0 0 0
December 25, 2024 ......................... 31 0 0 0 0
December 25, 2025 ......................... 26 0 0 0 0
December 25, 2026 ......................... 20 0 0 0 0
December 25, 2027 ......................... 0 0 0 0 0
December 25, 2028 ......................... 0 0 0 0 0
December 25, 2029 ......................... 0 0 0 0 0
Weighted Average Life in years(1) ......... 20.62 7.09 5.73 4.11 3.74
Class IM-2
------------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- ---------- --------- --------- --------- ---------
Initial ................................... 100 100 100 100 100
December 25, 2000 ......................... 100 100 100 100 100
December 25, 2001 ......................... 100 100 100 100 100
December 25, 2002 ......................... 100 100 100 100 100
December 25, 2003 ......................... 100 89 72 40 0
December 25, 2004 ......................... 100 72 55 26 0
December 25, 2005 ......................... 100 57 41 0 0
December 25, 2006 ......................... 100 46 31 0 0
December 25, 2007 ......................... 100 36 23 0 0
December 25, 2008 ......................... 100 29 0 0 0
December 25, 2009 ......................... 100 23 0 0 0
December 25, 2010 ......................... 100 0 0 0 0
December 25, 2011 ......................... 100 0 0 0 0
December 25, 2012 ......................... 100 0 0 0 0
December 25, 2013 ......................... 100 0 0 0 0
December 25, 2014 ......................... 66 0 0 0 0
December 25, 2015 ......................... 64 0 0 0 0
December 25, 2016 ......................... 61 0 0 0 0
December 25, 2017 ......................... 58 0 0 0 0
December 25, 2018 ......................... 55 0 0 0 0
December 25, 2019 ......................... 52 0 0 0 0
December 25, 2020 ......................... 48 0 0 0 0
December 25, 2021 ......................... 45 0 0 0 0
December 25, 2022 ......................... 41 0 0 0 0
December 25, 2023 ......................... 36 0 0 0 0
December 25, 2024 ......................... 31 0 0 0 0
December 25, 2025 ......................... 26 0 0 0 0
December 25, 2026 ......................... 20 0 0 0 0
December 25, 2027 ......................... 0 0 0 0 0
December 25, 2028 ......................... 0 0 0 0 0
December 25, 2029 ......................... 0 0 0 0 0
Weighted Average Life in years(1) ......... 20.62 7.09 5.73 4.06 3.54
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
S-70
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IB
------------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial ................................... 100 100 100 100 100
December 25, 2000 ......................... 100 100 100 100 100
December 25, 2001 ......................... 100 100 100 100 100
December 25, 2002 ......................... 100 100 100 100 100
December 25, 2003 ......................... 100 89 72 40 0
December 25, 2004 ......................... 100 72 55 21 0
December 25, 2005 ......................... 100 57 41 0 0
December 25, 2006 ......................... 100 46 30 0 0
December 25, 2007 ......................... 100 36 17 0 0
December 25, 2008 ......................... 100 27 0 0 0
December 25, 2009 ......................... 100 16 0 0 0
December 25, 2010 ......................... 100 0 0 0 0
December 25, 2011 ......................... 100 0 0 0 0
December 25, 2012 ......................... 100 0 0 0 0
December 25, 2013 ......................... 100 0 0 0 0
December 25, 2014 ......................... 66 0 0 0 0
December 25, 2015 ......................... 64 0 0 0 0
December 25, 2016 ......................... 61 0 0 0 0
December 25, 2017 ......................... 58 0 0 0 0
December 25, 2018 ......................... 55 0 0 0 0
December 25, 2019 ......................... 52 0 0 0 0
December 25, 2020 ......................... 48 0 0 0 0
December 25, 2021 ......................... 45 0 0 0 0
December 25, 2022 ......................... 41 0 0 0 0
December 25, 2023 ......................... 36 0 0 0 0
December 25, 2024 ......................... 31 0 0 0 0
December 25, 2025 ......................... 22 0 0 0 0
December 25, 2026 ......................... 12 0 0 0 0
December 25, 2027 ......................... 0 0 0 0 0
December 25, 2028 ......................... 0 0 0 0 0
December 25, 2029 ......................... 0 0 0 0 0
Weighted Average Life in years(1) ......... 20.53 7.00 5.66 3.98 3.39
Class IIA-1
------------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- ---------- --------- --------- --------- ---------
Initial ................................... 100 100 100 100 100
December 25, 2000 ......................... 97 72 66 51 35
December 25, 2001 ......................... 95 51 41 21 5
December 25, 2002 ......................... 95 35 24 4 0
December 25, 2003 ......................... 94 28 21 4 0
December 25, 2004 ......................... 93 22 15 0 0
December 25, 2005 ......................... 92 17 11 0 0
December 25, 2006 ......................... 92 13 8 0 0
December 25, 2007 ......................... 90 10 0 0 0
December 25, 2008 ......................... 89 8 0 0 0
December 25, 2009 ......................... 88 0 0 0 0
December 25, 2010 ......................... 87 0 0 0 0
