<PAGE>
As filed with the Securities and Exchange Commission on August 4, 2000
Registration No. 333-89425
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
CHASE FUNDING, INC.
(Seller)
CHASE MANHATTAN ACCEPTANCE CORPORATION
(Seller)
(Exact names of the registrants as specified in their respective charters)
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
New York 343 Thornall Street 13-3840732
(State or other jurisdiction of Edison, New Jersey 08837 (I.R.S. Employer
incorporation or organization) (732) 205-0600 Identification Number)
(Address, including zip code, and telephone number, including area code,
of registrant Chase Funding, Inc.'s principal executive offices)
Delaware 343 Thornall Street 13-3456395
(State or other jurisdiction of Edison, New Jersey 08837 (I.R.S. Employer
incorporation or organization) (732) 205-0600 Identification Number)
(Address, including zip code, and telephone number, including area code,
of registrant Chase Manhattan Acceptance Corporation's principal executive offices)
</TABLE>
-----------------
PAUL E. MULLINGS
c/o Chase Manhattan Mortgage Corporation
343 Thornall Street
Edison, New Jersey 08837
(732) 205-0600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
Copy to:
STEVEN J. MOLITOR, ESQ.
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
-----------------
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed
Maximum Proposed
Title of Each Class of Securities to Amount to be Offering Price Per Maximum Aggregate Amount of
be Registered Registered* Certificate** Offering Price Registration Fee
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Mortgage Pass-Through Certificates... $5,000,000,000 100% $5,000,000,000 $1,320,000***
====================================================================================================================================
</TABLE>
* This Registration Statement relates to the offering from time to time of
$5,000,000,000 aggregate principal amount of Mortgage Pass-Through Certificates
and to any resales of them in market making transactions by Chase Securities
Inc., an affiliate of the Registrant, to the extent required.
** Estimated for the purpose of calculating the registration fee.
*** Of which $278.00 has been previously paid.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted without the delivery of a final prospectus supplement
and accompanying prospectus. This prospectus supplement and the accompanying
prospectus shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any state in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
SUBJECT TO COMPLETION DATED AUGUST 4, 2000
Prospectus Supplement
(to Prospectus dated [DATE])
[LOGO]
$_______(Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series [________]
[Chase Manhattan Funding Logo]
Chase Funding Trust, Series [_______]
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 [______] will issue [thirteen]
classes of certificates, [twelve] of which are offered by
Investing in these this prospectus supplement and the attached prospectus. The
certificates involves risks. table on page S-3 identifies the various classes and
You should not purchase these specifies certain characteristics of each class, including
certificates unless you fully each class's initial certificate principal balance, interest
understand their risks and rate and rating.
structure. See "Risk Factors"
beginning on page S-__ of this The trust fund will consist primarily of sub-prime mortgage
prospectus supplement and page loans secured by first liens on real properties which were
__ of the attached prospectus. originated or acquired by Chase Manhattan Mortgage
These certificates will be Corporation [and cash on deposit in an account used to
beneficial interests in a purchase additional sub-prime mortgage loans originated or
trust fund, and will be backed acquired by Chase Manhattan Mortgage Corporation.]
only by the assets of the
trust. Neither these Underwriting Proceeds to
certificates nor the assets of Price to Public Discount Depositor
the trust will be obligations --------------- ---------------- --------------
of Chase Funding, Inc.,
[Advanta Mortgage Corp. USA], $_____________ $_____________ $_____________
Chase Manhattan Mortgage ______% ______%
Corporation or any of their
affiliates. These certificates The price to public and underwriting discount shown are for
will not be insured or all classes of offered certificates in the aggregate. This
guaranteed by any governmental information is shown for each individual class on page S-3.
agency. See "Underwriting."
------------------------------- The proceeds to depositor shown are less expenses, estimated
at $_______, and plus accrued interest. See "Underwriting."
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this prospectus supplement and the attached prospectus.
Any representation to the contrary is a criminal offense.
[UNDERWRITER]
The date of this prospectus supplement is [DATE].
<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 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 [_______] Certificates...........................................S-
Summary Information.........................................................S-
Cut-off Date.............................................................S-
Closing Date.............................................................S-
Distribution Date........................................................S-
The Trust Fund...........................................................S-
The Series [_______] Certificates........................................S-
Interest Distributions...................................................S-
Principal Distributions..................................................S-
Denominations............................................................S-
Book-Entry Registration..................................................S-
Mandatory Prepayments....................................................S-
Credit Enhancement.......................................................S-
Optional Termination.....................................................S-
Legal Investment.........................................................S-
Federal Income Tax Consequences..........................................S-
ERISA Considerations.....................................................S-
Ratings..................................................................S-
[Pre-Funding Account.....................................................S-
The Mortgage Loans.......................................................S-
Risk Factors................................................................S-
Forward-Looking Statements...............................................S-
The Mortgage Pool...........................................................S-
General.....................................................................S-
Mortgage Loans...........................................................S-
Assignment of the Mortgage Loans.........................................S-
Representations and Warranties...........................................S-
[Conveyance of Subsequent Mortgage
Loans and the Pre-Funding
Account..................................................................S-
Chase Manhattan Mortgage
Corporation.................................................................S-
Underwriting Standards...................................................S-
Servicing of the Mortgage Loans.............................................S-
General..................................................................S-
The Subservicer..........................................................S-
Servicing Compensation and Payment
of Expenses..............................................................S-
Adjustment to Servicing Fee in
Connection with Prepaid
Mortgage Loans...........................................................S-
Advances.................................................................S-
Master Servicer..........................................................S-
Description of the Certificates.............................................S-
General..................................................................S-
Book-Entry Certificates..................................................S-
Payments on Mortgage Loans;
Collection Account; Certificate
Account; Distribution Account............................................S-
Distributions............................................................S-
Overcollateralization and
Crosscollateralization Provisions........................................S-
Calculation of One-Month LIBOR...........................................S-
Mandatory Prepayments on the
Certificates.............................................................S-
Capitalized Interest Account.............................................S-
Reports to Certificateholders............................................S-
Amendment................................................................S-
Optional Termination.....................................................S-
S-2
<PAGE>
Optional Purchase of Defaulted
Loans....................................................................S-
Events of Default........................................................S-
Rights upon Event of Default.............................................S-
The Trustee..............................................................S-
Yield, Prepayment and Maturity
Considerations..............................................................S-
General..................................................................S-
Prepayments and Yields for Offered
Certificates.............................................................S-
Additional Information...................................................S-
Federal Income Tax Consequences.............................................S-
Original Issue Discount..................................................S-
Special Tax Attributes of the Offered
Certificates.............................................................S-
Prohibited Transactions Tax and Other
Taxes....................................................................S-
State Taxes.................................................................S-
Erisa Considerations........................................................S-
Legal Investment Matters....................................................S-
Use of Proceeds.............................................................S-
Method of Distribution......................................................S-
Legal Matters...............................................................S-
Ratings.....................................................................S-
Glossary of Defined Terms...................................................S-
ANNEX I....................................................................A-1
S-3
<PAGE>
The Series [_______] Certificates
<TABLE>
<CAPTION>
Class Class Class Class Class Class
IA-1 IA-2 IA-3 IA-4 IA-5 IM-1
Adjustable Fixed Fixed Fixed Fixed Fixed
<S> <C> <C> <C> <C> <C> <C>
Loan Group:
Initial Certificate
Principal Balance: $_______ $_______ $_______ $_______ $_______ $_______
____ ____ ____ ____ ____ ____
Pass
Through Rate: ____% ____% ____% ____% ____% ____%
ERISA
Eligible: Yes Yes Yes Yes Yes No
Prepayment Assumption: __% HEP __% HEP __% HEP __% HEP __% HEP __% HEP
First Principal Payment Date: ____ ____ ____ ____ ____ ____
Weighted Avg. Life At Issuance:
to call (yrs.): ____ ____ ____ ____ ____ ____
to maturity (yrs.): ____ ____ ____ ____ ____ ____
Expected
Maturity (to call): ____ ____ ____ ____ ____ ____
Expected Maturity (to maturity): ____ ____ ____ ____ ____ ____
Last Scheduled Distribution Date: ____ ____ ____ ____ ____ ____
Interest Accrual Method: actual/360 30/360 30/360 30/360 30/360 30/360
Payment Delay: 0 days 24 days 24 days 24 days 24 days 24 days
Anticipated Ratings
[Ratings Agency]: Aaa/AAA Aaa/AA Aaa/AA Aaa/AA Aaa/AA Aa2/AA
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
Class Class Class Class Class Class
IM-2 IB IIA-1 IIM-1 IIM-2 IIB
Fixed Fixed Adjustable Adjustable Adjustable Adjustable
<S> <C> <C> <C> <C> <C> <C>
Loan Group:
Initial Certificate
Principal Balance: $_______ $_______ $_______ $_______ $_______ $_______
____ ____ ____ ____ ____ ____
Pass
Through Rate: ____% ____% ____% ____% ____% ____%
ERISA Eligible: No No Yes No No No
Prepayment Assumption: __% HEP __% HEP __% CPR __% CPR __% CPR __% CPR
First Principal Payment Date: ____ ____ ____ ____ ____ ____
Weighted Avg. Life At Issuance:
to call (yrs.): ____ ____ ____ ____ ____ ____
to maturity (yrs.): ____ ____ ____ ____ ____ ____
Expected Maturity (to call): ____ ____ ____ ____ ____ ____
Expected Maturity (to maturity): ____ ____ ____ ____ ____ ____
Last Scheduled Distribution Date: ____ ____ ____ ____ ____ ____
Interest Accrual Method: 30/360 30/360 actual/360 actual/360 actual/360 actual/360
Payment Delay: 24 days 24 days 0 days 0 days 0 days 0 days
Anticipated Ratings [Ratings
Agency]: A2/A Baa2/BB Aaa/AAA Aa2/AA A2/A Baa2/BBB
Other information:
</TABLE>
The initial certificate principal balances shown above are subject to a
permitted variance of plus or minus 10%. After the optional termination date
described herein, the pass-through rate for the class IA-4, class IIA-1, class
IIM-1, class IIM-2 and class IIB certificates will increase to ____%.
The pass-through rate for the class IB certificates is subject to adjustment.
Your pass-through rate may be lower. See "Description of the
Certificates--Distributions--Distributions of Interest."
The pass-through rate for the class IA-1, class IIA-1, class IIM-1, class IIM-2
and the class IIB certificates is one-month LIBOR plus the applicable pass
through margin. The pass-through rate is subject to adjustment and your
pass-through rate may be lower. See "Description of the
Certificates--Distributions--Distributions of Interest."
The information set forth above regarding weighted average life at issuance and
expected maturity is based on the modeling assumptions described on page S-__
and __% HEP or __% CPR, as applicable.
The interest rate index reset date for the class IA-1, class IIA-1, class IIM-1,
class IIM-2 and the class IIB certificates is two business days prior to the
start of each interest accrual period.
S-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Credit Enhancement:
Group I Group II
Excess Interest Excess Interest
Overcollateralization Overcollateralization
Crosscollateralization Crosscollateralization
Subordination Subordination
Overcollateralization Requirements:
Group I Group II
Initial Percentage: __% Initial Percentage: __%
Stepdown Percentage: __% of current balance Stepdown Percentage: __% of current balance
Targeted Percentage: __% of original balance Targeted Percentage: __% of original balance
Minimum Required Percentage: __% of original balance Minimum Required Percentage: __% of original balance
Earliest Possible Stepdown Date: Earliest Possible Stepdown Date:
</TABLE>
S-6
<PAGE>
Summary Information
This section briefly summarizes 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 [_______].
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: [TRUSTEE]. The corporate trust office of the trustee is
[ADDRESS] and its telephone number is [______________].
Cut-off Date
The cut-off date will be [DATE].
Closing Date
The closing date will be on or about [DATE].
Distribution Date
The 25th day of each month, beginning in [DATE]. 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 [_______]. We are
forming the trust to own a pool of sub-prime mortgage loans secured by first
liens on real properties and $[______]on deposit in an account used to purchase
additional sub-prime mortgage loans. 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 [_______] 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 [DATE] 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 (and their respective interests in the cash on deposit in
the account used to purchase additional mortgage loans). 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."
S-7
<PAGE>
Interest Distributions
Interest will accrue on each class of certificates at the pass-through rate for
that class. Interest will accrue on each class of certificates (other than the
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-4, 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 these
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 that interest
shortfall for group II. 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
<PAGE>
percentage, as described below and may include distributions from the
pre-funding account.
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 of $[25,000].
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 Clearstream Banking, societe anonyme or the
Euroclear System in Europe, or indirectly through participants in these 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.
[Mandatory Prepayments
The group I certificates and the group II certificates will be prepaid in part
on the distribution date in [MONTH/YEAR] to the extent any cash allocable to the
related loan group remains on deposit in the account used for the purpose of
purchasing additional mortgage loans. See "Description of the
Certificates--Mandatory Prepayments on the Certificates" in this prospectus
supplement.]
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
S-8
<PAGE>
of this excess interest as principal payments on the senior certificates in the
related loan group until overcollateralization targets are reached, resulting in
a limited acceleration of principal of the certificates relative to the mortgage
loans in the related loan group. This acceleration feature creates
overcollateralization, which equals the excess of the outstanding principal
balance of the mortgage loans in a loan group over the outstanding principal
balance of the related certificates. Once the required level of
overcollateralization is reached, the acceleration feature will cease, unless it
becomes necessary again to maintain the required level of overcollateralization.
The actual level of overcollateralization may increase or decrease over time
based upon whether the stepdown criteria of the trust have been met or, in the
case of the group II certificates, whether a step-up trigger exists. This could
result in a temporarily faster or slower 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 each 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
the more senior 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 the 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 these losses to the more senior classes of certificates until
their respective certificate principal balances have been reduced to zero.
The chart below summarizes the relative seniority of the various classes of
certificates and indicates the initial level of credit support provided to the
various classes of certificates:
Initial
Group I Credit Credit
Class(es) Support Support
--------- ------- -------
IA Class IM-1, [_____]%
Class IM-2
and Class IB
IM-1 Class IM-2 [_____]%
and Class IB
IM-2 Class IB [_____]%
S-9
<PAGE>
Initial
Group II Credit Credit
Class(es) Support Support
--------- ------- --------
IIA Class IIM-1, [_____]%
Class
IIM-2
and Class
IIB
IIM-1 Class IIM-2 [_____]%
and Class
IIB
IIM-2 Class IIB [_____]%
Optional Termination
Subject to restrictions described in this prospectus supplement, 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 these mortgage loans is reduced to less than [10%] of the aggregate
principal balance of the certificates in that loan group as of [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 these securities . See "Risk Factors--Limited
Liquidity; Lack of SMMEA Eligibility" and "Legal Investment Matters" in this
prospectus supplement and "Legal Investment Matters" in the attached prospectus.
Federal Income Tax Consequences
For federal income tax purposes, the trust fund will elect to be treated as two
Real Estate Mortgage Investment Conduits. The certificates will represent
ownership of regular interests in the trust fund and will generally be treated
<PAGE>
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."
[Pre-Funding Account
Subject to conditions described herein, the trust fund will be obligated to
purchase from Chase Manhattan Mortgage Corporation on or before [DATE],
additional fixed rate mortgage loans having an aggregate outstanding principal
balance of up to $[________], and additional adjustable rate mortgage loans
having an aggregate outstanding principal balance of up to $[________]. On
[DATE], Chase Funding, Inc. will pay to the trustee approximately $[_______], to
provide the trust fund with sufficient cash to purchase the additional mortgage
loans. See "The
S-10
<PAGE>
Mortgage Pool--Conveyance of Subsequent Mortgage Loans and the Pre-Funding
Account" in this prospectus supplement.]
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 approximate characteristics of each mortgage group as
of [DATE]. 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 [DATE]. The mortgage pool
as of the closing date will include approximately $[___________] in aggregate
principal balance of mortgage loans (approximately $[__________] of fixed rate
mortgage loans and approximately $[__________] of adjustable rate mortgage
loans) that are not included in the statistical information in this prospectus
supplement; furthermore, approximately $[__________] in aggregate principal
balance of mortgage loans (approximately $[_________] of fixed rate mortgage
<PAGE>
loans and $[_________] of adjustable rate mortgage loans) that are included in
the statistical information in this prospectus supplement will be deleted from
the final mortgage pool. Other than increasing the aggregate principal balance
of the mortgage loans, we do not expect the inclusion or deletion of these
mortgage loans to change the material characteristics of either mortgage loan
group. [In addition, as described in this prospectus supplement under "The
Mortgage Pool--Conveyance of Subsequent Mortgage Loans and the Pre-Funding
Account" up to $[_________]in aggregate outstanding principal balance of fixed
rate mortgage loans and up to $[________]in aggregate outstanding principal
balance of adjustable rate mortgage loans will be added to the mortgage pool
after the closing date, but before [DATE].] Within fifteen days of the closing
date and within fifteen days of the end of the funding period, 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-11
<PAGE>
Fixed Rate Mortgage Loan Group
(Statistical Mortgage Pool)
Initial Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
<S> <C> <C>
Number of loans ______
Aggregate outstanding principal balance $___________
Number of loans with prepayment penalties _____
Average or
Weighted Average Range
Outstanding principal balance $______ $_____] - $_______
Original principal balance $______ $______]- $_______
Mortgage rate _____% _____% - ______%
Loan-to-value ratio _____% _____% - _____%
Stated remaining term to ___ ___]- ___
maturity
</TABLE>
[Bar Graph showing Mortgage Rates for the Initial Fixed Rate Loan Group]
S-12
<PAGE>
[Bar Graph showing Original Principal Balances
the Initial Fixed Rate Loan Group]
[Pie Graph showing Product Types for the Initial Fixed Rate Loan Group]
S-13
<PAGE>
[Pie Graph showing Credit Grades for the Initial Fixed Rate Loan Group]
[Bar Graph showing Loan-to-Value Ratios for the Initial Fixed Rate Loan Group]
S-14
<PAGE>
Adjustable Rate Mortgage Loan Group
(Statistical Mortgage Pool)
Initial Adjustable Rate Loan Group
<TABLE>
<CAPTION>
<S> <C> <C>
Number of loans _____
Aggregate outstanding principal balance $___________
Number of loans with prepayment ____
penalties
Average or
Weighted Average Range
Outstanding principal balance $_______ $______]- $_______
Original principal balance $_______ $______]- $_______
Current mortgage rates _____% _____% - ______%
Maximum mortgage rates _____% __ ____% - ______%
Minimum mortgage rates _____% _____% - ______%
Loan-to-value ratio _____% _____% - _____%
Stated remaining term to ___ ___]- ___
maturity
Gross Margin _____% _____% - _____%
Initial Rate Cap _____% _____% - _____%
Periodic Rate Cap _____% _____% - _____%
</TABLE>
[Bar Graph showing Mortgage Rates for the Initial Adjustable Rate Loan Group]
S-15
<PAGE>
[Bar Graph showing Original Principal Balances
the Initial Adjustable Rate Loan Group]
[Pie Graph showing Product Types for the Initial Adjustable Rate Loan Group]
S-16
<PAGE>
[Pie Graph showing Credit Grades for the Initial Adjustable Rate Loan Group]
[Bar Graph showing Loan-to-Value Ratios for
the Initial Adjustable Rate Loan Group]
S-17
<PAGE>
Risk Factors
The overcollateralization provisions on your certificates will affect the yield
to maturity of the certificates
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 these certificates. Unless and until the
required amount of overcollateralization for a certificate group is reached, net
excess cashflow for the related loan group and, due to the
cross-collateralization feature, in some cases the other mortgage loan group,
will be applied as distributions of principal of the class A certificates of the
related 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 the 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 that loan group over
the interest required to pay interest on the certificates in the related
certificate group and the trust fund expenses allocable to that 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 disproportionate prepayments of
mortgage loans in a loan group that have higher interest rates may adversely
affect the amount of net excess cashflow for that loan group.
As a result of the interaction of the these 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.
Prepayments of the mortgage loans will affect the yield on your certificates
The yield to maturity and weighted average life of your certificates
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. 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 these provisions
unless
(1) enforcement is not permitted by applicable law or
(2) the subservicer, in a manner consistent with accepted servicing
practices, permits the purchaser of the related mortgaged
property to assume the mortgage loan.
S-18
<PAGE>
To the extent permitted by applicable law, any assumption will not release the
original borrower from its obligation under the 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 the provisions of the
mortgage loans that may affect their prepayment experience.
The yield 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 the
class IA-1 certificates described in this prospectus supplement. In addition,
the yield to maturity of any offered certificates that you purchase at a
discount or premium will be more sensitive to the rate and timing of payments
thereon. You should consider, in the case of any offered certificates that you
purchase 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 any offered certificates that you purchase
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 ____% of the initial fixed rate mortgage loans and
approximately ____% of the initial 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.
Mortgage loans originated under the B&C underwriting guidelines carry a risk of
higher delinquencies
The underwriting guidelines used in originating the mortgage loans in
the trust fund 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
underwriting guidelines used in originating the mortgage loans in the trust fund
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 underwriting guidelines used in originating the
mortgage loans in the trust fund, these 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.
The interest rate on the group II certificates may be capped depending on
fluctuations in one-month LIBOR and six-month LIBOR
S-19
<PAGE>
The pass-through rates on the group II certificates are calculated 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 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
some 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 that class of certificates may be
temporarily or permanently reduced.
In addition, the pass-through rate on each class of group II
certificate, is subject to a maximum rate cap, which limits the pass-through
rates on each class of group II certificates 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 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 the maximum rate cap.
Changes to the weighted average net mortgage rate of the fixed rate mortgage
loans may reduce the pass-through rates with respect to the class IA-1, class
IA-4, 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 (1) one month LIBOR plus ____% and (2) 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 ____%,
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-4, 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-4, class IA-5, class IM-1,
class IM-2 or class IB certificates may experience a lower than anticipated
yield.
S-20
<PAGE>
This limitation on the payment of interest on those 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-4, class IA-5, class IM-1, class IM-2 and class IB certificates without
giving effect to these weighted average net interest rate caps.
The protection afforded to your certificates by subordination is limited
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 the
related certificate group to receive those 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 the related
certificate group to receive those 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 the related certificate
group to receive those 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.
Allocation of losses to the class M and class B certificates makes the yield to
maturity on those classes of certificates sensitive to defaults on the mortgage
loans
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 the related 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 the
related loan group and the timing of these defaults. Investors should fully
consider the risks associated with an investment in the class M or class B
certificates, including the possibility that these investors may not fully
recover their initial investment as a result of realized losses.
Delays and expenses connected with the liquidation of mortgaged properties may
result in losses to you
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 the 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 and particularly if you
are a holder of one of the most subordinate classes.
Ratings on the certificates do not address all of the factors you should
consider when purchasing certificates
S-21
<PAGE>
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 rated
certificates, inasmuch as the 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."
Collections on the mortgage loans may be delayed or reduced if Chase Manhattan
Mortgage Company or [Advanta Mortgage Corp. USA] becomes insolvent
The initial sale of the mortgage loans from Chase Manhattan Mortgage
Corporation to Chase Funding, Inc. and any subsequent sales between those
entities using the funds in the pre-funding account, will be treated as a sale
of the mortgage loans. However, in the event of an insolvency of Chase Manhattan
Mortgage Corporation, the trustee in bankruptcy of Chase Manhattan Mortgage
Corporation may attempt to recharacterize the mortgage loan sales as a borrowing
by the relevant company, secured by a pledge of the applicable mortgage loans.
If the trustee in bankruptcy decided to challenge these transfers, delays in
payments of the certificates and reductions in the amounts of these payments
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.
The certificates may be inappropriate for individual investors
The certificates may not be an appropriate investment for you if you do
not have sufficient resources or expertise to evaluate the particular
characteristics of the applicable class of certificates. This may be the case
because, among other things:
o The yield to maturity of offered certificates purchased at a price
other than par will be sensitive to the uncertain rate and timing
of principal prepayments on the mortgage loans;
o The rate of principal distributions on, and the weighted average
life of, the offered certificates will be sensitive to the
uncertain rate and timing of principal prepayments on the mortgage
loans and the priority of principal distributions among the classes
of certificates, and for that reason, 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
S-22
<PAGE>
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."
The geographic concentration of mortgage loans means your investment may be
especially sensitive to economic conditions in particular states
As of the cut-off date, approximately [___]% of the mortgaged properties
of the initial fixed rate mortgage loan group and approximately [___]% of the
mortgaged properties of the initial adjustable rate mortgage loan group were
located in [STATE]. Approximately [___]% of the mortgaged properties of the
initial fixed rate mortgage loan group were located in [STATE] and approximately
[___]% of the initial adjustable rate mortgage loan group were located in
[STATE]. An overall decline in the [STATE], [STATE] or [STATE] residential real
estate market could adversely affect the values of the mortgaged properties
securing the related 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 [STATE], [STATE] or [STATE]
residential real estate market will not weaken. If the [STATE], [STATE] or
[STATE] residential real estate market should experience an overall decline in
property values, the rates of losses on the related mortgage loans would be
expected to increase, and could increase substantially.
Mortgage loans with balloon payments may experience higher default rates
Approximately [___]% of the aggregate principal balance of the initial
mortgage loans as of the cut-off date are "balloon loans" that provide for the
payment of the unamortized principle balance of the initial 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.
The mortgage pool contains delinquent mortgage loans which may decrease the
amount of principal distributed to you
The trust fund may include delinquent mortgage loans which are 59 or
fewer days delinquent as of the cut-off date. It is expected that not more than
approximately [___]% of the mortgage loans will be between 30 days and 59 days
delinquent based on cut-off date principal balance or subsequent cut-off date
principal balance, as the case may be. 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 of a class on the day that class was issued.
[The subsequent mortgage loans may have characteristics different from those of
the initial mortgage loans
S-23
<PAGE>
The subsequent mortgage loans may have characteristics different from
those of the initial mortgage loans and these differing characteristics may
effect the weighted average life and yield of the certificates. However, each
subsequent mortgage loan must satisfy the eligibility criteria referred to
herein under "The Mortgage Pool--Conveyance of Subsequent Mortgage Loans and the
Pre-Funding Account" at the time of its conveyance to the trust fund and be
underwritten in accordance with the criteria set forth under "Chase Manhattan
Mortgage Corporation--Underwriting Standards" in this prospectus supplement.]
[If the amounts in the pre-funding account have not been used to purchase
mortgage loans, these amounts will be paid to investors
To the extent that the $[_________] on deposit in the pre-funding
account (of which $[__________] is allocable to group I and $[__________] is
allocable to group II) has not been fully applied to the purchase of subsequent
mortgage loans by [DATE], the holders of the group I certificates and the group
II certificates will receive on the distribution date immediately following
[DATE], as a distribution of principal, any cash in the account allocable to the
related loan group after giving effect to any purchase of subsequent mortgage
loans.]
Optional termination provisions 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 the related loan group as of [DATE]. To the extent that those repurchased
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.
The certificates may lack liquidity or SMMEA eligibility which may limit your
ability to sell
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 those non-SMMEA certificates, thereby limiting the market for those
certificates. In light of the those risks, 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.
Forward-Looking Statements
In this prospectus supplement and the attached prospectus, we use
forward-looking statements. These 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
S-24
<PAGE>
similar words. These 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 these statements were originally based.
Glossary
A glossary of defined terms used in this prospectus supplement begins on
page S- 96.
The Mortgage Pool
General
The mortgage pool with respect to the certificates consisted as of the
Cut-off Date of approximately [_____] conventional mortgage loans evidenced by
promissory notes having an aggregate principal balance of approximately
$[___________]. The mortgage loans will be divided into two groups based on
whether the interest rate for the related mortgage loan is fixed or adjustable.
The mortgage pool as of the Closing Date will include approximately
$[___________]in aggregate principal balance of mortgage loans (approximately
$[__________] of Fixed Rate Mortgage Loans and approximately $[__________ ]of
Adjustable Rate Mortgage Loans) that are not included in the Statistical
Mortgage Pool; furthermore, approximately $[__________] in aggregate principal
balance of mortgage loans (approximately $[_________] of Fixed Rate Mortgage
Loans and $[_________] of Adjustable Rate Mortgage Loans) that are included in
the Statistical Mortgage Pool will be deleted from the Statistical Mortgage
Pool. Updated statistical information on the final composition of the Initial
Mortgage Loans, after giving effect to any additions and deletions, [and
statistical information on the Subsequent Mortgage Loans] will be attached as an
exhibit to the Current Report on Form 8-K of the Depositor that will be
available to purchasers of the certificates at, and will be filed with the
Securities and Exchange Commission within fifteen days of, the initial delivery
of the certificates in the case of the Initial Mortgage Loans and within 15 days
of the end of the Funding Period (defined herein) in the case of the Subsequent
Mortgage Loans).
The mortgage pool ultimately will consist of the Initial Mortgage Loans,
which mortgage loans will in turn consist of the mortgage loans in the
Statistical Mortgage Pool plus any mortgage loans added to the mortgage pool
[and minus any mortgage loans deleted from the mortgage pool, in each case] on
or before the Closing Date and Subsequent Mortgage Loans. The statistical
information presented in this prospectus supplement describes only the
Statistical Mortgage Pool and does not include statistical information with
respect to either the final composition of the Initial Mortgage Loans (giving
effect to additions to and deletions from the Statistical Mortgage Pool) [or the
Subsequent Mortgage Loans.] References herein to percentages of mortgage loans
refer in each case to the percentage of the aggregate principal balance of the
mortgage loans in the Statistical Mortgage Pool or, as the case may be, the
mortgage loans in the
S-25
<PAGE>
Statistical Mortgage Pool in the applicable loan group, as of the Cut-off Date,
based on the outstanding principal balances of such mortgage loans as of the
Cut-off Date, after giving effect to Scheduled Payments due on or prior to the
Cut-off Date, whether or not received. References to percentages of mortgaged
properties 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 including single-family residences, two-
to-four family dwelling units, attached planned unit developments, condominiums,
detached planned unit developments, manufactured housing and small mixed use
properties. The trust fund includes, in addition to the mortgage pool:
o certain amounts held from time to time in Accounts maintained in
the name of the trustee under the pooling and servicing agreement
to be dated as of [DATE] by and among Chase Funding, Inc. as
depositor, [Advanta Mortgage Corp. USA] as subservicer, Chase
Manhattan Mortgage Corporation as master servicer and [________] as
trustee
o any property which initially secured a mortgage loan and which is
acquired by foreclosure or deed-in-lieu of foreclosure
o all insurance policies described below, along with the proceeds of
those policies and
o rights to require repurchase of the mortgage loans by the Seller
for breach of representation or warranty.
[Subsequent Mortgage Loans are intended to be purchased by the trust
fund from the Seller from time to time on or before [DATE] from funds on deposit
in the Pre-Funding Account. The Subsequent Mortgage Loans, if available, will be
purchased by the Depositor and sold by the Depositor to the trust fund for
deposit in the mortgage pool. The Subsequent Mortgage Loans will become part of
either the fixed rate loan group or the adjustable rate loan group and together
with the Adjustable Rate Mortgage Loans. The pooling and servicing agreement
will provide that each mortgage loan must conform to specified characteristics
and, following the conveyance of the Subsequent Mortgage Loans, the mortgage
pool must conform to specified characteristics, as described below under
"--Conveyance of Subsequent Mortgage Loans and the Pre-Funding Account." ]
The mortgage loans to be included in the trust fund will have been
originated or purchased by Seller and will have been originated substantially in
accordance with the Seller's underwriting criteria for subprime, or "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 ____% of the mortgage loans in the Statistical Mortgage
Pool were purchased by the Seller under its 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 a small bulk
acquisition 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."
S-26
<PAGE>
Scheduled Payments made by the mortgagors on the mortgage loans either
earlier or later than the scheduled due dates on the mortgage loans will not
affect the amortization schedule or the relative application of these 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 [____]% of the
Fixed Rate Mortgage Loans in the Statistical Mortgage Pool and approximately
[____]% 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 [___] months
with respect to the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool
which have prepayment penalties and approximately [___] 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 the 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 the prepayment on the amount
prepaid in excess of 20% of the original balance of the 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 [__]% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool as of the Cut-off Date will have a Mortgage Rate which
is generally subject to semi-annual adjustment on each Adjustment Date to equal
the sum, rounded to the nearest 0.125%, of (1) the Mortgage Index, and (2) 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 the ___% on any
Adjustment Date and, provided further, that it will not be higher than the
Maximum Mortgage Rate or lower than the Minimum Mortgage Rate. 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 Maximum Mortgage Rate. Substantially all of
the Six Month LIBOR Loans provide that the related Mortgage Rate will never be
less than 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 [___]% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool as of the Cut-off Date are 1/29 Loans. Substantially
all of the 1/29 Loans are subject to a [____]% Periodic Rate Cap with respect to
the first Adjustment Date and a [____]% Periodic Rate Cap with respect to each
Adjustment Date thereafter, have a Maximum Mortgage Rate equal to the initial
Mortgage Rate plus [____]% and have a Minimum Mortgage Rate equal to the initial
Mortgage Rate.
Approximately[___]% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool as of the Cut-off Date are 2/28 Loans. Substantially
all of the 2/28 Loans are subject to a[____]% Periodic Rate Cap with respect to
the first Adjustment Date and a [____]% Periodic Rate Cap with respect to each
Adjustment Date thereafter, have a Maximum Mortgage Rate equal to the initial
Mortgage Rate plus [____]% and have a Minimum Mortgage Rate equal to the initial
Mortgage Rate.
Approximately [____]% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool as of the Cut-off Date are 3/27 Loans. Substantially
all of the 3/27 Loans are
S-27
<PAGE>
subject to a [____]% Periodic Rate Cap with respect to the first Adjustment Date
and a [____]% Periodic Rate Cap with respect to each Adjustment Date thereafter,
have a Maximum Mortgage Rate equal to the initial Mortgage Rate plus [____]% and
have a Minimum Mortgage Rate equal to the initial Mortgage Rate.
Approximately [___]% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool as of the Cut-off Date are 5/25 Loans. Substantially
all of the 5/25 Loans are subject to a [___]% Periodic Rate Cap with respect to
the first Adjustment Date and a [___]% Periodic Rate Cap with respect to each
Adjustment Date thereafter, have a Maximum Mortgage Rate equal to the initial
Mortgage Rate plus [___]% 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 $[___________]. As of the Cut-off Date, the average
outstanding principal balance of the Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool was approximately $[______], the minimum outstanding
principal balance was approximately $[_____], the maximum outstanding principal
balance was approximately $[_____], the lowest Mortgage Rate and the highest
Mortgage Rate were [____]% and [____]% per annum, respectively, and the weighted
average Mortgage Rate was approximately [_____]% per annum. Approximately [___]%
of the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool are Balloon
Loans.
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 $[___________]. As of the Cut-off
Date the average outstanding principal balance of the Adjustable Rate Mortgage
Loans in the Statistical Mortgage Pool was approximately $[________], the
minimum outstanding principal balance was approximately $[_______], the maximum
outstanding principal balance was approximately $[________], the lowest current
Mortgage Rate and the highest current Mortgage Rate were approximately [_____]%
and [______]% per annum, respectively, and the weighted average Mortgage Rate
was approximately [____]% per annum.
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
[____]% 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 [____]%.
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.
S-28
<PAGE>
Initial Fixed Rate Loan Group
Statistical Mortgage Pool
Mortgage Rates for the Initial Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Mortgage Rate Mortgage Loans Balance Outstanding Loan Group
------------- -------------- ------------------- ----------
<S> <C> <C> <C>
--------------------- ------------------------- ------------------------
Totals.................... %
===================== ========================= ========================
</TABLE>
As of the Cut-off Date, Mortgage Rates borne by the Fixed Rate Mortgage
Loans in the Statistical Mortgage Pool ranged from [______]% per annum to
[_______]% per annum and the weighted average Mortgage Rate of the Initial Fixed
Rate Mortgage Loans in the Statistical Mortgage Pool was approximately
[_______]% per annum.
S-29
<PAGE>
Remaining Months to Stated Maturity for the
Initial Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Remaining Term Mortgage Loans Balance Outstanding Loan Group
-------------- -------------- ------------------- ----------
<S> <C> <C> <C>
--------------------- --------------------- ---------------------
Totals.................. 100.0%
===================== ===================== =====================
</TABLE>
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
[___]months to [___]months and the weighted average remaining term to stated
maturity of the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately [___]months.
Original Mortgage Loan Principal Balances for the
Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal
Mortgage Balance Percent of
Range of Original Mortgage Loan Principal Balances Loans Outstanding Loan Group
-------------------------------------------------- --------- ------------------- ----------
<S> <C> <C> <C>
--------------------- --------------------- ---------------------
Totals.................. 100.0%
===================== ===================== =====================
</TABLE>
As of the Cut-off Date, the outstanding principal balances of the Fixed
Rate Mortgage Loans in the Statistical Mortgage Pool ranged from approximately
$[_______]to approximately $[_______]and the average outstanding principal
balance of the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately $[______].
S-30
<PAGE>
Product Type for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal
Mortgage Balance Percent of
Loan Type Loans Outstanding Loan Group
--------- --------- ------------------- ----------
<S> <C> <C> <C>
10 year Fixed.......................................
15 year Fixed.......................................
20 year Fixed.......................................
25 year Fixed.......................................
30 year Fixed.......................................
Balloon Loan........................................
------------------ ------------------ ------------------
Totals...................................... 100.0%
================== ================== ==================
</TABLE>
State Distributions of Initial Fixed Rate Mortgaged Properties
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
State Mortgage Loans Balance Outstanding Loan Group
----- --------------- ------------------- ----------
<S> <C> <C> <C>
------------------ ------------------ ------------------
Totals.............................. 100.0%
================== ================== ==================
</TABLE>
No more than approximately [___]% 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-31
<PAGE>
Loan-to-Value Ratios for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Loan-to-Value Ratio Mortgage Loans Balance Outstanding Loan Group
---------------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
------------------ ------------------ ------------------
Totals.............................. 100.0%
================== ================== ==================
</TABLE>
As of the Cut-off Date, the Loan-to-Value Ratios of the Fixed Rate Mortgage
Loans in the Statistical Mortgage Pool ranged from [____]% to [____]% and the
weighted average Loan-to-Value Ratio of the Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool was approximately [____]%.
S-32
<PAGE>
Loan Purpose for the Initial 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>
Refinance--Rate/Term........................
Purchase....................................
Refinance--Cashout..........................
------------------ ------------------ ------------------
Totals.............................. 100.0%
================== ================== ==================
</TABLE>
Type of Mortgaged Properties for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Aggregate Principal
Number of Balance Percent of
Property Type Mortgage Loans Outstanding Loan Group
------------- -------------- -------------------- ----------
<S> <C> <C> <C>
Planned Unit Development....................
Condominium.................................
Detached Planned Unit
Development.................................
Manufactured Housing........................
Single-family Detached......................
Small Mixed Use.............................
Two- to Four-Family Dwelling
Unit........................................
------------------ ------------------ ------------------
Totals.............................. 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>
24 Month Bank Statement........................
Full Documentation.............................
Reduced Documentation..........................
Stated Documentation...........................
------------------ ------------------ ------------------
Totals.............................. 100.0%
================== ================== ==================
</TABLE>
S-33
<PAGE>
Occupancy Types for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Occupancy Mortgage Loans Balance Outstanding Loan Group
--------- -------------- ------------------- ----------
<S> <C> <C> <C>
Investment....................................
Owner-occupied................................
Second Home...................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
The information set forth above is based upon representations of the related
mortgagor at the time of origination.
