<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 SEPTEMBER 18, 2000
PROSPECTUS SUPPLEMENT
(to Prospectus dated August 8, 2000)
[GRAPHIC OMITTED]
$720,000,000 (Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 2000-3
[GRAPHIC OMITTED]
Chase Funding Trust, Series 2000-3
Issuer
Chase Funding, Inc.
Depositor
Advanta Mortgage Corp. USA
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
Investing in these certificates Chase Funding Trust, Series 2000-3 will
involves risks. You should not issue fourteen classes of certificates,
purchase these certificates thirteen of which are offered by this
unless you fully understand prospectus supplement and the attached
their risks and structure. See prospectus. The table on page S-3
"Risk Factors" beginning on identifies the various classes and
page S-18 of this prospectus specifies certain characteristics of each
supplement and page 5 of the class, including each class's initial
attached prospectus. certificate principal balance, interest
These certificates will be rate and rating.
beneficial interests in a trust
fund, and will be backed only The trust fund will consist primarily of
by the assets of the trust. sub-prime mortgage loans secured by first
Neither these certificates nor the liens on real properties which were
assets of the trust will be originated or acquired by Chase Manhattan
obligations of Chase Funding, Mortgage Corporation and cash on deposit
Inc., Advanta Mortgage Corp. in an account used by the trust to
USA, Chase Manhattan purchase additional sub-prime mortgage
Mortgage Corporation or any of loans originated or acquired by Chase
their affiliates. These certificates Manhattan Mortgage Corporation.
will not be insured or
guaranteed by any governmental Underwriting Proceeds to
agency. Price to Public Discount Depositor
--------------- -------- ---------
$______ $______ $______
___% ___%
The price to public and underwriting
discount shown are for all classes of
offered certificates in the aggregate.
This information is shown for each
individual class on page S-97. See "Method
of Distribution."
The proceeds to depositor shown are less
expenses, estimated at $______, and plus
accrued interest. See "Method of
Distribution."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this prospectus supplement and the attached prospectus.
Any representation to the contrary is a criminal offense.
Chase Securities Inc. Bear, Stearns & Co. Inc.
The date of this prospectus supplement is September __, 2000.
<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
<TABLE>
<CAPTION>
<S> <C> <S> <C>
The Series 2000-3 Certificates .................. S-3 Description of the Certificates ................. S-60
Summary Information ............................. S-4 General ...................................... S-60
Principal Parties ............................ S-4 Book-Entry Certificates ...................... S-60
Cut-off Date ................................. S-4 Payments on Mortgage Loans; Collection
Closing Date ................................. S-4 Account; Certificate Account;
Distribution Date ............................ S-4 Distribution Account ...................... S-65
The Trust Fund ............................... S-4 Distributions ................................ S-66
The Series 2000-3 Certificates ............... S-4 Overcollateralization and
Interest Distributions ....................... S-5 Crosscollateralization Provisions ......... S-68
Principal Distributions ...................... S-6 Calculation of One-Month LIBOR ............... S-69
Denominations ................................ S-6 Mandatory Prepayments on the
Book-Entry Registration ...................... S-6 Certificates .............................. S-70
Mandatory Prepayments ........................ S-6 Capitalized Interest Account ................. S-70
Credit Enhancement ........................... S-6 Reports to Certificateholders ................ S-71
Optional Termination ......................... S-8 Amendment .................................... S-72
Legal Investment ............................. S-8 Optional Termination ......................... S-73
Federal Income Tax Consequences .............. S-8 Optional Purchase of Defaulted Loans ......... S-73
ERISA Considerations ......................... S-8 Events of Default ............................ S-73
Ratings ...................................... S-8 Rights upon Event of Default ................. S-74
Pre-Funding Account .......................... S-9 The Trustee .................................. S-74
The Mortgage Loans ........................... S-9 Yield, Prepayment and Maturity
Risk Factors .................................... S-18 Considerations ............................... S-74
Forward-Looking Statements ...................... S-26 General ...................................... S-74
Glossary ........................................ S-26 Prepayments and Yields for Offered
The Mortgage Pool ............................... S-27 Certificates .............................. S-76
General ................................... S-27 Group II Certificates: Hypothetical
Mortgage Loans ............................ S-31 Available Funds Cap Table ................. S-88
Assignment of the Mortgage Loans .......... S-47 Additional Information ....................... S-89
Representations and Warranties ............ S-47 Federal Income Tax Consequences ................. S-89
Conveyance of Subsequent Original Issue Discount ...................... S-89
Mortgage Loans and the Pre-Funding Special Tax Attributes of the Offered
Account ................................ S-47 Certificates .............................. S-90
Chase Manhattan Mortgage Corporation ............ S-49 Prohibited Transactions Tax and Other
Underwriting Standards ....................... S-49 Taxes ..................................... S-90
Servicing of the Mortgage Loans ................. S-53 State Taxes ..................................... S-91