December 25, 2011 ......................... 85 0 0 0 0
December 25, 2012 ......................... 83 0 0 0 0
December 25, 2013 ......................... 81 0 0 0 0
December 25, 2014 ......................... 79 0 0 0 0
December 25, 2015 ......................... 76 0 0 0 0
December 25, 2016 ......................... 73 0 0 0 0
December 25, 2017 ......................... 70 0 0 0 0
December 25, 2018 ......................... 66 0 0 0 0
December 25, 2019 ......................... 62 0 0 0 0
December 25, 2020 ......................... 57 0 0 0 0
December 25, 2021 ......................... 52 0 0 0 0
December 25, 2022 ......................... 46 0 0 0 0
December 25, 2023 ......................... 40 0 0 0 0
December 25, 2024 ......................... 34 0 0 0 0
December 25, 2025 ......................... 29 0 0 0 0
December 25, 2026 ......................... 23 0 0 0 0
December 25, 2027 ......................... 16 0 0 0 0
December 25, 2028 ......................... 8 0 0 0 0
December 25, 2029 ......................... 0 0 0 0 0
Weighted Average Life in years(1) ......... 20.45 3.08 2.38 1.29 0.87
</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>
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
December 25, 2000 ......................... 100 100 100 100 100
December 25, 2001 ......................... 100 100 100 100 100
December 25, 2002 ......................... 100 100 100 100 0
December 25, 2003 ......................... 100 74 56 100 0
December 25, 2004 ......................... 100 58 40 0 0
December 25, 2005 ......................... 100 45 29 0 0
December 25, 2006 ......................... 100 35 21 0 0
December 25, 2007 ......................... 100 27 0 0 0
December 25, 2008 ......................... 100 21 0 0 0
December 25, 2009 ......................... 100 0 0 0 0
December 25, 2010 ......................... 100 0 0 0 0
December 25, 2011 ......................... 100 0 0 0 0
December 25, 2012 ......................... 100 0 0 0 0
December 25, 2013 ......................... 100 0 0 0 0
December 25, 2014 ......................... 100 0 0 0 0
December 25, 2015 ......................... 100 0 0 0 0
December 25, 2016 ......................... 100 0 0 0 0
December 25, 2017 ......................... 100 0 0 0 0
December 25, 2018 ......................... 100 0 0 0 0
December 25, 2019 ......................... 100 0 0 0 0
December 25, 2020 ......................... 100 0 0 0 0
December 25, 2021 ......................... 100 0 0 0 0
December 25, 2022 ......................... 100 0 0 0 0
December 25, 2023 ......................... 100 0 0 0 0
December 25, 2024 ......................... 90 0 0 0 0
December 25, 2025 ......................... 76 0 0 0 0
December 25, 2026 ......................... 59 0 0 0 0
December 25, 2027 ......................... 41 0 0 0 0
December 25, 2028 ......................... 21 0 0 0 0
December 25, 2029 ......................... 0 0 0 0 0
Weighted Average Life in years(1) ......... 27.34 6.04 4.93 4.37 2.55
Class IIM-2
------------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ----------------- ---------- --------- --------- --------- ---------
Initial ................................... 100 100 100 100 100
December 25, 2000 ......................... 100 100 100 100 100
December 25, 2001 ......................... 100 100 100 100 100
December 25, 2002 ......................... 100 100 100 100 0
December 25, 2003 ......................... 100 74 56 25 0
December 25, 2004 ......................... 100 58 40 0 0
December 25, 2005 ......................... 100 45 29 0 0
December 25, 2006 ......................... 100 35 21 0 0
December 25, 2007 ......................... 100 27 0 0 0
December 25, 2008 ......................... 100 21 0 0 0
December 25, 2009 ......................... 100 0 0 0 0
December 25, 2010 ......................... 100 0 0 0 0
December 25, 2011 ......................... 100 0 0 0 0
December 25, 2012 ......................... 100 0 0 0 0
December 25, 2013 ......................... 100 0 0 0 0
December 25, 2014 ......................... 100 0 0 0 0
December 25, 2015 ......................... 100 0 0 0 0
December 25, 2016 ......................... 100 0 0 0 0
December 25, 2017 ......................... 100 0 0 0 0
December 25, 2018 ......................... 100 0 0 0 0
December 25, 2019 ......................... 100 0 0 0 0
December 25, 2020 ......................... 100 0 0 0 0
December 25, 2021 ......................... 100 0 0 0 0
December 25, 2022 ......................... 100 0 0 0 0
December 25, 2023 ......................... 100 0 0 0 0
December 25, 2024 ......................... 90 0 0 0 0
December 25, 2025 ......................... 76 0 0 0 0
December 25, 2026 ......................... 59 0 0 0 0
December 25, 2027 ......................... 41 0 0 0 0
December 25, 2028 ......................... 21 0 0 0 0
December 25, 2029 ......................... 0 0 0 0 0
Weighted Average Life in years(1) ......... 27.34 6.04 4.88 3.93 2.98
</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-72
<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
December 25, 2000 ......................... 100 100 100 100 100
December 25, 2001 ......................... 100 100 100 100 100