Mortgage Loan Age Summary for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Mortgage Loan Age (Months) Mortgage Loans Balance Outstanding Loan Group
-------------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
0.............................................
1 ............................................
2.............................................
3.............................................
4.............................................
5.............................................
6.............................................
7.............................................
8.............................................
9.............................................
10............................................
11............................................
12............................................
13............................................
14............................................
15............................................
16............................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
The weighted average age of the Fixed Rate Mortgage Loans in the Statistical
Mortgage Pool is approximately [__]months.
S-34
<PAGE>
Credit Grade Summary for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
------------ -------------- ------------------- ----------
<S> <C> <C> <C>
AO............................................
A-............................................
B.............................................
B-............................................
C.............................................
C-............................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
Year of Origination for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Year of Origination Mortgage Loans Balance Outstanding Loan Group
------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
[YEAR]........................................
[YEAR]........................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
S-35
<PAGE>
Prepayment Penalties for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Prepayment Penalty Term Mortgage Loans Balance Outstanding Loan Group
----------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
None ......................................
12 months.....................................
18 months.....................................
24 months.....................................
36 months.....................................
60 months.....................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
The weighted average prepayment penalty term with respect to the Fixed Rate
Mortgage Loans in the Statistical Mortgage Pool having prepayment penalties is
approximately [__]months. With respect to those Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool which have prepayment penalties, [___]% of those
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 the
prepayment on the amount prepaid in excess of 20% of the original principal
balance of the mortgage loan.
S-36
<PAGE>
ADJUSTABLE RATE LOAN GROUP
STATISTICAL MORTGAGE POOL
Current Mortgage Rates for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Mortgage Rate Mortgage Loans Balance Outstanding Loan Group
------------- -------------- ------------------- ----------
<S> <C> <C> <C>
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
As of the Cut-off Date, the current Mortgage Rates borne by the Initial
Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool ranged from
[____]% per annum to [_____]% per annum and the weighted average Mortgage Rate
borne by the Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately [____]% per annum.
S-37
<PAGE>
Remaining Months to Stated Maturity for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Aggregate
Principal
Number of Balance Percent of
Remaining Term Mortgage Loans Outstanding Loan Group
-------------- -------------- ----------- ----------
<S> <C> <C> <C>
------------------ ------------------ ------------------
Totals............................. 100.0%
================== ================== ==================
</TABLE>
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
[___]months to [___]months and the weighted average remaining term to stated
maturity of the Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool
was approximately [___]months.
Original Mortgage Loan Principal Balances for the Adjustable Rate Mortgage
<TABLE>
<CAPTION>
Number of
Mortgage Aggregate Principal Percent of
Range of Original Mortgage Loan Principal Balances Loans Balance Outstanding Loan Group
-------------------------------------------------- ----- ------------------- ----------
<S> <C> <C> <C>
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
As of the Cut-off Date, the outstanding principal balances of the Adjustable
Rate Mortgage Loans in the Statistical Mortgage Pool ranged from approximately
$[_____]to approximately $[_______]and the average outstanding principal balance
of the Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately $[______].
S-38
<PAGE>
State Distributions of Adjustable Rate Mortgaged Properties
<TABLE>
<CAPTION>
Number of Aggregate
Mortgage Principal Balance Percent of
State Loans Outstanding Loan Group
----- ----- ----------- ----------
<S> <C> <C> <C>
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
No more than approximately [___]% 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-39
<PAGE>
Loan-to-Value Ratios for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Loan-to-Value Ratio Mortgage Loans Balance Outstanding Loan Group
---------------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
------------------ ------------------ ------------------
Totals.............................. 100.0%
================== ================== ==================
</TABLE>
As of the Cut-off Date, the Loan-to-Value Ratios of the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool ranged from [____]% to [____]%
and the weighted average Loan-to-Value Ratio of the Adjustable Rate Mortgage
Loans in the Statistical Mortgage Pool was approximately [_____]%.
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....................................
Refinance--Rate/Term.........................
Refinance--Cashout...........................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
S-40
<PAGE>
Type of Mortgaged Properties for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Aggregate Principal
Number of Balance Percent of
Property Type Mortgage Loans Outstanding Loan Group
------------- -------------- ----------- ----------
<S> <C> <C> <C>
Single-family Detached......................
Two- to Four-Family Dwelling
Unit........................................
Detached Planned Unit
Development..............................
Condominium.................................
Planned Unit Development....................
Manufactured Housing........................
------------------ ------------------ ------------------
Totals................................ 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.............................
24 Month Bank Statement........................
Reduced Documentation..........................
Stated Documentation...........................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
Occupancy Types for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Occupancy Mortgage Loans Balance Outstanding Loan Group
--------- -------------- ------------------- ----------
<S> <C> <C> <C>
Owner-occupied................................
Second Home...................................
Investment....................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
The information set forth above is based upon representations of the related
mortgagor at the time of origination.
S-41
<PAGE>
Mortgage Loan Age Summary for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Mortgage Loan Age (Months) Mortgage Loans Balance Outstanding Loan Group
-------------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
0.............................................
1.............................................
2.............................................
3.............................................
4.............................................
5.............................................
6.............................................
7.............................................
8.............................................
9.............................................
10............................................
11............................................
12............................................
13............................................
14............................................
15............................................
24 ...........................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
The weighted average age of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool is approximately [__]months.
S-42
<PAGE>
Credit Grade Summary for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
------------ -------------- ------------------- ----------
<S> <C> <C> <C>
AO............................................
A-............................................
B.............................................
B-............................................
C.............................................
C- ...........................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
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>
[YEAR]........................................
[YEAR]........................................
[YEAR]........................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
S-43
<PAGE>
Maximum Mortgage Rates for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Maximum Mortgage Rates Mortgage Loans Balance Outstanding Loan Group
------------------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
------------------ ------------------ ------------------
Totals.............................. 100.0%
================== ================== ==================
</TABLE>
As of the Cut-off Date, the Maximum Mortgage Rates for the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool ranged from [____]% per annum to
[____]% per annum and the weighted average Maximum Mortgage Rate for the
Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool was [____]% per
annum.
S-44
<PAGE>
Prepayment Penalties for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Prepayment Penalty Term Mortgage Loans Balance Outstanding Loan Group
----------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
None..........................................
12 months.....................................
24 months.....................................
36 months.....................................
60 months.....................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
The weighted average prepayment penalty term with respect to the Adjustable
Rate Mortgage Loans in the Statistical Mortgage Pool having prepayment penalties
is approximately [__]months. With respect to those Adjustable Rate Mortgage
Loans in the Statistical Mortgage Pool which have prepayment penalties,
approximately [___]% of those 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 the prepayment on the amount prepaid in excess of 20% of
the original principal balance of the mortgage loan.
Product Type for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Loan Type Mortgage Loans Balance Outstanding Loan Group
--------- -------------- ------------------- ----------
<S> <C> <C> <C>
Six Month LIBOR Loan..........................
1/29 Loan ................................
2/28 Loan.....................................
3/27 Loan.....................................
5/25 Loan.....................................
Other.........................................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
S-45
<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>
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
[MONTH/YEAR]...............................
------------------ ------------------ ------------------
Totals................................ 100.0%
================== ================== ==================
</TABLE>
S-46
<PAGE>
Assignment of the Mortgage Loans
On the Closing Date (or any Subsequent Transfer Date with respect to
the Subsequent Mortgage Loans), the Depositor will cause the Initial Mortgage
Loans (or the Subsequent Mortgage Loans, as the case may be) 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 (or Subsequent
Cut-off Date (defined herein), as applicable) other than interest accrued on
such mortgage loans prior to the Cut-off Date (or Subsequent Cut-off Date, as
applicable). The Chase Manhattan Bank, as authenticating agent, will,
concurrently with the assignment of the Initial Mortgage Loans, authenticate and
deliver the certificates. Each Initial Mortgage Loan will be identified on the
Mortgage Loan Schedule. The Mortgage Loan Schedule will specify, among other
things, with respect to each Initial 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. [At the conclusion of the Funding Period,
the Depositor will deliver to the trustee and the Servicer a revised Mortgage
Loan Schedule which will reflect the addition of the Subsequent Mortgage Loans
to the mortgage pool.]
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 to the mortgage note, endorsed without recourse to
the trustee or its designee, the original or a certified copy of the mortgage,
together with all amendments and modifications to the mortgage, 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 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 a representation or warranty. A repurchase by the
Depositor will constitute the sole remedy available to Certificate Owners for a
breach of the representations or warranties. The trustee will enforce the
repurchase obligations of the Depositor. In lieu of this 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.
[Conveyance of Subsequent Mortgage Loans and the Pre-Funding Account
Under and to the extent provided in the pooling and servicing
agreement, following the initial issuance of the certificates, the trust fund
will be obligated to purchase from the Depositor during the Funding Period,
subject to the availability thereof, the Subsequent Mortgage Loans. Each
Subsequent Mortgage Loan shall have been underwritten in accordance with the
criteria set forth under "Chase Manhattan Mortgage Corporation--Underwriting
Standards" herein. The Subsequent Mortgage Loans will be transferred to the
trust fund under subsequent transfer instruments between the Depositor and the
trust fund. In connection with the purchase of Subsequent Mortgage Loans on the
Subsequent Transfer Date, the trust fund will be required to pay to the
Depositor from amounts on deposit in the Pre-Funding Account a cash purchase
price of 100% of the principal balance thereof as of the related Subsequent
Cut-off Date. The amount paid from the Pre-Funding Account on each Subsequent
Transfer Date will not include accrued interest on the related Subsequent
Mortgage Loans. Following each Subsequent Transfer Date,
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the aggregate principal balance of the mortgage loans in the related loan group
will increase by an amount equal to the aggregate principal balance of the
related Subsequent Mortgage Loans so purchased for such loan group and the
amount in the Pre-Funding Account will decrease accordingly.
The Pre-Funding Account will be established by, or on behalf of the
trustee and funded on the Closing Date with the Original Pre-Funded Amount to
provide the trust fund with sufficient funds to purchase Subsequent Mortgage
Loans, provided that the Original Pre-Funded Amount will not exceed 25% of the
aggregate initial Certificate Principal Balance of the certificates. The Group I
Original Pre-Funded Amount will be reduced during the Funding Period by the
amount used to purchase Subsequent Fixed Rate Mortgage Loans in accordance with
the pooling and servicing agreement and the Group II Original Pre-Funded Amount
will be reduced during the Funding Period by the amount used to purchase
Subsequent Adjustable Rate Mortgage Loans in accordance with the Pooling and
servicing agreement. During the Funding Period such Original Pre-Funded Amount,
reduced as described herein, will be maintained in the Pre-Funding Account.
Any conveyance of Subsequent Mortgage Loans on a Subsequent Transfer
Date is subject to conditions including, but not limited to:
o each Subsequent Mortgage Loan must satisfy the representations and
warranties specified in the related Subsequent Transfer Instrument
and the pooling and servicing agreement;
o the Depositor will not select the Subsequent Mortgage Loans in a
manner that it believes to be adverse to the interests of the
certificateholders;
o the Depositor will deliver opinions of counsel with respect to the
validity of the conveyance of the Subsequent Mortgage Loans; and
o as of the applicable Subsequent Cut-off Date each Subsequent
Mortgage Loan will satisfy the following criteria:
o the Subsequent Mortgage Loan may not be 30 or more days delinquent
as of the related Subsequent Cut-off Date (except with respect to
approximately [___]% of the Subsequent Mortgage Loans, by aggregate
principal balance as of the related Subsequent Cut-off Date, which
may be 30 or more days delinquent but less than 60 days delinquent
as of the related Subsequent Cut-off Date);
o the term to stated maturity of the Subsequent Mortgage Loan will not
be less than 120 months and will not exceed 360 months;
o the Subsequent Mortgage Loan may not provide for negative
amortization;
o the Subsequent Mortgage Loan will not have a loan-to-value ratio
greater than 95%;
o the Subsequent Mortgage Loans will have, as of the Subsequent
Cut-off Date, a weighted average term since origination not in
excess of 6 months;
o the Subsequent Mortgage Loan must have a first payment date
occurring on or before [DATE]; and
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o the Subsequent Mortgage Loan shall have been underwritten in
accordance with the criteria set forth under "Chase Manhattan
Mortgage Corporation--Underwriting Standards" herein.]
In addition, following the purchase of any Subsequent Mortgage Loan by
the trust fund, the mortgage loans (including the Subsequent Mortgage Loans)
will not be materially inconsistent with the Statistical Mortgage Pool as of the
Subsequent Cut-off Date. Notwithstanding these conditions, any Subsequent
Mortgage Loan may be rejected by either [Rating Agency] if the inclusion of the
Subsequent Mortgage Loan would adversely affect the rating on any class of
certificates.]
Chase Manhattan Mortgage Corporation
Chase Manhattan Mortgage Corporation 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 Corporation is engaged in
the mortgage origination and servicing businesses. Chase Manhattan Mortgage
Corporation is a HUD-approved mortgagee. Chase Manhattan Mortgage Corporation 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 Corporation is 343 Thornall Street, Edison, New Jersey
08837 and its telephone number is (732) 205-0600. Chase Manhattan Mortgage
Corporation 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
Corporation'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 B&C
Underwriting Guidelines. Prior to the funding or acquiring of any B&C quality
mortgage loan, Chase Manhattan Mortgage Corporation underwrites the related
mortgage loan in accordance with the then-current underwriting standards
established by Chase Manhattan Mortgage Corporation.
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 Corporation 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 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 Corporation requires title insurance on all
B&C quality mortgage loans secured by liens on real property. Chase Manhattan
Mortgage Corporation 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
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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 Corporation offers four types of income
documentation programs under the B&C Underwriting Guidelines:
o Full Documentation
o 24 Month Bank Statement
o Reduced Documentation and
o Stated Income.
In general, for mortgage loans underwritten under the Full
Documentation program, Chase Manhattan Mortgage Corporation 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.
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
the credit grade categories is set forth below.
Credit Grade Category: "AO"
Debt-to-Income Ratio: Maximum of 45%
Mortgage History: No more than one delinquency of 30 days or more
during the previous 12 months; no more than two such delinquencies
during the previous 24 months.
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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 the previous 24 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 (in 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 the previous 24
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 the previous 24
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%
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Mortgage History: No more than four delinquencies of 30 days or more
during the previous 12 months, provided that no such delinquency may
have exceeded 59 days; and no more than one delinquency of 60 days or
more during the previous 12 months, provided that no such delinquency
may have exceeded 89 days.
Consumer/Revolving Credit History: No delinquencies of 90 days or more
during the previous 12 months (in the case of "major" credit) and no
delinquencies of 120 days or more during the previous 12 months (in the
case of "minor" credit).
Collections/Chargeoffs: All except for up to $2,500 in the previous 24
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 the previous 24
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 the previous 24
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.
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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 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 the information concerning the Subservicer.
Advanta
Advanta will act as the Subservicer of the mortgage loans under the
pooling and servicing agreement. Advanta is an indirect subsidiary of Advanta
Parent, a publicly traded company based in Springhouse, Pennsylvania with assets
as of March 31, 2000 in excess of $4 billion.
Advanta Parent, through its subsidiaries (including Advanta) had
managed assets (including mortgage loans) in excess of $13.1 billion as of March
31, 2000.
As of March 31, 2000, Advanta and its subsidiaries were servicing
approximately 107,887 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 $7.4 billion, and
approximately 190,890 closed-end fixed rate and adjustable rate mortgage loans
in the Third-Party Servicing Portfolio (defined below) representing an aggregate
outstanding principal balance of approximately $13.1 billion.
On January 22, 1999, Fleet filed 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. In that
transaction Advanta Parent contributed substantially all of its consumer credit
card business to a limited liability company controlled by Fleet. 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.
On May 17, 2000, Advanta Parent issued a press release stating that it
had retained Salomon Smith Barney Inc. to assist it in studying possible
strategic alternatives for Advanta and Advanta Parent's leasing business unit.
Although there are no specific actions contemplated at this time, these
strategic alternatives could include the sale of, or strategic alliances or
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partnerships in respect of, all or a portion of Advanta's mortgage loan
origination or servicing businesses.
On June 2, 2000, Advanta Parent issued a press release announcing that
its banking subsidiaries, Advanta National Bank and Advanta Bank Corp., have
each reached agreements with their respective bank regulatory agencies,
primarily relating to the banks' subprime lending operations. The agreements
outline a series of steps to modify processes, many of which the banks have
already begun, and formalize and document practices and procedures for the
banks' subprime lending operations. The agreements establish temporary asset and
deposit growth limits, restrictions on taking brokered deposits, and require
that Advanta National Bank maintain its current capital ratios.
The agreements also provide that Advanta will change its charge-off
policy for delinquent mortgages to 180 days (which are presently reserved for)
and modify its accounting processes and methodology for its allowance for loan
losses and valuation of residual assets. Advanta Parent is in the process of
evaluating the impact of the agreements on its income for the balance of year.
Advanta Parent anticipates that the limitations and restrictions imposed by the
agreements will have an impact on Advanta's loan volume and results in the near
term, but Advanta Parent cannot quantify such impact at this time.
This prospectus supplement contains forward-looking statements that are
subject to 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 condition 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 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 under 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 the Owned and Managed
Servicing Portfolio of closed-end fixed and adjustable rate mortgage loans as of
March 31, 2000, 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 March 31, 2000. In addition to the Owned and
Managed Servicing Portfolio, Advanta serviced as of March 31, 2000,
approximately 190,890 mortgage loans with an aggregate principal balance as of
such date of approximately $13.1 billion. 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)
<TABLE>
<CAPTION>
Three Months Ended
As of December 31, March 31
----------------------------------------------------------------------- --------------------------
1997 1998 1999 2000
----------------------------------------------------------------------- --------------------------
By By By By
By No. Dollar By No. Dollar By No. Dollar By No. Dollar
of Amount of Amount of Amount of Amount
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
----------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio 74,525 $4,888,936 111,707 $7,664,919 109,091 $7,458,805 107,887 $7,376,662
Delinquency
percentage
30-59 days 3.13% 2.99% 3.05% 2.76% 3.01% 2.79% 2.50% 2.40%
60-89 days 0.98 0.98 1.10 1.08 0.92 0.85 0.67 0.61
90 days or more 1.39 1.28 1.45 1.22 2.15 1.97 2.07 1.90
---- ---- ---- ---- ---- ---- ----- -----
Total 5.50% 5.25% 5.60% 5.06% 6.08% 5.61% 5.24% 4.91%
Foreclosure Rate 2.10% 2.32% 2.85% 2.98% 3.63% 3.43% 3.89% 3.76%
REO Properties 0.40% -- 0.78% -- 1.30% -- 1.23% --
</TABLE>
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. The 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. 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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Loan Loss Experience
of Advanta's Owned and Managed Servicing Portfolio
of Closed-end Mortgage Loans
<TABLE>
<CAPTION>
-------------------------------------------------------- ---------------------
Three Months
As of December 31, Ended March 31
-------------------------------------------------------- ---------------------
1997 1998 1999 2000
-------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C>
Average Amount Outstanding $3,677,342 $6,233,870 $7,641,960 $7,411,181
Net Losses $15,067 $35,640 $60,350 $18,815
Net Losses as a percentage of
average amount outstanding(s) 0.50% 0.57% 0.79% 1.02%
</TABLE>
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. 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. The statistics presented for Net Losses as a percentage of average
amount outstanding are annualized numbers.
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 tables above, in part
because the mortgage loans reflected in those tables may have been underwritten
in accordance with 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 than
another portfolio 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 those 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 Scheduled 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;
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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. In accordance with 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 the Servicing Fee. 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
Due Dates, the Mortgagor pays interest on the amount prepaid only to the date of
the prepayment. Prepayments received during the prior Prepayment Period 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 Subservicer shall deposit Compensating Interest in the
Collection Account for distribution to the certificateholders on such
Distribution Date. However, any such reduction in the Servicing Fee otherwise
payable with respect to such Distribution Date will be limited to the product of
(1) one-twelfth of [____]% and (2) 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 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 make Advances. Advances are
intended to maintain a regular flow of scheduled interest and principal payments
on the Offered Certificates rather than to guarantee or insure against losses.
The Subservicer is obligated to make Advances with respect to delinquent
payments of principal of or interest on each mortgage loan (with such payments
of interest adjusted to the related Net Mortgage Rate) to the extent that such
Advances are, in its judgment, reasonably recoverable from future payments and
collections or insurance payments or proceeds of liquidation of the related
mortgage loan; provided, however, that the Subservicer need not make Advances
with respect to the principal portion of any Balloon Amount but the Subservicer
will be required to Advance monthly interest on a Balloon Loan until the
principal balance thereof is reduced to zero subject to the Servicer's
determination of nonrecoverability. In the event the Subservicer previously made
Advances which later are determined to be nonrecoverable, the Subservicer will
be entitled to reimbursement of such Advances prior to distributions to
certificateholders. If the Subservicer determines on any Servicer Remittance
Date to make an Advance, such Advance will be included with the distribution to
holders of the
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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
The Master Servicer will
o provide administrative services and file reports with regard to the
certificates,
o provide reports to the trustee regarding the mortgage loans and the
certificates and
o receive payments with respect to the mortgage loans from the
Subservicer and, in its capacity as paying agent for the
certificates, remit the payments to the certificateholders as
described herein.
The Master Servicer will pay various 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 (1)
one-twelfth of the Master Servicer Fee Rate multiplied by the principal balance
of the mortgage loan and (2) 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 [______]% per annum.
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Description of the Certificates
General
The certificates will represent the entire beneficial ownership
interest in the trust fund to be created under 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 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 certificates will consist of
o Class A Group I Certificates, class IM-1 certificates and class IM-2
certificates, and the class IB certificates;
o Class A Group II Certificates, class IIM-1 certificates, class IIM-2
certificates and the class IIB certificates; and
o the Residual Certificates.
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 of $[25,000].
Book-Entry Certificates
The Offered Certificates will be Book-Entry Certificates. Certificate
Owners may elect to hold their Offered Certificates through DTC in the United
States, or Clearstream Luxembourg or Euroclear in Europe, if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in one
or more certificates which equal the aggregate principal balance of the Offered
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. Clearstream Luxembourg and Euroclear will hold omnibus positions
on behalf of their participants through customers' securities accounts in
Clearstream Luxembourg'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 Clearstream Luxembourg and Chase will act as depositary for
Euroclear. Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum Certificate Principal Balances of $[25,000] and integral
multiples of $1,000 in excess of $[$25,000]. Except as described below, no
person acquiring a Book-Entry Certificate will be entitled to receive 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 Participants and DTC.
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The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of 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
Clearstream Luxembourg 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, 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. Indirect
Participants, with whom Certificate Owners have accounts with respect to Offered
Certificates are similarly required to make book-entry transfers and receive and
transmit such distributions on behalf of their respective Certificate Owners.
Accordingly, although Certificate Owners will not possess certificates, the
Rules provide a mechanism by which Certificate Owners will receive distributions
and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Certificate Owners who are not
Participants may transfer ownership of Offered Certificates only through
Participants and Indirect Participants by instructing such Participants and
Indirect Participants to transfer Offered Certificates, by book-entry transfer,
through DTC for the account of the purchasers of such Offered Certificates,
which account is maintained with their respective Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Offered Certificates will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and Indirect Participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Certificate
Owners.
Because of time zone differences, credits of securities received in
Clearstream Luxembourg, or Euroclear as a result of a transaction with a
Participant will be made during, subsequent securities settlement processing and
dated the Business Day following, the DTC settlement date. Such credits or any
transactions in such securities, settled during such processing will be reported
to the relevant Euroclear or Clearstream Luxembourg participants on such
Business Day. Cash received in Clearstream Luxembourg or Euroclear, as a result
of sales of securities by or through a Clearstream Luxembourg Participant or
Euroclear Participant to a DTC Participant, will be received with value on the
DTC settlement date but will be available in the relevant Clearstream Luxembourg
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 Clearstream Luxembourg participants and Euroclear participants
will occur in accordance with their respective rules and operating procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
Luxembourg 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. Clearstream Luxembourg 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.
Clearstream Luxembourg is incorporated under the laws of Luxembourg as
a professional depository. Clearstream Luxembourg holds securities for
Clearstream Luxembourg participants and facilitates the clearance and settlement
of securities transactions between Clearstream Luxembourg participants through
electronic book-entry changes in accounts of Clearstream Luxembourg
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream Luxembourg in any of 28
currencies, including United States dollars. Clearstream Luxembourg provides to
its Clearstream Luxembourg participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream Luxembourg
interfaces with domestic markets in several countries. As a professional
depository, Clearstream Luxembourg is subject to regulation by the Luxembourg
Monetary Institute. Clearstream Luxembourg 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 Clearstream Luxembourg is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Clearstream Luxembourg Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for Euroclear
participants and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in any of 32 currencies, including United States dollars. Euroclear
includes various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Euroclear Operator, under contract with 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.
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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. 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 Clearstream Luxembourg or Euroclear will be
credited to the cash accounts of Clearstream Luxembourg 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 those
Offered Certificates in the secondary market since some 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. Clearstream Luxembourg or
the Euroclear Operator, as the case may be, will take any other action permitted
to be taken by a holder of an Offered Certificate under the pooling and
servicing agreement on behalf of a Clearstream Luxembourg 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
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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
o 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,
o the Depositor at its sole option, elects to terminate a book-entry
system through DTC or
o 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 to DTC) 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, Clearstream Luxembourg and Euroclear have agreed to these
procedures in order to facilitate transfers of certificates among participants
of DTC, Clearstream Luxembourg 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 an account,
known as 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 [Rating Agency] as provided in the pooling and servicing agreement, that
mature, unless payable on demand, no later than the Servicer Remittance Date.
The Subservicer will be entitled to all income and gain realized from the
Collection Account investments, and the 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
Collection Account investments out of its own funds as the losses are realized.
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The Master Servicer will be obligated to establish 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 (other than amounts
withdrawn from the Capitalized Interest Account) and Principal Funds (other than
amounts withdrawn from the Pre-Funding Account) for each loan group and the
Master Servicer Fee with respect to the related 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 the investments mature, unless maintained with the
institution holding the account, no later than the Business Day prior to the
Distribution Date. All income and gain realized from any Certificate Account
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 Certificate Account investment, as the losses are
realized.
The Master Servicer as initial paying agent under the pooling and
servicing agreement, is obligated to establish and maintain the "Distribution
Account" and to deposit into the Distribution Account 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 the investments mature, unless maintained with
the institution holding the account, no later than the related Distribution
Date. All income and gain realized from any Distribution Account 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 Distribution Account investment, as the losses are realized.
Distributions
General. Distributions on the certificates will be made by The Chase
Manhattan Bank, as paying agent on the Distribution Date, to the persons in
whose names the certificates are registered at the Record Date.
Distributions on each Distribution Date will be made by check mailed to
the address of the person entitled to distributions 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.
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 the Distribution 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
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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.
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:
(1) 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;
(2) 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;
(3) 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;
(4) 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
(5) any remainder to be distributed as described below under
"--Overcollateralization and Crosscollateralization Provisions".
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.
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, [____]%; class IIM-1, [____]%; class IIM-2,
[____]%; class IIB, [____]% and class IA-1, [____]%; and for any Distribution
Date after the applicable Optional Termination Date: class IIA-1, [____]%; class
IIM-1, [____]%; class IIM-2, [____]%; class IIB, [_____]%; and class IA-1,
[____]%. The Pass-Through Margin for the class IA-1 certificates is [____]%.
Any Adjustable Rate Certificate Carryover will be paid on future
Distribution Dates from and to the extent of funds available for that purpose as
described herein. The ratings of the Group II Certificates do not address the
likelihood of the payment of any Adjustable Rate Certificate Carryover.
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Distributions of Principal. On each Distribution Date, the Principal
Distribution Amount with respect to each Certificate Group for each Distribution
Date is required to be distributed as follows until the Principal Distribution
Amount has been fully distributed:
[Describe principal payment methodology]
Overcollateralization and Crosscollateralization Provisions
As set forth below, 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, plus the amount on deposit in the Pre-Funding Account allocable to
such loan group as of such Distribution Date, 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 sum of
(1) the Stated Principal Balances of the mortgage loans in the related loan
group and (2) the amount on deposit in the Pre-Funding Account allocable to such
loan group as if such Distribution Date, the Certificate Principal Balances of
the Subordinated Certificates of such Group will be reduced, in inverse order of
seniority (beginning with the Class B Certificates) by an amount equal to such
excess.
If the Certificate Principal Balance of a class of Subordinated
Certificates is reduced, that class thereafter will be entitled to distributions
of interest and principal only with respect to the Certificate Principal Balance
as so reduced. On subsequent Distribution Dates, however, as described below,
Interest Funds and Principal Funds with respect to each Certificate Group not
otherwise required to be distributed with respect to principal of and interest
on the certificates of such Certificate Group will be applied to reduce Unpaid
Realized Loss Amounts previously allocated to such certificates in order of
seniority.
On each Distribution Date, Interest Funds and Principal Funds with
respect to each loan group not otherwise required to be distributed with respect
to principal of and interest on the certificates in the related Certificate
Group as described above will be required to be distributed in respect of the
following amounts until fully distributed:
(1) the Extra Principal Distribution Amount for such loan
group;
(2) to the Class M-1 Certificates of such Certificate Group,
any Unpaid Realized Loss Amount for such class;
(3) to the Class M-2 Certificates of such Certificate Group,
any Unpaid Realized Loss Amount for such class;
(4) to the Class B Certificates of such Certificate Group, the
Unpaid Realized Loss Amount for such class;
(5) except in the case of Optional Termination Amounts, 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;
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(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;
(6) in the case of the Adjustable Rate Mortgage Loan Group, to
the Group II Certificates, on a pro rata basis, the Adjustable Rate
Certificate Carryover; and
(7) to the Residual Certificates, the remaining amount.
Calculation of One-Month LIBOR
On each Interest Determination Date, the Master Servicer will determine
One-Month LIBOR for the related Accrual Period on the basis of the (1) 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 (2) 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.
If One-Month LIBOR is determined under clause (2) 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:
(1) 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%).
(2) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR for
the related Accrual Period
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shall be the higher of (x) One-Month LIBOR as determined on the
previous Interest Determination Date and (y) the Reserve Interest Rate.
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 the Group II Certificates and
class IA-1 certificates shall (in the absence of manifest error) be final and
binding.
Mandatory Prepayments on the Certificates
The Group I Certificates and the Group II Certificates will be prepaid
in part on the Distribution Date immediately following the end of the Funding
Period to the extent of any amounts remaining on deposit in the Pre-Funding
Account on such Distribution Date. Although no assurance can be given, it is
anticipated by the Depositor that the principal amount of Subsequent Mortgage
Loans sold to the trust fund will require the application of substantially all
of the Original Pre-Funded Amount and that there will be no material amount of
principal prepaid to the holders of the Group I or Group II Certificates from
the Pre-Funding Account. It is unlikely, however, that the Depositor will be
able to deliver Subsequent Mortgage Loans with an aggregate principal balance
identical to the related Original Pre-Funded Amount. Accordingly, a small amount
of principal is likely to be prepaid on the Group I and Group II Certificates on
the Distribution Date immediately following the end of the Funding Period.
Capitalized Interest Account
The Depositor will establish for the benefit of the holders of the
certificates the "Capitalized Interest Account". On the Closing Date, the
Depositor will deposit in the Capitalized Interest Account a cash amount as
specified in the pooling and servicing agreement. On each Distribution Date
during the Funding Period and on the Distribution Date immediately following the
end of the Funding Period, funds on deposit in the Capitalized Interest Account
will be applied to cover shortfalls in the amount of interest accrued on the
certificates in the trust fund attributable to the pre-funding feature. Such
shortfall will exist during the Funding Period because the interest accruing on
the aggregate principal balance of the mortgage loans in each loan group during
such period will be less than the amount of interest which would have accrued on
the mortgage loans in each loan group if the related Subsequent Mortgage Loans
were included in the trust fund as of the Closing Date. On the first
Distribution Date following the termination of the Funding Period (after the
distribution on the certificates to be made on such Distribution Date), funds on
deposit in the Capitalized Interest Account will be released by the trustee to
the Depositor or its designee.
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:
(1) 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;
(2) the amount of such distribution to holders of each class
of certificates allocable to interest;
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<PAGE>
(3) the Interest Carry-Forward Amount for each class of
certificates;
(4) the Certificate Principal Balance of each class of
certificates after giving effect to the distribution of principal on
such Distribution Date;
(5) the aggregate outstanding principal balance of each class
of certificates for the following Distribution Date;
(6) the amount of the Servicing Fee paid to or retained by the
Subservicer for the related Due Period;
(7) the Pass-Through Rate for each class of certificates for
such Distribution Date;
(8) the amount of Advances included in the distribution on
such Distribution Date;
(9) 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;
(10) 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 Determination Date and the date of
acquisition thereof;
(11) with respect to each loan group, whether a Trigger Event
or, if applicable, a Stepup Trigger Event has occurred;
(12) 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;
(13) 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;
(14) the number and aggregate principal balance of all
Subsequent Mortgage Loans added during the preceding Due Period;
(15) the amount on deposit in the Pre-Funding Account and the
Capitalized Interest Account (both in the aggregate and with respect to
each loan group); and
(16) for the Distribution Date immediately following the end
of the Funding Period, the current balance on deposit in the
Pre-Funding Account, if any, that has not been used to purchase
Subsequent Mortgage Loans and that is being distributed to
certificateholders as a mandatory prepayment of principal 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
S-69
<PAGE>
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
(1) 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;
(2) 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 (1) above, without the consent of the holders of
certificates of such class evidencing, as to such class, Percentage
Interests aggregating 66%; or
(3) reduce the aforesaid percentage of aggregate outstanding principal
amounts of certificates of each class, the holders of which are
required to consent to any such amendment, without the consent of
the holders of all certificates of such class.
Optional Termination
The Master Servicer will have the right (but not the obligation) to
repurchase all remaining mortgage loans and REO Properties in either loan group
and thereby effect early retirement of all the certificates of the related
Certificate Group on the Optional Termination Date. In the event this repurchase
option is exercised by the Master Servicer, the repurchase will be made at the
Repurchase Price. Proceeds from the repurchase will be distributed to the
certificateholders in the related Certificate Group in the priority described
above. The proceeds from this repurchase 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 the
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 of the mortgage loan plus
accrued interest 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.
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<PAGE>
Events of Default
Events of Default will consist of:
(1) 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 the
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;
(2) 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 the 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
(3) 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, (1) 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
(2) holders of the Residual Certificates will be allocated all of the remaining
Voting Rights. Voting Rights will be allocated among the certificates of each
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 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 the holder's status as a
certificateholder, will have any right under the pooling and servicing agreement
to institute any proceeding regarding an Event of Default, unless the 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.
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<PAGE>
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
mortgagors' equity in the related 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,
(1) 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),
(2) the delinquency and default experience of the related mortgage
loans,
(3) the level of One-Month LIBOR,
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<PAGE>
(4) the Mortgage Index for the Adjustable Rate Mortgage Loans and
(5) the provisions of the pooling and servicing agreement that permit
Net Excess Cashflow to be distributed to the Residual Certificates
when required overcollateralization levels have been met.
To the extent that greater (or lesser) amounts of Net Excess Cashflow are
distributed in reduction of the Certificate Principal Balances of a class of
Offered Certificates, the weighted average life thereof can be expected to
shorten (or lengthen). No assurance, however, can be given as to the amount of
Net Excess Cashflow distributed at any time or in the aggregate. See
"Description of the Certificates-- Overcollateralization and
Crosscollateralization Provisions."
The class IA-5 certificates are not expected to receive distributions
of principal until the Distribution Date in [DATE] (except as otherwise
described herein). Thereafter, the relative entitlement of the class IA-5
certificates to payments in respect of principal is subject to increase in
accordance with the calculation of the Class IA-5 Distribution Amount. See
"Description of the Certificates--Distributions."
To the extent that the Original Pre-Funded Amount has not been fully
applied to the purchase of Subsequent Mortgage Loans by the end of the Funding
Period, the holders of the Group I and Group II Certificates will receive on the
Distribution Date immediately following the end of the Funding Period a
prepayment of principal in an amount equal to the lesser of (1) any amounts
remaining in the Pre-Funding Account allocable to such loan group and (2) the
outstanding Certificate Principal Balance of the Group I and Group II
Certificates. Although no assurance can be given, it is anticipated by the
Depositor that the principal amount of Subsequent Mortgage Loans sold to the
trust fund will require the application of substantially all amounts on deposit
in the Pre-Funding Account and that there will be no material amount of
principal prepaid to the holders of the Group I and Group II Certificates.
However, it is unlikely that the Depositor will be able to deliver Subsequent
Mortgage Loans with an aggregate principal balance identical to the Pre-Funded
Amount. Accordingly, a small amount of principal is likely to be prepaid on the
Group I and Group II Certificates on the Distribution Date immediately following
the end of the Funding Period.
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, the fixed rate mortgage
loans are likely to be subject to higher prepayment rates than if prevailing
rates remain at or above the interest rates on the fixed rate mortgage loans.
Conversely, if prevailing interest rates rise appreciably above the interest
rates on fixed rate mortgage loans, the fixed rate mortgage loans are likely to
experience a lower prepayment rate than if prevailing rates remain at or below
the interest rates on the fixed rate mortgage loans.
S-73
<PAGE>
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 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
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<PAGE>
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 (1) One-Month LIBOR plus [___]% and (2)
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 [___]%,
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-4,
class IA-5, class IM-1, class IM-2 and class IB certificates will equal the
lesser of (1) the rate set forth for such class in the table on page S-3 and (2)
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 (1), investors in the class IA-4, 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.
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
(1) prepayments are likely to occur which will be applied to the
payment of the Certificate Principal Balances thereof,
(2) excess interest to the extent available will be applied as an
accelerated payment of principal on the Offered Certificates as
described herein and
(3) 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
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<PAGE>
aggregate Certificate Principal Balance of all of the
certificates of such loan group, as of the Cutoff Date.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The prepayment models used in this prospectus
supplement 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 is HEP. For the Adjustable Rate
Mortgage Loan Group, the prepayment model used in this prospectus supplement is
CPR.
As used in the following tables "0% of the prepayment model" assumes no
prepayments on the mortgage loans; "80% of the prepayment model" assumes the
mortgage loans will prepay at rates equal to 80% of the related prepayment
model; "100% of the prepayment model" assumes the mortgage loans will prepay at
rates equal to 100% of the related prepayment model; "150% of the prepayment
model" assumes the mortgage loans will prepay at rates equal to 150% of the
related prepayment model; and "200% of the prepayment model" assumes the
mortgage loans will prepay at rates equal to 200% of the prepayment model
assumed prepayment rates.
There is no assurance, however, that prepayments on the mortgage loans
will conform to any level of the prepayment model, and no representation is made
that the mortgage loans will prepay at the prepayment rates shown or any other
prepayment rate. The rate of principal payments on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates. Other factors affecting prepayment of
mortgage loans include changes in obligors' housing needs, job transfers,
unemployment, the solicitation of mortgagors to refinance their mortgage loans
and the existence of prepayment penalties. In the case of mortgage loans in
general, if prevailing interest rates fall significantly below the interest
rates on the mortgage loans, the mortgage loans are likely to be subject to
higher prepayment rates than if prevailing interest rates remain at or above the
rates borne by the mortgage loans. Conversely, if prevailing interest rates rise
above the interest on the mortgage loans, the rate of prepayment would be
expected to decrease.