General ...................................... S-53 ERISA Considerations ............................ S-91
The Subservicer .............................. S-53 Legal Investment Matters ........................ S-95
Servicing Compensation and Payment of Use of Proceeds ................................. S-96
Expenses .................................. S-58 Method of Distribution .......................... S-96
Adjustment to Servicing Fee in Legal Matters ................................... S-98
Connection with Prepaid Mortgage Ratings ......................................... S-98
Loans ..................................... S-58 Glossary of Defined Terms ....................... S-99
Advances ..................................... S-59 Annex 1 ......................................... A-1
Master Servicer .............................. S-59
</TABLE>
S-2
<PAGE>
THE SERIES 2000-3 CERTIFICATES
<TABLE>
<CAPTION>
Class IA-1 Class IA-2 Class IA-3 Class IA-4
Loan Group: Fixed Fixed Fixed Fixed
<S> <C> <C> <C> <C>
Initial Certificate Principal: $45,500,000 $22,250,000 $20,500,000 $26,500,000
Pass Through Rate: ____% ______% ______%
ERISA Eligible: Yes Yes Yes Yes
Prepayment Assumption: 20% HEP 20% HEP 20% HEP 20% HEP
First Principal Payment Date: ____ ____ ____ ____
Weighted Avg. Life At Issuance:
to call (yrs.): 0.96 2.15 3.15 5.13
to maturity (yrs.): 0.96 2.15 3.15 5.13
Expected Maturity (to call): 6/02 4/03 7/04 9/07
Expected Maturity (to maturity): 6/02 4/03 7/04 9/07
Last Scheduled Distribution Date: 8/15 8/15 7/17 10/26
Interest Accrual Method: actual/360 30/360 30/360 30/360
Payment Delay: 0 days 24 days 24 days 24 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AAA/AAA AAA/AAA AAA/AAA
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Class IA-5 Class IA-6 Class IM-1 Class IM-2 Class IB
Loan Group: Fixed Fixed Fixed Fixed Fixed
<S> <C> <C> <C> <C> <C>
Initial Certificate Principal: $20,250,000 $15,000,000 $3,600,000 $3,200,000 $3,200,000
Pass Through Rate: _______% _____% _______% ______% ______%
ERISA Eligible: Yes Yes No No No
Prepayment Assumption: 20% HEP 20% HEP 20% HEP 20% HEP 20% HEP
First Principal Payment Date: ____ ____ ____ ____ ____
Weighted Avg. Life At Issuance:
to call (yrs.): 9.45 6.72 6.63 6.63 6.44
to maturity (yrs.): 11.48 6.72 7.10 6.95 6.47
Expected Maturity (to call): 8/10 3/10 8/10 8/10 8/10
Expected Maturity (to maturity): 6/19 3/10 11/14 7/13 9/11
Last Scheduled Distribution Date: 9/30 10/12 9/30 9/30 9/30
Interest Accrual Method: 30/360 30/360 30/360 30/360 30/360
Payment Delay: 24 days 24 days 24 days 24 days 24 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AAA/AAA AA/AA A/A BBB/BBB
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Class IIA-1 Class IIM-1 Class IIM-2 Class IIB
Loan Group: Adjustable Adjustable Adjustable Adjustable
<S> <C> <C> <C> <C>
Initial Certificate Principal: $481,600,000 $30,800,000 $26,600,000 $21,000,000
Pass Through Rate:
ERISA Eligible: Yes No No No
Prepayment Assumption: 27% CPR 27% CPR 27% CPR 27% CPR
First Principal Payment Date: ____ ____ ____ ____
Weighted Avg. Life At Issuance:
to call (yrs.): 2.47 4.92 4.87 4.82
to maturity (yrs.): 2.70 5.42 5.29 4.99
Expected Maturity (to call): 12/07 12/07 12/07 12/07
Expected Maturity (to maturity): 1/17 8/13 4/12 5/10
Last Scheduled Distribution Date: 10/30 10/30 10/30 10/30
Interest Accrual Method: actual/360 actual/360 actual/360 actual/360
Payment Delay: 0 days 0 days 0 days 0 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AA/AA A/A BBB/BBB
</TABLE>
Other information:
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-5, class IIA-1, class IIM-1, class IIM-2 and class IIB
certificates will increase.
The pass-through rates for the group I certificates are 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. These pass-through rates are 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 on page S-___ and 20%
HEP or 27% CPR, as applicable.
The interest rate index reset date for the class IA-1, class IIA-1, class
IIM-1, class IIM-2 and class IIB certificates is two business days prior to the
start of each interest accrual period.
Credit Enhancement:
<TABLE>
<CAPTION>
Group I Group II
<S> <C>
Excess Interest Excess Interest
Overcollateralization Overcollateralization
Crosscollateralization Crosscollateralization
Subordination Subordination
Overcollateralization Requirements:
Group I Group II
Initial Percentage: 0.00% Initial Percentage: 0.00%
Stepdown Percentage: 2.50% of current balance Stepdown Percentage: 3.50% of current balance
Targeted Percentage: 1.25% of original balance Targeted Percentage: 1.75% of original balance
Minimum Required Percentage: 0.50% of original balance Minimum Required Percentage: 0.50% of original balance
Earliest Possible Stepdown Date: October 2003 Earliest Possible Stepdown Date: October 2003
</TABLE>
S-3
<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 2000-3.
Depositor: Chase Funding, Inc., a New York corporation. The depositor's
address is 343 Thornall Street, Edison, NJ 08837 and its telephone number is
(732) 205- 0600.
Seller and Master Servicer: Chase Manhattan Mortgage Corporation, a New
Jersey corporation whose address is 343 Thornall Street, Edison, NJ 08837 and
whose telephone number is (732) 205-0600. See "Chase Manhattan Mortgage
Corporation."
Subservicer: Advanta Mortgage Corp. USA, a Delaware corporation whose
address is 10790 Rancho Bernardo Road, San Diego, CA 92127 and whose telephone
number is (619) 674-1800. See "Servicing of the Mortgage Loans--The
Subservicer."
Trustee: Citibank, N.A. The corporate trust office of the trustee is
111 Wall Street, New York, NY 10043 and its telephone number is (212) 495-7276.
Cut-off Date
The cut-off date will be September 1, 2000.
Closing Date
The closing date will be on or about September 28, 2000.
<PAGE>
Distribution Date
The 25th day of each month, beginning in October 2000. If the 25th day is not a
business day, then the distribution date will be the next business day.