December 25, 2002 ......................... 100 100 100 100 0
December 25, 2003 ......................... 100 74 56 24 0
December 25, 2004 ......................... 100 58 40 0 0
December 25, 2005 ......................... 100 45 29 0 0
December 25, 2006 ......................... 100 35 21 0 0
December 25, 2007 ......................... 100 27 0 0 0
December 25, 2008 ......................... 100 21 0 0 0
December 25, 2009 ......................... 100 0 0 0 0
December 25, 2010 ......................... 100 0 0 0 0
December 25, 2011 ......................... 100 0 0 0 0
December 25, 2012 ......................... 100 0 0 0 0
December 25, 2013 ......................... 100 0 0 0 0
December 25, 2014 ......................... 100 0 0 0 0
December 25, 2015 ......................... 100 0 0 0 0
December 25, 2016 ......................... 100 0 0 0 0
December 25, 2017 ......................... 100 0 0 0 0
December 25, 2018 ......................... 100 0 0 0 0
December 25, 2019 ......................... 100 0 0 0 0
December 25, 2020 ......................... 100 0 0 0 0
December 25, 2021 ......................... 100 0 0 0 0
December 25, 2022 ......................... 100 0 0 0 0
December 25, 2023 ......................... 100 0 0 0 0
December 25, 2024 ......................... 90 0 0 0 0
December 25, 2025 ......................... 76 0 0 0 0
December 25, 2026 ......................... 59 0 0 0 0
December 25, 2027 ......................... 41 0 0 0 0
December 25, 2028 ......................... 21 0 0 0 0
December 25, 2029 ......................... 0 0 0 0 0
Weighted Average Life in years(1) ......... 27.34 6.04 4.84 3.66 3.01
</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-73
<PAGE>
Group II Certificates: Hypothetical Available Funds Cap Table
Based upon the Modeling Assumptions and assuming further that the
Adjustable Rate Mortgage Loans prepay at a constant rate of 27% CPR, the
following table indicates the available funds cap that would result with respect
to the Group II Certificates on each Distribution Date under such an assumed
hypothetical scenario. It is highly unlikely, however, that prepayments on the
Adjustable Rate Mortgage Loans will occur at a constant rate of 27% CPR or at
any other constant rate. There is no assurance, therefore, of whether or to what
extent the actual available funds cap with respect to the Group II Certificates
on any Distribution Date will conform to the corresponding rate set forth for
such Distribution Date in the following table.
Hypothetical Hypothetical
Available Available
Funds Funds
Distribution Date Cap Distribution Date Cap
- -------------------- -------------- -------------------- -------------
January 25, 2000 9.450% September 25, 2003 11.904%
February 25, 2000 9.450 October 25, 2003 11.904
March 25, 2000 9.450 November 25, 2003 11.904
April 25, 2000 9.450 December 25, 2003 11.904
May 25, 2000 9.469 January 25, 2004 11.904
June 25, 2000 9.489 February 25, 2004 11.904
July 25, 2000 9.509 March 25, 2004 11.904
August 25, 2000 9.531 April 25, 2004 11.904
September 25, 2000 9.629 May 25, 2004 11.904
October 25, 2000 9.652 June 25, 2004 11.904
November 25, 2000 9.678 July 25, 2004 11.904
December 25, 2000 9.702 August 25, 2004 11.904
January 25, 2001 9.730 September 25, 2004 11.904
February 25, 2001 9.762 October 25, 2004 11.904
March 25, 2001 9.801 November 25, 2004 11.904
April 25, 2001 9.848 December 25, 2004 11.947
May 25, 2001 9.891 January 25, 2005 11.947
June 25, 2001 9.937 February 25, 2005 11.947
July 25, 2001 9.983 March 25, 2005 11.947
August 25, 2001 10.009 April 25, 2005 11.947
September 25, 2001 10.022 May 25, 2005 11.947
October 25, 2001 10.037 June 25, 2005 11.947
November 25, 2001 10.051 July 25, 2005 11.947
December 25, 2001 11.291 August 25, 2005 11.947
January 25, 2002 11.309 September 25, 2005 11.947
February 25, 2002 11.327 October 25, 2005 11.947
March 25, 2002 11.345 November 25, 2005 11.947
April 25, 2002 11.364 December 25, 2005 11.947
May 25, 2002 11.384 January 25, 2006 11.947
June 25, 2002 11.404 February 25, 2006 11.947
July 25, 2002 11.425 March 25, 2006 11.947
August 25, 2002 11.446 April 25, 2006 11.947
September 25, 2002 11.469 May 25, 2006 11.947
October 25, 2002 11.491 June 25, 2006 11.947
November 25, 2002 11.515 July 25, 2006 11.947
December 25, 2002 12.107 August 25, 2006 11.947
January 25, 2003 12.134 September 25, 2006 11.947
February 25, 2003 11.904 October 25, 2006 11.947
March 25, 2003 11.904 November 25, 2006 11.947
April 25, 2003 11.904 December 25, 2006 11.947
May 25, 2003 11.904 January 25, 2007 11.947
June 25, 2003 11.904 February 25, 2007 11.947
July 25, 2003 11.904 March 25, 2007 11.947
August 25, 2003 11.904
S-74
<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 for certain 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 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.
S-75
<PAGE>
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
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.
S-76
<PAGE>
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 an administrative exemptions to
Chase Securities Inc. (Prohibited Transaction Exemption 90-31, 55 Fed. Reg.