The following tables have been prepared on the basis of the Modeling
Assumptions, including the assumption that each loan group consists of mortgage
loans having the approximate characteristics described below:
Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Original
Amortization Remaining
Current Net Mortgage Original Term Term Term
Balance Mortgage Rate Rate (in months) (in months) (in months)
------- ------------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ % %
% %
% %
% %
% %
</TABLE>
S-76
<PAGE>
Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of
Original Remaining Months Until
Net Term Term Reset Next Rate
Current Mortgage Mortgage (in (in Gross Periodic Change Adjustment
Balance Rate Rate months) months) Margin Cap Frequency Date Index
------- ---- ---- ------- ------- ------ --- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % % 6 mo.
LIBOR
$ % % % % 6 mo.
LIBOR
$ % % % % 6 mo.
LIBOR
$ % % % % 6 mo.
LIBOR
</TABLE>
The weighted average lives of the Offered Certificates set forth on the
following tables are determined by (1) 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, (2) summing the results and (3)
dividing the sum by the total principal distribution on the Offered
Certificates.
S-77
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IA-1 Class IA-2
---------- ----------
Distribution Date 0% 80% 100% 150% 200% 0% 80% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial.............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
Weighted Average Life in years......
</TABLE>
S-78
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IA-3 Class IA-4
---------- ----------
Distribution Date 0% 80% 100% 150% 200% 0% 80% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ...........................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
Weighted Average Life in years......
</TABLE>
S-79
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IA-5 Class IM-1
---------- ----------
Distribution Date 0% 80% 100% 150% 200% 0% 80% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ...........................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
Weighted Average Life in years......
</TABLE>
S-80
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IM-2 Class IB
---------- --------
Distribution Date 0% 80% 100% 150% 200% 0% 80% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ...........................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
Weighted Average Life in years......
</TABLE>
S-81
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IIA-1 Class IIM-1
----------- -----------
Distribution Date 0% 80% 100% 150% 200% 0% 80% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ...........................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
Weighted Average Life in years......
</TABLE>
S-82
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IIM-2 Class IIB
Distribution Date 0% 80% 100% 150% 200% 0% 80% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ...........................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
[DATE]..............................
Weighted Average Life in years......
</TABLE>
S-83
<PAGE>
Additional Information
The Depositor has filed 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. Those tables and materials were prepared by
the underwriters for prospective investors who made requests for that additional
information. Those tables and assumptions may be based on assumptions that
differ from the Modeling Assumptions. Accordingly, those 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. The Subsidiary REMIC will issue 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 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
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.
Other classes of the Offered Certificates may be treated as being
issued at a premium. If this occurs, the Offered Certificateholders may elect
under Section 171 of the Code to amortize that premium under the constant yield
method and to treat that amortizable premium as an offset to interest income on
the certificates. This 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
S-84
<PAGE>
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.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions". In general, subject to 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 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, 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 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 the above-referenced prohibited transactions tax on contributions
to a trust fund, 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.
S-85
<PAGE>
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 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 from engaging in
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 the Offered Certificates. See "ERISA Considerations" in the
prospectus.
Certain employee benefit plans, including governmental plans and
certain church plans, are not subject to ERISA's requirements. Accordingly,
assets of such plans may be invested in the Class A Certificates without regard
to the ERISA considerations described herein and in the prospectus, subject to
the provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment prudence
and diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in the Class A Certificates should consider, among
other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the mortgage loans.
The DOL has granted administrative exemptions to [Underwriter]
(Transaction Exemption ____, __ Fed. Reg. _______ (____)), to [Underwriter]
(Prohibited Transaction Exemption _____, __ Fed. Reg. ____ (1991)) ___and to
[Underwriter] (Prohibited Transaction Exemption _____, __ Fed. Reg. ______
(1990)) 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 receivables, loans and other obligations
that meet the conditions and requirements of the DOL administrative exemptions.
The exemptions apply to mortgage loans such as the mortgage loans in the trust
fund.
Among the conditions that must be satisfied for the DOL administrative
exemptions to apply are the following:
S-86
<PAGE>
(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 S&P, DCR or Fitch;
(4) the trustee must not be an affiliate of any other member of the
Restricted Group;
(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 for 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 in 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:
(1) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(2) 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
(3) 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.
Each of the DOL administrative exemptions was amended by Prohibited
Transaction Exemption 97-34, 62 Fed. Reg. 39021 (1997), which, among other
changes, permits the inclusion of a pre-funding account in a trust fund,
provided that the following conditions are met:
(1) the pre-funding account may not exceed 25% of the total amount of
certificates being offered;
(2) additional obligations purchased generally must meet the same terms
and conditions as those of the original obligations used to create
the trust fund;
S-87
<PAGE>
(3) the transfer of additional obligations to the trust during the
pre-funding period must not result in the certificates receiving a
lower rating at the termination of the pre-funding period than the
rating that was obtained at the time of the initial issuance of the
certificates;
(4) the weighted average interest rate for all of the obligations in
the trust at the end of the pre-funding period must not be more
than 100 basis points less than the weighted average interest rate
for the obligations which were transferred to the trust on the
closing date;
(5) the characteristics of the additional obligations must be monitored
to confirm that they are substantially similar to those which were
acquired as of the closing date either by a credit support provider
or insurance provider independent of the sponsor or by an
independent accountant retained by the sponsor that confirms such
conformance in writing;
(6) the pre-funding period must be described in the prospectus or
private placement memorandum provided to investing plans; and
(7) the trustee of the trust must be a substantial financial
institution or trust company experienced in trust activities and
familiar with its duties, responsibilities and liabilities as a
fiduciary under ERISA.
Further, the pre-funding period must be a period beginning on the
closing date and ending no later than the earliest to occur of
o the date the amount on deposit in the pre-funding account is
less than the minimum dollar amount specified in the pooling
and servicing agreement;
o the date on which an event of default occurs under the pooling
and servicing agreement; or
o the date which is the later of three months or 90 days after
the closing date. It is expected that the Pre-Funding Account
will meet all of these requirements.
Moreover, the exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust and the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust
provided that, among other requirements,
o 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;
o 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;
S-88
<PAGE>
o 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
o 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 DOL administrative exemptions would not apply to Plans sponsored by
principal balance of the assets in the trust fund, or any affiliate of such
parties (the Restricted Group).
It is expected that the DOL administrative exemptions will apply to the
acquisition and holding of the Class A Certificates by Plans and that all
conditions of the DOL administrative exemptions other than those within the
control of the investors will be met. In addition, as of the date hereof, there
is no single Mortgagor that is the obligor on five percent (5%) of the mortgage
loans included in the trust fund by aggregate unamortized principal balance of
the assets of the trust fund.
The DOL administrative exemptions do not apply to the initial purchase,
the holding or the subsequent resale of the Subordinated Certificates because
the Subordinated Certificates are subordinate to the more senior classes of
certificates. Consequently, transfers of the Subordinated Certificates will not
be registered by the trustee unless the trustee receives:
o 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;
o 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 and that the
purchase and holding of such certificates are covered under
Section V(e) of Prohibited Transaction Class Exemption 95-60;
or
o 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
S-89
<PAGE>
Exemptions, and the potential consequences in their specific circumstances,
prior to making an investment in the Offered Certificates. Moreover, each Plan
fiduciary should determine whether under the general fiduciary standards of
investment prudence and diversification, an investment in the Offered
Certificates is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
Legal Investment Matters
The Class A and Class M-1 Certificates offered hereby will constitute
"mortgage related securities" for purposes of the 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 a result, 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 authorities should review applicable rules, supervisory policies and
guidelines, since certain restrictions may apply to investments in the Class A
and Class M-1 Certificates. It should also be noted that some 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 the 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.
S-90
<PAGE>
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
[DATE] and the terms agreement dated [DATE] between the Depositor and
[UNDERWRITER]. (_________) as underwriter, the Offered Certificates are being
purchased from the Seller by the underwriter in the respective initial
Certificate Principal Balance of each class of Offered Certificates set forth
below, in each case upon issuance of each class.
Class of Certificate [Underwriter]
Class IA-1 Certificates..............
Class IA-2 Certificates..............
Class IA-3 Certificates..............
Class IA-4 Certificates..............
Class IA-5 Certificates..............
Class IM-1 Certificates..............
Class IM-2 Certificates..............
Class IB Certificates................
Class IIA-1 Certificates.............
Class IIM-1 Certificates.............
Class IIM-2 Certificates.............
Class IIB Certificates...............
Total.......................
The Depositor has been advised that the underwriter proposes initially
to offer the Offered Certificates to the public at the offering prices set forth
below. The Depositor has been advised that the underwriter proposes 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 underwriter may allow and such dealers may reallow
a reallowance discount not to exceed the percentage of the certificate
denomination set forth below:
S-91
<PAGE>
<TABLE>
<CAPTION>
Price to Underwriting Selling Reallowance
Class of Certificate Public Discount Concession Discount
-------------------- ------ -------- ---------- --------
<S> <C> <C> <C> <C>
Class IA-1 Certificates.............
Class IA-2 Certificates.............
Class IA-3 Certificates.............
Class IA-4 Certificates.............
Class IA-5 Certificates.............
Class IM-1 Certificates.............
Class IM-2 Certificates.............
Class IB Certificates...............
Class IIA-1 Certificates............
Class IIM-1 Certificates............
Class IIM-2 Certificates............
Class IIB Certificates..............
</TABLE>
After the initial public offering, the public offering price, seller
concessions and reallowance discounts may be changed.
The Depositor has been advised by the underwriter that it intends to
make a market in the Offered Certificates, but the underwriter has no obligation
to do so. There can be no assurance that a secondary market for the Offered
Certificates, or any particular class of Offered Certificates, 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
underwriter and some selling group members to bid for and purchase the Offered
Certificates. As an exception to these rules, the underwriter is permitted to
engage in transactions that stabilize the price of the Offered Certificates.
These 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 the underwriter 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 underwriter makes any representation that the
underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Depositor has agreed to indemnify the underwriter against, or make
contributions to the underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
S-92
<PAGE>
Legal Matters
Certain legal matters will be passed upon for the Depositor by Morgan,
Lewis & Bockius LLP, New York, New York and for the underwriter by
[_____________________]. The material federal income tax consequences of the
certificates will be passed upon for the Depositor by Morgan, Lewis & Bockius
LLP.
Ratings
It is a condition of the issuance of the Offered Certificates that they
be assigned the ratings designated below by [Rating Agency] and [Rating Agency].
[RATING [RATING
CLASS AGENCY] AGENCY]
----- ------- -------
IA-1................................
IA-2................................
IA-3................................
IA-4................................
IA-5................................
IM-1................................
IM-2................................
IB..................................
IIA-1...............................
IIM-1...............................
IIM-2...............................
IIB.................................
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.
The ratings of [Rating Agency] on mortgage pass-through certificates
addressed the likelihood of the receipt by certificateholders of all
distributions to which such certificateholders are entitled. [Rating Agency]
rating opinions address the structural and legal issues and tax-related aspects
associated with the certificates, including the nature of the underlying
mortgage loans. [Rating Agency] ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may differ
from those originally anticipated nor do they address the possibility that, as a
result of principal prepayments, certificateholders may receive a lower than
anticipated yield.
The ratings assigned by [Rating Agency] to mortgage pass-through
certificates address the likelihood of the receipt of all distributions on the
mortgage loans by the related
S-93
<PAGE>
certificateholders under the agreements in which such certificates are issued.
[Rating Agency] 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. [Rating Agency] 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 [Rating Agency] and [Rating Agency]. 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-94
<PAGE>
Glossary of Defined Terms
<TABLE>
<CAPTION>
<S> <C>
1/29 Loans means mortgage loans which bear interest at a fixed rate for a period of one year and
thereafter have semiannual interest rate and payment adjustments in substantially the
same manner as Six Month LIBOR Loans.
2/28 Loans means mortgage loans which bear interest at a fixed rate for a period of two years and
thereafter have semiannual interest rate and payment adjustments in substantially the
same manner as Six Month LIBOR Loans.
3/27 Loans mortgage loans which bear interest at a fixed rate for a period of three years and
thereafter have semiannual interest rate and payment adjustments in substantially the
same manner as Six Month LIBOR Loans.
5/25 Loans mortgage loans which bear interest at a fixed rate for a period of five years and
thereafter have semiannual interest rate and payment adjustments in substantially the
same manner as Six Month LIBOR Loans.
Accounts means one or more accounts, including the Pre-Funding Account and the Capitalized
Interest Account maintained in the name of the trustee under the pooling and servicing
agreement.
Accrual Period means, with respect to the Group I Certificates (other than the class IA-1 certificates)
and with respect to a Distribution Date, the calendar month immediately preceding the
calendar month in which such Distribution Date occurs, and with respect to the Group II
Certificates and the class IA-1 certificates and with respect to a Distribution Date,
means the period from and including the preceding Distribution Date (or from the Closing
Date in the case of the first Distribution Date) to an including the day prior to such
Distribution Date.
</TABLE>
S-95
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Adjustable Rate Certificate Carryover means, with respect to a Distribution Date, in the event that the Pass Through Rate for a
class of Group II Certificates is based upon its Group II Available Funds Cap, the excess
of (1) 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 (2) 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).
Adjustable Rate Mortgage Loan means a mortgage loan in the trust fund with an adjustable interest rate.
Adjustable Rate Mortgage Loan Group means the Mortgage Loan Group comprised of Adjustable Rate Mortgage Loans.
Adjustment Date means, with respect to an Adjustable Rate Mortgage Loan, the first day of the months
specified in the related Mortgage Note.
Advance means an advance of the Subservicer's 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 Net Mortgage Rate) deemed due on each mortgage loan as to which there is
REO Property.
Advanta means Advanta Mortgage Corp. USA.
Advanta Parent means Advanta Corp.
B&C Underwriting Guidelines means the underwriting procedures customarily employed by Chase Manhattan Mortgage
Corporation with respect to B&C quality mortgage loans and further described under "Chase
Manhattan Mortgage Corporation --- Underwriting Standards."
Balloon Amount means the balloon payment of the remaining outstanding principal balance of a mortgage
loan.
Balloon Loan means a mortgage loan having an original term to stated maturity of approximately 15
years and providing for level monthly payments based on a 30 year amortization schedule
with a payment of a Balloon Amount due on such mortgage loan at its stated maturity.
</TABLE>
S-96
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Book-Entry Certificates means those certificates issued in book-entry form.
Capitalized Interest Account means a trust account, established by the Depositor for the benefit of the holders of the
certificates.
Certificate Group means either the Group I Certificates or the Group II Certificates, as the context
requires.
Certificate Owners means Persons acquiring beneficial ownership interests in the Offered Certificates.
Certificate Principal Balances means the principal balances of the certificates.
Class A Certificates means collectively, the Class A Group I Certificates and the Class A Group II
Certificates.
Class A Group I Certificates means collectively, the class IA-1, class IA-2, class IA-3, class IA-4 and class IA-5
certificates.
Class A Group II Certificates means collectively, the class IIA-1 certificates.
</TABLE>
S-97
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Class A Principal Distribution Amount means for a Certificate Group (1) with respect to any Distribution Date prior to the
related Stepdown Date or as to which a Trigger Event exists, 100% of the Principal
Distribution Amount for such Certificate Group for such Distribution Date and (2) 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 (1) approximately [_____]% for the Fixed Rate Mortgage Loan Group and
approximately [_____]% (or approximately [_____]%, if a Stepup Trigger Event has
occurred) for the Adjustable Rate Mortgage Loan Group, of the Stated Principal Balances
of the mortgage loans in such loan group on the preceding Due Date, and (2) the Stated
Principal Balances of the mortgage loans in such loan group on the preceding Due Date
less approximately $1,000,000 for the Fixed Rate Mortgage Loan Group and approximately
$[_________]for the Adjustable Rate Mortgage Loan Group.
Class B Certificates means collectively, the class IB and class IIB certificates.
</TABLE>
S-98
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Class B Principal Distribution Amount means, 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, the excess of (1) of the sum for such Certificate Group of (A) the Certificate
Principal Balance of the related Class A Certificates (after taking into account
distributions of the Class A Principal Distribution Amount for such Distribution Date),
(B) the Certificate Principal Balance of the Class M-1 Certificates (after taking into
account distribution of the Class M-1 Principal Distribution Amount to such Class M-1
Certificates for such Distribution Date), (C) the Certificate Principal Balance of the
related Class M-2 Certificates (after taking into account distributions of the Class M-2
Principal Distribution Amount to such Class M-2 Certificates for such Distribution Date)
and (D) the Certificate Principal Balance of the related Class B Certificates immediately
prior to such Distribution Date over (2) the lesser of (A) approximately [_____]% for the
Fixed Rate Mortgage Loan Group and approximately [_____]% (or approximately [_____]%, if
a Stepup Trigger Event has occurred) for the Adjustable Rate Mortgage Loan Group, of the
Stated Principal Balances of the mortgage loans in such loan group on the preceding Due
Date, and (B) the Stated Principal Balances of the mortgage loans in such loan group on
the preceding Due Date less approximately $1,000,000 for the Fixed Rate Mortgage Loan
Group and approximately $[________]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.
</TABLE>
S-99
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Class IA-5 Distribution Amount means for any Distribution Date prior to the Distribution Date in [DATE], the product of
(1) a fraction, the numerator of which is the Certificate Principal Balance of the class
IA-5 certificates and the denominator of which is the aggregate Certificate Principal
Balance of all Class A Group I Certificates, in each case immediately prior to such
Distribution Date, (2) the Class A Principal Distribution Amount with respect to the
Fixed Rate Mortgage Loan Group for such Distribution Date and (3) the applicable
percentage for such Distribution Date set forth in the following table:
Distribution Date Occurring In Percentage
[MONTH/DATE] through [MONTH/DATE].................................................. 0%
[MONTH/DATE] through [MONTH/DATE].................................................. 45%
[MONTH/DATE] through [MONTH/DATE}.................................................. 80%
[MONTH/DATE] through [MONTH/DATE].................................................. 100%
[MONTH/DATE] through [MONTH/DATE].................................................. 300%
With respect to the Distribution Date occurring in [MONTH/DATE] and each Distribution
Date thereafter until the Certificate Principal Balance of the class IA-5 certificates
has been reduced to zero, the Class IA-5 Principal Distribution Amount will equal the
Class A Principal Distribution Amount with respect to the Fixed Rate Mortgage Loan Group
for such Distribution Date.
Class M-1 Certificates means collectively, the class IM-1 and class IIM-1 certificates.
</TABLE>
S-100
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Class M-1 Principal Distribution Amount means with respect to any Distribution Date on or after the related Stepdown Date 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 (1) 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 (2) the
lesser of (A) approximately [_____]% for the Fixed Rate Mortgage Loan Group and
approximately [_____]% (or approximately [_____]%, if a Stepup Trigger Event has
occurred) for the Adjustable Rate Mortgage Loan Group of the Stated Principal Balances of
the mortgage loans in such loan group on the preceding Due Date, and (B) the Stated
Principal Balances of the mortgage loans in such loan group on the preceding Due Date
less approximately $1,000,000 for the Fixed Rate Mortgage Loan Group and approximately
$[________]for the Adjustable Rate Mortgage Loan Group. Notwithstanding the above, 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.
Class M-2 Certificates means collectively, the class IM-2 and class IIM-2 certificates.
</TABLE>
S-101
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Class M-2 Principal Distribution Amount means, for a Certificate Group and with respect to any Distribution Date on or after the
related Stepdown Date, 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 (1) of the sum for such Certificate Group of (A) the Certificate
Principal Balance of the Class A Certificates (after taking into account distributions of
the Class A Principal Distribution Amount to such Class A Certificates for such
Distribution Date), (B) the Certificate Principal Balance of the related Class M-1
Certificates (after taking into account distribution of the Class M-1 Principal
Distribution Amount to such Class M-1 Certificates for such Distribution Date) and (C)
the Certificate Principal Balance of the related Class M-2 Certificates immediately prior
to such Distribution Date over (2) the lesser of (A) approximately [_____]% for the Fixed
Rate Mortgage Loan Group and approximately [_____]% (or approximately [_____]%, if a
Stepup Trigger Event has occurred) for the Adjustable Rate Mortgage Loan Group, of the
aggregate Stated Principal Balances of the mortgage loans in such loan group on the
preceding Due Date, and (B) the Stated Principal Balances of the mortgage loans in such
loan group on the preceding Due Date less approximately $[_______] for the Adjustable
Rate Mortgage Loan Group. Notwithstanding the above, 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.
Clearstream Luxembourg means Clearstream Banking, societe anonyme.
Closing Date means [DATE].
</TABLE>
S-102
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Collateral Value means, with respect to a mortgage loan the proceeds of which were used to purchase the
related mortgage property, 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 and means, with respect to a mortgage loan the proceeds of which were used to
refinance an existing mortgage loan, the appraised value of the mortgaged property based
upon the appraisal obtained at the time of refinancing.
Compensating Interest means, for any Distribution Date, the amount of the Servicing Fee otherwise payable to
the Subservicer for such month, to the extent of a shortfall in interest payments
resulting from a Prepayment, deposited by the Subservicer in the Collection Account for
distribution to certificateholders on such Distribution Date.
Complaint means the complaint filed by Fleet on January 22, 1999 against Advanta Parent and some
other affiliates but not including Advanta.
Cooperative means Euroclear Clearance Systems S.C., a Belgian cooperative corporation.
CPR or Constant Prepayment Rate means a prepayment assumption which represents a constant
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. __% CPR, which
represents 100% of the prepayment model for the Adjustable Rate Mortgage Loan Group,
assumes a constant prepayment rate of __% per annum.
Current Interest means 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.
Cut-off Date means [DATE].
</TABLE>
S-103
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
DCR means Duff & Phelps Credit Rating Co. or any successor.
Definitive Certificate means a physical certificate representing an Offered Certificate.
Depositor means Chase Funding, Inc.
Determination Date means, with respect to a Distribution Date, the fifteenth day of the month of such
Distribution Date (or, if not a Business Day, the immediately preceding Business Day).
Distribution Date means the 25th day of each month, or if such day is not a Business Day, on the first
Business Day thereafter.
Due Period means, with respect to any Distribution Date, 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.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Euroclear means the Euroclear System.
Euroclear Operator means the Brussels, Belgium office of Morgan Guaranty Trust Company of New York.
European Depositaries means Citibank, N.A., as depositary for Clearstream Luxembourg and Chase,
as depositary for Euroclear, collectively.
Exemption means Transaction Exemption ___, __ Fed. Reg. ______ (____) (199_), granted by the U.S.
Department of Labor to [Underwriter].
</TABLE>
S-104
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Extra Principal Distribution Amount means, for a Mortgage Loan Group and with respect to any Distribution Date, (1) prior to
the Stepdown Date, the excess of (A) the sum of (x) the aggregate Certificate Principal
Balances of the certificates of the related Certificate Group and (y) approximately
$[_______]for the Fixed Rate Mortgage Loan Group and approximately $[_________](or
$[_________], if a Stepup Trigger Event has occurred) for the Adjustable Rate Mortgage
Loan Group over (B) the Stated Principal Balances of the mortgage loans in such loan
group, and (2) on and after the Stepdown Date, the excess of (A) the sum of (x) the
aggregate Certificate Principal Balances of the certificates of such Certificate Group
and (y) the greater of (a) [___]% for the Fixed Rate Mortgage Loan Group and [___]% (or
[___]%, if a Stepup Trigger Event has occurred) for the Adjustable Rate Mortgage Loan
Group of the Stated Principal Balances of the mortgage loans in the related loan group,
and (b) approximately $[_______]for the Fixed Rate Mortgage Loan Group and approximately
$[_________]for the Adjustable Rate Mortgage Loan Group over (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.
Financial Intermediary means a bank, brokerage firm, thrift institution or other financial intermediary.
Fitch means Fitch, Inc. or any successor.
Fixed Rate Mortgage Loan means a mortgage loan in the trust fund with a fixed interest rate.
Fixed Rate Mortgage Loan Group means the class IA-2, class IA-3, class IA-4, class IA-5, class IA-6, class IM-1, class
IM-2 and class IB certificates, collectively.
Fleet means Fleet Financial Group, Inc. and some of its affiliates.
</TABLE>
S-105
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Fleet Transaction means the contribution of substantially all of Advanta Parent's credit card business to a
limited liability company owned by Fleet.
Funding Period means the period from the Closing Date until the earlier of (1) the date on which the
amount on deposit in the Pre-Funding Account is reduced to zero or (2) [DATE].
Gross Margin means a fixed percentage amount specified in the related mortgage note.
Group I Certificates means the Class A Group I Certificates, the Class IB Certificates, the Mezzanine Group I
Certificates and the Subordinated Group I Certificates.
Group I Original Pre-Funded Amount means approximately $_________ on the Closing Date.
Group II Available Funds Cap means a per annum rate equal to 12 times the quotient of (x) the sum of (A) 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 and (B)(1)
with respect to the Distribution Date in [DATE], 50% of the amount in the Capitalized
Interest Account as of such Distribution Date allocable to Loan Group II immediately
prior to such Distribution Date, (2) with respect to the Distribution Date in [DATE],
100% of the amount in the Capitalized Interest Account allocable to Loan Group II
immediately prior to such Distribution Date and (3) with respect to the Distribution Date
in [DATE] and thereafter, 0% of the amount in the Capitalized Interest Account allocable
to Loan Group II immediately prior to such Distribution Date divided by (y) the aggregate
principal balance of the Group II Certificates as of the first day of the applicable
Accrual Period.
Group II Certificates means the class IIA-1 Certificates, the Mezzanine Group II Certificates and the
Subordinated Group II Certificates, collectively.
Group II Maximum Rate Cap means the weighted average of the maximum lifetime Mortgage Rates on the Adjustable Rate
Mortgage Loans less the Servicing Fee Rate and the Master Servicing Fee Rate.
Group II Original Pre-Funded Amount means approximately $_________ on the Closing Date.
</TABLE>
S-106
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
HEP or Home Equity Prepayment means a prepayment model which uses 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. __% HEP, which represents 100% of the prepayment model for the Fixed Rate Mortgage
Loan Group, assumes prepayment rates of __% per annum of the then outstanding principal
balance of the related mortgage loans in the fifth month of the life of such mortgage
loans and an additional __% 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, __%HEP assumes a constant prepayment rate of __% per annum.
Indirect Participants means 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.
Initial Mortgage Loans means the mortgage loans included in the trust fund as of the Closing Date.
Interest Carry Forward Amount means with respect to each class of the Offered Certificates and each Distribution Date,
the sum of (1) 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 (2) interest on such excess (to the extent permitted by
applicable law) at the applicable Pass-Through Rate.
Interest Determination Date means each date which is the second LIBOR Business Day preceding the commencement of each
Accrual Period for the Group II Certificates and the class IA-1 certificates.
</TABLE>
S-107
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Interest Funds means with respect to each loan group the sum, without duplication, of (1) all scheduled
interest due during the related Due Period less the Servicing Fee and Master Servicer
Fee, (2) all Advances relating to interest, (3) all Compensating Interest, (4)
Liquidation Proceeds (to the extent such Liquidation Proceeds relate to interest) less
all non-recoverable Advances relating to interest and certain expenses reimbursed during
the related Due Period, and (5) the portion of any amounts removed from the Capitalized
Interest Account (defined herein) applicable to such loan group.
Last Scheduled Distribution Date means, for each class of the Offered Certificates, 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.
LIBOR Business Day means a day on which banks are open for dealing in foreign currency and exchange in
London and New York City.
Loan-to-Value Ratio means, for any mortgage loan, (1) the principal balance of such mortgage loan at the date
of origination, divided by (2) the Collateral Value of the related mortgaged property.
Master REMIC means the REMIC issuing the Regular Certificates.
Master Servicer means Chase Manhattan Mortgage Corporation.
Master Servicer Fee means with respect to a mortgage loan, a monthly fee paid to the Master Servicer in an
amount equal to the sum of (1) one-twelfth of the Master Servicer Fee Rate multiplied by
the principal balance of and the Stated Principal Balance of such mortgage loan and (2)
all late payment fees and prepayment penalties and all investment income earned on funds
in the Certificate Account and the Distribution Account.
Master Servicer Fee Rate means __% per annum.
Maximum Mortgage Rate means the rate which the Mortgage Rate on the related Adjustable Rate Mortgage Loan will
never exceed.
</TABLE>
S-108
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Mezzanine Certificates means collectively, the Mezzanine Group I Certificates and the Mezzanine Group II
Certificates.
Mezzanine Group I Certificates means, collectively, the class IM-1 and the class IM-2 certificates.
Mezzanine Group II Certificates means, collectively, the class IIM-1 and class IIM-2 certificates.
Minimum Mortgage Rate means the initial Mortgage Rate.
Modeling Assumptions means:
o the mortgage loans of the related loan group prepay at the indicated percentage
of the related prepayment model;
o distributions on the Offered Certificates are received, in cash, on the 25th day
of each month, commencing [DATE], in accordance with the payment priorities
defined herein;
o 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;
o scheduled payments are assumed to be received on the related Due Date commencing
on [DATE], 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 [MONTH/YEAR], and include 30 days' interest thereon; the level of Six-Month
LIBOR remains constant at [_____]%, and the level of One-Month LIBOR remains
constant at [_______]%;
o the Pass-Through Rates for the Group II Certificates remain constant at the
rates applicable prior to the related Optional Termination Date;
</TABLE>
S-109
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
o the Closing Date for the certificates is [DATE];
o 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);
o 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;
o the mortgage loans in the Fixed Rate Mortgage Loan Group are purchased on the
first applicable Optional Termination the Date and the mortgage loans in the
Adjustable Rate Mortgage Loan Group are purchased on the first applicable
Optional Termination Date;
o [ the Subsequent Mortgage Loans are purchased on [DATE] resulting in no
mandatory prepayment from the Pre-Funding Account on the Distribution Date
immediately following the end of the Funding Period;] and
o each loan group consists of mortgage loans having the approximate
characteristics described on the tables on page S-___.
Moody's means Moody's Investors Service, Inc. or any successor.
Mortgage Index means the average of the London interbank offered rates for sixth month U.S. dollar
deposits in the bond 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.
</TABLE>
S-110
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Mortgage Loan Schedule means the schedule of mortgage loans appearing as an exhibit to the pooling and servicing
agreement.
Mortgage Rate means the interest rate borne by a mortgage loan.
Net Excess Cashflow means 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 Mortgage Rate means with respect to any mortgage loan, the Mortgage Rate with respect to such mortgage
loan less the sum of (1) the Servicing Fee Rate and (2) the Master Servicer Fee Rate.
Offered Certificates means the Group I Certificates and the Group II Certificates.
One-Month LIBOR means the London interbank offered rate for one-month United States dollar deposits.
Optional Termination Amount means with respect to either loan group, 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.
Optional Termination Date means the date on which the Stated Principal Balance of the mortgage loans and REO
Properties in such Loan Group at the time of repurchase is less than or equal to 10% of
the aggregate principal balance of the certificates in such Loan Group as of the Closing
Date
Original Pre-Funded Amount means approximately $__________, subject to a permitted variance of plus or minus five
percent.
Owned and Managed Servicing means the servicing portfolio of Advanta (excluding certain mortgage loans that were not
Portfolio originated or purchased and re-underwritten by affiliates of Advanta).
Participants means participating organizations that utilize the services of DTC, including securities
brokers and dealers, banks and trust companies and clearing corporations and certain
other organizations.
</TABLE>
S-111
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pass-Through Margin means, for each class of Group II Certificates, for any Distribution Date on or before
the applicable Optional Termination Date: class IIA-1, [ --]%; class IIM-1, [ --]%; class
IIM-2, [ --]%; class IIB, [ --]%; and class IA-1, [ --]%; and for any Distribution Date
after the Optional Termination Date: class IIA-1, [ --]%; class IIM-1, [ --]%; class
IIM-2, [ --]%; class IIB, [ --]%; and class IA-1, [ --]%.
Pass-Through Rate means:
o with respect to the class IA-2 certificates and class IA-3 certificates, the per
annum rate set forth for each such class in the table on page S-3;
o with respect to the class IA-4, class IA-5, class IM-1, class IM-2 and class IB
certificates on any Distribution Date, the lesser of (1) the per annum rate for
such class set forth in the table on page S-3 and (2) the weighted average Net
Mortgage Rates on the Fixed Rate Mortgage Loans;
o with respect to the class IA-1 certificates, the lesser of (1) One-Month LIBOR
plus the Pass-Through Margin for such class and (2) the weighted average Net
Mortgage Rates on the Fixed Rate Mortgage Loans;
o with respect to the class IA-4 certificates on any Distribution Date after the
Optional Termination Date will equal [______]%;
o with respect to the Group II Certificates the least of (1) One-Month LIBOR, plus
the Pass-Through Margin for such class, (2) the Group II Maximum Rate Cap, and
(3) the Group II Available Funds Cap for the Group II Certificates.
Percentage Interest means the percentage derived by dividing the denominations of such certificate by the
aggregate denominations of all certificates of the applicable class.
Periodic Rate Cap means the maximum amount by which the Mortgage Rate on a mortgage loan may increase on
any Adjustment Date.
</TABLE>
S-112
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Plan means a plan or other arrangement subject to the excise tax provisions set forth under
Section 4975 of the Code.
Pre-Funding Account means the account established by or on behalf of the trustee and funded on the Closing
Date by the Depositor with the Original Pre-Funded Amount.
Prepayment Interest Shortfall means a shortfall in interest distributions to certificateholders in excess of
Compensating Interest.
Prepayment Period means, with respect to any Distribution Date, the calendar month preceding the month in
which such Distribution Date occurs.
Principal Distribution Amount means, with respect to each Distribution Date and a Certificate Group, the sum of (1) the
Principal Funds for such Distribution Date for such Certificate Group and (2) any Extra
Principal Distribution Amount for such Distribution Date for the related Certificate
Group.
Principal Funds means, with respect to each loan group the sum, without duplication, of (1) 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, (2)
prepayments collected in the related Prepayment Period, (3) the Stated Principal Balance
of each mortgage loan that was repurchased by the Depositor, (4) 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, (5) all Liquidation Proceeds
collected during the related Due Period (to the extent such Liquidation Proceeds related
to principal) less all non-recoverable Advances relating to principal and all
non-recoverable servicing advances reimbursed during the related Due Period, and (6) with
respect to the Distribution Date immediately following the end of the Funding Period, the
portion, if any, of the Original Pre-Funded Amount relating to such loan group remaining
in the Pre-Funding Account after giving effect to the purchase of the Subsequent Mortgage
Loans.
PTCE 95-60 means Prohibited Transaction Class Exemption 95-60.
</TABLE>
S-113
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Realized Loss means the excess of the Stated Principal Balance of a defaulted mortgage loan plus
accrued interest over the net liquidation proceeds of a defaulted mortgage loan that are
allocated to principal.
Record Date means, for a Distribution Date, the last Business Day of the month preceding the month of
such Distribution Date.
Reference Banks means leading banks selected by the Master Servicer and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (1) with an established
place of business in London, (2) whose quotations appear on the Reuters Screen LIBO Page
on the Interest Determination Date in question, (3) which have been designated as such by
the Master Servicer and (4) not controlling, controlled by, or under common control with,
the Depositor, the Master Servicer, the Seller or any successor Subservicer.
Relevant Depositary means Citibank, N.A., as depositary for Clearstream Luxembourg and Chase, as depositary
for Euroclear, individually.
REO Property means mortgaged property which has been acquired by the Subservicer through foreclosure
or deed-in-lieu of foreclosure in connection with a defaulted mortgage loan.
Repurchase Price means the sum of (1) 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, (2) the appraised value of any REO Property (up to the
Stated Principal Balance of the related mortgage loan), and (3) 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.
</TABLE>
S-114
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Required Percentage means, with respect to each Certificate Group and a Distribution Date after the Stepdown
Date, the quotient of (x) the excess of (1) the Stated Principal Balances of the mortgage
loans in such loan group, over (2) 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.
Reserve Interest Rate means the rate per annum that the Master Servicer determines to be either (1) 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, (2) 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.
Residual Certificates means the Class R Certificates.
Restricted Group means the 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.
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).
Rules means the rules, regulations and procedures creating and affecting DTC and its
operations.
S&P means Standard and Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.
or any successor.
</TABLE>
S-115
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Scheduled Payments means scheduled monthly payments made by mortgagors on the mortgage loans.
Seller means Chase Manhattan Mortgage Corporation.
Servicer Advance Date means, with respect to any Distribution Date, the related Servicer Remittance Date.
Servicer Remittance Date means the Business Day preceding the 18th day of the month, or, if such day is not a
Business Day, the preceding Business Day.
Servicing Fee means a monthly fee paid to the Subservicer 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 product of
one-twelfth of the Servicing Fee Rate and the Stated Principal Balance of such mortgage
loan.
Servicing Fee Rate for each mortgage loan means [____]% per annum.
Six Month LIBOR Loans means Adjustable Rate Mortgage Loans having a Mortgage Rate which is generally subject to
semi annual adjustment on the first day of the months specified in the related mortgage
note to equal the sum, rounded to the nearest 0.125%, of (1) the Mortgage Index and (2)
the Gross Margin.
SMMEA means the Secondary Mortgage Market Enhancement Act of 1984, as amended.
Stated Principal Balance means, with respect to a mortgage loan, after giving effect to any Advances made with
respect to that mortgage loan, the unpaid principal balance of the mortgage loan.
Statistical Mortgage Pool means the mortgage pool described in this prospectus supplement.
</TABLE>
S-116
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Stepdown Date means, with respect to each Certificate Group, the later to occur of (1) the Distribution
Date in [DATE] or (2) 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) [_____]%, for the Fixed Rate Mortgage Loan Group, and [_____]% (or [_____]%, if a
Stepup Trigger Event has occurred and is continuing), for the Adjustable Rate Mortgage
Loan Group, of the Stated Principal Balances of the mortgage loans in the related loan
group, plus the amount on deposit in the Pre-Funding Account on the preceding Due Date
allocable to such loan group.
Stepup Trigger Event means, the situation that exists with respect to a Distribution Date (and thereafter will
exist with respect to each subsequent Distribution Date) if either
(A) Realized Losses with respect to the Adjustable Rate Mortgage Loans as of such
Distribution Date equal or exceed the following levels (expressed as a percentage of
aggregate principal balance of the Adjustable Rate Mortgage Loans, plus the amount on
deposit in the Pre-Funding Account on the preceding Due Date allocable to such loan
group, as of the Cut-off Date):
Distribution Date Occurring In Percentage
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE}..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
or (B) the three month rolling average of Adjustable Rate Mortgage Loans that are
60 days or more delinquent (calculated as set forth in the pooling and servicing
agreement) as of such Distribution Date equals or exceeds the following levels (expressed
as a percentage of the aggregate principal balance of the Adjustable Rate Mortgage Loans,
plus the amount on deposit in the Pre-Funding Account on the preceding Due Date allocable
to such loan group, as of such Distribution Date):
</TABLE>
S-117
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Distribution Date Occurring In Percentage
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE}..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
Subordinated Certificates means, collectively, the Subordinated Group I Certificates and the Subordinated Group II
Certificates.
Subordinated Group I Certificates means, collectively, the class IB and the Mezzanine Group I Certificates.
Subordinated Group II Certificates means, collectively, the class IIB and the Mezzanine Group II Certificates.
Subsequent Adjustable Rate Mortgage Loan means the Subsequent Mortgage Loans which are part of the Adjustable Rate Mortgage Loan
Group.
Subsequent Cut-off Date means the cut-off date with respect to Subsequent Mortgage Loans.
Subsequent Fixed Rate Mortgage Loan means the Subsequent Mortgage Loans which are part of the Fixed Rate Mortgage Loan Group.