The Trust Fund
The name of the trust fund is Chase Funding Trust, Series 2000-3. We are
forming the trust to own a pool of sub-prime mortgage loans secured by first
liens on real properties and $180,000,000 deposit in an account to be used by
the trust fund 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 2000-3 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 September 1, 2000 among Chase
S-4
<PAGE>
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 to be used by the
trust fund 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 on the certificates. All principal collections will be paid to one or
more classes of the certificates offered through this prospectus supplement or
to the residual certificates, based on the outstanding certificate balances and
the remaining principal amount in each loan group. Any interest collections in
excess of the amount paid to certificateholders--either as interest or
principal--or the servicers will be paid to the owner of the residual
certificates. See "Description of the Certificates-- Distributions."
Interest Distributions
Interest will accrue on each class of certificates at the pass-through rate for
that class. Interest will accrue on each class of certificates (other than the
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
<PAGE>
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-2, class IA-3, class IA-4,
class IA-5, class IA-6, 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."
S-5
<PAGE>
Principal Distributions
Principal payments to the group I certificates and the group II certificates
will generally reflect principal collections on the loans in the related loan
group. Principal payments will also include a portion of interest collections
to the extent necessary to reach or maintain the required overcollateralization
percentage, as described below 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
<PAGE>
distribution date in December 2000 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 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
S-6
<PAGE>
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. 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
<PAGE>
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:
Group I Initial Credit
Class(es) Credit Support Support
----------- ---------------- ---------------
IA Class IM-1, 6.25%
Class IM-2
and Class IB
IM-1 Class IM-2 4.00%
and Class IB
IM-2 Class IB 2.00%
Group II Initial Credit
Class Credit Support Support
---------- ---------------- ---------------
IIA-1 Class IIM-1, 14.00%
Class IIM-2
and Class IIB
IIM-1 Class IIM-2 8.50%
and Class IIB
IIM-2 Class IIB 3.75%
S-7
<PAGE>
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 the
closing date. See "Description of the Certificates--Optional Termination."
Legal Investment
As of the closing date, the class IA, class IIA, class IM-1 and class IIM-1
certificates will constitute "mortgage related securities" under the Secondary
Mortgage Market Enhancement Act of 1984, as amended. The class IM-2, class IB,
class IIM-2 and class IIB certificates will not constitute "mortgage related
securities." You should consult your own counsel as to whether you have the
legal authority to invest in 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
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
<PAGE>
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
Under current law, 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."
S-8
<PAGE>
Pre-Funding Account
Subject to conditions described in this prospectus supplement, the trust fund
will be obligated to purchase from Chase Manhattan Mortgage Corporation on or
before November 28, 2000, additional fixed rate mortgage loans having an
aggregate outstanding principal balance of up to $40,000,000, and additional
adjustable rate mortgage loans having an aggregate outstanding principal
balance of up to $140,000,000. On September 28, 2000, Chase Funding, Inc. will
pay to the trustee approximately $180,000,000, to provide the trust fund with
sufficient cash to purchase the additional mortgage loans. See "The 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 September 1, 2000. 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 loan group as of September 1,
2000, which we refer to as the statistical
<PAGE>
mortgage pool. The mortgage pool as of the closing date will include certain
mortgage loans that are not included in the statistical mortgage pool in this
prospectus supplement; furthermore, certain mortgage loans that are included in
the statistical mortgage pool in this prospectus supplement will be deleted from
the final mortgage pool. Other than increasing the aggregate principal balance
of the initial mortgage loans to approximately $540,000,000, we do not expect
the inclusion or deletion of these mortgage loans to change the material
characteristics of either 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 $40,000,000 in aggregate
outstanding principal balance of fixed rate mortgage loans and up to
$140,000,000 in aggregate outstanding principal balance of adjustable rate
mortgage loans will be added to the mortgage pool after the closing date, but
before November 28, 2000. 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-9
<PAGE>
Fixed Rate Mortgage Loan Group
(Statistical Mortgage Pool)
Number of loans 1,356
Aggregate outstanding principal balance $110,361,401
Number of loans with prepayment penalties 1,090
Average prepayment term for loans with prepayment penalties
(in months) 41
Average or
Weighted Average Range
------------------ ------------------------
Outstanding principal balance $81,387 $11,000 -- $725,670
Original principal balance $81,494 $11,000 -- $726,000
Mortgage rate 10.479% 7.150% -- 14.375%
Loan-to-value ratio 71.30% 8.57% -- 95.00%
Stated remaining term to maturity
(in months) 255 117 -- 360
Credit Score 618 489 -- 806
Mortgate Rates for the
Fixed Rate Mortgage Loan Group
1.8% 10.3% 23.6% 30.2% 24.2% 9.9%
-----------------------------------------------------------------------------
Up to 7.999% 8.000% to 9.000% to 10.000% to 11.000% to 12.000% and
8.999% 9.999% 10.999% 11.999% greater
S-10
<PAGE>
Original Principal Balance for
the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
50.8% 19.1% 11.9% 7.1% 3.6% 3.0% 1.4% 3.1%
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $100,001 to $150,001 to $200,001 to $250,001 to $300,001 to $350,001 to $400,001
or less $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 and greater
</TABLE>
Product Types for the
Fixed Rate Mortgage Loan Group
10 Year Fixed 1.0%
15 Year Fixed 13.8%
20 Year Fixed 2.9%
30 Year Fixed 41.7%
Balloon Loan 40.6%
S-11
<PAGE>
Credit Grades for the
Fixed Rate Mortgage Loan Group
AO 45.7%
A- 31.8%
B 14.2%
B- 3.8%
C 4.4%
C- 0.2%
Loan-to-Value Ratios for the
Fixed Rate Mortgage Loan Group
8.4% 11.7% 22.2% 38.2% 19.0% 0.5%
----------------------------------------------------------------------------
50.00% 50.01% to 60.01% to 70.01% to 80.01% to 90.01% and
or less 60.00% 70.00% 80.00% 90.00% greater
S-12
<PAGE>
Credit Score Summary for the