23144 (1990)), (the "Exemption") 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 Exemption. The Exemption applies to mortgage loans such as
the Mortgage Loans in the Trust Fund.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated
party;
(2) the rights and interests evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
Duff & Phelps Credit Rating Co. ("DCR") or Fitch IBCA, Inc. ("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not
more than reasonable compensation for underwriting the certificates;
the sum of all payments made to and retained by the seller pursuant to
the assignment of the loans to the trust fund represents not more than
the fair market value of such loans; the sum of all payments made to
and retained by the servicer and any other servicer represents not more
than reasonable compensation for such person's services under the
agreement pursuant to which the loans are pooled and reimbursements of
such person's reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or
DCR for at least one year prior to the Plan's acquisition of
certificates; and
(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 Exemption provides 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
S-77
<PAGE>
affiliate) is an obligor on the receivables held in the trust provided that,
among other requirements, (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 Exemption 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 Exemption will apply to the acquisition and holding
of the Class A Certificates by Plans and that all conditions of the Exemption
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 Exemption does 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 Exemption, 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.
LEGAL INVESTMENT MATTERS
The Class A and Class M-1 Certificates offered hereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"), for so long as they are rated in
one of the two highest rating categories by at least one nationally recognized
statistical rating organization and, as such, will be legal investments for
certain entities to the extent provided in SMMEA. However, institutions subject
to the jurisdiction of the Office of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration or federal or state banking, insurance or other regulatory
S-78
<PAGE>
authorities should review applicable rules, supervisory policies and guidelines,
since certain restrictions may apply to investments in such classes. It should
also be noted that certain states have enacted legislation limiting to varying
extents the ability of certain entities (in particular insurance companies) to
invest in mortgage related securities. Investors should consult with their own
legal advisors in determining whether, and to what extent the Class A and Class
M-1 Certificates constitute legal investments for such investors. See "Legal
Investment Matters" in the Prospectus.
The Class M-2 and Class B Certificates will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of the Class
M-2 and Class B Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase Class
M-2 and Class B 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 Class M-2 and Class B Certificates will constitute legal
investments for them.
Except as to the status of the Class A and Class M-1 Certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the Offered Certificates for legal investment or financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase the 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.
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 September 15, 1999 between the
Depositor and Chase Securities Inc. ("CSI"), as underwriter and as
representative of Bear, Stearns & Co. Inc. ("Bear Stearns"), First Union
Securities, Inc. ("First Union") and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), as underwriters, 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, Bear, Stearns, First
Union and DLJ is referred to herein as an "Underwriter," and together, as the
"Underwriters."
<TABLE>
<CAPTION>
Donaldson, Lufkin &
Chase Bear, Stearns First Union Jenrette Securities
Class of Certificate Securities Inc. & Co. Inc. Securities, Inc. Corporation
- ----------------------------------- ----------------- --------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Class IA-1 Certificates ........... $ 25,800,000 $ 6,450,000 $ 6,450,000 $ 4,300,000
Class IA-2 Certificates ........... $ 11,100,000 $ 2,775,000 $ 2,775,000 $ 1,850,000
Class IA-3 Certificates ........... $ 11,100,000 $ 2,775,000 $ 2,775,000 $ 1,850,000
Class IA-4 Certificates ........... $ 9,600,000 $ 2,400,000 $ 2,400,000 $ 1,600,000
Class IA-5 Certificates ........... $ 6,984,000 $ 1,746,000 $ 1,746,000 $ 1,164,000
Class IA-6 Certificates ........... $ 7,176,000 $ 1,794,000 $ 1,794,000 $ 1,196,000
Class IM-1 Certificates ........... $ 3,412,500 $ 682,500 $ 0 $ 455,000
Class IM-2 Certificates ........... $ 2,193,750 $ 438,750 $ 0 $ 292,500
Class IB Certificates ............. $ 2,193,750 $ 438,750 $ 0 $ 292,500
Class IIA-1 Certificates. ......... $ 123,120,000 $ 30,780,000 $ 30,780,000 $ 20,520,000
Class IIM-1 Certificates. ......... $ 11,070,000 $ 2,214,000 $ 0 $ 1,476,000
Class IIM-2 Certificates. ......... $ 7,830,000 $ 1,566,000 $ 0 $ 1,044,000
Class IIB Certificates. ........... $ 7,200,000 $ 1,440,000 $ 0 $ 960,000
------------- ------------ ------------ ------------
Total ............................ $ 228,780,000 $ 55,500,000 $ 48,720,000 $ 37,000,000
============= ============ ============ ============
</TABLE>
S-79
<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 .......... 100.00000% 0.15% 0.090% 0.075%
Class IA-2 Certificates .......... 99.99990% 0.25% 0.130% 0.125%
Class IA-3 Certificates .......... 99.99918% 0.35% 0.210% 0.125%
Class IA-4 Certificates .......... 99.99836% 0.55% 0.330% 0.250%
Class IA-5 Certificates .......... 99.99731% 0.65% 0.390% 0.250%
Class IA-6 Certificates .......... 99.99586% 0.525% 0.315% 0.250%
Class IM-1 Certificates .......... 99.99558% 0.45% 0.270% 0.250%
Class IM-2 Certificates .......... 99.99954% 0.45% 0.270% 0.250%
Class IB Certificates ............ 98.68760% 0.55% 0.330% 0.250%
Class IIA-1 Certificates ......... 100.00000% 0.15% 0.090% 0.075%
Class IIM-1 Certificates ......... 100.00000% 0.425% 0.255% 0.250%
Class IIM-2 Certificates ......... 100.00000% 0.425% 0.255% 0.250%
Class IIB Certificates ........... 100.00000% 0.609% 0.360% 0.250%
</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.