Subsequent Mortgage Loans means the mortgage loans purchased by the trust fund after the Closing Date.
Subsequent Transfer Dates means the date of transfer of Subsequent Mortgage Loans.
Subservicer means [Advanta].
Subsidiary REMIC means the REMIC which will issue Subsidiary REMIC Regular Interests.
Subsidiary REMIC Regular Interests means uncertificated classes of nonvoting interest.
Terms and Conditions means the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian Law.
</TABLE>
S-118
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Third Party Servicing Portfolio means the portfolio of mortgage loans that were not originated by Advanta or affiliates
of Advanta but are being serviced for third parties on a contract servicing basis by
Advanta.
Trigger Event means the situation that exists with respect to each Certificate Group and a Distribution
Date after the Stepdown Date, if the product of (1) [___], for the Fixed Rate Mortgage
Loan Group, and [___], for the Adjustable Rate Mortgage Loan Group and (2) 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.
In addition, a "Trigger Event" exists with respect to each Certificate Group and a
Distribution Date after the Stepdown Date, if Realized Losses with respect to the Fixed
Rate Mortgage Loans or the Adjustable Rate Mortgage Loans, as applicable, as of such
Distribution Date equal or exceed the following levels (expressed as a percentage of
aggregate principal balance of the related mortgage loans, plus the amount on deposit in
the Pre-Funding Account on the preceding Due Date allocable to such loan group, as of the
Cut-off Date):
Distribution Date Occurring In Percentage
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE}..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
[MONTH/DATE] through [MONTH/DATE]..................................................0%
Unpaid Realized Loss Amount means, with respect to any class of the Subordinated Certificates and as to any
Distribution Date, the excess of (1) Applied Realized Loss Amounts with respect to such
class over (2) 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.
</TABLE>
S-119
<PAGE>
Annex I
Global Clearance, Settlement and Tax Documentation Procedures
Except in limited circumstances, the globally offered Chase Funding
Mortgage Loan Asset-Backed Certificates, Series [______] known as "Global
Securities", will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of DTC, Clearstream
Luxembourg 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 Clearstream Luxembourg 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 Clearstream Luxembourg or
Euroclear and DTC Participants holding certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream Luxembourg 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, Clearstream
Luxembourg 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 Clearstream
Luxembourg 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.
A-1
<PAGE>
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 Clearstream Luxembourg and/or Euroclear participants.
Secondary market trading between Clearstream Luxembourg participants or
Euroclear participants will be settled using the procedures applicable to
conventional Eurobonds in same-day funds.
Trading between DTC Seller and Clearstream Luxembourg or Euroclear
Purchaser. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream
Luxembourg or Euroclear through a Clearstream Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement. Clearstream
Luxembourg 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 Clearstream Luxembourg 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 Clearstream Luxembourg or
Euroclear cash debt will be valued instead as of the actual settlement date.
Clearstream Luxembourg 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 Clearstream Luxembourg
or Euroclear. Under this approach, they may take on credit exposure to
Clearstream Luxembourg or Euroclear until the Global Securities are credited to
their accounts one day later.
As an alternative, if Clearstream Luxembourg or Euroclear has extended
a line of credit to them, Clearstream Luxembourg 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, Clearstream Luxembourg
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 Clearstream Luxembourg Participant's or
Euroclear Participant's particular cost of funds.
A-2
<PAGE>
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 Clearstream Luxembourg
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 Clearstream Luxembourg or Euroclear Seller and DTC
Purchaser. Due to time zone differences in their favor, Clearstream Luxembourg
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 Clearstream Luxembourg or
Euroclear through a Clearstream Luxembourg Participant or Euroclear Participant
at least one business day prior to settlement. In these cases Clearstream
Luxembourg 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 Clearstream Luxembourg Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the Clearstream Luxembourg
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 Clearstream Luxembourg 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 Clearstream Luxembourg Participant's
or Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Clearstream Luxembourg or Euroclear and
that purchase Global Securities from DTC Participants for delivery to
Clearstream Luxembourg 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:
(1) borrowing through Clearstream Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Clearstream Luxembourg 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
Clearstream Luxembourg or Euroclear account in order to settle the
sale side of the trade; or
A-3
<PAGE>
(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
Clearstream Luxembourg Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Clearstream Luxembourg 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 (1) 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 (2) such beneficial owner takes one of
the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with Effectively Connected Income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or Reduced Rate for non-U.S. Persons Resident in Treaty
Countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the certificate
owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means
(1) a citizen or resident of the United States,
(2) 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,
(3) an estate the income of which is includible in gross income for United
States tax purposes, regardless of its source or
A-4
<PAGE>
(4) 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 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-5
<PAGE>
[_________] (Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series [______]
[Chase Logo]
Chase Funding, Inc.
Depositor
[Advanta Mortgage Corp. USA]
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
---------------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------------
[UNDERWRITER]
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 [DATE].
[DATE]
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted without the delivery of a final prospectus supplement
and accompanying prospectus. This prospectus supplement and the accompanying
prospectus shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any state in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
SUBJECT TO COMPLETION DATED AUGUST 4, 2000
PROSPECTUS SUPPLEMENT [LOGO]
(To Prospectus dated [DATE])
$[__________] (Approximate)
Chase Mortgage Trust, Series [_____]
Issuer
Chase Manhattan Acceptance Corporation
Seller
[Chase Manhattan Mortgage Corporation]
Servicer
Multi-Class Mortgage Pass-Through Certificates, Series [_________]
<TABLE>
<CAPTION>
<S> <C>
Chase Mortgage Trust, Series [_________]
------------------------------------------------ will issue [sixteen] classes of certificates, of
which [twelve] classes are offered by this
Investing in these certificates involves prospectus supplement and the accompanying
risks. You should not purchase these prospectus. The table on page S-3 identifies the
certificates unless you fully understand various classes and specifies certain
their risks and structure. See "Risk characteristics of each class, including each
Factors" beginning on page S-__ of this class's initial principal balance (or notional
prospectus supplement and page __ of the balance), interest rate and rating.
accompanying prospectus.
The trust fund will consist primarily of a pool
Neither these certificates nor the underlying of fixed rate one- to four-family first lien
mortgage loans are obligations of Chase mortgage loans with original terms to stated
Manhattan Acceptance Corporation, Chase maturity of approximately [15] [30] years.
Manhattan Mortgage Corporation, or any of
their affiliates. These certificates are not The underwriter, [UNDERWRITER], will
insured or guaranteed by any governmental purchase the offered certificates from Chase
agency. Manhattan Acceptance Corporation and will
offer them to the public at negotiated prices
determined at the time of sale. Chase
Manhattan Acceptance Corporation will
receive proceeds of approximately
$___________, plus accrued interest, less
expenses of approximately $_______. The
------------------------------------------------ underwriter expects to deliver the offered
certificates to investors on or about [DATE].
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered certificates or passed
upon the adequacy or accuracy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
[UNDERWRITER]
The date of this prospectus supplement is [DATE]
<PAGE>
Important Notice about the Information in this
Prospectus Supplement and the Accompanying Prospectus
Information about the offered certificates is contained in (a) the
accompanying prospectus, which provides general information, some of which may
not apply to the offered certificates, and (b) this prospectus supplement, which
describes the specific terms of the offered certificates.
This prospectus supplement and the accompanying 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 prospectus identify the pages where those sections are located.
In this prospectus supplement, the terms "Seller," "we," "us" and "our"
refer to Chase Manhattan Acceptance Corporation.
TABLE OF CONTENTS
The Series [_________] Certificates.........................................S-
Summary Information.........................................................S-
Risk Factors................................................................S-
The Mortgage Pool...........................................................S-
General..................................................................S-
Representations and Warranties...........................................S-
Mortgage Loans...........................................................S-
Prepayment and Yield Considerations.........................................S-
Yield Considerations with Respect to the
Class A-P Certificates.............................................S-
Chase Manhattan Mortgage Corporation........................................S-
The Pooling and Servicing Agreement.........................................S-
Assignment of Mortgage Loans.............................................S-
Servicing................................................................S-
Servicing Compensation and Payment of
Expenses...........................................................S-
Adjustment to Servicing Fee in
Connection with Prepaid Mortgage
Loans..............................................................S-
Payments on Mortgage Loans; Collection
Account; Certificate Account.......................................S-
Advances.................................................................S-
Trustee..................................................................S-
Optional Termination.....................................................S-
Special Servicing Agreements.............................................S-
Description of the Certificates.............................................S-
General..................................................................S-
Book-Entry Registration..................................................S-
Definitive Certificates..................................................S-
Restrictions on Transfer of the Class
A-R, Class M and Offered Class
B Certificates.....................................................S-
Distributions to Certificateholders......................................S-
Interest.................................................................S-
[Determination of LIBOR].................................................S-
Principal (Including Prepayments)........................................S-
Additional Rights of the Class A-R
Certificateholder..................................................S-
Subordinated Certificates and Shifting
Interests..........................................................S-
Federal Income Tax Considerations...........................................S-
Class A-R Certificate....................................................S-
Erisa Considerations........................................................S-
Legal Investment Matters....................................................S-
Use of Proceeds.............................................................S-
Underwriting................................................................S-
Legal Matters...............................................................S-
Ratings.....................................................................S-
S-2
<PAGE>
The Series [_________] Certificates
<TABLE>
<CAPTION>
Original
Certificate Expected Ratings
Principal Certificate --------------------
Balance Rate Principal Type Interest Type [Agency] [Agency]
----------- ----------- -------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Offered
Certificates
Class A-1................ $________ ____% Senior, Sequential Fixed Rate AAA AAA
Pay
Class A-2................ $________ ____% Senior, Sequential Fixed Rate AAA AAA
Pay
Class A-3................ $________ ____% Senior, Sequential Fixed Rate AAA AAA
Pay
Class A-4................ $________ ____% Senior, Sequential Fixed Rate AAA AAA
Pay
Class A-5................ $________ Adjustable Senior, Sequential Floating Rate AAA AAA
Pay Class
Class A-6................ $________ Adjustable Senior, Sequential Inverse Floating AAA AAA
Pay Rate Class
Class A-7................ $________ ____% Senior, Lock-out Fixed Rate AAA AAA
Class
Class A-P................ $________ N/A Senior Principal-Only AAA AAA
Class
Class A-R................ $________ ____% Senior, Sequential Fixed Rate AAA AAA
Pay
Class M.................. $________ ____% Mezzanine Fixed Rate AA N/A
Class B-1................ $________ ____% Subordinated Fixed Rate A N/A
Class B-2................ $________ ____% Subordinated Fixed Rate BBB N/A
Non-Offered
Certificates
Class A-X................ N/A N/A Senior, Notional Interest Only N/A N/A
Amount
Class B-3................ $________ ____% Subordinated Fixed Rate N/A N/A
Class B-4................ $________ ____% Subordinated Fixed Rate N/A N/A
Class B-5................ $________ ____% Subordinated Fixed Rate N/A N/A
</TABLE>
Other information:
S-3
<PAGE>
The original certificate principal balances set forth above are approximate. We
may adjust the original certificate principal balances upward or downward by up
to 5%. See "Description of the Certificates--Categories of Classes of
Certificates" in the prospectus for a description of the principal types and
interest types. The information presented for the non-offered certificates is
provided solely to assist your understanding of the offered certificates.
Class A-5 and Class A-6 Certificates:
The certificate rate on the class A-5 and class A-6 certificates are adjustable
based on LIBOR as described herein under "Description of the
Certificates--Distributions to Certificateholders--Interest."
Class A-P Certificates:
The class A-P certificates are principal-only certificates and are not entitled
to payments of interest.
Class A-X Certificates:
The class A-X certificates are interest-only certificates, have no principal
balance, and will bear interest on their notional amount which is initially
approximately $__________.
S-4
<PAGE>
Summary Information
This section briefly summarizes 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
accompanying prospectus in their entirety.
The Trust Fund
The name of the trust fund is Chase Mortgage Trust, Series [______]. We are
forming a trust to own a pool of fixed rate one- to four-family first lien
mortgage loans. The certificates represent beneficial ownership interests in the
underlying trust fund assets. All payments to you will come only from the
amounts received in connection with those assets. The certificates will have the
original certificate principal balance, certificate 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 [DATE] among Chase Manhattan
Acceptance Corporation, as depositor, [Chase Manhattan Mortgage Corporation], as
servicer and [TRUSTEE], as trustee. See "The Pooling and Servicing Agreement"
and "Description of the Certificates."
Principal Parties
Issuer: Chase Mortgage Trust, Series [------].
Seller: Chase Manhattan Acceptance Corporation, a Delaware corporation
whose address is 343 Thornall Street, Edison, New Jersey 08837 and whose
telephone number is (732) 205-0600.
Servicer: [Chase Manhattan Mortgage Corporation, a New Jersey corporation
whose address is 343 Thornall Street, Edison, New Jersey 08837 and whose
telephone number is (732) 205-0600]. See "Chase Manhattan Mortgage Corporation"
and "The Pooling and Servicing Agreement--Servicing."
<PAGE>
Trustee: [TRUSTEE], a _______ association whose corporate trust office is
[ADDRESS] and whose telephone number is [NUMBER]. See "The Pooling and Servicing
Agreement--The Trustee."
Cut-off Date
The cut-off date will be [DATE].
Closing Date
The closing date will be on or about [DATE].
Forms of Certificates; Denominations
Your certificates will be issued either in book-entry form or in fully
registered, certificated form. The table under "Description of the
Certificates-- General" in this prospectus supplement sets forth the original
certificate form, the minimum denomination and the incremental denomination of
the offered certificates.
Description of the Certificates
The certificates will have an approximate aggregate initial principal balance of
$___________, subject to a permitted variance of plus or minus five percent.
The certificates will consist of:
o [Ten] classes of class A certificates, which initially will have an
approximate aggregate initial principal balance of $_________ and
evidence an approximate undivided beneficial interest of _____% of the
trust fund assets;
S-5
<PAGE>
o The class M certificates, which initially will have an approximate
initial principal balance of $_________ and evidence an approximate
undivided beneficial interest of ____% of the trust fund assets; and
o Five classes of class B certificates, which initially will have an
approximate aggregate initial principal balance of $_________ and
evidence an approximate undivided beneficial interest of ____% of the
trust fund assets.
Only the class A (excluding class A-X), class M, class B-1 and class B-2
certificates are being offered by this prospectus supplement and the
accompanying prospectus. We will sell or otherwise transfer the class A-X, class
B-3, class B-4 and class B-5 certificates to a limited number of institutional
investors (which may include one or more of our affiliates) in a privately
placed offering.
The Mortgage Pool
The mortgage pool will consist of fixed rate one- to four-family first lien
residential mortgage loans with original terms to stated maturity of
approximately [15] [30] years.
We expect the mortgage loans to have the following approximate characteristics
as of [DATE]:
<PAGE>
Number of Mortgage
Loans ______
Aggregate Unpaid
Principal Balance ______
Range of Unpaid $_____ -
Principal Balances $______
Average Unpaid Principal
Balance $______
_____% -
Range of Mortgage Rates _____%
Weighted Average
Mortgage Rate _____%
Range of Remaining ___ months-___
Terms to Stated Maturity months
Weighted Average
Remaining Term to Stated
Maturity ___ months
Range of Remaining ___ months-___
Terms to Expected months
Maturity
Weighted Average
Remaining Term to
Expected Maturity ___ months
Weighted Average Loan
Age __ month[s]
Range of Original Loan-to- _____% -
Value Ratios _____%
Weighted Average
Original Loan-to-Value
Ratio _____%
Weighted Average Credit ___
Score
The statistics set forth above for range of remaining term to expected maturity
and weighted average remaining term to expected maturity are based on payments
actually received, or scheduled to be received, on each mortgage loan as of the
cut-off date. The statistic set forth above for weighted average loan age is
based on the number of months from and including the first monthly payment to
and including the cut-off date. Credit scores are described on page S-20.
S-6
<PAGE>
Before we issue the certificates, we may remove some mortgage loans from the
mortgage pool. We also may substitute other loans for some mortgage loans. This
may result in changes in the mortgage pool characteristics shown above and could
affect the weighted average lives and yields of the certificates. See "The
Mortgage Pool."
Distributions on the Certificates
The first distribution date will be [DATE]. Thereafter, distributions will be
made on the 25th day of each month, or on the next business day if the 25th day
is not a business day. In general, amounts available for distribution each month
will be distributed by the servicer in the following order of priority:
First, the holders of the class A certificates will receive, on a pro rata
basis, the interest payments to which they are entitled on that distribution
date;
Second, the holders of the class A certificates will receive the payments
of principal to which they are entitled on that distribution date (however, not
every class of class A certificates will receive a principal distribution on
each distribution date; instead, principal payments will be allocated among the
various classes of class A certificates as described under "Description of the
Certificates-- Distributions to Certificateholders--Principal (Including
Prepayments)";
Third, the holders of the class M certificates will receive the payments
of interest and then principal to which they are entitled on that distribution
date; and
Fourth, the holders of the class B certificates will receive, in numerical
order (that is, first to the class B-1 certificates, then to the class B-2
certificates, etc.) the payments of interest and then principal to which they
are entitled on that distribution date.
<PAGE>
Credit Enhancement
Credit enhancement reduces 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 offered certificates will consist of
subordination utilizing a shifting interest structure.
Subordination. The rights of the holders of each class of class B
certificates to receive distributions will be subordinated to the rights of the
holders of the class A and class M certificates and the holders of the classes
of class B certificates, if any, with lower numerical designations to receive
distributions. The rights of the holders of the class M certificates to receive
distributions will be subordinated to the rights of the holders of the class A
certificates to receive 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 the
more senior classes of certificates 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 the
more senior holders to receive future distributions on the mortgage loans
that would otherwise have been allocated to the holders of the more junior
classes of certificates; and
Allocation of Losses. By the allocation to the more junior classes of
certificates (in inverse order of seniority), until their
S-7
<PAGE>
respective certificate principal balances have been reduced to zero, of
losses resulting from the liquidation of defaulted mortgage loans or the
bankruptcy of mortgagors prior to the allocation of these losses to the
more senior classes of certificates (other than the excess losses arising
from special hazards, mortgagor fraud or mortgagor bankruptcy).
The chart below summarizes the relative seniority of the various classes of
certificates and indicates the initial level of credit enhancement provided to
the various classes of offered certificates:
Initial Credit
Credit Enhancement
Class Enhancement Percentage
A Class M and ____%
Class B
M Class B ____%
B-1 Class B-2, Class ____%
B-3, Class B-4
and Class B-5
B-2 Class B-3, Class ____%
B-4 and Class B-
5
Shifting of Interests. In order to increase the period during which the class
M and class B certificates remain available as credit enhancement to the class A
certificates, the class A certificates in the aggregate will receive 100% of
principal prepayments and unscheduled recoveries with respect to the mortgage
loans until the fifth anniversary of the first distribution date. During the
four years following that anniversary, the class A certificates in the aggregate
will receive a disproportionately large, but decreasing, share of principal
prepayments and other unscheduled recoveries. This will result in an accelerated
<PAGE>
amortization of principal to the class A certificates and, in the absence of
realized losses on the mortgage loans, an increase in the percentage interest in
the principal balance of the mortgage loans evidenced by the class M and class B
certificates, thereby increasing the likelihood that holders of the class A
certificates will be paid the full amount of principal to which they are
entitled.
Optional Termination
Subject to restrictions described in this prospectus supplement, [Chase
Manhattan Mortgage Corporation] will have the option (but not the obligation) to
purchase all of the mortgage loans in the mortgage pool after the aggregate
unpaid principal balance of these mortgage loans is reduced to less than [10%]
of the aggregate unpaid principal balance of these mortgage loans as of the
cut-off date. See "The Pooling and Servicing Agreement-- Optional Termination."
Legal Investment
As of the closing date, the class A and class M certificates will constitute
"mortgage related securities" under the Secondary Mortgage Market Enhancement
Act of 1984, as amended. The class B-1 and class B-2 certificates will not
constitute "mortgage related securities." You should consult your own counsel as
to whether and to what extent the offered certificates constitute legal
investments for you. See "Legal Investment Matters" in this prospectus
supplement and "Legal Investment Matters" in the accompanying prospectus.
Federal Income Tax Consequences
For federal income tax purposes, the trust fund will elect to be treated as a
Real Estate Mortgage Investment Conduit. The certificates (other than the class
A-R 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
S-8
<PAGE>
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. The class A-R certificates will represent ownership of the residual
interest in the trust fund. See "Federal Income Tax Considerations" in this
prospectus supplement and in the accompanying prospectus.
ERISA Considerations
In general, subject to important considerations described under "ERISA
Considerations" in this prospectus supplement and the accompanying prospectus,
the class A certificates (other than the class A-R 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 own counsel with respect to the legal consequences of an ERISA
plan's acquisition and ownership of the certificates. See "ERISA Considerations"
in this prospect supplement and in the accompanying prospectus.
Ratings
The offered certificates are required to receive the ratings from [RATING
AGENCY] and [RATING AGENCY] indicated under the heading "Expected Ratings" in
the chart shown on page S-3 of this prospectus supplement. The ratings on the
offered certificates address the likelihood of the receipt by holders of offered
certificates of all distributions on the underlying mortgage loans to which they
are entitled. They do not address the likely actual rate of prepayments. The
actual rate of prepayments, if different than you originally anticipated, could
adversely affect your yield. See "Ratings."
S-9
<PAGE>
Risk Factors
Prepayments on the Mortgage Loans May Adversely Affect the Yield on Your
Certificates
The rate of distributions in reduction of the principal balance of any
class of offered certificates, the aggregate amount of distributions of
principal and interest on any class of offered certificates and the yield to
maturity of any class of offered certificates will be directly related to the
rate of payments of principal on the mortgage loans and to the amount and timing
of mortgagor defaults resulting in realized losses. The rate of principal
payments on the mortgage loans will in turn be affected by, among other things:
o the amortization schedules of the mortgage loans;
o the rate of principal prepayments (including partial prepayments and
prepayments resulting from refinancing) thereon by mortgagors;
o liquidations of defaulted mortgage loans;
o repurchases of mortgage loans by us as a result of defective
documentation or breaches of representations and warranties; and
o optional purchase by [Chase Manhattan Mortgage Corporation] of all of
the mortgage loans in connection with the termination of the trust fund.
See "Prepayment and Yield Considerations" and "The Pooling and Servicing
Agreement--Optional Termination" herein and "The Pooling and Servicing
Agreement--Assignment of Mortgage Loans; Warranties," "--Repurchase or
Substitution" and "--Termination; Purchase of Mortgage Loans" in the prospectus.
Mortgagors are permitted to prepay the mortgage loans, in whole or in part, at
any time without penalty.
The rate of payments (including prepayments, liquidations and defaults) on
pools of mortgage loans is influenced by a variety of economic, geographic,
social and other factors.
o If prevailing rates for similar mortgage loans fall below the mortgage
interest rates on the mortgage loans, the rate of prepayment generally
would be expected to increase.
o Conversely, if interest rates on similar mortgage loans rise above the
mortgage interest rates on the mortgage loans, the rate of prepayment
generally would be expected to decrease.
If you purchase any offered certificates at a discount, you should consider
the risk that a slower than anticipated rate of principal payments (including
prepayments, liquidations and
S-10
<PAGE>
defaults) on the mortgage loans in the related mortgage group will result in an
actual yield that is lower than your expected yield. If you purchase any offered
certificates at a premium, you should consider the risk that a faster than
anticipated rate of principal payments (including prepayments, liquidations and
defaults) on the mortgage loans will result in an actual yield that is lower
than your expected yield and, under certain circumstances, you might not recoup
your initial investment.
Subordination of Subordinated Certificates Increases Their Risk of Loss
The rights of the holders of the class M certificates to receive distributions
with respect to the mortgage loans will be subordinated to the rights of the
holders of the class A certificates to receive distributions with respect to the
mortgage loans. The rights of the holders of a class of class B certificates to
receive distributions with respect to the mortgage loans will be subordinated to
the rights of the holders of the class A certificates, the class M certificates
and the classes of class B certificates with lower numerical designations to
receive distributions with respect to the mortgage loans, all to the extent
described herein under "Description of the Certificates--Subordination
Certificates and Shifting Interests."
Geographic Concentration of the Mortgaged Properties May Increase Risk of Loss
We expect approximately ____%, ___% and ___% of the mortgage loans (by
aggregate principal balance as of the cut-off date) to be secured by mortgaged
properties located in the states of __________, ________ and _______,
respectively. Consequently, losses and prepayments on the mortgage loans and
resultant payments on the offered certificates may, both generally and
particularly, be affected significantly by changes in the housing markets and
regional economies of, and the occurrence of natural disasters, including
earthquakes, fires, floods or hurricanes, in, the states of __________, ________
and _______.
Certificates May Not Be Appropriate for Individual Investors
The offered 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 offered certificates. This
may be the case because, among other things:
o The yield to maturity of offered certificates purchased at a price other
than par will be sensitive to the uncertain rate and timing of principal
prepayments on the mortgage loans;
o The rate of principal distributions on, and the weighted average life
of, the offered certificates will be sensitive to the uncertain rate and
timing of principal prepayments on the mortgage loans and the priority
of principal distributions among the classes of certificates, and for
that reason, the offered certificates may be inappropriate investments
for you if you require a distribution
S-11
<PAGE>
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 an offered 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 certificate rate on the offered certificates; or
o It is possible that a secondary market for the offered 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 "Prepayment and Yield
Considerations" in this prospectus supplement and in the accompanying prospectus
under the heading "Risk Factors."
Forward-Looking Statements
In this prospectus supplement and the accompanying prospectus, we use
forward-looking statements. Forward-looking statements are found in the
material, including each of the tables, set forth under "Risk Factors" and
"Prepayment and Yield Considerations." Forward-looking statements are also found
elsewhere in this prospectus supplement and prospectus and include words like
"expects," "intends," "anticipates," "estimates" and other similar words. These
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;
o 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 these statements were originally based.
Glossary of Defined Terms
A glossary of defined terms begins on page S-59 of this prospectus
supplement.
S-12
<PAGE>
The Mortgage Pool
General
The mortgage pool with respect to the certificates will consist of
approximately _____ conventional mortgage loans evidenced by fixed interest rate
promissory notes having an aggregate principal balance on the Cut-off Date of
approximately $___________. References herein to percentages of mortgage loans
refer in each case to the percentage of the aggregate principal balance of the
mortgage loans as of the Cut-off Date, based on the outstanding principal
balances of the mortgage loans as of the Cut-off Date, after giving effect to
Monthly Payments due on or prior to the Cut-off Date, whether or not received.
References to percentages of mortgaged properties refer, in each case, to the
percentages of aggregate principal balances of the related mortgage loans
(determined as described in the preceding sentence). The mortgage notes are
secured by mortgages or deeds of trust or other similar security instruments
creating first liens on one- to four-family residential. The mortgaged
properties consist of individual dwelling units, individual cooperative
apartment dwelling units, individual condominium units, two- to four-family
dwelling units, attached planned unit developments and detached planned unit
developments. The trust fund includes, in addition to the Mortgage Pool,
(1) the amounts held from time to time in one or more accounts maintained
in the name of the trustee under the pooling and servicing agreement
to be dated as of [DATE] by and among Seller, Chase Manhattan Mortgage
Corporation as Servicer and [TRUSTEE], as trustee,
(2) any property which initially secured a Mortgage Loan and which is
acquired by foreclosure or deed-in-lieu of foreclosure,
(3) all insurance policies and the proceeds of all insurance policies
described below and
(4) rights to require repurchase of the mortgage loans by the Seller for
breach of representation or warranty.
The Seller will cause the mortgage loans to be assigned to the trustee.
The Servicer will service the mortgage loans either by itself or through
Subservicers under the agreement. With respect to those mortgage loans serviced
by the Servicer through a Subservicer, the Servicer will remain liable for its
servicing obligations under the agreement as if the Servicer alone were
servicing those mortgage loans.
Representations and Warranties
The Seller will make representations and warranties for the benefit of the
trustee with respect to the mortgage loans as described in the prospectus under
"The Mortgage Pools" and "The Pooling and Servicing Agreement--Assignment of
Mortgage Loans; Warranties" and
S-13
<PAGE>
"--Repurchase or Substitution" and will be obligated to repurchase any mortgage
loan as to which there is a material breach of any of those representations or
warranties. The obligation to repurchase will constitute the sole remedy
available to Certificateholders for a breach of those representations or
warranties. The trustee will enforce the repurchase obligations of the Seller.
In lieu of this repurchase obligation, the Seller 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" and "--Repurchase
or Substitution" in the Prospectus.
Mortgage Loans
Statistical data with respect to the mortgage loans are set forth below.
The mortgage loans were originated between [DATE] and [DATE]. All of the
mortgage loans had original terms to stated maturity of [360] [180] months or
less.
The weighted average number of months from and including the first Monthly
Payment on the mortgage loans to and including the Cut-off Date was
approximately __ month[s].
Monthly Payments will be due on the Due Date.
All of the mortgage loans having original loan-to-value ratios of greater
than ___% are insured under Primary Mortgage Insurance Policies as defined in
the prospectus. Not more than approximately ___% of the mortgage loans are
insured by any one Primary Mortgage Insurance Policy insurer. At the time of
origination of the mortgage loans, each of the Primary Mortgage Insurance Policy
insurers was approved by the FNMA or the FHLMC. See "Servicing of the Mortgage
Loans--Private Mortgage Insurance" in the Prospectus.
Approximately _____% of the mortgage loans have Credit Scores. The
weighted average credit score for the mortgage loans that were scored is [___]
and the range of those credit scores is [___] to [____]. 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 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
S-14
<PAGE>
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 Seller nor Chase Manhattan
Mortgage Corporation 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.
Additional data with respect to the mortgage loans are set forth in the
following tables. Totals may not sum due to rounding.
<TABLE>
<CAPTION>
Mortgage Rates
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Rate Mortgage Loans Cut-off Date Cut-off Date
------------- -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. %
================= ===================
</TABLE>
The mortgage rates borne by the mortgage loans as of the Cut-off Date
ranged from ____% per annum to _____% per annum, and the weighted average
mortgage rate on the mortgage loans as of the Cut-off Date was approximately
_____% per annum.
<TABLE>
<CAPTION>
Geographical Distribution of Mortgaged Properties
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
State Mortgage Loans Cut-off Date Cut-off Date
----- -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. %
============== ================= ===================
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
Original Principal Balance
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Original Principal Balance Mortgage Loans Cut-off Date Cut-off Date
-------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. %
============== ================= ===================
</TABLE>
The average outstanding principal balance of the mortgage loans as of the
Cut-off Date was approximately $_______. The original principal balances of the
mortgage loans ranged from $______ to $_________.
<TABLE>
<CAPTION>
Mortgage Loan Age
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Loan Age Mortgage Loans Cut-off Date Cut-off Date
----------------- -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. %
============== ================= ===================
</TABLE>
The weighted average age of the mortgage loans was approximately
___month[s] as of the Cut-off Date.
S-16
<PAGE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratio
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Original Loan-to-Value Ratio Mortgage Loans Cut-off Date Cut-off Date
---------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. $ %
============== ================= ===================
</TABLE>
The weighted average original loan-to-value ratio of the mortgage loans
was approximately ______% as of the Cut-off Date.
<TABLE>
<CAPTION>
Loan Purpose
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Loan Purpose Mortgage Loans Cut-off Date Cut-off Date
------------ -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Purchase....................................
Cash-out Refinance..........................
Rate/Term Refinance......................... %
-------------- ----------------- -------------------
Totals............................. $ %
============== ================= ===================
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
Remaining Terms to Stated Maturity
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
---------------- -------------- ------------ ------------
<S> <C> <C> <C>
%
-------------- ----------------- -------------------
Totals............................. $ %
============== ================= ===================
</TABLE>
The weighted average remaining term to stated maturity of the mortgage
loans as of the Cut-off Date was approximately ___ months.
<TABLE>
<CAPTION>
Remaining Terms to Expected Maturity
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
---------------- -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. %
============== ================= ===================
</TABLE>
The information set forth above is based on payments actually received, or
scheduled to be received, on each mortgage loan as of the Cut-off Date. The
weighted average remaining term to expected maturity of the mortgage loans as of
the Cut-off Date was approximately ___ months.
S-18
<PAGE>
<TABLE>
<CAPTION>
Types of Mortgaged Properties
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Property Type Mortgage Loans Cut-off Date Cut-off Date
------------- -------------- ------------ ------------
<S> <C> <C> <C>
Single-family Detached......................
Cooperative Unit............................
Attached Planned Unit
Development.................................
Detached Planned Unit
Development.................................
Condominium.................................
Two- to Four-Family Dwelling
Unit........................................
-------------- ----------------- -------------------
Totals............................. %
============== ================= ===================
</TABLE>
Mortgage loans secured by cooperative units were made to finance or
refinance the purchase of stock allocated to units in residential cooperative
housing corporations.
<TABLE>
<CAPTION>
Occupancy
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Occupancy Mortgage Loans Cut-off Date Cut-off Date
--------- -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. %
============== ================= ===================
</TABLE>
The information set forth above is based on representations by the
mortgagors at the time of origination of the related mortgage loans.
S-19
<PAGE>
<TABLE>
<CAPTION>
Loan Documentation
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Loan Documentation Mortgage Loans Cut-off Date Cut-off Date
------------------ -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. %
============== ================= ===================
</TABLE>
<TABLE>
<CAPTION>
Credit Scores
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Credit Score Mortgage Loans Cut-off Date Cut-off Date
------------ -------------- ------------ ------------
<S> <C> <C> <C>
-------------- ----------------- -------------------
Totals............................. %
============== ================= ===================
</TABLE>
The Credit Scores of the mortgage loans as of the Cut-off Date ranged from
___ to ___ and the weighted average credit score of the mortgage loans as of the
Cut-off Date was _________.
At the date of issuance of the certificates, no mortgage loan will be
delinquent more than 30 days or will have had more than one delinquency in
excess of 30 days as to any Monthly Payment during the preceding twelve months.
No zip code area contains greater than approximately ___% of the mortgaged
properties.
A Standard Hazard Insurance Policy is required to be maintained by the
Mortgagor with respect to each Mortgage Loan in an amount equal to the maximum
insurable value of the improvements securing that Mortgage Loan or the principal
balance of that Mortgage Loan, whichever is less. See "Servicing of the Mortgage
Loans--Hazard Insurance" in the Prospectus. No Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy or
S-20
<PAGE>
Mortgagor Bankruptcy Insurance will be maintained with respect to the mortgage
pool, nor will any mortgage loan be insured by the FHA or guaranteed by the VA.
The description in this prospectus supplement of the mortgage pool and the
mortgaged properties is based upon the mortgage pool as presently constituted.
Prior to the issuance of the certificates, mortgage loans may be removed from
the mortgage pool if the Seller deems the removal necessary or appropriate.
Other mortgage loans may be included in the mortgage pool prior to the issuance
of the certificates unless including those mortgage loans would materially alter
the characteristics of the mortgage pool as described herein. The information
set forth herein is representative of the characteristics of the mortgage pool
as it will be constituted at the time the certificates are issued. If any of the
characteristics as of the Cut-Off Date of the mortgage loans on the date of
initial issuance of the certificates vary materially from those described
herein, revised information regarding those mortgage loans will be included in a
Current Report on Form 8-K of the Seller that will be available to purchasers of
the certificates at, and filed with the Securities and Exchange Commission
within 15 days of, the initial delivery of the certificates. In any event, no
more than 5% of the mortgage loans described herein will be removed from or
added to the mortgage pool prior to the issuance of the certificates unless a
revised prospectus supplement is delivered to prospective investors in the
Offered Certificates.
Prepayment and Yield Considerations
The rate of principal payments on the Offered Certificates, the aggregate
amount of each interest payment on the Offered Certificates (other than the
[class A-P] certificates) and the yield to maturity of the Offered Certificates
are related to the rate and timing of payments of principal on the underlying
mortgage loans. The principal payments on the underlying mortgage loans may be
in the form of scheduled principal payments or prepayments. For this purpose,
the term "prepayment" includes prepayments in full, curtailments and
liquidations due to default, casualty, condemnation and the like, as well as
repurchases by a mortgage loan seller. Any principal prepayments will result in
distributions to Certificateholders of principal amounts which would otherwise
be distributed over the remaining terms of the mortgage loans. In addition,
because, for at least nine years after the issuance of the certificates, the
Offered Class A Certificateholders [(other than the [class A-7] and [class A-P]
certificateholders)] will be entitled to receive a percentage of certain
amounts, including principal prepayments, which is greater than their
proportionate interest in the trust fund, the rate of principal prepayments on
the mortgage loans will have a greater effect on the rate of principal payments
and the amount of interest payments on, and the yield to maturity of, the
Offered Class A Certificates than if the Offered Class A Certificateholders were
entitled only to their proportionate interest in such amounts. In general, the
prepayment rate may be influenced by a number of factors, including general
economic conditions and homeowner mobility.
Mortgagors are permitted to prepay the mortgage loans, in whole or in
part, at any time without penalty. The rate of payment of principal may also be
affected by any repurchase of the
S-21
<PAGE>
mortgage loans as to which there has been a material breach of a representation
or warranty or defect in documentation, or by a purchase by the Servicer of
those mortgage loans modified at the request of a mortgagor, including
mortgagors with respect to which the Servicer has solicited a request for
modification, or by the exercise by the Servicer of its right to purchase a
defaulted mortgage loan. See "The Mortgage Pool--General" and "The Pooling and
Servicing Agreement--Optional Termination." In the event of a repurchase by the
Servicer, the repurchase price will be passed through to the Certificateholders
as a prepayment of principal in the month following the month of repurchase.
The rate of prepayments with respect to mortgage loans on one- to
four-family residences has fluctuated significantly in recent years. The Seller
believes that in a fluctuating interest rate environment a predominant factor
affecting the prepayment rate on a large pool of mortgage loans is the
difference between the interest rates on the mortgage loans (giving
consideration to the cost of any refinancing) and prevailing mortgage rates. In
general, if mortgage interest rates were to fall below the interest rates on the
mortgage loans, the rate of prepayment would be expected to increase.
Conversely, in general, if mortgage interest rates were to rise above the
interest rates on the mortgage loans, the rate of prepayment would be expected
to decrease. Other factors affecting prepayment of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. Additionally, in
general, mortgage loans having relatively high principal balances and/or
relatively low loan-to-value ratios may be more likely to prepay than mortgage
loans having relatively low principal balances and/or relatively high
loan-to-value ratios. Therefore, if a mortgage pool consists of mortgage loans
which generally have relatively high principal balances and relatively low
loan-to-value ratios, the rate of prepayments with respect to that mortgage pool
could be higher than would otherwise be the case. In addition, prepayments
generally will also result from home sales by mortgagors and from foreclosures
due to defaults on mortgage loans. There is no historical prepayment data
available for the mortgage pool, and comparable data is not available because
the mortgage loans do not constitute a representative sample of mortgage loans
generally. In addition, historical data available with respect to mortgage loans
underlying mortgage pass-through certificates issued by GNMA, FNMA or FHLMC may
not be comparable to prepayments expected to be experienced by the mortgage
pool, because the mortgage loans have characteristics which differ from mortgage
loans underlying pass-through certificates issued by GNMA, FNMA and FHLMC.