Fixed Rate Mortgage Loan Group
1.0% 0.5% 13.2% 27.6% 30.1% 17.0% 7.1% 3.5% 0.0%
------------------------------------------------------------------------------
Not 489 to 501 to 551 to 601 to 651 to 701 to 751 to 801 to
Scored 500 550 600 650 700 750 800 806
Prepayment Penalty Summary for
the Fixed Rate Mortgage Loan Group
18.6% 17.6% 1.5% 25.9% 36.3%
------------------------------------------------------------------------
None 12 Months 24 Months 36 Months 60 Months
S-13
<PAGE>
Adjustable Rate Mortgage Loan Group
(Statistical Mortgage Pool)
Number of loans 2,981
Aggregate outstanding principal balance $372,996,679
Number of loans with prepayment penalties 2,088
Average prepayment term for loans with prepayment penalties
(in months) 32
<TABLE>
<CAPTION>
Average or
Weighted Average Range
------------------ ------------------------
<S> <C> <C>
Outstanding principal balance $125,125 $ 13,750 -- $1,000,000
Original principal balance $125,216 $ 13,750 -- $1,000,000
Current mortgage rates 10.324% 6.450% -- 14.375 %
Maximum mortgage rates 17.314% 13.450% -- 21.000%
Minimum mortgage rates 10.324% 6.450% -- 14.375%
Loan-to-value ratio 76.87% 13.74% -- 95.00%
Stated remaining term to maturity
(in months) 359 353 -- 360
Credit Score 614 464 -- 798
Gross Margin 5.751% 3.250% -- 8.750%
Initial Rate Cap 2.972% 1.000% -- 3.000%
Periodic Rate Cap 1.486% 1.000% -- 1.500%
</TABLE>
Mortgage Rates for the
Adjustable Rate Mortgage Loan Group
0.9% 8.4% 29.8% 35.9% 19.9% 5.0%
-----------------------------------------------------------------------------
Up to 7.999% 8.000% to 9.000% to 10.000% to 11.000% to 12.000% and
8.999% 9.999% 10.999% 11.999% greater
S-14
<PAGE>
Original Principal Balances for
the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
25.2% 25.0% 17.3% 11.9% 7.2% 4.5% 3.4% 5.7%
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $100,001 to $150,001 to $200,001 to $250,001 to $300,001 to $350,001 to $400,001
or less $150,000 $200,000 $250,000 $300,000 $350,000 $ 400,000 and greater
</TABLE>
Product Types for the
Adjustable Rate Mortgage Loan Group
Six Month
LIBOR Loan 0.4%
1/29 Loan 2.0%
2/28 Loan 58.8%
3/27 Loan 36.5%
5/25 Loan 2.3%
S-15
<PAGE>
Credit Grades for the Adjustable Rate
Mortgage Loan Group
AO 41.7%
A- 33.8%
B 14.8%
B- 4.5%
C 4.9%
C- 0.3%
Loan-to-Value Ratios for the
Adjustable Rate Mortgage Loan Group
3.0% 4.6% 16.1% 49.8% 26.2% 0.3%
----------------------------------------------------------------------------
50.00% 50.01% to 60.01% to 70.01% to 80.01% to 90.01% and
or less 60.00% 70.00% 80.00% 90.00% greater
S-16
<PAGE>
Credit Score Summary for the
Adjustable Rate Mortgage Loan Group
0.6% 0.2% 16.6% 28.3% 26.2% 19.0% 6.5% 2.5%
--------------------------------------------------------------------------------
Not 464 to 501 to 551 to 601 to 651 to 701 to 751 to
Scored 500 550 600 650 700 750 798
Prepayment Penalty Summary for
the Adjustable Rate Mortgage Loan Group
30.3% 0.4% 32.2% 33.5% 3.6%
------------------------------------------------------------------------
None 12 Months 24 Months 36 Months 60 Months
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 81.4% of the initial fixed rate
mortgage loans and approximately 69.7% 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
S-19
<PAGE>
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
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.
S-20
<PAGE>
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-2, class IA-3, class IA- 4, class IA-5, class IA-6, 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-2, class IA-3, class IA-4, class IA-5, class IA-6, 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-2, class IA-3, class IA-4, class IA-5, class IA-6,
class IM-1, class IM-2 or class IB certificates may experience a lower than
anticipated yield.
This limitation on the payment of interest on 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-2, class IA-3, class IA-4 class IA-5, class IA-6, 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
S-21
<PAGE>
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
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.
S-22
<PAGE>
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 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 7.2% of the mortgaged properties of
the initial fixed rate mortgage loan group and approximately 21.8% of the
mortgaged properties of the initial adjustable rate mortgage loan group were
located in California. As of the cut-off date, approximately 1.1% of the
mortgaged properties of the initial fixed rate mortgage loan group and
approximately 7.1% of the initial adjustable rate mortgage loan group were
located in Colorado. As of the cut-off date, approximately 16.6% of the
mortgaged properties of the initial fixed rate mortgage loan group and
approximately 10.1% of the initial adjustable rate mortgage loan group were
located in Florida. As of the cut-off date, approximately 4.3% of the mortgaged
properties of the initial fixed rate mortgage loan group and approximately 7.5%
of the initial adjustable rate mortgage loan group were located in Michigan. As
of the cut-off date, approximately 19.6% of the mortgaged properties of the
initial fixed rate mortgage loan group and approximately 4.1% of the initial
adjustable rate mortgage loan group were located in New York. As of the cut-off
date, approximately 7.1% of the mortgaged properties of the initial fixed rate
mortgage loan group and approximately 2.9% of the initial adjustable rate
mortgage loan group were located in Tennessee. An overall decline in the
California, Colorado, Florida, Michigan, New York or Tennessee residential real
estate market could adversely affect the values of
S-23
<PAGE>
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 California, Colorado, Florida, Michigan, New York or Tennessee residential
real estate market will not weaken. If the California, Colorado, Florida,
Michigan, New York or Tennessee 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 40.6% 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 may contain 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 1.5% of the mortgage loans (by cut-off date principal balance or
subsequent cut-off date principal balance, as the case may be) will be between
30 and 59 days delinquent. If there are not sufficient funds from amounts
collected on the mortgage loans, the aggregate amount of principal returned to
any class of offered certificateholders may be less than the certificate
principal balance 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
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 $180,000,000 on deposit in the pre-funding account
(of which $40,000,000 is allocable to group I and $140,000,000 is allocable to
group II) has not been fully applied to the purchase of subsequent mortgage
loans by November 28, 2000, the
S-24
<PAGE>
holders of the group I certificates and the group II certificates will receive
on the distribution date in December 2000, 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 the closing 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.