The Underwriters have agreed to reimburse the Depositor for certain
expenses incurred in connection with the issuance of the Certificates.
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-80
<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
IA-6 ................. AAA AAA
IM-1 ................. AA AA
IM-2 ................. A A
IB ................... BBB BBB
IIA-1 ................ 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.
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-81
<PAGE>
INDEX OF DEFINED TERMS
1/29 Loans...............................................................S-24
2/28 Loans...............................................................S-24
3/27 Loans...............................................................S-24
5/25 Loans...............................................................S-25
Accounts.................................................................S-23
Accrual Period...........................................................S-53
Adjustable Rate Certificate Carryover....................................S-54
Adjustable Rate Mortgage Loan............................................S-23
Adjustment Date..........................................................S-24
Advance..................................................................S-46
Advanta..................................................................S-23
Advanta Parent...........................................................S-42
Applied Realized Loss Amount.............................................S-58
B&C......................................................................S-23
B&C Underwriting Guidelines..............................................S-40
Balloon Amount...........................................................S-25
Balloon Loan.............................................................S-25
Bear Stearns.............................................................S-79
Book-Entry Certificates..................................................S-48
Cede.....................................................................S-48
CEDEL....................................................................S-48
CEDEL Participants.......................................................S-49
Certificate Account......................................................S-51
Certificate Group........................................................S-47
Certificate Owners.......................................................S-48
Certificate Principal Balances...........................................S-48
Certificates.............................................................S-47
Chase Manhattan Mortgage.................................................S-39
Class A Certificates.....................................................S-47
Class A Group I Certificates.............................................S-47
Class A Group II Certificates............................................S-47
Class A Principal Distribution Amount....................................S-55
Class B Certificates.....................................................S-47
Class B Principal Distribution Amount....................................S-56
Class IA-6 Distribution Amount...........................................S-55
Class IB Certificates....................................................S-47
Class IIB Certificates...................................................S-47
Class IIM-1 Certificates.................................................S-47
Class IIM-2 Certificates.................................................S-47
Class IM-1 Certificates..................................................S-47
Class IM-2 Certificates..................................................S-47
Class M-1 Certificates...................................................S-47
Class M-1 Principal Distribution Amount..................................S-55
Class M-2 Certificates...................................................S-47
Class M-2 Principal Distribution Amount..................................S-56
Closing Date.............................................................S-23
Collateral Value.........................................................S-25
Collection Account.......................................................S-51
Compensating Interest....................................................S-46
Complaint................................................................S-43
Constant Prepayment Rate.................................................S-65
Contributions Tax....................................................... S-76
<PAGE>
Cooperative..............................................................S-50
CPR......................................................................S-65
CSI......................................................................S-79
Current Interest.........................................................S-53
Cut-off Date.............................................................S-23
DCR......................................................................S-77
Definitive Certificate...................................................S-48
Depositor................................................................S-23
Determination Date.......................................................S-60
Distribution Account.....................................................S-52
Distribution Date........................................................S-52
DLJ......................................................................S-79
DTC......................................................................S-48
Due Dates................................................................S-46
Due Period...............................................................S-52
ERISA....................................................................S-76
Euroclear................................................................S-48
Euroclear Operator.......................................................S-50
Euroclear Participants...................................................S-49
European Depositaries....................................................S-48
Exemption................................................................S-77
Extra Principal Distribution Amount......................................S-57
Financial Intermediary...................................................S-48
First Union..............................................................S-79
Fitch....................................................................S-77
Fixed Rate Mortgage Loan.................................................S-23
Fleet....................................................................S-43
Fleet Complaint..........................................................S-43
Fleet Transaction........................................................S-43
Foreclosure Rate.........................................................S-44
Gross Margin.............................................................S-24
Group I Certificates.....................................................S-47
Group II Available Funds Cap.............................................S-54
Group II Certificates....................................................S-47
Group II Maximum Rate Cap................................................S-54
HEP......................................................................S-65
Home Equity Prepayment...................................................S-65
Indirect Participants....................................................S-48
Interest Carry Forward Amount............................................S-53
Interest Determination Date..............................................S-59
Interest Funds...........................................................S-52
Last Scheduled Distribution Date.........................................S-65
LIBOR Business Day.......................................................S-59
Loan Group...............................................................S-23
Loan-to-Value Ratio......................................................S-25
Master REMIC.............................................................S-75
Master Servicer..........................................................S-23
Master Servicer Fee......................................................S-47
Master Servicer Fee Rate.................................................S-47
Maximum Mortgage Rate....................................................S-24
Mezzanine Certificates...................................................S-47
Mezzanine Group I Certificates...........................................S-47
S-82
<PAGE>
Mezzanine Group II Certificates..........................................S-47
Minimum Mortgage Rate....................................................S-24