The timing of changes in the rate of prepayments on the mortgage loans may
significantly affect the total distributions received, the date of receipt of
the distributions and the actual yield to maturity to an investor in the Offered
Certificates, even if the average rate of principal payments is consistent with
an investor's expectations. Because the rate of distribution of principal of the
certificates will be directly related to the actual amortization (including
prepayments) of the mortgage loans, which may include mortgage loans that have
remaining terms to maturity shorter or longer than those assumed and interest
rates higher or lower than those assumed, the distributions of the Offered
Certificates are likely to differ from those
S-22
<PAGE>
reflected in the following tables, even if all the mortgage loans prepay at the
indicated percentages of the Prepayment Model. In addition, it is not likely
that the mortgage loans will prepay at a constant rate until maturity or that
all of the mortgage loans will prepay at the same rate. In general, the earlier
a payment of principal on the mortgage loans, the greater the effect on an
investor's yield to maturity. As a result, if principal payments occur at a rate
higher (or lower) than the rate anticipated by an investor in the Offered
Certificates during the period immediately following the issuance of the
certificates, the effect on that investor's yield will not be equally offset by
a subsequent like reduction (or increase) in the rate of principal payments. If
an Offered Certificate is offered at a discount from its original principal
amount and if the purchaser of the Offered Certificate calculates its yield to
maturity based on a faster assumed rate of payment of principal than that
actually received on that certificate, its actual yield to maturity will be
lower than that so calculated. Conversely, if an Offered Certificate is offered
at a premium to its original principal amount, and if the purchaser of the
Offered Certificate calculates its yield to maturity based on a slower assumed
rate of payment of principal than that actually received on that certificate,
its actual yield to maturity will be lower than that so calculated and, under
certain circumstances, that purchaser may fail to recoup its initial investment.
No assurances can be given as to the rate of payments on the mortgage loans.
[The yield to investors in the class A-6 certificates will be highly
sensitive to LIBOR and increases in LIBOR will have a negative effect on the
yield to investors in the class A-6 certificates. Investors in the class A-6
certificates should consider the risk that a high rate of LIBOR will have a
negative effect on the yield to investors in the class A-6 certificates.]
[Investors in the class A-7 certificates should be aware that because the
class A-7 certificates are not expected to receive distributions of payments of
principal prior to the Distribution Date occurring in [MONTH/YEAR] (unless the
principal balances of the Non-PO Class A Certificates (other than the class A-7
certificates) have been reduced to zero), the weighted average life of the class
A-7 certificates will be longer than would otherwise be the case, and the effect
on the market value of the class A-7 certificates of changes in market interest
rates or market yields for similar securities will be greater than for other
classes of class A certificates entitled to such distributions.]
If the aggregate principal balance of the Non-Offered Class B Certificates
is reduced to zero, the yield to maturity on the class B-2 certificates will be
extremely sensitive to losses on the mortgage loans (and the timing thereof),
because the entire amount of any losses on the mortgage loans (other than Excess
Losses) which occur after the aggregate principal balance of the Non-Offered
Class B Certificates has been reduced to zero will be allocable to the class B-2
certificates, as described herein. If the aggregate principal balance of the
class B-2 certificates and the Non-Offered Class B Certificates is reduced to
zero, the yield to maturity on the class B-1 certificates will be extremely
sensitive to losses on the mortgage loans and the timing thereof because the
entire amount of any losses on the mortgage loans (other than Excess Losses)
which occur after the aggregate principal balance of the class B-2 certificates
and the Non-Offered Class B Certificates has been reduced to zero will be
allocable to the class B-1
S-23
<PAGE>
certificates, as described herein. If the aggregate principal balance of the
class B certificates is reduced to zero, the yield to maturity on the class M
certificates will be extremely sensitive to losses on the mortgage loans and the
timing thereof because the entire amount of any losses on the mortgage loans
(other than Excess Losses) which occur after the aggregate principal balance of
the class B certificates has been reduced to zero will be allocable to the class
M certificates, as described herein. In addition, as described herein, for at
least nine years after the issuance of the certificates or such lesser time as
the class A certificates are outstanding, each class of Subordinated
Certificates (defined herein), will be entitled to receive a percentage of
certain amounts, including principal prepayments, which is generally less than
their proportionate interest in the trust fund. See "Description of the
Certificates--Subordinated Certificates and Shifting Interests."
No assurance can be given as to the rate or timing of principal payments
or prepayments on the mortgage loans. In addition, it is unlikely that
prepayments on the mortgage loans will occur at a constant rate even if the
average prepayment experience equals the indicated levels of the Prepayment
Model.
In the event of acceleration of mortgage loans as a result of enforcement
of "due-on-sale" provisions in connection with transfers of the related
mortgaged properties, the level of prepayments on the respective mortgage loans
will be increased, thereby shortening the weighted average lives of the Offered
Certificates. See "Yield, Maturity and Weighted Average Life Considerations" in
the Prospectus.
The yield to holders of the Offered Certificates will depend upon, among
other things, the price at which the Offered Certificates are purchased and the
amount of and rate at which principal, including both scheduled and unscheduled
payments of principal, is paid to the respective Certificateholders.
The yield to Certificateholders (other than the [class A-P]
certificateholders) will be reduced by lags between the time interest income
accrues to Certificateholders and the time the related interest income is
received by Certificateholders. In addition, the yield to Certificateholders
(other than the [class A-P] certificateholders) may be reduced as a result of
Prepayment Interest Shortfalls (defined herein) to the extent described herein.
See "The Pooling and Servicing Agreement--Adjustment to Servicing Fee in
Connection with Prepaid Mortgage Loans."
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The Prepayment Model represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans. A prepayment assumption of 100% of the Prepayment Model
assumes prepayment rates of 0.2% per annum of the then outstanding principal
balance of such mortgage loans in the first month of the life of the mortgage
loans and an additional 0.2% per annum in each month thereafter until the
thirtieth month. Beginning in the thirtieth month and in each month thereafter
during the life of the mortgage loans, 100% of the Prepayment Model assumes a
constant prepayment rate of 6.0% per annum. The tables set forth below are based
on the assumption that the mortgage loans prepay at the indicated percentages of
the Prepayment Model. Neither the Prepayment Model nor any other prepayment
model purports to be a
S-24
<PAGE>
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
mortgage pool.
The tables set forth below have been prepared on the basis of the
characteristics of the mortgage loans that are expected to be included in the
trust fund and the respective expected initial principal balances of the Offered
Certificates. For purposes of preparation of the tables, it has been assumed
that the mortgage loans included in the mortgage pool on the closing date have
the actual characteristics of the mortgage loans described herein and that the
Modeling Assumptions are true.
Any discrepancy between the characteristics of the mortgage loans actually
included in the trust fund and the characteristics of the mortgage loans
expected to be so included may affect the percentages of the original principal
balance outstanding set forth in the tables and the weighted average lives of
the Offered Certificates. In addition, to the extent that the mortgage loans
that actually are included in the trust fund have characteristics that differ
from those assumed in preparing the following tables, the outstanding principal
balance of any Offered Certificate will likely be reduced to zero earlier or
later than indicated by the tables.
Variations in actual prepayment experience and the principal balances of
mortgage loans that prepay may increase or decrease the percentages of the
original principal balances outstanding and the weighted average lives shown in
the following tables. The variations may occur even if the average prepayment
experience of all the mortgage loans equals the indicated levels of the
Prepayment Model. There is no assurance that the mortgage loans will prepay at
any constant level of the Prepayment Model.
Based on these assumptions, the following tables indicate the weighted
average life of each class of Offered Certificates and set forth the percentages
of the original principal balance of each class of Offered Certificates that
would be outstanding after each of the dates shown at various percentages of the
Prepayment Model.
The weighted average lives of the Offered Certificates set forth on the
following tables are determined by (1) 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, (2) summing the results and (3)
dividing the sum by the total principal distribution on the certificates.
No assurance can be given as to the rate or timing of principal
payments or prepayments on any of the mortgage loans.
S-25
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-1 Class A-2
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date % % % % % % % % % %
----------------- -- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
Weighted Average Life
in years.......................
S-26
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-3 Class A-4
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date % % % % % % % % % %
----------------- -- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
Weighted Average Life
in years......................
S-27
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-5 Class A-6
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date % % % % % % % % % %
----------------- -- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
Weighted Average Life
in years.......................
S-28
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-7 Class A-P
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date % % % % % % % % % %
----------------- -- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
Weighted Average
Life in years................
S-29
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-R Class M, Class B-1 and Class B-2
--------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date % % % % % % % % % %
----------------- -- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
Weighted Average
Life in years...............
S-30
<PAGE>
Yield Considerations with Respect to the Class A-P Certificates
The yield to maturity of the class A-P certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments,
liquidations, repurchases and defaults) on the Discount Mortgage Loans (defined
herein), which may fluctuate significantly from time to time. A slower rate of
principal payments on the Discount Mortgage Loans than that anticipated by
investors will have a material negative effect on the yield to maturity of the
class A-P certificates. An investor should fully consider the associated risks,
including the risk that a relatively slow rate of principal payments (including
prepayments, liquidations, repurchases and defaults) on the Discount Mortgage
Loans will have a material negative effect on the yield to an investor in the
class A-P certificates. The Discount Mortgage Loans will have lower Net Mortgage
Rates than the other mortgage loans. In general, mortgage loans with lower
mortgage interest rates may tend to prepay at a slower rate of payment in
respect of principal than mortgage loans with relatively higher mortgage
interest rates in response to changes in market interest rates. As a result, the
Discount Mortgage Loans may prepay at a slower rate of payment in respect of
principal than the other mortgage loans, resulting in a lower yield on the class
A-P certificates than would be the case if the Discount Mortgage Loans prepaid
at the same rate as the other mortgage loans. As of the Cut-off Date, there were
approximately __ Discount Mortgage Loans, with an aggregate outstanding
principal balance of approximately $__________.
The following table illustrates the significant effect that principal
prepayments on the Discount Mortgage Loans have upon the yield to maturity of
the class A-P certificates. The actual prices to be paid for the class A-P
certificates have not been determined and will be dependent on the
characteristics of the mortgage pool. The table shows the hypothetical pre-tax
yields to maturity of the class A-P certificates, stated on a corporate bond
equivalent basis, under five different prepayment assumptions based on the
Prepayment Model described above. The table is based on the Modeling Assumptions
and assumes further that the purchase price of the class A-P certificates is
_____%.
Pre-Tax Yield
Prepayment Model
----------------
% % % % %
----- ----- ----- ----- -----
____% ____% ____% ____% ____%
Any change in the composition of the mortgage pool from that assumed
could substantially alter the information set forth in the table above. No
assurances can be given as to the rate or timing of principal payments or
prepayments on the Discount Mortgage Loans.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the class A-P certificates, would cause the
discounted present value of the assumed
S-31
<PAGE>
streams of cash flows to equal the assumed offering price of _____% for the
class A-P certificates. In all cases monthly rates are then converted to the
corporate bond equivalent yields shown above. Implicit in the use of any
discounted present value or internal rate of return calculation such as these is
the assumption that intermediate cash flows are reinvested at the discount rate
or internal rate of return. Thus, these calculations do not take into account
the different interest rates at which investors may be able to reinvest funds
received by them as distributed on the class A-P certificates. Consequently,
these yields do not purport to reflect the return on any investment in the class
A-P certificates when the reinvestment rates are considered.
It is unlikely that the characteristics of the Discount Mortgage Loans
will correspond exactly to those assumed in preparing the table above. The
pre-tax yield of the class A-P certificates may therefore differ even if all the
Discount Mortgage Loans prepay monthly at the assumed prepayment rate. In
addition, it is highly unlikely that any Discount Mortgage Loan will prepay at a
constant rate until maturity or that all the Discount Mortgage Loans will prepay
at the same rate. The timing of changes in the rate of prepayments on the
Discount Mortgage Loans may affect significantly the total distributions
received, the date of receipt of the distributions and the actual yield received
by a holder of a class A-P certificate even if the average rate of principal
prepayments on the Discount Mortgage Loans is consistent with an investor's
expectations.
The Seller makes no representation that any of the mortgage loans will
prepay in the manner or at any of the rates assumed in the tables set forth
above. Each investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the Offered
Certificates. Since the rate of principal payments (including prepayments) and
repurchases on the mortgage loans will significantly affect the yield to
maturity on the Offered Certificates, prospective investors are urged to consult
their investment advisors as to both the anticipated rate of future principal
payments (including prepayments) on the mortgage loans and the suitability of
the Offered Certificates to their investment objectives.
The Seller intends to file additional yield tables and other
computational materials with respect to one or more classes of Offered
Certificates with the Securities and Exchange Commission in a Report on Form
8-K. See "Incorporation of Certain Documents By Reference" in the Prospectus.
The yield tables and materials were prepared by the Underwriter at the request
of certain prospective investors, based on assumptions provided by, and
satisfying the special requirements of, those prospective investors. Those
tables and assumptions may be based on assumptions that differ from the Modeling
Assumptions. Accordingly, those tables and other materials may not be relevant
to or appropriate for investors other than those specifically requesting them.
Chase Manhattan Mortgage Corporation
Chase Manhattan Mortgage Corporation 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 Corporation is engaged in
the mortgage origination and servicing
S-32
<PAGE>
businesses. Chase Manhattan Mortgage Corporation is a HUD-approved mortgagee.
Chase Manhattan Mortgage Corporation 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 Corporation is 343
Thornall Street, Edison, New Jersey 08837 and its telephone number is (732)
205-0600. Chase Manhattan Mortgage Corporation 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 that
property. Chase Manhattan Mortgage Corporation's real estate loans primarily are
made to homeowners based on the security of one- to four-family residences.
Loan Delinquency, Foreclosure and Loss Experience. The recent loan
delinquency and loan foreclosure experience of Chase Manhattan Mortgage
Corporation as servicer of first mortgage loans secured by one- to four-family
residential properties which were originated by or for Chase Manhattan Mortgage
Corporation (exclusive of any such mortgage loans as to which master servicing
or subservicing arrangements exist) (expressed as percentages of the total
portfolio of such loans as of such date) was as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
As of March 31, As of December 31,
------------------------------ -----------------------------------------------------------------
2000 1999 1998
------------------------------ -------------------------------- -----------------------------
By
By By By By Number By
Period of Number Principal Number Principal of Principal
Delinquency of Loans Balance of Loans Balance Loans Balance
------------------------- ------------ ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days............ 2.42% 2.05% 3.04% 2.55% 3.31% 2.74%
60 to 89 days............ 0.54 0.46 0.72 0.60 0.80 0.65
90 days or more.......... 0.46 0.42 0.58 0.58 0.61 0.50
----- ----- ----- ----- ----- -----
Total............... 3.42% 2.93% 4.34% 3.73% 4.72% 3.89%
===== ===== ===== ===== ===== =====
Foreclosure.............. 1.36% 1.14% 1.27% 1.05% 1.51% 1.24%
</TABLE>
The following table presents, for the portfolio of mortgage loans
originated by or for Chase Manhattan Mortgage Corporation which are owned by The
Chase Manhattan Bank or its affiliates, the net gains (losses) as a percentage
of the average principal amount of the portfolio of mortgage loans on the
disposition of properties acquired in foreclosure or by deed-in-lieu of
foreclosure during the periods indicated.
S-33
<PAGE>
<TABLE>
<CAPTION>
Three Month Period Ended Year Ended
March 31, 2000 December 31, 1999
------------------------ ---------------------
(Dollars in Millions) (Dollars in Millions)
<S> <C> <C>
Average portfolio principal amount............. $28,537 $25,321
Three Month Period Ended Year Ended
March 31, 2000 December 31, 1999
------------------------ ---------------------
Net gains (losses)............................. (0.005%) (0.07%)
</TABLE>
Losses are defined as unrealized losses on properties acquired in
foreclosure or by deed-in-lieu of foreclosure and proceeds from sale less
outstanding book balance (after recognition of those unrealized losses) less
certain capitalized costs related to disposition of the related property
(exclusive of accrued interest). If accrued interest were included in the
calculation of losses, the level of losses could substantially increase.
There can be no assurance that the delinquency, foreclosure and loss
experience on the mortgage loans will correspond to the delinquency, foreclosure
and loss experience set forth in these tables. In general, during periods in
which the residential real estate market is experiencing an overall decline in
property values such that the principal balances of the mortgage loans and any
secondary financing on the related mortgaged properties become equal to or
greater than the value of the related mortgaged properties, rates of
delinquencies, foreclosure and losses could be significantly higher than might
otherwise be the case. In addition, adverse economic conditions (which may
affect real property values) may affect the timely payment by mortgagors of
Monthly Payments, and accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to the mortgage pool.
Underwriting Policies. The following is a description of the
underwriting policies customarily employed by Chase Manhattan Mortgage
Corporation with respect to residential mortgage loans which it originated
during the period of origination of the mortgage loans. Chase Manhattan Mortgage
Corporation has represented to the Seller that the mortgage loans were
originated generally in accordance with those underwriting policies.
Chase Manhattan Mortgage Corporation's real estate lending process for
one- to four-family residential mortgage loans follows procedures established to
comply with applicable federal and state laws and regulations. Chase Manhattan
Mortgage Corporation's underwriting standards are designed to evaluate a
borrower's credit standing and repayment ability and the value and adequacy of
the mortgaged property as collateral.
The mortgage loans were originated in a manner generally consistent,
except as to loan amounts, with FNMA or FHLMC published underwriting guidelines.
Chase Manhattan Mortgage Corporation believes that each mortgage loan originated
in such a manner generally
S-34
<PAGE>
meets the credit, appraisal and underwriting standards described in those
published underwriting guidelines, except for the original principal balances of
the mortgage loans. Initially, a prospective borrower is required to fill out an
application designed to provide pertinent information about the borrower's
assets, liabilities, income and credit, the property to be financed and the type
of loan desired. Chase Manhattan Mortgage Corporation obtains a credit report
which summarizes the prospective borrower's credit history with merchants,
lenders and other creditors reporting such information as well as matters of
public record. In addition, Chase Manhattan Mortgage Corporation verifies
employment, income and assets. Self-employed prospective borrowers are generally
required to submit their federal income tax returns for the last two years and
in certain cases a separate statement of income and expenses independently
verified by a third party.
Under Chase Manhattan Mortgage Corporation's Limited Documentation
Program, written verification of the borrower's income is not required. In order
to qualify for the program, the borrower must satisfy a 25% down-payment
requirement from their own assets. These assets are verified through bank
statements and may be supplemented by third-party verification. A residential
mortgage credit report, or "in file" report, is obtained and reviewed to
determine the borrower's repayment history. The maximum loan-to-value ratio of
any mortgage loan originated under this program is approximately 75% (65% for
"cash out" refinancings).
Once the necessary information is received, a determination is made as
to whether the prospective borrower has sufficient monthly income available to
meet the borrower's monthly obligations on the proposed loan and other expenses
related to the residence (such as property taxes and insurance) as well as to
meet other financial obligations and monthly living expenses. For loans with a
loan-to-value ratio of 80% or less, Chase Manhattan Mortgage Corporation's
lending guidelines require that all current fixed obligations of the borrower
(including mortgage payments based on Chase Manhattan Mortgage Corporation's
mortgage rates at the time of the application and other expenses related to the
residence) generally may not exceed
o 40% of the borrower's gross income in the case of a borrower with income of
under $75,000,
o 42% of the borrower's gross income in the case of a borrower with income of
between $75,000 and $150,000 and
o 44% of the borrower's gross income in the case of a borrower with income in
excess of $150,000.
For loans with a loan-to-value ratio between 80.01% and 90%, Chase
Manhattan Mortgage Corporation's lending guidelines require that the mortgage
payments (based on Chase Manhattan Mortgage Corporation's mortgage rates at the
time of application) plus applicable real property taxes, any condominium common
charges and hazard insurance, generally may not exceed 33% of the borrower's
gross income and that all monthly payments, including those mentioned above and
other fixed obligations, such as car payments, generally may not exceed 38% of
the borrower's gross income. For loans with a loan-to-value ratio between 90.01%
and
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<PAGE>
95%, Chase Manhattan Mortgage Corporation's lending guidelines require that the
mortgage payments (based on Chase Manhattan Mortgage Corporation's mortgage
rates at the time of application) plus applicable real property taxes, any
condominium common charges and hazard insurance, generally may not exceed 28% of
the borrower's gross income and that all monthly payments, including those
mentioned above and other fixed obligations, such as car payments, generally may
not exceed 36% of the borrower's gross income. Other credit considerations may
cause Chase Manhattan Mortgage Corporation to depart from these guidelines in
certain cases. Where there are two individuals signing the mortgage note, the
income and debts of both are included in the computation.
Chase Manhattan Mortgage Corporation requires an appraisal to be made
of each property to be financed. The appraisal is conducted by an independent
fee appraiser who visits the property and estimates its market value. The
independent appraisers do not receive any compensation dependent upon either the
amount of the loan or its consummation. In normal practice, the lower of
purchase price or appraised value determines the maximum amount which will be
lent on the property.
From time to time, exceptions and/or variances to Chase Manhattan
Mortgage Corporation's underwriting policies may be made. The exceptions and/or
variances may be made only if specifically approved on a loan-by-loan basis by
certain credit personnel of Chase Manhattan Mortgage Corporation who have the
authority to make the exceptions and/or variances. Exceptions and/or variances
may be made only after careful consideration of certain mitigating factors such
as borrower capacity, liquidity, employment and residential stability and local
economic conditions.
Chase Manhattan Mortgage Corporation obtains a search of the liens of
record to which the property being financed is subject at the time of
origination. Title insurance is required in the case of all mortgage loans.
[Servicing Activities. As of March 31, 2000, Chase Manhattan Mortgage
Corporation serviced approximately $325 billion of one- to four-family
residential mortgage loans.]
The Pooling and Servicing Agreement
The certificates will be issued under the agreement. The following
summaries, together with the summaries set forth under "The Pooling and
Servicing Agreement" in the accompanying Prospectus, describe the material
provisions of the agreement. The summaries below do not purport to be complete
and are subject to, and qualified in their entirety by reference to, the
provisions of the agreement. Where particular provisions or terms used in the
agreement are referred to, the provisions or terms are as specified in the
agreement. See "The Pooling and Servicing Agreement" in the Prospectus.
S-36
<PAGE>
Assignment of Mortgage Loans
The Seller will cause the mortgage loans to be assigned to the trustee,
together with the rights to all principal and interest due on or with respect to
the mortgage loans after the Cut-off Date other than interest accrued on the
mortgage loans prior to the Cut-off Date. The [Chase Manhattan Bank], as
authenticating agent, will, concurrently with that assignment, authenticate and
deliver the certificates. Each mortgage loan will be identified in the Mortgage
Loan Schedule. The Mortgage Loan Schedule will specify, among other things, with
respect to each mortgage loan, the original principal balance and the unpaid
principal balance as of the close of business on the Cut-off Date; the Monthly
Payment; the months remaining to stated maturity of the mortgage note; and the
mortgage rate.
In addition, the Seller will, as to each mortgage loan, deliver or
cause to be delivered to the trustee the mortgage note, together with all
amendments and modifications to the mortgage note, endorsed without recourse to
the trustee or its designee, the original or a certified copy of the mortgage,
together with all amendments and modifications to the mortgage, with evidence of
recording indicated thereon and an original or certified copy of an assignment
of the mortgage in recordable form. The Seller will cause the assignments to be
recorded in the appropriate public records.
Servicing
The mortgage loans will be serviced by the Servicer generally in
accordance with procedures described in the accompanying prospectus under the
headings "Servicing of the Mortgage Loans" and "Description of the
Certificates."
When any mortgaged property is conveyed by the mortgagor, the Servicer
generally will enforce any "due-on-sale" clause contained in the mortgage loan,
to the extent permitted under applicable law and governmental regulations.
Acceleration of mortgage loans as a result of enforcement of "due-on-sale"
provisions in connection with transfers of the related mortgaged properties will
affect the level of prepayments on the mortgage loans, thereby affecting the
weighted average lives and yields to maturity of the Offered Certificates. See
"Prepayment and Yield Considerations" herein and "Yield, Maturity and Weighted
Average Life Considerations" in the Prospectus. The terms of the mortgage loans
or applicable law, however, may provide that the Servicer is prohibited from
exercising the "due-on-sale" clause if information is submitted so as to
evaluate the intended buyer as if a new loan were being made to the buyer and it
can reasonably be determined that the security under the related mortgage note
will not be impaired by the assumption of the mortgage loan and that the risk of
a breach of any covenant in the mortgage note is acceptable. Upon any such
assumption, a fee equal to a specified percentage of the outstanding principal
balance of the mortgage loan is typically required, which sum will be retained
by the Servicer as additional servicing compensation.
S-37
<PAGE>
Servicing Compensation and Payment of Expenses
The Servicer will be paid the Servicing Fee. The Servicer is obligated
to pay certain ongoing expenses associated with the mortgage pool and incurred
by the Servicer in connection with its responsibilities under the agreement and
as described in the agreement. See "The Pooling and Servicing
Agreement--Servicing and Other Compensation and Payment of Expenses" in the
prospectus for information regarding other possible compensation to the Servicer
and for information regarding expenses payable by the Servicer.
Adjustment to Servicing Fee in Connection with Prepaid Mortgage Loans
When a mortgagor makes a full or partial principal prepayment of a
mortgage loan between Due Dates, the mortgagor generally is required to pay
interest on the principal balance of a mortgage loan only to the date of
prepayment. In order to minimize any resulting Prepayment Interest Shortfall,
the aggregate amount of the Servicing Fee will be reduced to the extent
necessary to include an amount in payments to the holders of the Offered
Certificates equal to a full month's interest payment at the applicable Net
Mortgage Rate with respect to that prepaid mortgage loan; provided, however,
that the reductions in the Servicing Fee will be made only up to the product of
[(1) one-twelfth of 0.125% and (2) the aggregate scheduled principal balance of
the mortgage loans with respect to the related Distribution Date]. Any
Non-Supported Interest Shortfall will be allocated on the related Distribution
Date pro rata among the outstanding classes of certificates (including the class
A-X certificates) based upon the amount of interest which each such class would
otherwise be paid on the Distribution Date and will consequently reduce the
yield on the applicable classes of certificates. Any principal prepayment,
together with a full month's interest thereon at the applicable Net Mortgage
Rate (to the extent described in this paragraph), will be paid on the
Distribution Date in the month following the month in which the last day of the
related Principal Prepayment Period occurred. See "Yield, Maturity and Weighted
Average Life Considerations" in the Prospectus.
Payments on Mortgage Loans; Collection Account; Certificate Account
The agreement provides that the Servicer for the benefit of the
Certificateholders shall establish and maintain the Collection Account, into
which the Servicer is generally required to deposit or cause to be deposited on
a daily basis the payments and collections described in "The Pooling and
Servicing Agreement--Payments on mortgage loans; Certificate Account" in the
prospectus, except that the Servicer may deduct its Servicing Fee and any
expenses of liquidating defaulted mortgage loans or property acquired in respect
of defaulted mortgage loans. The agreement permits the 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 [RATING AGENCY]
and [RATING AGENCY], as provided in the agreement, that mature, unless payable
on demand, no later than the Servicer Remittance Date. The Servicer will be
entitled to all income and gain realized from those investments, and that income
and gain will be subject to withdrawal by the Servicer from time to time. The
Servicer will be required to deposit the amount of any losses incurred in
respect of the investments out of its own funds as any losses are realized.
S-38
<PAGE>
The trustee will be obligated to establish the Certificate Account,
into which the Servicer will deposit or cause to be deposited on the Servicer
Remittance Date the Available Distribution Amount (including any Advances with
respect to that Servicer Remittance Date) for the related Distribution Date,
together with other amounts specified in the agreement. Subject to the
restrictions set forth in the agreement, the trustee is permitted to direct the
investment of funds in the Certificate Account. Any such investments are
required to mature, unless payable on demand, no later than the related
Distribution Date. The trustee will be entitled to all income and gain realized
from those investments, and the income and gain will be subject to withdrawal by
the trustee from time to time. The trustee will be required to deposit the
amount of any losses incurred in respect of the investments out of its own funds
as any losses are realized.
Advances
In the event that any mortgagor fails to make any payment of principal
or interest required under the terms of a mortgage loan, the Servicer will
advance the entire amount of the required payment, net of the applicable
Servicing Fee, less any portion of the required payment that the Servicer
reasonably believes will not be recoverable out of liquidation proceeds or
otherwise. 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
mortgagor providing for the postponement or modification of the due date or
amount of the scheduled payment. The Servicer will be entitled to reimbursement
for any advance from related late payments on the mortgage loan as to which the
advance was made. Furthermore, in the event that any mortgage loan as to which
an advance has been made is foreclosed while in the trust fund, the Servicer
will be entitled to reimbursement for the advance from related liquidation
proceeds or insurance proceeds prior to payment to Certificateholders of the
related mortgage pool of the Scheduled Principal Balance of the mortgage loan.
If the Servicer makes a good faith judgment that all or any portion of
any advance made by it with respect to any mortgage loan is a Non-recoverable
Advance, the Servicer will so notify the trustee and the Servicer will be
entitled to reimbursement for the Non-recoverable Advance from recoveries on all
other unrelated mortgage loans included in the related mortgage pool. The
Servicer's judgment that it has made a Non-recoverable Advance with respect to
any mortgage loan will be based upon its assessment of the value of the related
mortgaged property and any other facts and circumstances as it may deem
appropriate in evaluating the likelihood of receiving liquidation proceeds, net
of expenses, equal to or greater than the aggregate amount of unreimbursed
advances made with respect to the mortgage loan.
Trustee
The trustee for the certificates offered hereby will be [TRUSTEE], a
__________. The Servicer will pay to the trustee a fee in consideration for its
services as trustee under the
agreement. [The trustee will appoint Chase as certificate registrar and
authenticating agent. Chase's office for these purposes is 450 West 33rd Street,
New York, New York 10001.]
S-39
<PAGE>
Optional Termination
The Servicer may, on any Distribution Date, repurchase from the trust
fund all mortgage loans remaining outstanding if the aggregate unpaid principal
balance of the mortgage loans as of that Distribution Date is less than [10%] of
the aggregate unpaid scheduled principal balance of the mortgage pool on the
Cut-off Date. The repurchase price will equal the greater of
(A) the sum of (1) the unpaid principal amount of the mortgage loans
(other than any mortgage loans as to which the related mortgaged
properties have been acquired and whose fair market values are
included in clause (2) below), plus accrued interest thereon at the
Remittance Rate to the next Due Date and (2)the fair market value
of any such acquired properties (as determined by an appraisal to
be conducted by an appraiser selected by the trustee), in each case
less any unreimbursed Advances made with respect to such mortgage
loans and
(B) the outstanding principal balance of the Offered Certificates plus
accrued interest thereon at the Remittance Rate.
Upon repurchase, the Offered Certificateholders will receive the
outstanding principal balance of the Offered Certificates plus accrued interest
thereon at their respective Certificate Rates. Those distributions will be made
to Certificateholders on the Distribution Date in the month following the month
of repurchase.
Special Servicing Agreements
The agreement may permit the Servicer to enter into a special servicing
agreement with an unaffiliated holder of a class of class B certificates or of a
class of securities representing interests in the class B certificates and/or
other subordinated mortgage pass-through certificates. Under a special servicing
agreement, such holder may instruct the Servicer to commence or delay
foreclosure proceedings with respect to delinquent mortgage loans. Commencement
or delay of foreclosure proceedings at such holder's direction will be taken by
the Servicer only after such holder deposits a specified amount of cash with the
Servicer. The deposited cash will be available for distribution to
Certificateholders if liquidation proceeds are less than the outstanding
principal balance of the related mortgage loan.
Description of the Certificates
The certificates will be issued under the agreement. A copy of the
agreement will be attached as an exhibit to the Current Report on Form 8-K of
the Seller 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 prospectus for
additional information regarding the terms and conditions of the agreement. The
approximate initial principal amount of the Offered Certificates will be
$___________, subject to a permitted variance of plus or minus 5%. Any
difference between the aggregate principal balance of the
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<PAGE>
certificates as of the date of issuance of the certificates and the approximate
aggregate initial principal balance of the certificates as of the date of this
prospectus supplement will be allocated among the various classes of
certificates so as to retain materially the characteristics of the various
classes described in this prospectus supplement.
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
agreement. When particular provisions or terms used in the agreement are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
General
Initially, the class A certificates will evidence in the aggregate a
beneficial interest of approximately _____% in the aggregate principal balance
of the mortgage loans in the trust fund, which we refer to as the Class A
Percentage, the class M certificates will evidence a beneficial interest of
approximately ____% in the aggregate principal balance of the mortgage loans in
the trust fund, which we refer to as the Class M Percentage, the class B-1
certificates will evidence a beneficial interest of approximately ____% in the
aggregate principal balance of the mortgage loans in the trust fund, which we
refer to as the Class B-1 Percentage, the class B-2 certificates will evidence
in the aggregate a beneficial interest of approximately ____% in the aggregate
principal balance of the mortgage loans in the trust fund, which we refer to as
the Class B-2 Percentage and the Non-Offered Class B Certificates will evidence
in the aggregate the remaining beneficial interest in the aggregate principal
balance of the mortgage loans in the trust fund, which we refer to as the
Non-Offered Class B Percentage. Initially, the Non-Offered Class B Percentage
will be approximately ____%. The Class A Percentage, the Class M Percentage, the
Class B-1 Percentage and the Class B-2 Percentage will vary from time to time to
the extent that the respective class A, class M, class B-1 or class B-2
certificateholders do not receive amounts due to them on any Distribution Date,
losses are realized on the mortgage loans, or principal prepayments are made or
certain other unscheduled amounts of principal are received in respect of the
mortgage loans. See "Description of the Certificates-- Subordinated Certificates
and Shifting Interests." The class A-X certificates and the Non-Offered Class B
Certificates will be sold or otherwise transferred to a limited number of
institutional investors (which may include one or more affiliates of the Seller)
and are not offered hereby.
The following table sets forth the original certificate form, the
minimum denomination and the incremental denomination of the Offered
Certificates.
<TABLE>
<CAPTION>
Original Minimum Incremental
Class Certificate Form Denomination Denomination
----- ---------------- ------------ ------------
<S> <C> <C> <C>
Classes [A-1, A-2, A-3, A-4, Book-Entry $______ $1,000
A-5, A-6, A-7 and A-P]
Class A-R Definitive $100 N/A
Classes M, B-1 and B-2 Definitive $______ $1,000
</TABLE>
The [class A-R, class M, class B-1 and class B-2 certificates], as well
as other Definitive Certificates, if any, will be transferable and exchangeable
S-41
<PAGE>
at the Corporate Trust Office. No service charge will be made for any
registration or transfer of Offered Certificates, but the trustee may require
payment of a sum sufficient to cover any tax or other governmental charge in
connection with any transfer. The Offered Certificates, other than the class
A-R, class M, class B-1 and class B-2 certificates will be represented initially
by one or more physical certificates registered in the name of Cede & Co. as the
nominee of DTC. No Certificate Owner will be entitled to receive a certificate
representing such person's interest in the trust fund, except as set forth below
under "Description of the Certificates-Definitive Certificates." Unless and
until Definitive Certificates are issued under the limited circumstances
described herein, all references to actions by the Book-Entry Certificateholders
shall refer to actions taken by DTC upon instructions from its Participants and
all references herein to distributions, notices, reports and statements to the
Book-Entry Certificateholders shall refer to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Book-Entry
Certificates, as the case may be, for distribution to Certificate Owners in
accordance with DTC procedures. See "Description of the Certificates Book-Entry
Registration."
The rate of principal payments of the certificates will depend on the
rate of principal payments of the mortgage loans (including prepayments,
defaults, delinquencies and liquidations) which, in turn, will depend on the
characteristics of the mortgage loans, the level of prevailing interest rates
and other economic factors, and no assurance can be given as to the actual
payment experience. The principal balance or notional amount, as applicable, of
each class of certificates may be reduced to zero earlier or later than its
Final Scheduled Distribution Date.
Book-Entry Registration
DTC is a limited purpose trust company organized under the laws of the
State of New York and is a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered under Section 17A of the Securities Exchange Act of
1934. DTC was created to hold securities for its Participants and to facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entries, thereby eliminating the need for physical
movement of certificates. Indirect access to the DTC system also is available to
Indirect Participants.
Certificate Owners that are not Participants or Indirect Participants
and that desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Book-Entry Certificates may do so only through Participants
and Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest on the Book-Entry Certificates through a
Participant or an Indirect Participant. Under a book-entry format, Certificate
Owners may experience some delay in their receipt of payments, since the
payments will be forwarded by the trustee to Cede, as nominee for DTC. DTC will
forward the payments to its Participants, which thereafter will forward them to
Certificate Owners directly or through an Indirect Participant. It is
anticipated that the only "Certificateholder" of a Book-Entry Certificate will
be Cede, as nominee of DTC. Certificate Owners will not be recognized by the
trustee as Certificateholders, as this term is used in the agreement, and
Certificate Owners will be
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<PAGE>
permitted to exercise the rights of Book-Entry Certificateholders only
indirectly through DTC and its Participants.
Under the Rules, DTC will be required to make book-entry transfers of
Book-Entry Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, Book-Entry Certificates.
Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess physical certificates, the Rules provide a mechanism by which
Participants and Certificate Owners will receive payments and will be able to
transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, the ability of
a Certificate Owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the DTC system, or to otherwise act with respect to
Book-Entry Certificates, may be limited due to the absence of physical
certificates for the certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the agreement only at the direction of one or
more Participants to whose accounts with DTC the Book-Entry Certificates are
credited. Additionally, DTC has advised the Seller that it will take action
where the consent of specified percentages of the Offered Certificates is
required under the agreement only at the direction of and on behalf of
Participants whose interests represent the specified percentages of the Offered
Certificates. DTC may take conflicting actions on behalf of other Participants.
Neither the Seller, the Servicer nor the trustee will have any
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the Book-Entry Certificates held by Cede,
as nominee for DTC, or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests of the Book-Entry Certificates.
Definitive Certificates
The [class A-R, class M, class B-1 and class B-2] certificates will be
issued as Definitive Certificates. The Book-Entry Certificates will only be
issued in fully registered, certificated form to Certificate Owners or their
nominees, rather than to DTC or its nominee, if
(1) the Seller advises the Servicer in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates and the Seller is unable to locate a
qualified successor within 30 days or
(2) the Seller, at its option, elects to terminate the book-entry
system through DTC.
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<PAGE>
Upon the occurrence of either event described in the immediately
preceding paragraph, the trustee is required to notify DTC which in turn will
notify all Certificate Owners through Participants of the availability of
Definitive Certificates in exchange for Book-Entry Certificates. Upon surrender
by Cede, as nominee of DTC, of the definitive certificates representing the
Book-Entry Certificates and receipt of instructions for re-registration, the
trustee or its agent will reissue the Book-Entry Certificates as Definitive
Certificates to Certificate Owners.
Restrictions on Transfer of the Class A-R, Class M and Offered Class B
Certificates
The class A-R certificate will be subject to the following restrictions
on transfer, and the class A-R certificate will contain a legend describing
these restrictions.
The REMIC provisions of the Code impose certain taxes on transferors of
residual interests to, or agents that acquire residual interests on behalf of,
Disqualified Organizations and certain Pass-Through Entities that have
Disqualified Organizations as beneficial owners. No tax will be imposed on a
Pass-Through Entity (other than an "electing large partnership" as defined in
the Code) with respect to the class A-R certificate to the extent it has
received an affidavit from the owner thereof that the owner is not a
Disqualified Organization or a nominee for a Disqualified Organization. The
agreement will provide that no legal or beneficial interest in the class A-R
certificate may be transferred to or registered in the name of any person unless
(1) the proposed purchaser provides to the trustee an affidavit to the effect
that, among other items, the transferee is not a Disqualified Organization and
is not purchasing the class A-R certificate as an agent for a Disqualified
Organization (i.e., as a broker, nominee, or other middleman thereof) and (2)
the transferor states in writing to the trustee that it has no actual knowledge
that the affidavit or letter is false. Further, the affidavit or letter requires
the transferee to affirm that it:
o historically has paid its debts as they have come due and intends to
do so in the future;
o understands that it may incur tax liabilities with respect to the
class A-R certificate in excess of cash flows generated thereby;
o intends to pay taxes associated with holding the class A-R
certificate as taxes become due and;
o will not transfer the class A-R certificate to any person or entity
that does not provide a similar affidavit or letter.