Replacement of the Subservicer
On May 17, 2000, Advanta Corp., the parent of the subservicer, issued a
press release stating that it had retained Salomon Smith Barney to assist it in
studying possible strategic alternatives for Advanta's mortgage and leasing
business units. Advanta Corp. continues to evaluate strategic alternatives for
these business units with the goal of maximizing shareholder value. Although
there are no specific actions contemplated at this time, these strategic
alternatives could include the sale of, or strategic alliances or partnerships
in respect of, all or a portion of the Advanta Corp.'s mortgage loan
origination or servicing businesses, including the subservicer.
In the event that any strategic alternative involving the subservicer is
implemented in the future, the servicing of the mortgage loans could be
affected. The master servicer has not been advised of the identity of any
potential successor in interest to Advanta, and the
S-25
<PAGE>
quality of any successor in interest's subservicing is unknown. The master
servicer is under no obligation to contract with any successor in interest to
Advanta to subservice the mortgage loans and may, if it chooses, contract with
another company to provide subservicing of the mortgage loans in the event of a
change in control of the subservicer or a sale of all or substantially all of
the subservicer's assets. We cannot give you any assurance that the delinquency
and loss experience on the mortgage loans will not worsen, perhaps
significantly, if Advanta ceases to be the subservicer and is replaced by a
successor subservicer (whether Advanta's successor in interest or a different
subservicer selected by the master servicer).
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 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-99.
S-26
<PAGE>
The Mortgage Pool
General
The mortgage pool with respect to the certificates consisted as of the
Cut-off Date of approximately 4,337 conventional mortgage loans evidenced by
promissory notes having an aggregate principal balance of approximately
$483,358,080. 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 certain mortgage loans
that are not included in the Statistical Mortgage Pool; furthermore, certain
mortgage loans that are included in the Statistical Mortgage Pool will be
deleted from the Statistical Mortgage Pool. Other than increasing the aggregate
principal balance of the initial mortgage loans to approximately $540,000,000,
we do not expect the inclusion or deletion of these mortgage loans to change
the material characteristics of either loan group. Updated statistical
information on the final composition of the 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
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 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:
S-27
<PAGE>
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 September 1, 2000 by and 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
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.
s Subsequent Mortgage Loans are intended to be purchased by the trust fund
from the Seller from time to time on or before November 28, 2000 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 5.0% of the mortgage loans in the Statistical Mortgage Pool
(approximately 7.3% of the Fixed Rate Mortgage Loans and 4.3% of the Adjustable
Rate Mortgage Loans) 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."
Scheduled Payments 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 81.4% of the Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool and approximately 69.7% of the Adjustable Rate
S-28
<PAGE>
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 41 months with respect to the Fixed
Rate Mortgage Loans in the Statistical Mortgage Pool which have prepayment
penalties and approximately 32 months with respect to the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool which have prepayment
penalties. In general, the related mortgage note will provide that a prepayment
charge will apply if, during the prepayment penalty term, the borrower prepays
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 0.4% of the Adjustable Rate Mortgage Loans in the
Statistical Mortgage Pool as of the Cut-off Date are Six-Month LIBOR Loans. The
Mortgage Rate on substantially all the Six-Month LIBOR Loans will not increase
or decrease by more than the 1.00% on any Adjustment Date, nor will it 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 have a Maximum
Mortgage Rate equal to the initial mortgage rate plus 6.00%. Substantially all
of the Six-Month LIBOR Loans have a Minimum Mortgage Rate equal to the initial
mortgage rate. Effective with the first payment due on an Adjustable Rate
Mortgage Loan after each related Adjustment Date, the monthly payment will be
adjusted to an amount which will fully amortize the outstanding principal
balance of the mortgage loan over its remaining term.
Approximately 2.0% 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 2.00% Periodic Rate Cap with respect to
the first Adjustment Date and a 1.00% Periodic Rate Cap with respect to each
Adjustment Date thereafter, have a Maximum Mortgage Rate equal to the initial
Mortgage Rate plus 7.00% and have a Minimum Mortgage Rate equal to the initial
Mortgage Rate.
Approximately 58.8% 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 3.00% Periodic Rate Cap with respect to
the first Adjustment Date and a 1.50% Periodic Rate Cap with respect to each
Adjustment Date thereafter, have a Maximum Mortgage Rate equal to the initial
Mortgage Rate plus 7.00% and have a Minimum Mortgage Rate equal to the initial
Mortgage Rate.
Approximately 36.5% 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 subject to a 3.00% Periodic Rate Cap with respect to
the first Adjustment Date and a
S-29
<PAGE>
1.50% Periodic Rate Cap with respect to each Adjustment Date thereafter, have a
Maximum Mortgage Rate equal to the initial Mortgage Rate plus 7.00% and have a
Minimum Mortgage Rate equal to the initial Mortgage Rate.