Modeling Assumptions.....................................................S-65
Moody's..................................................................S-77
Mortgage Index...........................................................S-24
Mortgage Loans...........................................................S-23
Mortgage Loan Schedule...................................................S-39
Mortgage Note............................................................S-23
Mortgage Pool............................................................S-23
Mortgage Rates...........................................................S-26
Mortgaged Properties.....................................................S-23
Mortgagors...............................................................S-23
Net Excess Cashflow......................................................S-57
Net Mortgage Rate........................................................S-54
Offered Certificates.....................................................S-47
One-Month LIBOR..........................................................S-54
Optional Termination Amount..............................................S-59
Optional Termination Date................................................S-61
Owned and Managed Servicing Portfolio....................................S-43
Participants.............................................................S-48
Pass-Through Margin......................................................S-54
Pass-Through Rate........................................................S-53
Percentage Interest......................................................S-52
Periodic Rate Cap........................................................S-24
Plan.....................................................................S-76
Planning and Servicing Agreement.........................................S-23
Prepayment Interest Shortfall............................................S-46
Prepayment Models........................................................S-65
Prepayment Period........................................................S-52
Principal Distribution Amount............................................S-55
Principal Funds..........................................................S-52
Prohibited Transactions Tax..............................................S-76
Prospectus...............................................................S-47
PTCE 95-60...............................................................S-78
Realized Loss............................................................S-58
Record Date..............................................................S-52
Reference Banks..........................................................S-59
<PAGE>
Relevant Depositary......................................................S-48
REO Property.............................................................S-46
Repurchase Price.........................................................S-61
Required Percentage......................................................S-57
Reserve Interest Rate....................................................S-59
Residual Certificates....................................................S-47
Restricted Group.........................................................S-78
Required Percentage......................................................S-57
Reuters Screen LIBO Page.................................................S-59
Rules....................................................................S-48
S&P......................................................................S-77
Scheduled Payments.......................................................S-23
Seller...................................................................S-23
Servicer Advance Date....................................................S-46
Servicer Remittance Date.................................................S-51
Servicing Fee............................................................S-46
Servicing Fee Rate.......................................................S-46
Six Month LIBOR Loans....................................................S-24
Small Lender Program.....................................................S-23
SMMEA....................................................................S-78
Stated Principal Balance.................................................S-46
Statistical Mortgage Pool................................................S-23
Stepdown Date............................................................S-57
Subordinated Certificates................................................S-47
Subordinated Group I Certificates........................................S-47
Subordinated Group II Certificates.......................................S-47
Subservicer..............................................................S-23
Subsidiary REMIC.........................................................S-75
Subsidiary REMIC Regular Interests.......................................S-75
Terms and Conditions.....................................................S-50
Third Party Servicing Portfolio..........................................S-43
Trigger Event............................................................S-53
Trustee..................................................................S-23
Trust Fund...............................................................S-47
Underwriter..............................................................S-79
Underwriters.............................................................S-79
Unpaid Realized Loss Amount..............................................S-58
S-83
<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 1999-4 (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,
A-1
<PAGE>
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, 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) (or
successor form). 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) (or successor form).
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) (or successor form). 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" (each, a "REMIC") for federal income tax purposes.
See "Federal Income Tax Consequences".
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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Plan of Distribution") herein and in the related Prospectus Supplement. There
will have been no public market for any series of Certificates prior to the
offering thereof. Accordingly, once an offering of any Series of Certificates
has been made, there can be no assurance that a secondary market for
Certificates of such Series will develop or, if it does develop, that such
market will continue. No application will be made to list the Certificates on
any securities exchange.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by a Prospectus Supplement.
---------------------
The date of this Prospectus is June 16, 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 Seller c/o Chase Manhattan Mortgage Corporation, 343
Thornall Street, Edison, New Jersey 08837, Attention: Structured Finance.
Telephone requests for such copies should be directed to the Seller at (732)
205-0600.
----------------
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the series of Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters of the series of Certificates covered by
such Prospectus Supplement and with respect to their unsold allotments or
subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon as having been authorized. This
Prospectus and any Prospectus Supplement with respect hereto do not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the Certificates offered hereby and thereby nor an offer to sell or a
solicitation of an offer to buy the Certificates to any person in any state or
other jurisdiction in which such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus or any Prospectus Supplement with
respect hereto nor any sale made hereunder and thereunder shall, under any
circumstances, create any implication that the information herein or therein is
correct as of any time subsequent to the date of such information.
----------------
REPORTS TO CERTIFICATEHOLDERS
The Servicer will provide to the holders of Certificates of each series,
annually and on each Distribution Date, reports concerning the Trust Fund
related to such Certificates. See "The Pooling and Servicing Agreement--Reports
to Certificateholders". The Servicer will file with the Commission such reports
with respect to the Trust Fund for a series of Certificates as are required
under the Exchange Act and the rules and regulations of the Commission
thereunder until the completion of the reporting period required by Rule 15d-1
under the Exchange Act.