In addition, the class A-R certificate may not be purchased by or
transferred to any person that is not a "U.S. Person," unless
(1) the transferee holds the class A-R 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
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<PAGE>
(2) the transferee delivers to both the transferor and the trustee an opinion of
a nationally recognized tax counsel to the effect that the transfer of the class
A-R certificate will not be disregarded for federal income tax purposes.
The agreement will provide that any attempted or purported transfer in
violation of these transfer restrictions will be null and void and will vest no
rights in any purported transferee. Any transferor or agent to whom the trustee
provides information as to any applicable tax imposed on the transferor or agent
may be required to bear the cost of computing or providing this information. See
"Federal Income Tax Consequences--REMIC Certificates; --Income from Residual
Certificates; --Taxation of Certain Foreign Investors; --Transfers of Residual
Certificates; --Servicing Compensation and Other REMIC Pool Expense" in the
Prospectus.
The class A-R certificate may not be purchased by or transferred to a
Plan or a person acting on behalf of or investing the assets of a Plan. See
"ERISA Considerations" herein and in the Prospectus.
Because the class M and Offered Class B Certificates are subordinated
to the class A certificates, the class M certificates and the Offered Class B
Certificates may not be transferred unless the transferee has delivered
(1) a representation letter to the trustee stating either (a) that the
transferee is not a Plan and is not acting on behalf of a Plan or using the
assets of Plan to effect the purchase or (b) subject to the conditions described
herein, that the source of funds used to purchase the class M or Offered Class B
Certificates in an "insurance company general account" or
(2) an opinion of counsel and other documentation as described herein under
"ERISA Considerations." See "ERISA Considerations" herein and in the Prospectus.
Distributions to Certificateholders
Distributions of principal and interest on the certificates will be
made on the Distribution Dates, beginning [DATE], to the persons in whose names
the certificates are registered on the Record Date. Distributions will be made
to each class as described below and on a pro rata basis among the certificates
of each class. Distributions of principal and interest on the Book-Entry
Certificates will initially be made by the trustee directly to Cede & Co. by
wire transfer. Distributions with respect to the class A-R, class M, class B-1
and class B-2 certificates and, upon the issuance of Definitive Certificates to
persons other than Cede, distributions of principal and interest on the
Definitive Certificates will be made by the trustee directly to holders in whose
names the certificates were registered at the close of business on the related
Record Date. These distributions will be made by check mailed to the address of
the person to whom they are entitled as it appears on the certificate register,
or, upon written request to the trustee delivered at least ten business days
prior to the first Distribution Date for which distribution by wire transfer is
to be made, by a holder of an Offered Certificate having an original aggregate
principal balance of at least $5,000,000 (or by a holder which holds all of the
certificates of a class), by wire transfer to the Certificateholder, except that
the final distribution in retirement of certificates will be made only upon
presentation and surrender of the certificates at the office or agency of the
trustee specified in the final distribution notice to Certificateholders.
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Principal received or advanced as part of a regularly scheduled monthly
payment on each mortgage loan will be passed through monthly on the Distribution
Date occurring in the month in which the related Due Date occurs. The Non-PO
Class A Certificateholders will be entitled to an amount equal to the Non-PO
Class A Percentage of the applicable Non-PO Percentage of scheduled principal
amounts due or advanced with respect to each mortgage loan. Principal
prepayments and other unscheduled amounts of principal received during a
Principal Prepayment Period will be passed through on the Distribution Date
occurring in the month following the month of receipt. The Non-PO Class A
Certificateholders will be entitled to an amount equal to the Non-PO Class A
Prepayment Percentage of the applicable Non-PO Percentage of the unscheduled
amounts of principal.
The aggregate amount available for distribution to Certificateholders
on each Distribution Date will be the Available Distribution Amount.
On each Distribution Date, the Available Distribution Amount will be
allocated among the classes of certificates and distributed to the holders of
record thereof as of the related Record Date as follows:
[first, to each class of Non-PO Class A Certificates, the sum of (1)
the Interest Accrual Amount with respect to that class and (2) any Interest
Shortfall with respect to that class;
second, concurrently (1) to the Non-PO Class A Certificates, up to the
Non-PO Class A Optimal Principal Amount (allocated among the classes as
described below under "--Principal (Including Prepayments)--Allocation of the
Non-PO Class A Optimal Principal Amount"), and (2) to class A-P certificates,
the applicable PO Percentage (defined herein) of all principal received on or in
respect of each Discount Mortgage Loan;
third, to the class A-P certificates, the Class A-P Shortfall Amount
(defined herein); provided, however, that any amounts distributed under this
paragraph third will not cause a further reduction in the principal balance of
class A-P;
fourth, to the class M certificates, the sum of (1) the Interest
Accrual Amount with respect to that class and (2) any Interest Shortfall with
respect to that class;
fifth, to the class M certificates, in an amount up to the portion of
the Subordinated Optimal Principal Amount allocable to the class M certificates
as described below under "--Principal (Including Prepayment)--Allocation of the
Subordinated Optimal Principal Amount";
sixth, to the class B-1 certificates the sum of (1) the Interest
Accrual Amount with respect that class and (2) any Interest Shortfall with
respect to that class;
seventh, to the class B-1 certificates, in an amount up to the portion
of the Subordinated Optimal Principal Amount allocable to the class B-1
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certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
eighth, to the class B-2 certificates, the sum of (1) the Interest
Accrual Amount with respect to that class and (2) any Interest Shortfall with
respect to that class;
ninth, to the class B-2 certificates, in an amount up to the portion of
the Subordinated Optimal Principal Amount allocable to the class B-2
certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
tenth, to the class B-3 certificates, the sum of (1) the Interest
Accrual Amount with respect to that class and (2) any Interest Shortfall with
respect to that class;
eleventh, to the class B-3 certificates, in an amount up to the portion
of the Subordinated Optimal Principal Amount allocable to the class B-3
certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
twelfth, to the class B-4 certificates, the sum of (1) the Interest
Accrual Amount with respect to that class and (2) any Interest Shortfall with
respect to that class;
thirteenth, to the class B-4 certificates, in an amount up to the
portion of the Subordinated Optimal Principal Amount allocable to the class B-4
certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
fourteenth, to the class B-5 certificates, the sum of (1) the Interest
Accrual Amount with respect to that class and (2) any Interest Shortfall with
respect to that class;
fifteenth, to the class B-5 certificates, in an amount up to the po ion
of the Subordinated Optimal Distribution Amount allocable to the class B-5
certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount"; and
sixteenth, to the class A-R certificate, the remaining portion, if any
(which is expected to be zero), of the Available Distribution Amount for the
Distribution Date.]
The class A-P certificates will not be entitled to receive interest and
will be entitled to receive principal with respect to the Discount Mortgage
Loans only. The class A-X certificates will not be entitled to receive principal
and will be entitled to receive interest with respect to the Non-Discount
Mortgage Loans only.
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Interest
On each Distribution Date, interest will be payable to each class
(other than the class A-P certificates) in an amount equal to the sum of (1) the
Interest Accrual Amount with respect to such class and (2) any Interest
Shortfall with respect to such class.
[Interest will accrue on the class A-5 and class A-6 certificates at
their respective Certificate Rates during the calendar month preceding the month
of the related Distribution Date (each period, an "Interest Accrual Period").
The Certificate Rates for the class A-5 and class A-6 certificates will be
calculated as follows:
(1) the Certificate Rate on the class A-5 certificates with respect to
the first Distribution Date will be ______%, and as to any
Distribution Date thereafter, the Certificate Rate on the class A-5
certificates will equal the lesser of (A) ____% plus LIBOR (as
determined below) and (B) ____%.
(2) the Certificate Rate on the class A-6 certificates with respect to
the first Distribution Date will be ________%, and as to any
Distribution Date thereafter, the Certificate Rate on the class A-6
certificates will equal the lesser of (A) _____% minus the product
of (x) ____ and (y) LIBOR, but not less than 0.00% and (B) _____%.]
[Determination of LIBOR
LIBOR for any Interest Accrual Period (other than the first Interest
Accrual Period) after the initial Interest Accrual Period will be determined as
described below.
On each Distribution Date, LIBOR shall be established by the Servicer
and as to any Interest Accrual Period (other than the first Interest Accrual
Period), LIBOR will equal the rate for United States dollar deposits for one
month which appears on Telerate Screen Page 3750 as of 11:00 A.M., London time,
on the second LIBOR Business Day prior to the Rate Adjustment Date. If the rate
does not appear on that page (or any page as may replace that page on that
service, or if the service is no longer offered, another service for displaying
LIBOR or comparable rates as may be selected by the Servicer), the rate will be
the Reference Bank Rate. The Servicer will request the principal London office
of each of the reference banks to provide a quotation of its rate. If at least
two quotations are provided, the rate will be the arithmetic mean of the
quotations. If on that date fewer than two quotations are provided as requested,
the rate will be the arithmetic mean of the rates quoted by one or more major
banks in New York City, selected by the Servicer, as of 11:00 A.M., New York
City time, on the date for loans in the U.S. Dollars to leading European banks
for a period of one month in amounts approximately equal to the aggregate
outstanding principal balance of the class [A-8 and class A-11] certificates. If
no quotations can be obtained, the rate will be LIBOR for the prior Distribution
Date, or in the case of the first Rate Adjustment Date, __%.
The establishment of LIBOR by the Servicer and its subsequent
calculation of the Certificate Rates applicable to the [class A-8 and class
A-11] certificates for the relevant Interest Accrual Period, in the absence of
manifest error, will be final and binding.]
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Principal (Including Prepayments)
[Distribution to the Class A-P Certificates
On each Distribution Date, the class A-P certificates will receive a
portion of the Available Distribution Amount attributable to principal received
on or with respect to any Discount Mortgage Loan equal to the amount of the
principal so attributable multiplied by the PO Percentage with respect to the
Discount Mortgage Loan. In addition, on each Distribution Date prior to and
including the Credit Support Depletion Date, the class A-P certificates also
will be allocated principal, to the extent of amounts available to pay the
Subordinated Optimal Principal Amount (without regard to clause (2) of the
definition of that term) on the Distribution Date, in an amount generally equal
to the Class A-P Shortfall Amount.
Allocation of the Non-PO Class A Optimal Principal Amount
Except after the Credit Support Depletion Date, distributions in
respect of principal will be made on each Distribution Date to the Non-PO Class
A Certificates as described below. On each Distribution Date, the Non-PO Class A
Optimal Principal Amount (defined herein) will be distributed to the Non-PO
Class A Certificateholders as follows:
[DESCRIBE PRINCIPAL PAYMENT METHODOLOGY]
On any Distribution Date after the Credit Support Depletion Date,
distributions among the classes of Non-PO Class A Certificates then outstanding
will be made pro rata in accordance with their respective outstanding principal
balances and not in accordance with the priorities set forth above.]
Allocation of the Subordinated Optimal Principal Amount
On each Distribution Date, distributions in respect of principal will
be made to each class of Subordinated Certificates up to an amount equal to the
portion of the Subordinated Optimal Principal Amount allocable to such class,
calculated as described below.
On each Distribution Date, the Subordinated Optimal Principal Amount
will be allocated among the outstanding classes of Subordinated Certificates
entitled to receive distributions in respect thereof on that Distribution Date,
as described in the second succeeding sentence. Each such class will be
allocated its pro rata portion of the Subordinated Optimal Principal Amount
based upon the outstanding principal balances of all classes of Subordinated
Certificates entitled to distributions in respect of the Subordinated Optimal
Principal Amount on the Distribution Date. On each Distribution Date, the
Subordinated Optimal Principal Amount will be allocated among the following
classes of certificates:
(1) any class of Subordinated Certificates which has current Credit Support
(before giving effect to any distribution of principal thereon on that
Distribution Date) greater than or equal to the original Credit Support for such
class;
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(2) the class of Subordinated Certificates having the lowest numerical class
designation of any outstanding class of Subordinated Certificates which does not
meet the criteria in (1) above; and
(3) the class B-5 certificates if all other outstanding classes of Subordinated
Certificates meet the criteria in (1) above or if no other class of Subordinated
Certificates is outstanding; provided, however, that no class of Subordinated
Certificates will receive any distribution in respect of the Subordinated
Optimal Principal Amount on any Distribution Date if on that Distribution Date
any class of Subordinated Certificates having a lower numerical class
designation than such class fails to meet the criteria in (1) above.
For the purposes of (2) above, the class M certificates will be deemed
to have a lower numerical class designation than each class of class B
certificates.
Each class of Subordinated Certificates (other than the class B-5
certificates) will have the benefit Credit Support. Generally, the level of
Credit Support for any class will decrease to the extent Realized Losses are
allocated to any class of Subordinated Certificates having a higher numerical
class designation and will increase to the extent that any class or classes of
certificates not subordinated to such class receives a disproportionate portion
of payments (including prepayments) of principal on the mortgage loans.
Additional Rights of the Class A-R Certificateholder
The class A-R certificate will remain outstanding for so long as the
trust fund shall exist, whether or not the class A-R certificate is receiving
current distributions of principal or interest. In addition to distributions of
principal and interest distributable as described under "Distributions on the
Certificateholders," the holder of the class A-R certificate will be entitled to
receive (1) the amounts, if any, of the Available Distribution Amount remaining
in the Certificate Account on any Distribution Date after distributions of
principal and interest on the certificates on that date and (2) the proceeds of
the assets of the trust fund, if any, remaining in the trust fund on the final
Distribution Date for the certificates, after distributions in respect of any
accrued and unpaid interest on the certificates, and after distributions in
respect of principal have reduced the Certificate Principal Balances of the
certificates to zero. It is not anticipated that there will be any material
assets remaining in the trust fund at any such time or
that any material distributions will be made with respect to the class A-R
certificate at any time. See "Federal Income Tax Consequences--Residual
Certificates" in the Prospectus.
Subordinated Certificates and Shifting Interests
The rights of the class M certificateholders to receive distributions
with respect to the mortgage loans will be subordinated to the rights of the
class A certificateholders and the rights of the holders of each class of class
B certificates to receive distributions with respect to the mortgage loans will
be subordinated to the rights of the holders of the class A certificates, the
class M certificates, and each class of class B certificates having a lower
numerical class designation than such class of class B certificates, each to the
extent described below. The subordination provided by the class M and class B
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certificates is intended to enhance the likelihood of regular receipt by the
class A certificateholders of the full amount of monthly distributions due them
and to protect the class A certificateholders against losses. The subordination
provided by each class of class B certificates is intended to enhance the
likelihood of regular receipt by the holders of the class A certificates, the
class M certificates, and each class of class B certificates having a lower
numerical class designation than such class of class B certificates of the full
amount of monthly distributions due them and to protect those Certificateholders
against losses.
On each Distribution Date payments to the class A certificateholders
will be made prior to payments to the class M and class B certificateholders,
payments to the class M certificateholders will be made prior to payments to the
class B certificateholders, payments to the class B-1 certificateholders will be
made prior to payments to the class B-2 certificateholders and the Non-Offered
Class B Certificateholders and payments to the class B-2 certificateholders will
be made prior to payments to the Non-Offered Class B Certificateholders. If on
any Distribution Date on which the aggregate outstanding principal balance of
the class M and class B certificates is greater than zero the Non-PO Class A
Certificateholders are paid less than the Non-PO Class A Optimal Principal
Amount for that date, the interest of the Non-PO Class A Certificateholders in
the trust fund will vary so as to preserve the entitlement of the Non-PO Class A
Certificateholders to unpaid principal of the mortgage loans and interest
thereon. This may have the effect of increasing the proportionate interest of
the Non-PO Class A Certificateholders in the trust fund.
The Non-PO Class A Certificateholders will be entitled to receive the
Non-PO Class A Prepayment Percentage of the applicable Non-PO Percentage of the
amount of principal prepayments and other unscheduled amounts of principal
received on the mortgage loans as described above. This will have the effect of
initially accelerating principal payments to the Non-PO Class A
Certificateholders and reducing their proportionate interest in the trust fund
and correspondingly increasing (in the absence of offsetting Realized Losses)
the Credit Support of each class of Subordinated Certificates having Credit
Support. See "Description of the Certificates--Distributions to
Certificateholders; and Principal (Including Prepayments) herein." Increasing
the interest of the class M and class B certificates in the trust fund relative
to that of the class A certificates is intended to preserve the availability of
the benefits of the subordination provided by the class M and class B
certificates.
All Realized Losses on the mortgage loans (other than Excess Losses)
generally will be allocated first, to the Non-Offered Class B Certificates until
the principal balance of the Non-Offered Class B Certificates has been reduced
to zero; second, to the class B-2 certificates until the principal balance of
the class B-2 certificates has been reduced to zero; third, to the class B-1
certificates until the principal balance of the class B-1 certificates has been
reduced to zero; fourth, to the class M certificates until the principal balance
of the class M certificates has been reduced to zero; and fifth, to the Non-PO
Class A Certificates pro rata based upon their respective outstanding principal
balances until the principal balance of the Non-PO Class A Certificates has been
reduced to zero; provided, however, that if a Realized Loss occurs with respect
to a Discount Mortgage Loan (A) the amount of the Realized Loss equal to the
product of (i) the amount of the Realized Loss and (ii) the PO Percentage with
respect to the Discount Mortgage Loan will be allocated to the class A-P
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certificates and (B) the remainder of the Realized Loss will be allocated as
described above.
Excess Losses will be allocated to all classes pro rata based upon
their respective outstanding principal balances; provided, however, that the
applicable PO Percentage of any Excess Losses on the Discount Mortgage Loans
will be allocated to the class A-P certificates.
The Special Hazard Amount will initially be equal to approximately
$_________. As of each anniversary of the Cut-off Date, the Special Hazard
Amount generally will be reduced, but not increased, to an amount equal to the
lesser of (1) the Special Hazard Amount as of the previous anniversary of the
Cut-off Date less the sum of all amounts allocated to the certificates in
respect of Special Hazard Losses on the mortgage loans since the previous
anniversary or (2) the Adjustment Amount. The "Adjustment Amount" with respect
to each anniversary of the Cut-off Date will be equal to the greatest of (1)
____% multiplied by the aggregate outstanding principal balance of the mortgage
loans, (2) the aggregate outstanding principal balance of the mortgage loans
secured by mortgaged properties located in the [California] postal zip code area
in which the highest percentage of the mortgage loans are located and (3) twice
the outstanding principal balance of the mortgage loan having the largest
outstanding principal balance, in each case as of the anniversary of the Cut-off
Date.
The Fraud Loss Amount will initially be equal to approximately
$_________. As of any date of determination after the Cut-off Date, the Fraud
Loss Amount generally will be equal to (1) prior to the first anniversary of the
Cut-off Date an amount equal to ____% of the aggregate principal balance of all
of the mortgage loans as of the Cut-off Date minus the aggregate amounts
allocated to the certificates with respect to Fraud Losses on the mortgage loans
up to the date of determination and (2) from the first to the fifth anniversary
of the Cut-off Date, an amount equal to (1) ____% of the aggregate principal
balance of all of the mortgage loans as of the most recent anniversary of the
Cut-off Date minus (2) the aggregate amounts allocated to the certificates with
respect to Fraud Losses on the mortgage loans since the most recent anniversary
of the Cut-off Date up to the date of determination. On and after the fifth
anniversary of the Cut-off Date, the Fraud Loss Amount will be zero.
The Bankruptcy Amount will initially be equal to approximately $______.
As of any date of determination, the Bankruptcy Amount will equal approximately
$______ less the sum of any amounts allocated to the certificates for losses up
to the date of determination.
Amounts actually paid at any time to the class M and class B
certificateholders in accordance with the terms of the agreement will not be
subsequently recoverable from the class M and class B certificateholders.
Federal Income Tax Considerations
The Seller intends to cause an election to be made to treat the assets
of the trust fund as a REMIC for federal income tax purposes. The Offered
Certificates (other than the class A-R certificate) will constitute "regular
interests" in the REMIC. The class A-R certificate will represent the "residual
interest" in the REMIC.
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All Certificateholders will be required to use the accrual method of
accounting with respect to interest income on the certificates, regardless of
their normal method of accounting. Holders of Offered Certificates that have
original issue discount will be required to include amounts in income with
respect to such certificates in advance of the receipt of cash attributable to
that income. It is anticipated that the class ______________ certificates will
be issued with original issue discount for federal income tax purposes. It is
also anticipated that the class ____________________ certificates will be issued
at a premium, and that the class ___________ certificates will be issued with de
minimis original issue discount for federal income tax purposes. The prepayment
assumption that will be used in computing the amount and rate of accrual of
original issue discount includible periodically will be ___% of the Prepayment
Model set forth herein. See "Prepayment and Yield Considerations." No
representation is made that payments on the Offered Certificates will occur at
that rate or any other rate.
The Offered Certificates will be treated as
(1) assets described in section 7701(a)(19)(C) of the Code and
(2) "real estate assets" within the meaning of section 856(c)(5)(B) of
the Code, in each case to the extent described herein and in the
Prospectus.
Interest on the Offered Certificates will be treated as "interest on
obligations secured by mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code to the same extent that the Offered Certificates are
treated as "real estate assets" within the meaning of section 856(c)(5)(B) of
the Code.
Class A-R Certificate
The holder of the class A-R certificate must include the taxable income
or loss of the REMIC in determining its federal taxable income. The class A-R
certificate will remain outstanding for federal income tax purposes until there
are no certificates of any other class outstanding. Prospective investors are
cautioned that the class A-R certificateholder's REMIC taxable income and the
tax liability thereon may exceed, and may substantially exceed, cash
distributions to the holder during certain periods, in which event, the holder
thereof must have sufficient alternative sources of funds to pay the tax
liability. Furthermore, it is anticipated that all or a substantial portion of
the taxable income of the REMIC includible by the holder of the class A-R
certificate will be treated as "excess inclusion" income, resulting in
(1) the inability of the holder to use net operating losses to offset
the income from the REMIC,
(2) the treatment of the income as "unrelated business taxable income"
to certain holders who are otherwise tax-exempt, and
(3) the treatment of the income as subject to 30% withholding tax to
certain non-U.S. investors, with no exemption or treaty reduction.
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The class A-R certificate will be considered a "noneconomic residual
interest," with the result that transfers thereof would be disregarded for
federal income tax purposes if any significant purpose of the transferor was to
impede the assessment or collection of tax. Accordingly, the transferee
affidavit used for transfer of the class A-R certificate will require the
transferee to affirm that it
(1) historically has paid its debts as they have come due and intends
to do so in the future,
(2) understands that it may incur tax liabilities with respect to the
class A-R certificate in excess of cash flows generated thereby,
(3) intends to pay taxes associated with holding the class A-R
certificate as taxes become due and
(4) will not transfer the class A-R certificate to any person or entity
that does not provide a similar affidavit.
The transferor must certify in writing to the trustee that, as of the
date of the transfer, it had no knowledge or reason to know that the
affirmations made by the transferee under the preceding sentence were false.
Additionally, the class A-R certificate generally may not be transferred to
certain persons who are not U.S. Persons. See "Description of the Certificates
--Restrictions on Transfer of the Class A-R, Class M and Offered Class B
Certificates" herein and "Federal Income Tax Consequences --REMIC
Certificates;--Income from Residual Certificates; Taxation of Certain Foreign
Investors;--Transfers of Residual Certificates" in the Prospectus.
An individual, trust or estate that holds the class A-R certificate
(the certificate is held directly or indirectly through certain pass-through
entities) also may have additional gross income with respect to, but may be
subject to limitations on the deductibility of, Servicing Fees on the mortgage
loans and other administrative expenses of the trust fund in computing the
holder's regular tax liability, and may not be able to deduct fees or expenses
to any extent in computing the holder's alternative minimum tax liability. In
addition, some portion of a purchaser's basis, if any, in the class A-R
certificate may not be recovered until termination of the trust fund.
Furthermore, the federal income tax consequences of any consideration paid to a
transferee on a transfer of the class A-R certificate are unclear. The preamble
to the REMIC Regulations indicates that the Internal Revenue Service anticipates
providing guidance with respect to the federal tax treatment of such
consideration. Any transferee receiving consideration with respect to the class
A-R certificate should consult its tax advisors.
Due to the special tax treatment of residual interests, the effective
after-tax return of the class A-R certificate may be significantly lower than
would be the case if the class A-R certificate were taxed as a debt instrument,
or may be negative.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
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ERISA Considerations
A fiduciary of Plan, or any other person investing "plan assets" of any
Plan, should carefully review with its legal advisors whether the purchase or
holding of class A certificates could give rise to a transaction prohibited or
not otherwise permissible under ERISA or the Code. See "ERISA Considerations" in
the Prospectus.
The class A-R certificate may not be purchased by or transferred to a
Plan or any other person investing "plan assets" of any Plan. Accordingly, the
following discussion does not purport to discuss any considerations under ERISA
with respect to the purchase, acquisition or resale of the class A-R certificate
and for purposes of the following discussion all references to the Offered
Certificates are deemed to exclude the class A-R certificate.
The DOL has issued PTCE 83-1 exempting certain transactions involving
mortgage pool investment entities holding mortgages on certain residential
property from the prohibited transaction provisions of ERISA and the Code. See
"ERISA Considerations" in the Prospectus for a discussion of PTCE 83-1 and the
prohibited transaction provisions of ERISA and the Code.
Prohibited Transaction Exemption _____, __ Fed. Reg. _____ [DATE]
granted by the DOL to [UNDERWRITER], exempts the purchase and holding of the
class A certificates by or with "plan assets" of a Plan from certain of the
prohibited transaction provisions of section 406(a) of ERISA (and the excise
taxes imposed by section 4975(c)(1)(A) of the Code) provided that certain
conditions are met. Among the conditions are the following:
(1) the Underwriter is the sole underwriter, or the manager or
co-manager of the underwriting syndicate for the class A
certificates,
(2) the class A certificates are rated in one of the three highest
generic rating categories by Moody's or Fitch,
(3) the class A certificates are collateralized by, among other things,
obligations that bear interest or are purchased at a discount and
which are secured by single-family residential, multifamily
residential or commercial real property (including obligations
secured by leasehold interests on commercial real property), or
fractional undivided interests in such obligations,
(4) the class A certificates are not subordinated to other certificates
of the trust fund,
(5) the Plan is an "accredited investor" (as defined under Rule
501(a)(1) of Regulation D under the Act,
(6) the acquisition of the class A certificates by a Plan is on terms
that are at least as favorable to the Plan as they would be in an
arm's length transaction with an unrelated third party, and
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(7) the compensation to the Underwriter represents reasonable
compensation, the proceeds to the Seller represent no more than the
fair market value of the obligations securing the class A
certificates and the sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation for
the Servicer's services under the agreement and reimbursement of
the Servicer's reasonable expenses in connection therewith.
The Underwriter expects that the class A certificates will satisfy the
conditions of the Exemption set forth above in clauses (1), (3), (4) and (7).
Whether the remaining conditions of the Exemption will be satisfied with respect
to the class A certificates will depend on the circumstances at the time "plan
assets" of a Plan are used to acquire the certificates. In that connection, the
class A certificates will, on the date of their original issue, satisfy the
condition set forth in clause (2). In addition, if certain additional conditions
specified in the Exemption are met, the Exemption would provide an exemption
from the prohibited transaction provisions of ERISA section 406(b) (and the
excise taxes imposed by section 4975(c)(1)(E) of the Code) relating to possible
self-dealing transactions by fiduciaries who have discretionary authority, or
render investment advice, with respect to assets of Plans used to purchase class
A certificates where the fiduciary (or its affiliate) is an obligor on the
obligations or receivables held in the trust fund. The Exemption would not apply
to certain otherwise prohibited transactions with respect to Plans sponsored by
the following entities (or any affiliate of any such entity):
(1) the Seller,
(2) [UNDERWRITER],
(3) the trustee,
(4) the Servicer or
(5) any obligor with respect to obligations or receivables included in
the Seller constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Seller.
Before purchasing a class A certificate, a fiduciary of a Plan or any
other person investing "plan assets" of any Plan, should itself confirm that
(1) the class A certificates constitute "certificates" for the purposes
of the Exemption and
(2) that the specific and general conditions set forth in the Exemption
would be satisfied.
In addition to making its own determination as to the availability of
the exemptive relief provided in the Exemption, the fiduciary or other Plan
S-56
<PAGE>
investor should consider its general fiduciary obligations under ERISA in
determining whether to purchase a certificate on behalf or with "plan assets" of
a Plan.
Neither the Exemption nor PTCE 83-1 will apply to the class M, the
class B-1 or the class B-2 certificates; therefore, the purchase or holding of a
class M, a class B-1 or a class B-2 certificate by or with "plan assets" of a
Plan may result in prohibited transactions or the imposition of excise taxes or
civil penalties. Accordingly, transfer of the class M, class B-1 or class B-2
certificates will not be made unless the transferee
(1) executes a representation letter in form and substance satisfactory
to the trustee and the Seller stating that (a) it is not, and is
not acting on behalf of, any Plan or using the "plan assets" of any
Plan to effect the purchase or (b) if it is an insurance company,
that the source of funds used to purchase the class M, class B-1 or
class B-2 certificates is an "insurance company general account"
(as that term is defined in Section V(e) of PTCE 95-60, 60 Fed.
Reg. 35925 (July 12, 1995) and the terms and conditions of Section
III of PTCE 95-60 applicable to the acquisition and holding of the
certificates will be met or
(2) provides an opinion of counsel in form and substance satisfactory
to the trustee and the Seller that the purchase or holding of the
class M, class B-1 or class B-2 certificates by or on behalf of the
Plan will not result in the assets of the trust fund being deemed
to be "plan assets" and subject to the prohibited transaction
provisions of ERISA and the Code and will not subject the Seller,
the Servicer or the trustee to any obligation in addition to those
undertaken in the agreement.
The class M, class B-1 and class B-2 certificates will contain a legend
describing the restrictions on transfer and the agreement will provide that any
attempted or purported transfer in violation of these transfer restrictions will
be null and void and will vest no rights in any purported transferee.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1, the
Exemption or other exemptions, and the potential consequences to their specific
circumstances prior to making an investment in the class A certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the class A 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.
The sale of certificates to a Plan is in no respect a representation by
the Seller or the underwriter 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.
S-57
<PAGE>
Legal Investment Matters
[The class A and class M certificates offered hereby will constitute
"mortgage related securities" for purposes of the 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 authorities should review applicable rules, supervisory policies and
guidelines, since 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 certificates constitute legal investments for them. See
"Legal Investment Matters" in the Prospectus.
The class B-1 and class B-2 certificates will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of the class
B-1 and class B-2 certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase class
B-1 and class B-2 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 B-1 and class B-2 certificates will constitute legal
investments for them.
Except as to the status of the class A and class M 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 Seller to the purchase price of
the mortgage loans.
Underwriting
Subject to the terms and conditions of the underwriting agreement dated
[DATE] and the terms agreement dated [DATE] between the Seller and
[UNDERWRITER], the Offered Certificates are being purchased from the Seller by
the underwriter.
The underwriting agreement provides that the underwriter's obligations
thereunder are subject to certain conditions precedent. The underwriter is
committed to purchase all of the Offered Certificates if any Offered
Certificates are purchased.
S-58
<PAGE>
The underwriter has advised the Seller that it proposes to offer the
Offered Certificates purchased by the underwriter, from time to time in one or
more negotiated transactions, or otherwise, at varying prices to be determined,
in each case, at the time of sale. The underwriter may effect the transactions
by selling the Offered Certificates purchased by the underwriter to or through
dealers, and the dealers may receive from the underwriter, for whom they act as
agents, compensation in the form of underwriting discounts, concessions or
commissions. The underwriter and any dealers that participate with the
underwriter in the distribution of the Offered Certificates may be deemed to be
underwriters, and any discounts, concessions or commissions received by them,
and any profit on the resale of the Offered Certificates by them, may be deemed
to be underwriting discounts and commissions under the Act.
The underwriting agreement provides that the Seller will indemnify the
underwriter against certain civil liabilities, including liabilities under the
Act.
Legal Matters
Certain legal matters will be passed upon for the Seller by Morgan,
Lewis & Bockius LLP, New York, New York and for the underwriter by
_________________. The material federal income tax consequences of the
certificates will be passed upon for the Seller by Morgan, Lewis & Bockius LLP.
Ratings
It is a condition to the issuance of the Offered Certificates that the
class A certificates be rated ["AAA" by each of [RATING AGENCY] and [RATING
AGENCY], and that the class M, class B-1 and class B-2 certificates be rated at
least "AA", "A" and "BBB", respectively, by [RATING AGENCY].
The ratings of [RATING AGENCY] on mortgage pass-through certificates
address [the likelihood of the receipt by Certificateholders of all
distributions to which the Certificateholders are entitled. [RATING AGENCY]
rating opinions address the structural and legal issues and tax-related aspects
associated with the certificates, including the nature of the underlying
mortgage loans. [RATING AGENCY] ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may differ
from those originally anticipated nor do they address the possibility that, as a
result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.]
The ratings by [RATING AGENCY] assigned to the Offered Certificates [do
not constitute a recommendation to purchase or sell the certificates. Rather,
they are an indication of the likelihood of the payment of principal and
interest as set forth in the transaction documentation. The ratings do not
address the effect on the Offered Certificates' yield attributable to
prepayments or recoveries on the underlying mortgage loans. Further the ratings
on the [class A-X] certificates do not address whether investors will recoup
their initial investment. Additionally, the rating on the class A-R certificates
addresses only the return of the class A-R certificate's principal balance and
interest thereon at the stated rate. The ratings on the class A-P certificates
do not assess the likelihood of return to investors except to the extent of the
principal balance thereof.]
S-59
<PAGE>
The ratings of 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 assigning rating agency.
The Seller has not requested a rating of the Offered Certificates by
any rating agency other than [RATING AGENCY] and [RATING AGENCY] and the Seller
has not provided information relating to the certificates offered hereby or the
mortgage loans to any rating agency other than [RATING AGENCY] and [RATING
AGENCY]. However, there can be no assurance as to whether any other rating
agency will rate the Offered Certificates or, if another rating agency rates the
certificates, what rating would be assigned to the certificates by the rating
agency. Any unsolicited rating assigned by another rating agency to the Offered
Certificates may be lower than the rating assigned to the certificates by
either, or both, of [RATING AGENCY] and [RATING AGENCY].
S-60
<PAGE>
Glossary of Defined Terms
Accounts means one or more accounts, maintained in
the name of the trustee under the
agreement.
Act means the Securities Act of 1933, as
amended
Adjusted Lockout Percentage means (1) for any Distribution Date prior
to the Distribution Date in [MONTH/YEAR],
0% and (2) for any Distribution Date on
or after the Distribution Date in
[MONTH/YEAR], the Lockout Percentage.
Available Distribution Amount means, generally, as of any Distribution
Date, an amount equal to the amount on
deposit in the Collection Account as of
the close of business on the related
Servicer Remittance Date (including
amounts to be advanced by the Servicer in
respect of delinquent Monthly Payments),
except: (a) amounts received as late
payments or other recoveries of principal
or interest (including liquidation
proceeds and insurance proceeds) and
applied to the reimbursement of
unreimbursed Advances and amounts
representing reimbursement for Advances
determined to be non-recoverable and
amounts representing reimbursement for
certain losses and expenses incurred by
the Servicer, as described in the
agreement; (b) the Servicing Fee, as
adjusted as provided in the agreement
with respect to principal prepayments;
(c) all amounts representing Monthly
Payments due after the related Due Date;
and (d) all principal prepayments,
liquidation proceeds, insurance proceeds,
condemnation proceeds and repurchase
proceeds received after the related
Principal Prepayment Period; and (e) all
income from investments held in the
Collection Account for the account of the
Servicer.
Bankruptcy Amount means the aggregate amount of Bankruptcy
Losses which may be allocated to the
Subordinated Certificates.
Bankruptcy Loss means a Deficient Valuation or a Debt
Service Reduction.
Book-Entry Certificates means the Offered Certificates, other
than the class A-R, class M, class B-1
and class B-2 certificates.
S-61
<PAGE>
Business Day means any day other than (1) a Saturday
or Sunday, (2) a legal holiday in the
State of New York or (3) a day on which
banking institutions in the State of New
York are authorized or obligated by law
or executive order to be closed.
Certificate Account means the account into which the Servicer
will deposit or cause to be deposited on
the Servicer Remittance Date the
Available Distribution Amount for the
related Distribution Date, together with
other amounts specified in the agreement.
Certificate Owner means a person acquiring an interest in
the Book-Entry Certificates.
Certificate Rate means for any class of certificates
(other than the class A-P, class A-X and
Non-Offered Class B Certificates) the per
annum rate of interest specified or
described for such class on the table on
page S-3 hereof. The Certificate Rate for
each class of Non-Offered Class B
Certificates is equal to ____%. The
Certificate Rate for the class A-X
certificates will equal, with respect to
each Distribution Date, the weighted
average, expressed as a percentage, of
the Stripped Interest Rate on each
Non-Discount Mortgage Loan as of the Due
Date in the month preceding the month in
which the Distribution Date occurs,
weighted as the basis of the respective
principal balances of the Non-Discount
Mortgage Loans.
Certificateholders means holders of certificates.
Chase means The Chase Manhattan Bank.
Class A Certificates means the class A-1, class A-2, class
A-3, class A-4, class A-5, class A-6,
class A-7, class A-P, class A-R and class
A-X certificates, referred to
collectively.
S-62
<PAGE>
Class A-P Shortfall Amount means (1) the applicable PO Percentage of
the principal portion of any Realized
Loss with respect to a Discount Mortgage
Loan other than an Excess Loss and (2)
the sum of amounts, if any, by which the
amounts specified in clause (1) with
respect to each prior Distribution Date
exceeded the amount actually distributed
in respect thereof on such prior
Distribution Date and not subsequently
distributed to the class A-P
certificates; provided, however, that the
payments in respect of the Class A-P
Shortfall Amount will not cause a further
reduction in the principal balance of the
class A-P certificates.
Class A-X Notional Amount means, with respect to any Distribution
Date, the aggregate Scheduled Principal
Balance of the Non-Discount Mortgage
Loans.
Class B Certificates means the class B-1, class B-2, class
B-3, class B-4 and class B-5
certificates, referred to collectively.
Collection Account means the account into which the Servicer
is generally required to deposit or cause
to be deposited on a daily basis the
payments and collections.
Corporate Trust Office means the Corporate Trust Office of the
trustee, located at [ADDRESS].
Credit Scores means statistical credit scores obtained
by many mortgage lenders in connection
with the loan application to help assess
a borrower's creditworthiness.
Credit Support means, for a class of Subordinated
Certificates, in each case the percentage
obtained by dividing the aggregate
outstanding principal balance of all
classes of Subordinated Certificates
having higher numerical class
designations than such class by the
aggregate outstanding principal balance
of all outstanding classes of
certificates (exclusive of the
outstanding principal balance of class
A-P certificates) (for this purpose, the
class M certificates shall be deemed to
have a lower numerical class designation
than each class of class B certificates).