Approximately 2.3% 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 3.00% Periodic Rate Cap with respect to
the first Adjustment Date and a 1.50% Periodic Rate Cap with respect to each
Adjustment Date thereafter, have a Maximum Mortgage Rate equal to the initial
Mortgage Rate plus 7.00% and have a Minimum Mortgage Rate equal to the initial
Mortgage Rate.
Fixed Rate Mortgage Loan Group. As of the Cut-off Date, the aggregate
principal balance of the Fixed Rate Mortgage Loans in the Statistical Mortgage
Pool was approximately $110,361,401. As of the Cut-off Date, the average
outstanding principal balance of the Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool was approximately $81,387, the minimum outstanding
principal balance was approximately $11,000, the maximum outstanding principal
balance was approximately $725,670, the lowest Mortgage Rate and the highest
Mortgage Rate were 7.150% and 14.375% per annum, respectively, and the weighted
average Mortgage Rate was approximately 10.479% per annum. Approximately 40.6%
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 $372,996,679. As of the Cut-off Date the
average outstanding principal balance of the Adjustable Rate Mortgage Loans in
the Statistical Mortgage Pool was approximately $125,125, the minimum
outstanding principal balance was approximately $13,750, the maximum
outstanding principal balance was approximately $1,000,000, the lowest current
Mortgage Rate and the highest current Mortgage Rate were approximately 6.450%
and 14.375% per annum, respectively, and the weighted average Mortgage Rate was
approximately 10.324% 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
71.30% 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 76.87%.
The weighted average Credit Score as of the Cut-off Date of the Fixed Rate
Mortgage Loans that were scored was approximately 618 and the weighted average
Credit Score as of the Cut-off Date of the Adjustable Rate Mortgage Loans that
were scored was approximately 614. The B&C Underwriting Guidelines generally
limit the use of Credit Scores to evaluating borrowers for exceptions to such
underwriting guidelines. Credit Scores are generated by models developed by a
third party and are made available to lenders through three national credit
bureaus. The models were derived by analyzing data on consumers in order to
establish patterns which are believed to be indicative of the borrower's
probability of default. The Credit Score is based on a borrower's historical
credit data, including, among other things, payment history, delinquencies on
accounts, levels of outstanding indebtedness, length of credit history, types
of credit, and bankruptcy experience. Credit Scores range from approximately
250 to approximately 900, with higher
S-30
<PAGE>
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 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 prepayment by the
borrower. Neither the Depositor, the Seller nor the Subservicer makes any
representations or warranties as to the actual performance of any mortgage loan
or that a particular Credit Score should be relied upon as a basis for an
expectation that the borrower will repay the mortgage loan according to its
terms.
As used herein, the Credit Score of a mortgage loan is generally equal to
the lower of two credit scores or the middle of three scores for two-file and
three-file credit reports, respectively. The credit report is generated during
the underwriting of the mortgage loan and generally within 45 days of the
origination date. The credit report used is generated by the Seller on all
mortgage loans with the exception of mortgage loans purchased by the Seller
under the small lender program. The credit report is provided by third party
originators and reviewed by the Seller for mortgage loans purchased by the
Seller under small lender program.
Mortgage Loans
The following tables describe the mortgage loans in the Statistical
Mortgage Pool and the related mortgaged properties as of the close of business
on the Cut-off Date. The sum of the columns below may not equal the total
indicated due to rounding.
S-31
<PAGE>
Fixed Rate Mortgage Loan Group
(Statistical Mortgage Pool)
Mortgage Rates for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Mortgage Rates Mortgage Loans Balance Outstanding Loan Group
----------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
7.000%-7.499% ........... 3 $ 183,835 0.2%
7.500%-7.999% ........... 27 1,856,990 1.7
8.000%-8.499% ........... 30 2,765,732 2.5
8.500%-8.999% ........... 99 8,568,230 7.8
9.000%-9.499% ........... 75 7,163,425 6.5
9.500%-9.999% ........... 208 18,914,067 17.1
10.000%-10.499% ......... 168 12,915,708 11.7
10.500%-10.999% ......... 252 20,362,879 18.5
11.000%-11.499% ......... 160 13,410,505 12.2
11.500%-11.999% ......... 177 13,293,536 12.0
12.000%-12.499% ......... 73 5,263,476 4.8
12.500%-12.999% ......... 49 3,547,313 3.2
13.000%-13.499% ......... 19 1,076,293 1.0
13.500%-13.999% ......... 12 906,089 0.8
14.000%-14.499% ......... 4 133,324 0.1
--- ------------ -----
Totals ............. 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
As of the Cut-off Date, Mortgage Rates borne by the Fixed Rate Mortgage
Loans in the Statistical Mortgage Pool ranged from 7.150% per annum to 14.375%
per annum and the weighted average Mortgage Rate of the Initial Fixed Rate
Mortgage Loans in the Statistical Mortgage Pool was approximately 10.479% per
annum.
Remaining Months to Stated Maturity for the
Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Remaining Terms (Months) Mortgage Loans Balance Outstanding Loan Group
--------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
109 to 120 ........................ 29 $ 1,048,469 1.0%
169 to 180 ........................ 755 60,054,771 54.4
229 to 240 ........................ 54 3,182,421 2.9
349 to 360 ........................ 518 46,075,740 41.7
--- ------------ -----
Totals ....................... 1,356 $110,361,401 100.0%
===== ============ =====
</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 117
months to 360 months and the weighted average remaining term to stated maturity
of the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately 255 months.