----------------
iii
<PAGE>
TABLE OF CONTENTS
RISK FACTORS ..................................... 8
DESCRIPTION OF THE CERTIFICATES .................. 10
General ....................................... 10
Classes of Certificates ....................... 10
Distributions of Principal and Interest ....... 11
THE MORTGAGE POOLS ............................... 13
CREDIT SUPPORT ................................... 15
General ....................................... 15
Limited Guarantee of the Guarantor ............ 15
Subordination ................................. 15
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
<PAGE>
Amendment ..................................... 32
Termination; Purchase of Mortgage Loans ....... 33
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
Reporting ..................................... 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 Funding, Inc. or Chase Manhattan Acceptance
Corporation (either such entity, as specified in the
related Prospectus Supplement, the "Seller"). See
"Chase Funding, Inc." and "Chase Manhattan
Acceptance 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
such Trust Fund.
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
1
<PAGE>
distributions of scheduled payments of principal,
prepayments of principal, interest or any
combination thereof to one or more other classes of
Certificates of such series 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."
2
<PAGE>
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 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)
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on the Mortgage Loans in a Trust Fund. Any such
obligation to make advances may be limited to
amounts due holders of certain 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
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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."
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."
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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 (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
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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 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,
as amended ("SMMEA"). Classes of Certificates that
qualify as "mortgage related securities" will be
legal investments for certain types of institutional
investors to the extent provided in SMMEA, subject,
in any case, to any other regulations which may
govern investments by such institutional investors.
Institutions whose investment authority is subject
to legal restrictions should consult with their own
legal advisors or the applicable authorities to
determine whether and to what extent an investment
in a particular class of Certificates (whether or
not such class constitutes a "mortgage related
security") constitutes a legal investment for them.
See "Legal Investment Matters".
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RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
l. Losses on the Mortgage Pool. An investment in Certificates evidencing
interests in Mortgage Loans may be affected, among other things, by a decline in
real estate values or changes in mortgage market rates. If the residential real
estate market in the locale of properties securing the Mortgage Loans should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans, and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool, become equal to or greater than the
value of Mortgaged Properties, the actual rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced in the mortgage
lending industry. To the extent that such losses are not covered by any
subordination feature, applicable insurance policies or other credit
enhancement, holders of the Certificates of a Series evidencing interests in
such Mortgage Pool will bear all risk of loss resulting from default by
mortgagors and will have to look primarily to the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest of the
defaulted Mortgage Loans. See "The Mortgage Pools."
2. Limited Obligations. The Certificates will not represent an interest in
or obligation of the Seller. The Certificates will not be insured or guaranteed
by any government agency or instrumentality, nor, unless expressly provided in
the related Prospectus Supplement, by The Chase Manhattan Bank, Chase Manhattan
Mortgage Corporation, Chase Funding, Inc., Chase Manhattan Acceptance
Corporation or any of their affiliates.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates of any Series or, if it does develop, that it
will provide the holders of Certificates of such Series with liquidity of
investment or that it will remain for the term of such series of Certificates.
Although the Certificateholders of each series receive monthly statements
containing certain statistical information with respect to the related Mortgage
Pool, neither the Company nor the Servicer publishes any information relating to
the Certificates of any series or any Mortgage Pool. The limited availability of
any such published information may influence the liquidity of the Certificates.
The Certificates will not be listed on any securities exchange.
4. Prepayment Considerations. The prepayment experience on the Mortgage
Loans will affect the average life of the Certificates or each class of
Certificates. Prepayments on the Mortgage Loans may be influenced by a variety
of economic, geographic, social and other factors, including the difference
between the interest rates on the Mortgage Loans and prevailing mortgage rates
(giving consideration to the cost of refinancing). In general, if mortgage
interest rates fall below the interest rates on the Mortgage Loans, the rate of
prepayment would be expected to increase, and the yields at which an investor in
the Certificates may be able to reinvest amounts received as payments on such
investor's Certificates may be lower than the yield on such Certificates.
Conversely, if mortgage interest rates rise above the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to decrease, and the
amount of payments available to a Certificateholder for reinvestment may be
relatively low. Other factors affecting prepayment of mortgage loans include
changes in housing needs, job transfers, unemployment and servicing decisions.
See "Yield, Maturity and Weighted Average Life Considerations."
5. Yield, Maturity and Weighted Average Life Considerations. The yield of
the Certificates of each series will depend in part on the rate of principal
payment on the Mortgage Loans (including prepayments, liquidations due to
defaults and mortgage loan repurchases). Such yield may be adversely affected,
depending upon whether a particular Certificate is purchased at a premium or
discount price, by a higher or lower than anticipated rate of prepayments on the
related Mortgage Loans. In particular, the yield on Classes of Certificates
entitling the holders thereof primarily or exclusively to payments of interest
or primarily or exclusively to payments of principal will be extremely sensitive
to the rate of prepayments on the related Mortgage Loans. In addition, the yield
on certain Classes of Certificates may be relatively more sensitive to the rate
of prepayment of specified Mortgage Loans than other Classes of Certificates.