Credit Support Depletion Date means the first Distribution Date on
which the aggregate outstanding principal
balance of the Subordinated Certificates
has been or will be reduced to zero.
Cut-off Date means [DATE].
S-63
<PAGE>
DCR means Duff & Phelps Credit Rating Co.
Debt Service Reduction means any reduction in the amount which a
mortgagor is obligated to pay on a
monthly basis with respect to a mortgage
loan as a result of any proceeding
initiated under the United States
Bankruptcy Code, other than a reduction
attributable to a Deficient Valuation.
Deficient Valuation means, with respect to any mortgage loan,
valuation by a court of competent
jurisdiction of the mortgaged property in
an amount less than the then outstanding
indebtedness under the mortgage loan,
which valuation results from a proceeding
initiated under the United States
Bankruptcy Code.
Definitive Certificates mean certificates issued in fully
registered, certificated form.
Discount Mortgage Loans means those mortgage loans having Net
Mortgage Rates less than the Remittance
Rate.
Distribution Date means the 25th day of each month or, if
that day is not a business day, the next
succeeding business day.
DOL means the United States Department of
Labor.
Due Date means the first day of each month.
Excess Bankruptcy Losses means Bankruptcy Losses in excess of the
Bankruptcy Amount.
Excess Fraud Losses means Fraud Losses in excess of the Fraud
Loss Amount.
Excess Losses means collectively, Excess Fraud Losses,
Excess Bankruptcy Losses and Excess
Special Hazard Losses.
Excess Special Hazard Losses means Special Hazard Losses in excess of
the Special Hazard Amount.
Exemption means Prohibited Transaction Exemption
_____, __ Fed. Reg. _____ [DATE] granted
by the DOL to [UNDERWRITER].
FHLMC means the Federal Home Loan Mortgage
Corporation.
Final Scheduled Distribution means [DATE], which is the Distribution
Date Date occurring in the month that is one
month following the latest stated
maturity date of any mortgage loan.
FNMA means the Federal National Mortgage
Association.
S-64
<PAGE>
Fraud Loss Amount means the amount of Fraud Losses which
may be allocated to the Subordinated
Certificates.
Fraud Losses means the aggregate amount of Realized
Losses incurred on defaulted mortgage
loans as to which there was fraud in the
origination of such mortgage loan.
Indirect Participants means banks, brokers, dealers and trust
companies that clear through or maintain
a custodial relationship with a
Participant, either directly or
indirectly.
Interest Accrual Amount means as of any Distribution Date, with
respect to any class of certificates
(other than the class A-P certificates)
means generally one month's interest at
the Certificate Rate on the outstanding
principal balance thereof (or, in the
case of the class A-X certificates, on
the Class A-X Notional Amount), minus (1)
any Non-Supported Interest Shortfalls
allocated to such class on the
Distribution Date.
Interest Shortfall means as of any Distribution Date, with
respect to any class of certificates
(other than the class A-P certificates)
means generally any portion of the
Interest Accrual Amount with respect to
any previous distribution amount which
remains unpaid (before giving effect to
distributions made on the Distribution
Date).
LIBOR Business Day means any day other than (i) a Saturday
or a Sunday or (ii) a day on which
banking institutions in the city of
London, England are required or
authorized by law to be closed.
Liquidated Mortgage Loan means a mortgage
loan as to which the Servicer has
determined that all amounts which it
expects to recover from or on account of
such mortgage loan, whether from
insurance proceeds, liquidation proceeds
or otherwise, have been recovered.
Liquidation Principal means, with respect to each mortgage loan
which has become a Liquidated Mortgage
Loan during the related Principal
Prepayment Period, an amount equal to the
applicable Non-PO Percentage of the net
liquidation proceeds, if any, with
respect to such Liquidated Mortgage Loan
(net of any unreimbursed advances).
S-65
<PAGE>
Lockout Liquidation Amount means, the aggregate, for each mortgage
loan which became a Liquidated Mortgage
Loan during the calendar month preceding
the month of the Distribution Date, of
the lesser of (1) the Lockout Percentage
of the applicable Non-PO Percentage of
the outstanding principal balance of such
mortgage loan and (2) the Lockout
Prepayment Percentage of the Liquidation
Principal with respect to such mortgage
loan.
Lockout Percentage for any Distribution Date means (A) the
outstanding principal balance of the
class [A-7] certificates divided by (B)
the Non-PO Class A Principal Balance, in
each case immediately prior to the
Distribution Date, but in no event will
the Lockout Percentage exceed 100%. The
Lockout Percentage as of the Cut-Off Date
will be approximately _________%. Lockout
Prepayment Percentage means the product of (a) the Lockout
Percentage and (b) the Step Down
Percentage.
S-66
<PAGE>
Lockout Principal Distribution for any Distribution Date means the sum
Amount of (1) the Lockout Percentage of the
Non-PO Class A Percentage of the
applicable Non-PO Percentage of the
principal portion of all Monthly
Payments, whether or not received, which
were due on the related Due Date on
outstanding mortgage loans as of the Due
Date, (2) the Lockout Prepayment
Percentage of the Non-PO Class A
Percentage of the applicable Non-PO
Percentage of (A) the principal portion
of principal prepayments, (B) the sum of
the principal portion of all insurance
proceeds, condemnation awards and any
other cash proceeds from a source other
than the mortgagor, to the extent
required to be deposited in the
Collection Account, which were received
during the related Principal Prepayment
Period, net of related unreimbursed
servicing advances and net of any portion
thereof which, as to any mortgage loan,
constitutes a late collection with
respect to which an advance has
previously been made and (C) with respect
to each mortgage loan repurchased during
the related Principal Prepayment Period,
the principal portion of the purchase
price thereof (net of amounts with
respect to which a distribution has
previously been made to the Non-PO Class
A Certificateholders), in each case
received during the related Principal
Prepayment Period and (3) with respect to
any Distribution Date on or after the
Distribution Date in [MONTH/YEAR], the
Lockout Liquidation Amount (defined
below).]
S-67
<PAGE>
Modeling Assumptions means the following:
o scheduled payments on all mortgage
loans are received on the first day of
each month beginning in [MONTH/YEAR];
o any principal prepayments on the
mortgage loans are received on the last
day of each month beginning in
[MONTH/YEAR] and include 30 days of
interest thereon;
o there are no defaults or delinquencies
on the mortgage loans;
o optional termination of the trust fund
does not occur;
o there are no partial prepayments on the
mortgage loans and prepayments are
computed after giving effect to
scheduled payments received on the
following day;
o the mortgage loans prepay at the
indicated constant percentages of the
Prepayment Model;
o the date of issuance for the
certificates is [DATE];
o cash distributions are received by the
Certificateholders on the 25th day of
each month when due and
o the scheduled monthly payments for the
mortgage loans are computed based upon
the amount of principal and interest
contractually due each month under the
mortgage note.
Monthly Payments means monthly payments of principal and
interest on the mortgage loans.
Moody's means Moody's Investors Service, Inc.
Mortgage Loan Schedule means the schedule of mortgage loans
appearing as an exhibit to the pooling
and servicing agreement.
Net Mortgage Rate means with respect to each mortgage loan,
the applicable mortgage rate less the
Servicing Fee Rate.
Non-Discount Mortgage Loans means mortgage loans having Net Mortgage
Rates greater than the Remittance Rate.
Non-Offered Class B Certificates means the class B-3, class B-4 and class
B-5 certificates, referred to
collectively.
S-68
<PAGE>
Non-PO Percentage means, with respect to each mortgage
loan, a fraction, expressed as a
percentage (but not greater than 100%),
the numerator of which will equal the
applicable Net Mortgage Rate and the
denominator of which will equal the
Remittance Rate. The Non-PO Percentage
will be 100% with respect to mortgage
loans for which the Net Mortgage Rate is
greater than or equal to the Remittance
Rate.
S-69
<PAGE>
Non-PO Class A Prepayment means, generally, as of any Distribution
Date up to and Percentage including the
Distribution Date in [MONTH/YEAR], 100%;
as of any Distribution Date in the first
year thereafter, the Non-PO Class A
Percentage plus ___% of the Subordinated
Percentage for the Distribution Date; as
of any Distribution Date in the second
year thereafter, the Non-PO Class A
Percentage plus __% of the Subordinated
Percentage for the Distribution Date; as
of any Distribution Date in the third
year thereafter, the Non-PO Class A
Percentage plus __% of the Subordinated
Percentage for the Distribution Date; as
of any Distribution Date in the fourth
year thereafter, the Non-PO Class A
Percentage plus __% of the Subordinated
Percentage for the Distribution Date; and
as of any Distribution Date after the
fourth year thereafter, the Non-PO Class
A Percentage; provided that, if the
Non-PO Class A Percentage as of any
Distribution Date is greater than the
initial Non-PO Class A Percentage, the
Non-PO Class A Prepayment Percentage
shall be 100%; and provided further, that
whenever the Non-PO Class A Percentage
equals 0%, the Non-PO Class A Prepayment
Percentage will equal 0% and provided
further, however, that no reduction of
the Non-PO Class A Prepayment Percentage
below the level in effect for the most
recent period shall occur with respect to
any Distribution Date unless, as of the
last day of the month preceding the
Distribution Date, (1) the aggregate
outstanding principal balance of mortgage
loans delinquent 60 days or more
(including for this purpose any mortgage
loans in foreclosure and mortgage loans
with respect to which the related
mortgaged property has been acquired by
the trust fund) does not exceed __% of
the aggregate principal balance of the
Subordinated Certificates as of such date
and (2) cumulative Realized Losses do not
exceed (a) __% of the aggregate principal
balance of the subordinated certificates
as of the date of issuance of the
certificates if the Distribution Date
occurs in the year beginning with and
including the fifth anniversary of the
first Distribution Date, (b) __% of the
Original Subordinated Principal Balance
if the Distribution Date occurs in the
year beginning with and including the
sixth anniversary of the first
Distribution Date, (c) __% of the
Original Subordinated Principal Balance
if the Distribution Date occurs in the
year beginning with and including the
eighth anniversary of the first
Distribution Date, and (e) __% of the
S-70
<PAGE>
Original Subordinated Principal Balance
if the Distribution Date occurs in the
year beginning with and including the
ninth anniversary of the first
Distribution Date and thereafter.
Non-PO Class A Principal means, generally, as of any Distribution
Date, (a) the Balance Non-PO Class A
Principal Balance for the preceding
Distribution Date less (b) amounts
distributed to the Non-PO Class A
Certificateholders on such preceding
Distribution Date allocable to principal
(including advances) and any losses
allocated to the Non-PO Class A
Certificates; provided that the Non-PO
Class A Principal Balance on the first
Distribution Date will be the initial
Non-PO Class A Principal Balance, which
is expected to be approximately
$_________.
Non-PO Allocated Amount means the amount obtained as of any date
by (1) multiplying the outstanding
principal balance of each mortgage loan
as of such date (giving effect to any
advances but prior to giving effect to
any principal prepayments received with
respect to the mortgage loans that have
not been passed through to the
Certificateholders) by the Non-PO
Percentage with respect to the mortgage
loan and (2) summing the results.
Non-PO Class A Percentage means as of any Distribution Date, a
fraction, expressed as a percentage, the
numerator of which is the Non-PO Class A
Principal Balance and the denominator of
which is the Non-PO Allocated Amount
immediately prior to the Due Date in the
month of the Distribution Date.
S-71
<PAGE>
Non-PO Class A Optimal means, generally, as of any Distribution
Principal Amount Date, an amount, not in excess of the
Non-PO Class A Principal Balance equal to
the sum of: (a) an amount equal to the
Non-PO Class A Percentage of the
applicable Non-PO Percentage of the
principal portion of all Monthly Payments
whether or not received, which were due
on the related Due Date on outstanding
mortgage loans as of the Due Date; (b) an
amount equal to the Non-PO Class A
Prepayment Percentage of the applicable
Non-PO Percentage of all principal
prepayments received during the related
Principal Prepayment Period; (c) with
respect to each mortgage loan not
described in (d) below, an amount equal
to the Non-PO Class A Percentage of the
applicable Non-PO Percentage of the sum
of the principal portion of all insurance
proceeds, condemnation awards and any
other cash proceeds from a source other
than the mortgagor, to the extent
required to be deposited in the
Collection Account, which were received
during the related Principal Prepayment
Period, net of related unreimbursed
servicing advances and net of any portion
thereof which, as to any mortgage loan,
constitutes a late collection with
respect to which an advance has
previously been made; (d) with respect to
each mortgage loan which has become a
Liquidated Mortgage Loan (defined below)
during the related Principal Prepayment
Period, an amount equal to the lesser of
(1) the Non-PO Class A Percentage of the
applicable Non-PO Percentage of an amount
equal to the principal balance of the
mortgage loan (net of advances with
respect to principal) as of the Due Date
immediately preceding the date on which
it became a Liquidated Mortgage Loan and
(2) the Non-PO Class A Prepayment
Percentage of the applicable Non-PO
Percentage of the net liquidation
proceeds, if any, with respect to the
Liquidated Mortgage Loan (net of any
unreimbursed Advances); (e) with respect
to each mortgage loan repurchased during
the related Principal Prepayment Period,
an amount equal to the Non-PO Class A
Prepayment Percentage of the applicable
Non-PO Percentage of the principal
portion of the purchase price thereof
(net of amounts with respect to which a
distribution has previously been made to
the Non-PO Class A Certificateholders);
and (f) while none of the Subordinated
Certificates remains outstanding, the
excess of the outstanding principal
balance of the Non-PO Class A
S-72
<PAGE>
Certificates (calculated after giving
effect to reductions thereof on the
Distribution Date with respect to amounts
described in (a) - (e) above) over the
Non-PO Allocated Amount.
Non-PO Class A Certificates means, collectively, the class A
certificates (exclusive of the class A-P
certificates).
Non-recoverable Advance means an advance, with respect to any
mortgage loan, as to which the Servicer
makes a good faith judgment that all or
any portion of such advance made by it
may not ultimately be recoverable from
related liquidation proceeds.
Non-Supported Interest Shortfall means a Prepayment Interest Shortfalls
(adjusted to the applicable Net Mortgage
Rate) in excess of such amount.
Offered Certificates means the class A certificates (exclusive
of the class A-X certificates), class M
certificates, class B-1 certificates and
class B-2 certificates, referred to
collectively.
Original Subordinated Principal means the aggregate principal balance of
Balance the Subordinated Certificates as of the
date of the issuance of the certificates.
Participant means participants in DTC, including
securities brokers and dealers (including
[UNDERWRITER]), banks, trust companies
and clearing corporations.
PO Percentage means a fraction, expressed as a
percentage (but not less than 0%), the
numerator of which will equal the excess,
if any, of the Remittance Rate over the
applicable Net Mortgage Rate and the
denominator of which will equal the
Remittance Rate. The PO Percentage will
be 0% with respect to mortgage loans for
which the Net Mortgage Rate is greater
than or equal to the Remittance Rate.
S-73
<PAGE>
Prepayment Interest Shortfall means the shortfall in interest which
results when a mortgagor makes a full or
partial principal prepayment of a
mortgage loan between Due Dates and
generally is required to pay interest on
the principal balance thereof only to the
date of prepayment.
Prepayment Model means the prepayment models or standards
used in this prospectus supplement.
Principal Prepayment Period the period from the first day of any
month to the last day of that month.
PTCE 83-1 means Prohibited Transaction Class
Exemption 83-1.
PTCE 95-60 means Prohibited Transaction Class
Exemption 95-60.
Rate Adjustment Date means the second LIBOR Business Day prior
to the first day of an Interest Accrual
Period.
Realized Loss means generally the amount, if any, with
respect to any defaulted mortgage loan
which has been liquidated in accordance
with the agreement, by which the unpaid
principal balance and accrued interest
thereon at a rate equal to the Net
Mortgage Rate exceeds the amount actually
recovered by the Servicer with respect to
the defaulted mortgage loan (net of
reimbursement of certain expenses) at the
time the defaulted mortgage loan was
liquidated.
Record Date means the last business day of the month
preceding the month on which a payment is
made.
Reference Bank Rate means the rate determined on the basis of
the rates at which deposits in the U.S.
Dollars are offered by the reference
banks (which shall be three major banks
that are engaged in transactions in the
London interbank market, selected by the
Servicer) as of 11:00 A.M., London time,
on the day that is two LIBOR Business
Days prior to the first date of the
related Interest Accrual Period to prime
banks in the London interbank market for
a period of one month in amounts
approximately equal to the aggregate
outstanding principal balance of the
class [__] certificates.
Remittance Rate means __% per annum.
Rules means the rules, regulations and
procedures creating and affecting DTC and
its operations.
S-74
<PAGE>
Scheduled Principal Balance means, for a mortgage loan, as of any
Distribution Date, the unpaid principal
balance of a mortgage loan as specified
in the amortization schedule at the time
relating to the mortgage loan (before any
adjustment to the schedule by reason of
bankruptcy or similar proceeding or any
moratorium or similar waiver or grace
period) as of the first day of the month
preceding the month of the Distribution
Date, after giving effect to any
previously applied prepayments, the
payment of principal due on the first day
of the month and any reduction of the
principal balance of the mortgage loan by
a bankruptcy court, irrespective of any
delinquency in payment by the related
mortgagor.
Seller means Chase Manhattan Acceptance
Corporation.
Servicer Remittance Date means the Business Day preceding the 25th
day of each month, or, if that day is not
a Business Day, the preceding Business
Day.
Servicer means Chase Manhattan Mortgage
Corporation.
Servicing Fee means a monthly fee (including
sub-servicing compensation) with respect
to each mortgage loan in an amount equal
to the Servicing Fee Rate per annum of
the unpaid principal balance of each
mortgage loan.
Servicing Fee Rate means ____% per annum.
SMMEA means the Secondary Mortgage Market
Enhancement Act of 1984, as amended.
Special Hazard Loss means in respect of any defaulted
mortgage loan as a result of direct
physical loss or damage to the mortgaged
property, which is not insured against
under the standard hazard insurance
policy or blanket policy insuring against
hazard losses which the Servicer is
required to cause to be maintained on
each mortgage loan. See "Servicing of the
Mortgage Loans-Hazard Insurance" in the
Prospectus.
Special Hazard Amount means the aggregate amount of Special
Hazard Losses that may be allocated to
the Subordinated Certificates.
S-75
<PAGE>
Special Hazard Loss means a loss incurred in respect of any
defaulted mortgage loan as a result of
direct physical loss or damage to the
mortgaged property, which is not insured
against under the standard hazard
insurance policy or blanket policy
insuring against hazard losses which the
Servicer is required to cause to be
maintained on each mortgage loan.
Step Down Percentage means for any Distribution Date the
percentage indicated below: (1)
[MONTH/YEAR] through [MONTH/YEAR] = ___%,
(2) [MONTH/YEAR] through [MONTH/YEAR] =
___%, (3) [MONTH/YEAR] and thereafter =
___%.
Stripped Interest Rate means for each mortgage loan, the excess,
if any, of the Net Mortgage Rate for the
mortgage loan over the Remittance Rate.
S-76
<PAGE>
Subordinated Optimal Principal means generally as of any Distribution
Date, an amount, Amount not in excess of
the aggregate outstanding principal
balance of the Subordinated Certificates,
equal to (1) the sum of: (a) an amount
equal to the Subordinated Percentage of
the applicable Non-PO Percentage of the
principal portion of all Monthly Payments
whether or not received, which were due
on the related Due Date on outstanding
mortgage loans as of the Due Date; (b) an
amount equal to the Subordinated
Prepayment Percentage of the applicable
Non-PO Percentage of all principal
prepayments received during the related
Principal Prepayment Period; (c) with
respect to each mortgage loan not
described in (d) below, an amount equal
to the Subordinated Percentage of the
applicable Non-PO Percentage of the sum
of the principal portion of all insurance
proceeds, condemnation awards and any
other cash proceeds from a source other
than the mortgagor, to the extent
required to be deposited in the
Collection Account, which were received
during the related Principal Prepayment
Period, net of related unreimbursed
servicing advances and net of any portion
thereof which, as to any mortgage loan,
constitutes a late collection with
respect to which an Advance has
previously been made; (d) with respect to
each mortgage loan which has become a
Liquidated Mortgage Loan during the
related Principal Prepayment Period, an
amount equal to the portion (if any) of
the net liquidation proceeds with respect
to the Liquidated Mortgage Loan (net of
any unreimbursed Advances) that was not
included in the Class A-P Distribution
Amount or the Non-PO Class A Optimal
Principal Amount with respect to the
Distribution Date; and (e) with respect
to each mortgage loan repurchased during
the related Principal Prepayment Period,
an amount equal to the Subordinated
Prepayment Percentage of the applicable
Non-PO Percentage of the principal
portion of the purchase price thereof
(net of amounts with respect to which a
distribution has previously been made to
the Subordinated Certificateholders),
minus (2) the Class A-P Shortfall Amount
with respect to the Distribution Date.
Subordinated Prepayment means the difference between 100% and the
Percentage Non-PO Class A Prepayment Percentage.
S-77
<PAGE>
Subordinated Percentage as of any Distribution Date means the
difference between 100% and the Non-PO
Class A Percentage.
Subordinated Certificates means the class M and class B
certificates, referred to collectively.
Subservicers means mortgage servicing institutions
other than the Servicer.
Telerate Screen Page 3750 means the display designated as page 3750
on the Telerate Service (or such other
page as may replace page 3750 on that
service for the purpose of displaying
London interbank offered rates of major
banks)
U.S. Person means 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
the trust, and one or more U.S. Persons
have the authority to control all
substantial decisions of the trust (or,
to the extent provided in applicable
Treasury regulations, certain trusts in
existence on August 20, 1996 which are
eligible to elect to be treated as U.S.
Persons).
S-78
<PAGE>
$___________ (Approximate)
Chase Mortgage Trust, Series [_________]
Issuer
Chase Manhattan Acceptance Corporation
Seller
[Chase Manhattan Mortgage Corporation]
Servicer
[LOGO]
Multi-Class Mortgage Pass-Through Certificates, Series [_________]
-----------------------------
PROSPECTUS SUPPLEMENT
-----------------------------
[UNDERWRITER]
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.
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 [DATE].
[DATE]
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted without the delivery of a final prospectus supplement
and accompanying prospectus. This prospectus supplement and the accompanying
prospectus shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any state in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
SUBJECT TO COMPLETION DATED AUGUST 4, 2000
PROSPECTUS
Chase Manhattan Acceptance Corporation
Chase Funding, Inc.
Seller, as specified in the related Prospectus Supplement
Mortgage Pass-through Certificates
(Issuable in Series)
------------------
<TABLE>
<CAPTION>
<S> <C>
----------------------------- Chase Manhattan Acceptance Corporation or Chase Funding, Inc. from time to time
You should carefully consider will offer mortgage pass-through certificates. We will offer the certificates
the risk factors beginning on through this prospectus and a separate prospectus supplement for each series.
page __ of this prospectus.
For each series we will establish a trust fund consisting primarily of a
Neither the certificates or segregated pool of various types of conventional one-to four-family residential
notes of any series nor the first mortgage loans, which may, if so specified in the related prospectus
related underlying mortgage supplement, include cooperative apartment loans together with other assets
loans will be insured by any described herein.
governmental agency or
instrumentality. The certificates of a series will evidence beneficial ownership interests in the
trust fund. The notes of a series will evidence indebtedness of the trust fund.
The securities will not
represent interests in or Assets of Each Trust Fund--
obligations of Chase Manhattan
Acceptance Corporation, Chase o will be sold to the related trust by Chase Manhattan Acceptance Corporation or
Funding, Inc. or any of their Chase Funding, Inc.;
respective affiliates.
o will be serviced by the entity that is identified in the prospectus supplement
This prospectus may be used to as the master servicer, individually or together with other servicers.
offer and sell any series of
certificates only if Each Series of Certificates--
accompanied by the prospectus
supplement for that series. o may provide credit support for certain classes by subordinating certain classes
----------------------------- to other classes of certificates or notes; any subordinated classes will be
entitled to payment subject to the payment of more senior classes and may bear
losses before more senior classes;
o may be entitled to one or more of the other types of credit support described
in this prospectus; and
o will be paid only from the assets of the related trust.
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered securities or passed upon
the adequacy or accuracy of this prospectus or the accompanying prospectus
supplement. Any representation to the contrary is a criminal offense.
The date of this prospectus is [DATE].
1
<PAGE>
Important Notice about the Information Presented in this
Prospectus and the Accompanying Prospectus Supplement
Information is provided to you about the offered securities in two
separate documents that progressively provide more detail: (1) this prospectus,
which provides general information, some of which may not apply to a particular
series of offered securities, including your series, and (2) the accompanying
prospectus supplement, which will describe the specific terms of your series of
offered securities, including, among other things:
o the principal balances and/or interest rates of each class and/or
subclass of offered securities;
o the timing and priority of payments of interest and principal for
each class of offered securities;
o statistical and other information about the assets of the trust;
o information about credit enhancement, if any, for each class or
subclass of offered securities; and
o the ratings for each class or subclass of offered securities.
If the terms of a particular series of offered securities vary between
this prospectus and the prospectus supplement, you should rely on the
information in the prospectus supplement.
You should rely only on the information provided in this prospectus and
the accompanying prospectus supplement, including the information incorporated
by reference. No one has been authorized to provide you with different
information. The securities are not being offered in any state where the offer
is not permitted. The seller does not claim the accuracy of the information in
this prospectus or the accompanying prospectus supplement as of any date other
than the dates stated on their respective covers.
In this prospectus, the terms "seller," "we," "us" and "our" refer to
Chase Manhattan Acceptance Corporation or Chase Funding, Inc. as specified in
the related prospectus supplement.
This prospectus and the accompanying prospectus supplement include
cross-references to sections in these materials where you can find further
related discussions. The tables of contents in this prospectus and the
accompanying prospectus supplement identify the pages where those sections are
located.
If you require additional information, Chase Manhattan Acceptance
Corporation's and Chase Funding, Inc.'s principal executive offices are both
located at 343 Thornall Street, Edison, New Jersey 08837, and the telephone
number for both is (732) 205-0600.
2
<PAGE>
Table of Contents
Summary Information....................................................1
The Trust Fund................................................1
Principal Parties.............................................1
The Mortgage Loans............................................1
Distributions on the Certificates.............................1
Credit Enhancement............................................2
Pre-Funding Account...........................................3
ERISA Considerations..........................................3
Tax Status....................................................3
Legal Investment..............................................3
Risk Factors...........................................................4
Description of the Certificates........................................6
General.......................................................7
Classes of Certificates.......................................7
Distributions of Principal and
Interest.................................................9
Reports to Certificateholders................................10
The Mortgage Pools....................................................11
Credit Support........................................................15
General......................................................15
Limited Guarantee of the
Guarantor...............................................15
Subordination................................................15
Certificate Guaranty Insurance
Policies................................................17
Overcollateralization........................................17
Cross-Support................................................17
Pool Insurance...............................................18
Special Hazard Insurance.....................................20
Bankruptcy Bond..............................................21
Repurchase Bond..............................................22
Guaranteed Investment
Contracts............................................................22
Reserve Accounts.............................................22
Other Insurance and
Guarantees...........................................................23
Yield, Maturity and Weighted Average
Life Considerations..................................................23
Chase Manhattan Acceptance
Corporation..................................................26
<PAGE>
Chase Funding, Inc....................................................26
Servicing of the Mortgage Loans.......................................26
Collection and Other Servicing
Procedures..............................................27
Private Mortgage Insurance...................................28
Hazard Insurance.............................................29
Advances.....................................................31
Servicing and Other Compensation
and Payment of Expenses......................................31
Resignation, Succession and
Indemnification of the
Servicer................................................32
The Pooling and Servicing Agreement...................................33
Assignment of Mortgage Loans;
Warranties..............................................33
Payments on Mortgage Loans;
Collection Account......................................36
Repurchase or Substitution...................................36
Certain Modifications and
Refinancings............................................38
Forward Commitments;
Pre-Funding.............................................39
Evidence as to Compliance....................................39
The Trustee..................................................40
Events of Default............................................40
Rights Upon Event of Default.................................41
Amendment....................................................42
Termination; Purchase of Mortgage
Loans........................................................43
Material Legal Aspects of the Mortgage
Loans........................................................43
General......................................................44
Foreclosure..................................................44
Right of Redemption..........................................46
Anti-Deficiency Legislation and
Other Limitations on Lenders.................................46
Consumer Protection Laws.....................................48
Enforceability of Due-on-Sale
Clauses.................................................48
Applicability of Usury Laws..................................49
Soldiers' and Sailors' Civil Relief
i
<PAGE>
Act.....................................................49
Late Charges, Default Interest and
Limitations on Prepayment....................................50
Environmental Considerations.................................50
Forfeiture in Drug and RICO
Proceedings.............................................52
Legal Investment Matters..............................................52
ERISA Considerations..................................................54
Federal Income Tax Consequences.......................................56
General......................................................56
REMIC Elections..............................................57
REMIC Certificates...........................................57
Income from Regular
Certificates............................................58
Income from Residual
Certificates............................................63
Sale or Exchange of
Certificates.........................................................66
Taxation of Certain Foreign
Investors...............................................67
Transfers of Residual
Certificates.........................................................68
Servicing Compensation and Other
REMIC Pool Expenses.....................................70
Reporting and Administrative
Matters.................................................71
Non-REMIC Certificates.......................................72
Trust Fund as Grantor Trust..................................72
Status of the Certificates...................................72
Possible Application of Stripped
Bond Rules...................................................73
Taxation of Certificates if Stripped
Bond Rules Do Not Apply......................................73
Taxation of Certificates if
Stripped Bond Rules Apply............................................74
Sales of Certificates........................................75
Foreign Investors............................................75
Reporting....................................................76
Backup Withholding...........................................76
Plan of Distribution..................................................76
Incorporation of Certain Documents by
Reference....................................................78
Use of Proceeds.......................................................79
Legal Matters.........................................................79
Glossary of Prospectus Definitions....................................80
ii
<PAGE>
Summary Information
This section briefly summarizes some of the information from this prospectus. It
does not contain all of the information that you need to consider in making your
investment decision. To fully understand the terms of a series of certificates,
you should read both this prospectus and the accompanying prospectus supplement
in their entirety.
The Trust Fund
For each series of certificates, we will form a trust to own a pool of fixed
rate one- to four-family first lien mortgage loans. The certificates will
represent beneficial ownership interests in the underlying trust fund assets.
All payments to you will come only from the amounts received in connection with
those assets. The trust fund will issue the certificates under a pooling and
servicing agreement among the seller, the servicer and the trustee and/or other
entities specified in the prospectus supplement. See "The Pooling and Servicing
Agreement" and "Description of the Certificates."
Principal Parties
Issuer: With respect to each series of certificates, the issuer will be
the trust created for that series.
Seller: Chase Manhattan Acceptance Corporation, a Delaware corporation
or Chase Funding, Inc., a New York corporation, as specified in the prospectus
supplement.
Servicer/Master Servicer: Chase Manhattan Mortgage Corporation, a New
Jersey corporation, or any 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.
The Mortgage Loans
Each trust will own the related mortgage loans and certain other related
property, as specified in the applicable prospectus supplement.
The mortgage loans in each trust fund:
<PAGE>
o will be conventional, fixed or adjustable interest rate mortgage loans
secured by first liens on one- to four- family residential properties;
o will have been acquired by the seller from Chase Manhattan Mortgage
Corporation and/or any other entity or entities specified in the prospectus
supplement; and
o will have been originated by Chase Manhattan Mortgage Corporation or an
affiliate or will have been acquired by Chase Manhattan Mortgage Corporation
directly or indirectly from other mortgage loan originators.
You should refer to the applicable prospectus supplement for the precise
characteristics or expected characteristics of the mortgage loans and a
description of the other property, if any, included in a particular trust fund.
Distributions on the Certificates
The master servicer or another entity specified as paying agent in the
prospectus supplement will make distributions on the certificates entitled to
distributions on the 25th day (or, if the 25th day is not a business day, the
business day immediately following the 25th day) of each month or on another
date specified in the prospectus supplement solely out of the payments received
in respect of the assets of the related trust fund. The master servicer or
another entity specified as paying agent in the prospectus supplement will
determine the amount allocable to payments of
1
<PAGE>
principal and interest on any distribution date as specified in the prospectus
supplement. All distributions will be made pro rata to certificateholders of the
class entitled to distributions or by another method as may be 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 the 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-servicer of the mortgage loans and any other amounts (including fees payable
to the servicer as master servicer, if applicable) specified in the prospectus
supplement. See "Description of the Certificates--Distributions of Principal and
Interest."
The rate at which interest will be passed through to holders of
certificates entitled to interest distributions 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 of these rates 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."
Credit Enhancement
Subordination: A series of certificates may include one or more classes of
senior certificates and one or more classes of subordinated certificates. The
rights of the holders of subordinated certificates of a series to receive
distributions will be subordinated to the rights of the holders of the senior
certificates of the same series to receive distributions to the extent and in
the manner specified in the applicable prospectus supplement.
<PAGE>
Subordination is intended to enhance the likelihood of the timely receipt by the
senior certificateholders of their proportionate share of principal and interest
payments on the related mortgage loans and to protect them from losses.
Subordination affords this protection by:
o granting to the senior certificateholders the right to receive, prior to any
distribution being made to the related subordinated certificates on each
distribution date, current distributions on the related mortgage loans of
principal and interest due them on each distribution date out of the funds
available for distributions on each distribution date;
o granting to the senior certificateholders the right to receive future
distributions on the mortgage loans that would otherwise have been payable to
the holders of subordinated certificates; and/or
o allocating to the subordinated certificates all or a portion losses realized
on the underlying mortgage loans.
Other Types of Credit Enhancement: If we so specify in the applicable prospectus
supplement, the certificates of any series, or any one or more classes of a
series, may be entitled to the benefits of other types of credit enhancement,
including but not limited to:
o overcollateralization
o limited guarantee
o mortgage pool insurance
o special hazard insurance
o mortgagor bankruptcy bond
o repurchase bond
o guaranteed investment contracts
o reserve fund
o cross-support
o letter of credit
o other insurance, guarantees and similar instruments or agreements
2
<PAGE>
We will describe any credit enhancement in the applicable prospectus supplement.
See "Credit Support."
Pre-Funding Account
Each trust fund may enter into an agreement with the related seller whereby the
seller agrees to transfer additional mortgage loans to the trust fund after the
date on which the trust fund is established and the related series of
certificates is issued. If the trust fund enters into an agreement for the
subsequent transfer of mortgage loans, the related trustee will be required to
deposit all or a portion of the proceeds received from the sale of one or more
classes of certificates from the related series in a segregated pre-funding
account. The seller must make the subsequent transfer of mortgage loans to the
trust within a time-period specified in the pre-funding agreement, not to exceed
90 days from the date of the pre-funding agreement. Upon the subsequent transfer
of mortgage loans to the trust by the seller, the trustee will release the funds
deposited in the pre-funding account to the seller. If the seller does not
transfer additional mortgage loans to the trust in the time specified in the
pre-funding agreement, the money held in the pre-funding account will be used to
prepay all or a portion or one or more classes of certificates in the related
certificates. See "Pre-Funding Account"
ERISA Considerations
If you are a fiduciary of any employee benefit plan subject to the fiduciary
responsibility provisions of the ERISA, you should carefully review with your
own legal advisors whether the purchase or holding of certificates could give
rise to a transaction prohibited or otherwise impermissible under ERISA or the
Internal Revenue Code of 1986, as amended.
See "ERISA Considerations."
Tax Status
The treatment of the certificates for federal income tax purposes will depend
on:
o whether a REMIC election is made with respect to a series of certificates;
and
o if a REMIC election is made, whether the certificates are regular interests
or residual interests.
See "Federal Income Tax Consequences."
Legal Investment
The applicable prospectus supplement will specify whether the class or classes
of certificates offered will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended.
If your investment authority is subject to legal restrictions you should consult
your own legal advisors to determine whether and to what extent those
certificates constitute legal investments for you. See "Legal Investment
Matters" in this prospectus and in the applicable prospectus supplement.
3
<PAGE>
Risk Factors
You should consider, among other things, the following factors in
connection with the purchase of the certificates:
l. Certificateholders bear the risk of losses on the mortgage pool. An
investment in certificates evidencing interests in mortgage loans may be
affected 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 those 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 that 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 assets are available for the payment of certificates.
o The certificates will not represent an interest in or obligation
of the seller.
o 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. The liquidity for your certificates may be limited. You should
consider that:
o a secondary market for the certificates of any series may not
develop, or if it does, it may not provide you with liquidity of
investment, or it may not continue for the life of the
certificates of any series; and
o the certificates will not be listed on any securities exchange.
4. The rate of prepayment on the mortgage loans in the mortgage pool
may adversely affect the average lives and yields of your certificates. 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 when 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,
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and the yields at which you may be able to reinvest amounts received as payments
on your certificates may be lower than the yield on your 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 you 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."
You should be aware of the following risks concerned with the yield on
your certificates:
o 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. Your yield may be adversely affected, depending upon
whether you purchased a particular certificate at a premium or
discount price or by a higher or lower than anticipated rate of
prepayments on the related mortgage loans. In particular, if you
own certificates entitled primarily or exclusively to payments of
interest or principal your yield will be extremely sensitive to the
rate of prepayments on the related mortgage loans.
o The yield on your certificates may be relatively more sensitive to
the rate of prepayment of specified mortgage loans than other
classes of certificates. Your yield may be adversely affected by
interest shortfalls which may result from the timing of the receipt
of prepayments or liquidations to the extent that those interest
shortfalls are not covered by aggregate servicing fees or other
mechanisms specified in the applicable prospectus supplement.
o Your yield on a particular class of certificates will be adversely
affected to the extent that losses on the mortgage loans in the
related trust fund are allocated to a particular class and may be
adversely affected to the extent of unadvanced delinquencies on the
mortgage loans in the related trust fund.
o 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. The protection afforded by subordination is limited. 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, the 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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Glossary
A glossary of defined terms can be found beginning on page 80 of this
prospectus.
Description of the Certificates
We will issue each series of certificates under a separate pooling and
servicing agreement entered into among the Seller, the Servicer and a trustee
for the benefit of holders of certificates of that series. The provisions of
each pooling and servicing agreement will vary depending upon the nature of the
certificates to be issued thereunder and the nature of the related trust fund.
The pooling and servicing agreement will be substantially in the form filed as
an exhibit to the Registration Statement of which this prospectus is a part, or
in a similar form which 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 pooling and servicing agreement.
The prospectus supplement for a series of certificates will describe any
provision of the pooling and servicing 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
pooling and servicing 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 pooling and servicing 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 pooling and servicing 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 Delivery Date.
The certificates of a series will be entitled to payment only from the
assets included in the trust fund related to that 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
related to those representations and warranties made by it in the pooling and
servicing agreement. 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 limited
circumstances specified herein of delinquent installments of principal and
interest (adjusted to the applicable Remittance Rate), and its obligations
related to those representations and warranties made by it in the pooling and
servicing agreement.