S-32
<PAGE>
Original Mortgage Loan Principal Balances for the
Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Aggregate Principal
Range of Original Mortgage Number of Balance Percent of
Loan Principal Balances Mortgage Loans Outstanding Loan Group
-------------------------- ---------------- -------------------- -----------
<S> <C> <C> <C>
$100,000 or less............ 1,035 $ 56,103,705 50.8%
$100,001-$150,000........... 174 21,054,407 19.1
$150,001-$200,000........... 77 13,100,928 11.9
$200,001-$250,000........... 35 7,871,315 7.1
$250,001-$300,000........... 14 3,979,006 3.6
$300,001-$350,000........... 10 3,259,660 3.0
$350,001-$400,000........... 4 1,516,317 1.4
$400,001-$450,000........... 4 1,660,969 1.5
$450,001-$500,000........... 1 489,696 0.4
$550,001-$600,000........... 1 599,727 0.5
$700,001-$750,000........... 1 725,670 0.7
----- ------------ -----
Totals ................ 1,356 $110,361,401 100.0%
===== ============ =====
</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
$11,000 to approximately $725,670 and the average outstanding principal balance
of the Fixed Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately $81,387.
Product Types for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Aggregate Principal
Number of Balance Percent of
Product Type Mortgage Loans Outstanding Loan Group
------------ -------------- ----------- ----------
<S> <C> <C> <C>
10 year Fixed ......... 29 $ 1,048,469 1.0%
15 year Fixed ......... 278 15,253,720 13.8
20 year Fixed ......... 54 3,182,421 2.9
30 year Fixed ......... 518 46,075,740 41.7
Balloon Loan .......... 477 44,801,051 40.6
--- ------------ -----
Totals .............. 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
S-33
<PAGE>
State Distributions of Mortgaged Properties in the Fixed Rate Mortgage
Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
State Mortgage Loans Balance Outstanding Loan Group
----- -------------- ------------------- ----------
<S> <C> <C> <C>
Arizona ...................... 32 $ 2,768,873 2.5%
Arkansas ..................... 3 170,962 0.2
California ................... 57 7,994,414 7.2
Colorado ..................... 11 1,199,613 1.1
Connecticut .................. 10 1,163,868 1.1
Delaware ..................... 2 171,144 0.2
District of Columbia ......... 5 462,445 0.4
Florida ...................... 261 18,306,889 16.6
Georgia ...................... 46 3,172,089 2.9
Idaho ........................ 1 78,742 0.1
Illinois ..................... 60 4,505,579 4.1
Indiana ...................... 73 3,819,293 3.5
Iowa ......................... 3 160,845 0.1
Kansas ....................... 2 48,114 0.0
Kentucky ..................... 14 974,224 0.9
Louisiana .................... 51 3,041,682 2.8
Maine ........................ 1 44,500 0.0
Maryland ..................... 6 526,474 0.5
Massachusetts ................ 10 1,044,647 0.9
Michigan ..................... 73 4,789,662 4.3
Minnesota .................... 7 421,405 0.4
Mississippi .................. 8 403,456 0.4
Missouri ..................... 41 1,926,766 1.7
Nebraska ..................... 3 299,195 0.3
Nevada ....................... 3 336,690 0.3
New Hampshire ................ 1 44,756 0.0
New Jersey ................... 37 3,908,069 3.5
New Mexico ................... 4 394,945 0.4
New York ..................... 168 21,678,040 19.6
North Carolina ............... 15 944,996 0.9
Ohio ......................... 68 3,710,493 3.4
Oklahoma ..................... 10 405,008 0.4
Oregon ....................... 10 1,164,837 1.1
Pennsylvania ................. 38 2,501,873 2.3
Rhode Island ................. 6 449,258 0.4
South Carolina ............... 21 1,205,542 1.1
Tennessee .................... 108 7,862,537 7.1
Texas ........................ 24 1,831,930 1.7
Utah ......................... 5 486,491 0.4
Vermont ...................... 2 113,279 0.1
Virginia ..................... 23 2,252,160 2.0
Washington ................... 18 2,735,967 2.5
West Virginia ................ 1 46,151 0.0
Wisconsin .................... 12 689,426 0.6
Wyoming ...................... 2 104,071 0.1
----- ------------ -----
Totals ..................... 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
No more than approximately 0.7% 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-34
<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 Ratios Mortgage Loans Balance Outstanding Loan Group
----------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
50.00% or less ................ 184 $ 9,282,794 8.4%
50.01%-55.00% ................. 50 3,684,421 3.3
55.01%-60.00% ................. 107 9,271,151 8.4
60.01%-65.00% ................. 121 10,054,508 9.1
65.01%-70.00% ................. 174 14,428,618 13.1
70.01%-75.00% ................. 202 18,101,978 16.4
75.01%-80.00% ................. 270 24,091,649 21.8
80.01%-85.00% ................. 167 13,839,246 12.5
85.01%-90.00% ................. 75 7,096,200 6.4
90.01%-95.00% ................. 6 510,837 0.5
--- ------------ -----
Totals ...................... 1,356 $110,361,401 100.0%
===== ============ =====
</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 8.57% to 95.00% and
the weighted average Loan-to- Value Ratio of the Fixed Rate Mortgage Loans in
the Statistical Mortgage Pool was approximately 71.30%.