Furthermore, the yield to investors may be adversely affected by interest
shortfalls which may result from the timing of the receipt of prepayments or
liquidations to the extent that such interest shortfalls are not covered by
aggregate Servicing Fees or other mechanisms specified in the applicable
Prospectus Supplement. The yield to investors in Classes of Certificates will be
adversely affected to the extent that losses on the Mortgage Loans in the
related Trust Fund are allocated to such Classes
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<PAGE>
and may be adversely affected to the extent of unadvanced delinquencies on the
Mortgage Loans in the related Trust Fund. Classes of Certificates identified in
the applicable Prospectus Supplement as subordinated Certificates are more
likely to be affected by delinquencies and losses than other Classes of
Certificates. See "Yield, Maturity and Weighted Average Life Considerations."
6. Subordination. With respect to Certificates of a series having one or
more classes of subordinated Certificates, while the subordination feature is
intended to enhance the likelihood of timely payment of principal and interest
to senior Certificateholders, such subordination will be limited as specified in
the Prospectus Supplement, any reserve fund could be depleted under certain
circumstances, and payments applied to the senior Certificates which are
otherwise due to the subordinated Certificates may be less than losses.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate pooling
and servicing agreement (each, an "Agreement") entered into among the Seller,
the Servicer and a commercial bank or trust company named in the Prospectus
Supplement, as trustee (the "Trustee") for the benefit of holders of
Certificates of that Series. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. The Agreement will be substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
is a part, or in such similar form as will reflect the terms of a series of
Certificates described in the Prospectus Supplement. The following summaries
describe the material provisions which may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any provision
of the Agreement relating to such series that materially differs from the
description thereof contained in this Prospectus. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Agreement for each series of
Certificates and the applicable Prospectus Supplement. The Seller will provide
any Certificateholder, without charge, on written request a copy of the
Agreement for any series. Requests should be addressed to the Seller c/o Chase
Manhattan Mortgage Corporation, 343 Thornall Street, Edison, New Jersey 08837,
Attention: Structured Finance. 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
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 of a certain minimum
denomination as specified in the Prospectus Supplement, upon written request by
the Cer-tificateholder, by wire transfer or by such other means as are agreed
upon with the person entitled thereto; pro-
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vided, 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 in the 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
If so specified in the related Prospectus Supplement, 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) at the date of initial issuance of the
Certificates, no more than the percentage of the Mortgage Loans specified in the
applicable Prospectus Supplement
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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;
(iv) 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; (v) 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; (vi) 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 (subject to exceptions acceptable in the industry,
including exceptions with respect to surveys and endorsements), and each such
policy is in full force and effect; and (vii) 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.
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 Market
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 Mortgage Loans, each secured by, among other things,
first liens on 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 originators 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 depository institutions 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.
ss. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards in 12 C.F.R. ss. 1.5 concerning
"safety and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. ss. 1.2(1) to include certain "residential
mortgage-related securities." As so defined, "residential mortgage-related
security" means, in relevant part, "mortgage related security" within the
meaning of SMMEA. The National Credit Union Administration ("NCUA") has adopted
rules, codified at 12 C.F.R. Part 703, which permit federal credit unions to
invest in "mortgage related securities" under certain limited circumstances,
other than stripped mortgage related securities and residual interests in
mortgage related securities, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. ss. 703.140. The OTS has issued Thrift Bulletin 13a
(December 1, 1998), "Management of Interest Rate Risk, Investment Securities and
Derivative Activities," which thrift institutions subject to the jurisdiction of
the OTS should consider before investing in any of the Certificates.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Council, which has been adopted by the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and OTS, effective May 26, 1998, and by the NCUA, effective
October 1, 1998. The 1998 Policy Statement sets forth general guidelines
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which depository institutions must follow in managing risks (including market,
credit, liquidity, operational (transaction), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
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 institution 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 or are
subject to investment, capital or other restrictions and, if applicable, whether
SMMEA has been overridden in any jurisdiction relevant to such investor.
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.
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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 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 860G (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
- ------------ ----
1998 Policy Statement .......................... 41
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
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Defined Term Page
- ------------ ----
Nonrecoverable Advance .................... 25
Non-SMMEA Certificates .................... 41
Non-U.S. Person ........................... 51
Note ...................................... 13
OCC ....................................... 41
OID Regulations ........................... 45
OTS ....................................... 37
Parties in Interest ....................... 42
Paying Agent .............................. 12
Plans ..................................... 42
Pre-Funding Account ....................... 6
Pre-Funding Agreement ..................... 6
Primary Mortgage Insurance Policy ......... 13
Principal Prepayments ..................... 12
Prospectus Supplement ..................... Cover
PTE 83-1 .................................. 43
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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$370,000,000 (Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 1999-4
[GRAPHIC OMITTED]
Chase Funding, Inc.
Depositor
Advanta Mortgage Corp. USA
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------
Chase Securities Inc.
Bear, Stearns & Co. Inc.
First Union Securities, Inc.
Donaldson, Lufkin & Jenrette
You should rely on the information contained or incorporated by reference in
this prospectus supplement and the attached prospectus. We have not authorized
anyone to provide you with different information.
We are not offering these certificates in any state where the offer is not
permitted.
We represent the accuracy of the information in this prospectus supplement and
the attached prospectus only as of the dates stated on their respective covers.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of these certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling these certificates
will deliver a prospectus supplement and prospectus until March 19, 2000.
December 20, 1999