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
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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 Denomination of each certificate 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 at another office or agency maintained for
those 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
We will issue each series of certificates in a single class or in two
or more classes. The certificates of each class will evidence the beneficial
ownership of :
o any distributions in respect of the assets of the trust fund that
are allocable to principal, in the aggregate amount of the original
Certificate Principal Balance, if any, of the related class of
certificates as specified in the prospectus supplement; and
o 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 the related certificates from time to
time at the Certificate Rate, if any, applicable to the related
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 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
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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 in this prospectus, the servicing fee of any third party
servicer of the mortgage loans and those 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 its Certificate Rate, in each case as
specified in the prospectus supplement. One or more classes of certificates may
be 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 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 the following type of distributions:
o allocable to interest;
o allocable to principal (and allocable as between scheduled payments
of principal and Principal Prepayments, as defined below); or
o 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 as follows:
o on the basis of collections from designated portions of the assets
of the trust fund;
o in accordance with a schedule or formula;
o in relation to the occurrence of events, or;
o otherwise, in each case as specified in the prospectus supplement.
The timing and amounts of 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 various matters under the pooling
and servicing agreement, including some types of amendments to the pooling and
servicing agreement, will require the consent of the holders of the
certificates. The prospectus supplement will specify voting rights allocated to
each class of certificates. Votes may be allocated
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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
The party designated as paying agent in the prospectus supplement will
make distributions of principal and interest at the applicable Certificate Rate,
if any, on the certificates to the extent of funds available from the related
trust fund on a Distribution Date, commencing in the month following the
issuance of the related series, or on another date specified in the prospectus
supplement. The paying agent will make distributions to the persons in whose
names the certificates are registered at the close of business on the record
date specified in the prospectus supplement. The paying agent will make
distributions by check or money order mailed to the person entitled to
distributions 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 certificateholder, by wire transfer or by such other
means as are agreed upon with the person entitled to distributions; provided,
however, that the final distribution in retirement of the certificates will be
made only upon presentation and surrender of the certificates at the office or
agency of the trustee specified in the notice to certificateholders of the final
distribution.
The paying agent will make distributions allocable to principal and
interest on the certificates out of, and only to the extent of, funds in the
Collection Account, including any funds transferred from any Reserve Account. As
between certificates of different classes, between distributions of principal,
between distributions of Principal Prepayments and scheduled payments of
principal (if applicable) and interest, the paying agent will apply
distributions made on any Distribution Date 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 pooling and servicing
agreement and all income or other gain from those 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 Interest Accrual Period specified in the prospectus
supplement. To the extent funds are available, the paying agent will distribute
interest accrued during each Interest Accrual Period on each class of
certificates entitled to interest 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. In the case of
certificates entitled only to distributions allocable to interest, the paying
agent will distribute interest until the aggregate Notional Principal
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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 the amount of principal 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 Principal Prepayments in the percentages and under the
circumstances or for the periods specified in the prospectus supplement.
Allocations of Principal Prepayments to a 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.
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:
o The aggregate amount of the related distribution allocable to
principal, separately identifying the amount allocable to each
class;
o The amount of the related distribution allocable to interest
separately identifying the amount allocable to each class;
o 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;
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o 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 the related Distribution Date;
o 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;
o The aggregate amount of any advances made by the Servicer included
in the amounts distributed to certificateholders on the related
Distribution Date;
o 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
o 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 those federally insured savings and loan associations
to comply with applicable regulations of the Office of Thrift Supervision. The
Servicer will file with the Securities of Exchange Commission those reports with
respect to the trust fund for a series of Certificates as are required under the
Securities Exchange Act of 1934 as amended and the rules and regulations of the
Securities and Exchange Commission thereunder until the completion of the
reporting period required by Rule 15d-1 under the Securities Exchange Act of
1934 as amended.
The Mortgage Pools
Each mortgage pool will consist of one- to four-family residential
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar security instrument creating a first lien on
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. Some classes of certificates
evidencing interests in a trust fund may not form part of the offering made by
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 and other types of
homes or units 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
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supplement will contain information concerning the originators of the mortgage
loans and the underwriting standards employed by those originators.
All mortgage loans will (1) be secured by mortgaged properties located
in one of the states of the United States or the District of Columbia, and (2)
be of one or more of the following types of mortgage loans:
(1) Fully-amortizing mortgage loans, each with a 30-Year term at
origination, interest at a fixed rate and level monthly payments over the term
of the mortgage loan.
(2) Fully-amortizing mortgage loans, each with a 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 a Primary Mortgage
Insurance Policy. The existence, extent and duration of any such coverage will
be described in the applicable prospectus supplement. 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 the risks
of default or losses. See "Credit Support" herein.
If specified in the applicable prospectus supplement, a mortgage pool
may contain Buy-Down Mortgages under 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 the Buy-Down Reserve
and placed in a Buy-Down Fund. The applicable prospectus supplement or Current
Report 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 some 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 the Buy-Down Mortgage 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 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 a
percentage or dollar range. 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 the following:
o the aggregate principal balance of the mortgage loans;
o the aggregate principal balance or percentage by aggregate
principal balance of mortgage loans secured by each type of
property;
o the original terms to maturity of the mortgage loans;
o the smallest and largest in principal balance at origination of the
mortgage loans;
o the earliest origination date and latest maturity date of the
mortgage loans;
o the aggregate principal balance or percentage by aggregate
principal balance of mortgage loans having Loan-to-Value Ratios at
origination exceeding 80%;
o the mortgage rate or range of mortgage rates borne by the mortgage
loans; and
o 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 Current
Report. A copy of the pooling and servicing 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 will assign the mortgage loans to the trustee without
recourse. The Seller or another party identified in the applicable prospectus
supplement will make 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 the party
specified in the applicable prospectus supplement will make 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 pooling and servicing 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
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and warranties which materially and adversely affects the interests of the
certificateholders in a mortgage loan or to cure the material breach, and of the
obligation, under some circumstances set forth in the pooling and servicing
agreement, to ensure the timely payment of premiums on some 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 through Insurance Proceeds or Liquidation Proceeds.
Each month, the trustee, or another paying agent 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
another entity and remitted to the trustee under the terms of the pooling and
servicing agreement for the related 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 resulting losses will
be borne by holders of the certificates of the series evidencing interests in
such mortgage pool. As a result, with respect to any series as to which
subordinated certificates are issued, losses not covered by credit enhancement
will first be borne by the holders of subordinated certificates to the extent of
their subordination to the senior 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.
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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 Guarantee issued by a 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, letter of credit or another method of credit
support described in the related prospectus supplement, or any combination of
forms of credit support. 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, some obligations of the
Servicer under the related pooling and servicing 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, in the event the Servicer fails to do
so, to provide a Deposit Guarantee or an Advance Guarantee. Any Limited
Guarantee will be limited in amount and a portion of the coverage of any Limited
Guarantee may be separately allocated to particular 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 subordinated certificates will
instead be payable to holders of 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
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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.
In addition to or in lieu of the above, 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 a Reserve Account. 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
(1) in the order of their scheduled final distribution dates,
(2) in accordance with a schedule or formula,
(3) in relation to the occurrence of events, or
(4) 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.
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Certificate Guaranty Insurance Policies
If specified in the related prospectus supplement, one or more
certificate guaranty insurance policies will be obtained and maintained for one
or more classes or series of certificates. 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 pooling and servicing 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 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 loans 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, 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 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
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a series which includes a cross-support feature will describe the manner and
conditions for applying the 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 the credit support relates and the manner of determining the
amount of the coverage provided thereby and of the application of the 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 pool insurance policies may be in lieu of or in addition to any
obligations of the Seller or the Servicer in respect of the mortgage loans. The
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 and
for the periods specified in the prospectus supplement. The Servicer will agree
to use its best reasonable efforts to maintain in effect any pool insurance
policy and to present claims thereunder to the pool insurer on behalf of itself,
the trustee and the certificateholders. A 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
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 for the failure to pay or
denial of a claim. 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:
o any required primary mortgage insurance policy is in effect
for the defaulted mortgage loan and a claim thereunder has
been submitted and settled;
o 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;
o 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;
o the insured has acquired good and merchantable title to the
mortgaged property free and clear of liens, except permitted
encumbrances; and
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o the Servicer has advanced foreclosure costs.
Upon satisfaction of the above conditions, the pool insurer will have
the option either
(1) to purchase the mortgaged property at a price equal to the
principal balance of the mortgage loan 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
(2) 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 (1) that the restoration will increase the proceeds to
certificateholders on liquidation of the mortgage loan after reimbursement of
the Servicer for its expenses, and (2) that the servicer's 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.
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, (1) 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 (2) 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 those 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 another 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".
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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, the mortgage pool insurance 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 the 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 the coverage will be limited. See "Special Hazard
Insurance" below. As a result, some 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. Subject to limitations
described below and in the prospectus supplement, a special hazard insurance
policy will protect holders of certificates from (1) 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 (2) 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 limitations discussed above, 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 the damage is not covered by the hazard insurance
policy or flood insurance policy, if any, maintained by the mortgagor or the
Servicer, the
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special hazard insurer will pay the lesser of (1) the cost of repair or
replacement of the property or (2) upon transfer of the property to the special
hazard insurer, the unpaid principal balance of the mortgage loan at the time of
acquisition of the 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 the property. If the insurer pays the unpaid
principal balance plus accrued interest and certain expenses 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 (1) above will satisfy the condition under any pool
insurance policy that the property be restored before a claim under the pool
insurance policy may be validly presented with respect to the defaulted mortgage
loan secured by the property. The payment described under clause (2) above will
render unnecessary presentation of a claim in respect of the 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 or insurance contract for proceedings with respect to
borrowers under the Bankruptcy Code. The 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 a bankruptcy
court of the secured principal amount of a mortgage loan and will cover certain
unpaid interest on the amount of the principal reduction from the date of the
filing of a bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount
specified in the related prospectus supplement. The specified amount will be
reduced by payments made under the bankruptcy bond in respect of the related
mortgage loans, to the extent specified in the related prospectus supplement,
and will not be restored.
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In lieu of a bankruptcy bond, the Servicer may obtain a Limited
Guarantee to cover 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 the mortgage loan. The obligation to purchase 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
under 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 guaranteed investment contract will pay to the trustee interest at an
agreed rate per annum with respect to the amounts so invested.
Reserve Accounts
If specified in the prospectus supplement cash the Servicer will
deposit 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 on the
Delivery Date in one or more Reserve Accounts established by the trustee. The
cash and the principal and interest payments on the 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 the other purposes specified in the
prospectus supplement. Whether or not the Servicer has any obligation to make 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.
The Servicer will invest any cash in the Reserve Account and the proceeds of any
other instrument upon maturity 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 pooling and servicing agreement. If a letter of
credit is deposited with the trustee, the 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
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respect to the instruments deposited in the Reserve Accounts will be set forth
in the prospectus supplement.
Any amounts so deposited and payments on instruments so deposited
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
(1) maintaining timely payments or providing additional protection
against losses on the assets included in the trust fund,
(2) paying administrative expenses or
(3) establishing a minimum reinvestment rate on the payments made in
respect of the assets or principal payment rate on the assets
included in the trust fund.
The 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. The 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.
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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:
o the age of the mortgage loans;
o the geographic distribution of the mortgaged properties;
o the payment terms of the mortgages;
o the characteristics of the mortgagors;
o homeowner mobility;
o economic conditions generally and in the geographic area in
which the mortgaged properties are located;
o enforceability of due-on-sale clauses;
o servicing decisions;
o prevailing mortgage market interest rates in relation to the
interest rates on the mortgage loans;
o the availability of mortgage funds, the use of second or "home
equity" mortgage loans by mortgagors;
o the availability of refinancing opportunities, including
refinancing opportunities offered by Chase Manhattan Mortgage
Corporation to existing borrowers or to its affiliates;
o the use of the properties as second or vacation homes; and
o 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.
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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
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 the 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 pooling and servicing agreement, if a full or partial voluntary
prepayment of a mortgage loan is made and does not include the full amount of
interest on the mortgage loan which would have been due but for the prepayment
to and including the end of the month in which the prepayment takes place, the
servicer will be obligated to pay a Compensating Interest Payment, provided that
the aggregate of the 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 the Distribution Date. The Servicer
will not be entitled to reimbursement for the 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 the prepayments. If the Servicer is not
obligated to make Compensating Interest Payments, or if the 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.
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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 the related certificates.
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.
Servicing of the Mortgage Loans
With respect to each series of certificates, Chase Manhattan Mortgage
Corporation or another entity identified in the prospectus supplement, will
service the related mortgage loans acting alone or, as master servicer, through
one or more direct servicers. If Chase Manhattan Mortgage Corporation acts as
master servicer with respect to a series, the related pooling and servicing
agreement will provide that Chase Manhattan Mortgage Corporation 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 Corporation and a direct
servicer will be deemed to be between Chase Manhattan Mortgage Corporation and
the direct servicer alone and that the trustee and the
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certificateholders will have no claims, obligations, duties or liabilities with
respect to any servicing agreement.
Collection and Other Servicing Procedures
Subject to the terms of the pooling and servicing 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 the 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 pooling and servicing agreement, follow the collection
procedures as it deems necessary and advisable with respect to the mortgage
loans. Consistent with the above, the Servicer, may, in its discretion, (1)
waive any late payment charge and, (2) 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 a manner which 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 the 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 the 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
the net recovery exceeds the principal balance of the 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 (1) that the
restoration or foreclosure will increase the Liquidation Proceeds in respect of
the related mortgage loan to certificateholders after reimbursement to itself
for its expenses and (2) that the expenses will be recoverable to it either
through Liquidation Proceeds or Insurance Proceeds in respect of the related
mortgage loan.
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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 the 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 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 the property has been or is about to be conveyed, under which the 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 an assumption, the mortgage rate borne by the related mortgage
note may not be decreased.
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 the 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 the
account or accounts to the extent required by law.
Private Mortgage Insurance
If so specified in the related prospectus supplement, each pooling and
servicing 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 the 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 the 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.
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Hazard Insurance
The Servicer will cause to be maintained for each mortgaged property a
standard hazard insurance policy. The coverage of a standard hazard insurance
policy is required to be in an amount at least equal to the maximum insurable
value of the improvements which are a part of the property from time to time or
the principal balance owing on the 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. The
policies relating to the mortgage loans typically do not cover any physical
damage resulting from the following:
o war,
o revolution,
o governmental actions,
o floods and other water-related causes,
o earth movement , including earthquakes, landslides and mud flow,
o nuclear reactions,
o pollution,
o wet or dry rot,
o vermin, rodents, insects or domestic animals,
o theft and
o vandalism.
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The previous 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 pooling and servicing
agreement will require that flood insurance be maintained in an amount
representing coverage not less than the least of:
o the principal balance owing on the mortgage loan from time to
time;
o the maximum insurable value of the improvements which are a part
of the property from time to time; or
o 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 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 (1) the
actual cash value of the improvements damaged or destroyed, or (2) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of the improvements. Actual cash value
is generally defined as replacement cost at the time and place of loss, less
physical depreciation
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 (1)
the maximum insurable value from time to time of the improvements which are a
part of the property or (2) the unpaid principal balance of the related mortgage
loan at the time of the 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.
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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 the blanket insurance policy on the basis
described therein and will pay any deductible amount with respect to claims
under the blanket insurance 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
(1) 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 (2) from receipts or recoveries on all other
mortgage loans or from any other assets of the trust fund, for all or any
portion of 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 a pooling and
servicing agreement, it will receive compensation with respect to the
performance of its activities as master servicer.
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
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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 pooling and servicing 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 the pooling and servicing 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 pooling and servicing 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 under
the pooling and servicing 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 pooling and servicing 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 pooling and
servicing 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 pooling and servicing
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 the pooling and servicing 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 action which it may deem necessary or
desirable in respect of the pooling and servicing agreement and the rights and
duties of the parties to the pooling and servicing agreement and the interests
of the
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certificateholders under the pooling and servicing agreement. If the Guarantor
undertakes any action, the legal expenses and costs of that action and any
liability resulting from that action 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 for those expenses, costs and liabilities 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 pooling and servicing agreement.
The Pooling and Servicing Agreement
This prospectus summarizes the material provisions of the pooling and
servicing agreement. The summaries do not purport to be complete and are subject
to, and qualified in their entirety by reference to, the provisions of the
pooling and servicing agreement applicable to a particular series of
certificates. Where particular provisions or terms used in the pooling and
servicing agreements are referred to, such provisions or terms are as specified
in the pooling and servicing 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 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:
o the note, endorsed to the order of the trustee by the
holder/payee thereof without recourse;
o the buy-down agreement (if applicable);
o a Mortgage and Mortgage assignment meeting the requirements of
the pooling and servicing agreement;
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o all Mortgage assignments from the original holder of the
mortgage loan, through any subsequent transferees to the
transferee to the trustee;
o 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;
o 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
o any other documents described in the applicable prospectus
supplement.
Except as expressly permitted by the pooling and servicing 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 the above-listed documents for each series of
certificates in trust for the benefit of all certificateholders of the related
series. The trustee is obligated to review the 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 pooling and servicing agreement, the
trustee will promptly notify the Seller. The Seller, or another party specified
in the applicable prospectus supplement, will be required to cure the defect or
to repurchase the mortgage loan or to provide a substitute mortgage loan. See
"Repurchase or Substitution" below.
In the pooling and servicing agreement for each series, the Seller or
another party described in the pooling and servicing agreement will make certain
representations and warranties with respect to the mortgage loans. The
representations and warranties in each pooling and servicing agreement will
generally include that:
o 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 the information is furnished;
o 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
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of way, easements and other matters of public record as of the
date of recording of the 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 the
mortgage);
o at the date of initial issuance of the certificates, no more
than the percentage of the mortgage loans specified in the
applicable prospectus supplement were more than 30 days
delinquent in payment and no more than the percentage of the
mortgage loans specified in the applicable prospectus supplement
had more than one delinquency in excess of 30 days during the
preceding 12-month period;
o 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;
o 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;
o 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 the mortgage loan (subject to
exceptions acceptable in the industry, including exceptions with
respect to surveys and endorsements), and each policy is in full
force and effect; and
o 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 the 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 the 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 a breach of
representations and warranties which materially and adversely affects the
interests of the certificateholders in a mortgage loan.
The pooling and servicing
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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 pooling
and servicing 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 pooling and servicing agreement for each series
of certificates will provide that the Servicer will establish and maintain 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):
o 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;
o all amounts received in respect of the applicable 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;
o all principal prepayments (whether full or partial) on the
applicable 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
o 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
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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 pooling and servicing 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 the
defect, the Seller will
o cure the defect,
o remove the affected mortgage loan from the trust fund and
substitute one or more other mortgage loans for the affected
mortgage loan or
o 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 the 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 pooling and servicing agreement with respect to
the mortgage loans that materially and adversely affects the interests of the
certificateholders in a mortgage loan or the value of a mortgage loan, to either
o cure the breach in all material respects,
o repurchase the 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 the purchase price is to be
distributed or
o remove the affected mortgage loan from the trust fund and
substitute one or more other mortgage loans or contracts for the
affected mortgage loan.
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
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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 other characteristics specified in the prospectus supplement:
o 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);
o a mortgage rate not less than, and not more than one percentage
point greater than, that of the removed mortgage loan;
o 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;
o a Loan-to Value Ratio at origination not greater than that of
the removed mortgage loan; and
o 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 pooling and
servicing 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 pooling and servicing 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 requests of mortgagors by offering mortgagors the
opportunity to refinance their mortgage loans, provided in either case that the
Servicer purchases the mortgage loan from the trust fund immediately following
the requested modification. No modification may be made unless the modification
includes a change in the interest rate on the related mortgage loan to
approximately a prevailing market rate. The 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
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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.
The pooling and servicing agreement will provide that if the Servicer
in its individual capacity agrees to refinance any mortgage loan as described
above, the mortgage loan will be assigned to the Servicer by the trustee upon
certification that the principal balance of the 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 the trust and
following the date on which the trust is established and the related securities
are issued. The trustee of a trust also 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
the pre-funding agreement. If a pre-funding agreeement 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 and in exchange for money
released from the related Pre-Funding Account. Each pre-funding agreeement will
set a specified period during which the transfers must occur. The pre-funding
agreeement or the related pooling and servicing agreement will require that, if
all moneys originally deposited to the Pre-Funding Account are not so used by
the end of a 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 the trust is established.
Evidence as to Compliance
The pooling and servicing 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.
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The pooling and servicing 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 the officer's knowledge, the
Servicer has fulfilled its obligations under the pooling and servicing agreement
throughout the preceding year or, if there has been a default in the fulfillment
of any obligation under the pooling and servicing agreement, describing each
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 an appointment is
made by the Seller and the trustee, all rights, powers, duties and obligations
conferred or imposed upon the trustee by the pooling and servicing agreement
shall be conferred or imposed upon the trustee and the 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 the 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 pooling and servicing 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 pooling and servicing 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 pooling and servicing agreement.
The trustee may resign at any time, and the Seller may remove the
trustee if the trustee ceases to be eligible to continue as the trustee under
the pooling and servicing agreement, if the trustee becomes insolvent or in any
other instances as may be set forth in the pooling and servicing agreement.
Following any resignation or removal of the trustee, the Seller will be
obligated to appoint a successor trustee who must 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.
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Events of Default
Events of Default under the pooling and servicing agreement with
respect to a series of certificates will consist of:
o any failure by the Servicer in the performance of any obligation
under the pooling and servicing agreement which causes any
payment required to be made under the terms of the certificates
or the pooling and servicing 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 the
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;
o 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 pooling and servicing agreement which failure continues
unremedied for a period of 60 days after the date on which
written notice of the 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;
o 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 insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, provided that any
decree or order shall have remained in force undischarged or
unstayed for a period of 60 days;
o the consent by the Servicer to the appointment of a conservator,
receiver, liquidator or liquidating committee in any insolvency,
readjustment of debt, marshaling 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;
o 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
o notice by the Servicer that it is unable to make an Advance
required to be made under the pooling and servicing agreement.
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Rights Upon Event of Default
As long as an Event of Default under the pooling and servicing
agreement remains unremedied by the Servicer, the trustee, or holders of
certificates evidencing interests aggregating more than 50% of all certificates,
may terminate all of the rights and obligations of the Servicer under the
pooling and servicing agreement, whereupon the trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the pooling and
servicing agreement and will be entitled to similar compensation arrangements,
provided that if the trustee had no obligation under the pooling and servicing
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 the
obligation but is prohibited by law or regulation from making the advances, the
trustee will not be required to assume the obligation of the Servicer. The
Servicer shall be entitled to payment of certain amounts payable to it under the
pooling and servicing 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 pooling and servicing 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 pooling and servicing agreement.
No holder of certificates will have any right under the pooling and
servicing agreement to institute any proceeding with respect to the pooling and
servicing 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 pooling and servicing agreement or to make any investigation
of matters arising under the pooling and servicing agreement or to institute,
conduct or defend any litigation under or in relation to the pooling and
servicing agreement at the request, order or direction of any of the
certificateholders, unless the certificateholders have offered to the trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred in connection with those actions.
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Amendment
The pooling and servicing 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 under the Code or to make any other provisions with
respect to matters or questions arising under the pooling and servicing
agreement which are not materially inconsistent with the provisions of the
pooling and servicing agreement; provided that the 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
pooling and servicing 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 the
amendment, 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 certificateholders of that series.
However, no amendment may 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
the certificate or reduce the aforesaid percentage of certificates, the holders
of which are required to consent to the amendment, without the consent of the
holders of all certificates of the affected class then outstanding.
Termination; Purchase of Mortgage Loans
The obligations of the parties to the pooling and servicing agreement
for each series will terminate upon (1) the purchase of all the mortgage loans,
as described in the applicable prospectus supplement or (2) 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 pooling and servicing agreement. In no event, however,
will the trust created by a pooling and servicing agreement continue beyond the
expiration of 21 years from the death of the survivor of the descendants living
on the date of the pooling and servicing agreement of a specific person named in
the pooling and servicing agreement. With respect to each series, the trustee
will give or cause to be given written notice of termination of the pooling and
servicing agreement to each certificateholder, and the final distribution under
the pooling and servicing 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 pooling and
servicing agreement for each series may permit, but not require, the Seller, the
Servicer or another party to purchase from the trust fund for the series all
remaining mortgage loans and all property acquired in respect
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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 the 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 the right to purchase the remaining
mortgage loans will result in the early retirement of the certificates of that
series.
Material Legal Aspects of the Mortgage Loans
The following discussion contains summaries of the material legal
aspects of the 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
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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 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
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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 those 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 involving 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 these 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 these modifications could not be
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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 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 pooling
and servicing 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 the representation is breached in respect of any mortgage loan in
a manner that materially and adversely affects certificateholders, the Seller or
the 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 pooling and servicing agreement or to substitute a
new mortgage loan in place of the affected mortgage loan.
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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 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 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
under 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 under 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 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 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.
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Under the pooling and servicing 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 Relief Act, a borrower who enters military
service after the origination for the 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 the 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 the mortgage loan goes
into default, there may be delays and losses occasioned by the default.
Under the applicable pooling and servicing 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 the loss related to the Relief Act.
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
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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 CERCLA, and under state law in certain states, a secured party
which takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property may become liable in certain
circumstances for the costs of cleaning up hazardous substances regardless of
whether they have contaminated the property. CERCLA imposes strict, as well as
joint and several, liability on several classes of potentially responsible
parties, including current owners and operators of the property who did not
cause or contribute to the contamination. Furthermore, liability under CERCLA is
not limited to the original or unamortized principal balance of a loan or to the
value of the property securing a loan. Lenders may be held liable under CERCLA
as owners or operators unless they qualify for the secured creditor exemption to
CERCLA. This exemption exempts from the definition of owners and operators those
who, without participating in the management of a facility, hold indicia of
ownership primarily to protect a security interest in the facility.
The 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. The cleanup costs for these contaminants
may be substantial. It is possible that the cleanup costs could become a
liability of a trust fund and reduce the amounts
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otherwise distributable to the holders of the related series of certificates.
Moreover, certain federal statutes and certain states by statute impose
Environmental Liens. All subsequent liens on the 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 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 pooling and servicing 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 RICO 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.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) 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.
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 SMMEA. The appropriate
characterization of Non-SMMEA Certificates under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase Non-SMMEA Certificates, may be subject to interpretive uncertainties.
Accordingly,
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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 (1) are rated in one of
the two highest rating categories by one or more nationally recognized
statistical rating organizations and (2) 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", these 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 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.
Under SMMEA, a number of states enacted legislation, on or before the
October 3, 1991 cutoff for the 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 the legislation will be authorized to invest in
certificates qualifying as "mortgage related securities" only to the extent
provided in the legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal in
mortgage related securities without limitation as to the percentage of their
assets represented thereby, federal credit unions may invest in such securities,
and national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, 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. Section 1.5 concerning "safety and soundness" and
retention of credit information), certain "Type IV securities," defined in 12
C.F.R. Section 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 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
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the credit union has obtained written approval from the NCUA to participate in
the "investment pilot program" described in 12 C.F.R. Section 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 (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 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 discussion above 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.
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ERISA Considerations
ERISA and the Code impose requirements on Plans and 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 Parties in Interest and
impose additional prohibitions where Parties in Interest are fiduciaries with
respect to such Plan.
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.
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:
(1) 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
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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;
(2) 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
(3) 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.
REMIC Elections
Under 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 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 or "residual interests" in a REMIC within the meaning of Section 860G(a)(2)
of the Code. 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
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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 pooling and servicing
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
"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 Code sections listed
above, 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 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.
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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 (1) are actually payable at
least annually over the entire life of the certificates and (2) 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. 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 prospectus 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
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
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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
(1) the original yield to maturity of the Regular Certificate,
(2) events (including actual prepayments) that have occurred prior to
the end of the period and
(3) 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 (1) such
daily portion and (2) 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.
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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 (1) 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) or (2) 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
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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
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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 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. 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
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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
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, 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 (1) 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 (2) 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
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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 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
o engage in prohibited transactions in which it recognizes a
significant amount of net income,
o receive contributions of property that are subject to tax, or
o 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
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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.
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 (1) for a bank or thrift institution, and (2) 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.
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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
(1) 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 (2) 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").
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 eligible 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
(1) the conditions described in the second preceding paragraph with respect to
Regular Certificates are met and (2) 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 to the REMIC
Regulations 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.
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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 pooling and servicing 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 (1) 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", 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 "Book-Entry Nominee") and (2) 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
(1) the present value of the total anticipated future excess
inclusions with respect to such certificate and
(2) 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 to the extent the pass-thru entity receives affidavits
from record
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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,
(1) "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 above, certain organizations that are exempt from taxation
under the Code (including tax on excess inclusions) and certain
corporations operating on a cooperative basis, and
(2) "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:
(1) 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
(2) 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."
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In light of these provisions, the pooling and servicing agreement
provides that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. person, unless (1) 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 (2) 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:
(1) 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
(2) 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, (1) 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 (2) 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.
The pooling and servicing 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.
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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.
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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, assuming
compliance by the Seller, the Servicer and the trustee with all the provisions
of the pooling and servicing 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. Although it is
not certain, certificates that are Interest Only Certificates should qualify
under the Code sections listed above to the same extent as other certificates.
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Possible Application of Stripped Bond Rules.
In general, 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. Stripped 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 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
(1) 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
(2) 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 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.
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.
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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 the
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 the premium under
a constant yield method based on the yield of the mortgage loan to the Owner,
provided that the 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.
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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
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 a
certificate and any premium amortization thereon. The 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
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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 the 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 the 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 the 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 the
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.
Plan of Distribution
The Seller may sell certificates of each series to or through
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 these 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
these 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 the
prevailing market prices or at negotiated prices.
If so specified in the prospectus supplement relating to a series of
certificates, the Seller or any of its affiliates may purchase some or all of
one or more classes of certificates of a series from the underwriter or
underwriters at a price specified in the prospectus
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supplement. The purchaser may thereafter from time to time offer and sell, under
this prospectus, some or all of the certificates so purchased directly, through
one or more underwriters to be designated at the time of the offering of the
certificates or through broker-dealers acting as agent and/or principal. The
offering may be restricted in the manner specified in the 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 the 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 the 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 Act. The
underwriters or agents will be identified, and the 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 of the certificates of a series
or class 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 Securities Act of 1933, as amended.
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
institutions to purchase the certificates from the Seller under 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 the 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.
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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.
This prospectus, together with the related prospectus supplement, may
be used by Chase Securities Inc., an affiliate of the Sellers, in connection
with offers and sales related to market making transactions in the certificates
in which Chase Securities Inc. acts as principal. Chase Securities Inc. may also
act as agent in market making transactions. Sales in market making transactions
will be made at prices related to prevailing prices at the time of sale.
Incorporation of Certain Documents by Reference
All documents filed by the Sellers under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, 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 applicable Sellers 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.
The Sellers will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended 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
Commission. Such reports and other information can be inspected and copied at
the public reference
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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 Sellers have 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 under 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.
---------------------------
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 by such prospectus and prospectus supplement 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.
---------------------------
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.
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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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Glossary of Prospectus Definitions
1998 Policy Statement: The Supervisory Policy Statement on Investment Securities
and End-User Derivatives Activities.
Accrual Certificates: A class of certificates that provides for interest that
accrues, but which is not currently payable.
Act: The Securities Act of 1933, as amended.
Advance Guarantee: An advance made by a Guarantor.
Bankruptcy Bond: A bankruptcy bond or similar insurance contract.
Book-Entry Nominee: 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.
Buy-Down Fund: A trust or custodial account into which Buy-Down Reserves are
deposited.
Buy-Down Mortgage Loans: A mortgage loan subject to a buy-down plan.
Buy-Down Reserves: An amount contributed by the seller of a mortgaged property
or another source at the time of origination of a Buy-Down Mortgage Loan and
deposited in a Buy-Down Fund.
Cash-Out Refinance Loans: Mortgage loans that have been used for refinancing for
the purpose of removing equity from the related mortgaged properties.
CERCLA: The federal Comprehensive Environmental Response, Compensation and
Liability Act.
Certificate Insurer: The issuer of any certificate guaranty insurance policy.
Certificate Rate: The rate of interest at which interest accrues on a class of
certificates, which rate will be a fixed rate or a rate that is subject to
change from time to time in accordance with a schedule, in reference to an
index, or otherwise.
Code: The Internal Revenue Code of 1986, as amended.
Collection Account: A separate account, established and maintained under the
pooling and servicing agreement, for the benefit of holders of the certificates
of the related series.
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Compensating Interest Payment: Payment of interest on a mortgage loan at the
Remittance Rate from the date of the prepayment of such mortgage loan through
the end of the month in which such prepayment occurs.
Conservation Act: The Asset Conservation, Lender Liability and Deposit Insurance
Act of 1996, as amended.
Current Report: A report on Form 8-K to be filed with the Securities and
Exchange Commission within fifteen days after the initial issuance of a series
of certificates.
Cut-Off Date: The first day of the month of the creation of a trust fund.
Defective Mortgage Loan: A mortgage loan in which the interests of the
certificates have been materially and adversely affected as a result of a breach
of any representation or warranty of the Seller set forth in the related pooling
and servicing agreement with respect to such mortgage loans.
Delivery Date: The date of issuance of a series of certificates.
Denomination: The minimum original Certificate Principal Balance or Notional
Principal Balance that may be represented by a certificate.
Deposit Guarantee: The deposit made by a Guarantor in the Collection Account.
Distribution Date: The 25th day (or if the 25th day is not a business day, on
the business day next following the 25th day) of each calendar month.
DOL: The United States Department of Labor.
Environmental Liens: A lien for any cleanup costs incurred on a property that is
the subject of cleanup costs.
Garn-St Germain Act: The Garn-St. Germain Depository Institutions Act of 1982.
Guarantor: An entity named in the prospectus supplement which issues a Limited
Guarantee.
Insurance Proceeds: Proceeds from any applicable policy of insurance.
Interest Only Certificate: 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.
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Limited Guarantee: A limited financial guarantee policy, limited guarantee or
another similar instrument issued by a Guarantor.
Liquidation Proceeds: Proceeds of the liquidation of a mortgage loan.
Loan-to-Value Ratio: The ratio, expressed as a percentage, of the principal
amount of the mortgage loan to the lesser of (1) the sales price for such
property at the time the mortgage loan is closed and (2) 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.
Mortgage Loan Schedule: A schedule of mortgage loans appearing as an exhibit to
the pooling and servicing agreement for a series.
NCUA: The National Credit Union Administration.
Nonrecoverable Advance: An advance, determined by the Servicer in good faith, to
not be ultimately recoverable from liquidation or insurance proceeds.
Non-SMMEA Certificates: Those certificates not qualifying as "mortgage related
securities".
OCC: The Office of the Comptroller of the Currency.
Old Regulations: Regulations adopted by the Internal Revenue Service applying
the original issue discount rules of the Code.
OTS: The Office of Thrift Supervision.
Owner: The beneficial owner of a certificate.
Parties in Interest: Persons having certain specified relationships to a Plan.
Plans: 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.
Pre-Funding Account: The account which the trustee will maintain under a
pre-funding agreement.
Primary Mortgage Insurance Policy: An individual primary mortgage guaranty
insurance policy.
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Principal Prepayments: The payments or other recoveries of principal on a
mortgage loan which are received in advance of their scheduled due dates and are
not accompanied by amounts of interest representing scheduled interest due after
the month of such payments.
PTE 83-1: DOL Prohibited Transaction Class Exemption 83-1.
Regular Certificates: Certificates of any class that are "regular interests" in
a REMIC within the meaning of Section 860G(a)(i) of the Code.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as amended.
REMIC Regulations: The regulations that have been adopted under Code Sections
860A through 860G.
Remittance Rate: The aggregate interest rate borne by the mortgage loans in a
trust fund, net of certain fees and any other amounts specified in the
prospectus supplement.
Reserve Account: A reserve account established by the trustee.
Residual Certificates: Certificates of any class that are `residual interests"
within the meaning of Section 860G(a)(2) of the Code.
Residual Owners: Owners of Residual Certificates in a REMIC Pool.
RICO: The Racketeer Influenced and Corrupt Organizations statute.
Seller: Either Chase Manhattan Acceptance Corporation or Chase Funding, Inc., as
specified in the related prospectus supplement.
Servicer: Chase Manhattan Mortgage Corporation.
SMMEA: The Secondary Mortgage Market Enhancement Act of 1984, as amended.
Stripped Bond Rules: The provisions of Section 1286 of the Code.
Stripped Certificate: A certificate subject to the Stripped Bond Rules.
Title V: Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980, as amended.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
SEC Registration Fee........................... $1,320,000.00
Legal Fees and Expenses....................... 1,250,000.00
Accounting Fees and Expenses................... 350,000.00
Trustee's Fees and Expenses.................... 100,000.00
Printing and Engraving Fees.................... 325,000.00
Rating Agency Fees............................. 1,500,000.00
Miscellaneous.................................. 200,000.00
Total.......................................... $5,045,000.00
Item 15. Indemnification of Directors and Officers.
(a) Chase Manhattan Acceptance Corporation ("CMAC")
The CMAC Bylaws provide for indemnification of directors and
officers of CMAC and provide, in substance, that CMAC shall, under specified
circumstances, indemnify its directors and officers in connection with actions
or proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors or
officers, against expenses incurred in any such action, suit or proceeding.
(b) Chase Funding, Inc. ("CFI").
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CFI's Certificate of Incorporation provides for
indemnification of its directors and officers to the full extent permitted by
the Delaware General Corporation Law ("DGCL").
Section 145 of the DGCL provides, in substance, that Delaware
corporations shall have the power, under specified circumstances, to indemnify
their directors, officers, employees and agents in connection with actions,
suits or proceedings brought against them by a third party or in the right of
the corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding. The DGCL also provides that CFI may purchase insurance on
behalf of any such director, officer, employee or agent.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement with respect to CFI.*
1.2 Form of Underwriting Agreement with respect to CMAC.*
4.1 Form of Pooling and Servicing Agreement with respect to CFI.*
4.2 Form of Pooling and Servicing Agreement with respect to CMAC.*
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality
of the securities being registered.*
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding certain
federal income tax matters with respect to the securities
being registered.*
23.1 Consent of Morgan, Lewis & Bockius LLP (incorporated in
Exhibits 5.1 and 8.1).*
24.1 Powers of Attorney (incorporated in Signatures).*
-------------------
* Previously filed
Item 17. Undertakings.
(a) Undertaking pursuant to Rule 415.
The undersigned Registrants hereby undertake:
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(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement.
(2) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrants of expenses incurred or paid by a director, officer or
controlling person of either Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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(c) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
either Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, that it reasonably believes that the
security rating requirement set forth in Transaction Requirement B-5 will be met
by the time of sale of the registered securities and that it has duly caused
this Amendment No. 2 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Edison, New Jersey, on the 4th
day of August, 2000.
CHASE FUNDING, INC.
By: /s/ Samuel Cooper
--------------------
Name: Samuel Cooper
Title: President
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, that it reasonably believes that the
security rating requirement set forth in Transaction Requirement B-5 will be met
by the time of sale of the registered securities and that it has duly caused
this Amendment No. 2 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Edison, New Jersey, on the 4th
day of August, 2000.
CHASE MANHATTAN ACCEPTANCE
CORPORATION
By: /s/ Paul Mullings
---------------------
Name: Paul Mullings
Title: President
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
1.1 Form of Underwriting Agreement with respect to Chase Funding, Inc.
("CFI").*
1.2 Form of Underwriting Agreement with respect to Chase Manhattan
Acceptance Corporation ("CMAC").*
4.1 Form of Pooling and Servicing Agreement with respect to CFI.*
4.2 Form of Pooling and Servicing Agreement with respect to CMAC.*
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of
the securities being registered.*
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding certain federal
income tax matters with respect to the securities being
registered.*
23.1 Consent of Morgan, Lewis & Bockius LLP (incorporated in Exhibits
5.1 and 8.1).*
24.1 Powers of Attorney (incorporated in Signatures).*
-------------------
* Previously filed
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