Loan Purpose for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Loan Purpose Mortgage Loans Balance Outstanding Loan Group
------------ -------------- ------------------- ----------
<S> <C> <C> <C>
Purchase ..................... 319 $ 29,220,150 26.5%
Refinance--Rate/Term ......... 92 7,352,611 6.7
Refinance--Cashout ........... 945 73,788,641 66.9
----- ------------ -----
Totals ..................... 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
Types of Mortgaged Properties for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Property Type Mortgage Loans Balance Outstanding Loan Group
------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Single-family Detached .................... 1,002 $ 78,114,733 70.8%
Two- to Four-Family Dwelling Unit ......... 158 16,396,623 14.9
Planned Unit Development .................. 62 7,077,682 6.4
Condominium ............................... 54 3,040,813 2.8
Small Mixed Use ........................... 14 2,303,589 2.1
Manufactured Housing ...................... 66 3,427,962 3.1
----- ------------ -----
Totals .................................. 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
S-35
<PAGE>
Documentation Summary for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Documentation Mortgage Loans Balance Outstanding Loan Group
------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Full Documentation .............. 1,007 $ 79,334,578 71.9%
24 Month Bank Statement ......... 106 11,313,797 10.3
Reduced Documentation ........... 26 2,819,380 2.6
Stated Documentation ............ 217 16,893,646 15.3
----- ------------ -----
Totals ........................ 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
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>
Owner-occupied ......... 1,176 $ 98,985,446 89.7%
Second Home ............ 11 881,714 0.8
Investment ............. 169 10,494,241 9.5
----- ------------ -----
Totals ............... 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
The information set forth above is based upon representations of the
related mortgagors 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 .......................... 302 $ 24,952,786 22.6%
1 .......................... 424 35,310,921 32.0
2 .......................... 481 38,541,779 34.9
3 .......................... 59 4,136,794 3.7
4 .......................... 51 4,373,322 4.0
5 .......................... 22 1,886,854 1.7
6 .......................... 15 1,041,641 0.9
9 .......................... 1 69,465 0.1
10 ......................... 1 47,838 0.0
----- ------------ -----
Totals ................... 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
As of the Cut-off Date, the weighted average age of the Fixed Rate
Mortgage Loans in the Statistical Mortgage Pool was approximately 1 month.
S-36
<PAGE>
Credit Grade Summary for the Fixed Rate Mortgage Loan Group
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
------------ -------------- ------------------- ----------
AO ............... 584 $ 50,462,568 45.7%
A- ............... 424 35,066,790 31.8
B ................ 212 15,689,990 14.2
B- ............... 53 4,149,668 3.8
C ................ 79 4,811,017 4.4
C- ............... 4 181,368 0.2
----- ------------ -----
Totals ......... 1,356 $110,361,401 100.0%
===== ============ =====
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>
1999 ................ 2 $ 117,303 0.1%
2000 ................ 1,354 110,244,098 99.9
----- ------------ -----
Totals ............ 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
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 .................... 266 $ 20,566,845 18.6%
12 months ............... 148 19,449,116 17.6
24 months ............... 23 1,709,147 1.5
36 months ............... 400 28,572,519 25.9
60 months ............... 519 40,063,775 36.3
----- ------------ -----
Totals ................ 1,356 $110,361,401 100.0%
===== ============ =====
</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 41 months. With respect to those Fixed Rate Mortgage
Loans in the Statistical Mortgage Pool (exclusive of the Fixed Rate Mortgage
Loans in the Statistical Mortgage Pool purchased by the Seller under its Small
Lender Program) which have prepayment penalties, 86.1% of such mortgage loans
are subject to a prepayment penalty which will equal six months interest
calculated on the basis of the rate in effect at the time of the prepayment on
the amount prepaid in excess of 20% of the original principal balance of the
mortgage loan.
S-37
<PAGE>
Credit Scores for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of
Range of Credit Scores Mortgage Loans Balance Outstanding Loan Group
---------------------- ---------------- --------------------- --------------
<S> <C> <C> <C>
Not Scored ............. 19 $ 1,149,141 1.0%
489 to 500 ............. 7 585,563 0.5
501 to 550 ............. 176 14,527,794 13.2
551 to 600 ............. 396 30,480,829 27.6
601 to 650 ............. 396 33,166,242 30.1
651 to 700 ............. 223 18,775,443 17.0
701 to 750 ............. 99 7,819,303 7.1
751 to 800 ............. 39 3,812,087 3.5
801 to 806 ............. 1 45,000 0.0
----- ------------ -----
Totals ............... 1,356 $110,361,401 100.0%
===== ============ =====
</TABLE>
The Credit Scores of the Fixed Rate Mortgage Loans in the Statistical
Mortgage Pool that were scored as of the Cut-off Date ranged from 489 to 806
and the weighted average Credit Score of the Fixed Rate Mortgage Loans in the
Statistical Mortgage Pool that were scored as of the Cut-off Date was
approximately 618.
S-38
<PAGE>
Adjustable Rate Mortgage Loan Group
(Statistical Mortgage Pool)
Current Mortgage Rates for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Mortgage Rates Mortgage Loans Balance Outstanding Loan Group
----------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
6.000%- 6.499% ......... 2 $ 291,500 0.1%
6.500%- 6.999% ......... 1 99,000 0.0
7.000%- 7.499% ......... 5 839,420 0.2
7.500%- 7.999% ......... 17 2,282,976 0.6
8.000%- 8.499% ......... 36 4,909,977 1.3
8.500%- 8.999% ......... 172 26,320,907 7.1
9.000%- 9.499% ......... 242 36,970,320 9.9
9.500%- 9.999% ......... 542 74,133,774 19.9
10.000%-10.499% ......... 455 58,777,058 15.8
10.500%-10.999% ......... 600 75,194,554 20.2
11.000%-11.499% ......... 413 43,207,079 11.6
11.500%-11.999% ......... 304 31,165,613 8.4
12.000%-12.499% ......... 123 11,959,097 3.2
12.500%-12.999% ......... 50 4,929,042 1.3
13.000%-13.499% ......... 15 1,561,168 0.4
13.500%-13.999% ......... 2 95,862 0.0
14.000%-14.499% ......... 2 259,333 0.1
--- ------------ -----
Totals ................ 2,981 $372,996,679 100.0%
===== ============ =====
</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
6.450% per annum to 14.375% per annum and the weighted average Mortgage Rate
borne by the Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool
was approximately 10.324% per annum.
Remaining Months to Stated Maturity for the
Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Remaining Terms (Months) Mortgage Loans Balance Outstanding Loan Group
--------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
349 to 360 ........................ 2,981 $372,996,679 100.0%
----- ------------ -----
Totals .......................... 2,981 $372,996,679 100.0%
===== ============ =====
</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 353
months to 360 months and the weighted average remaining term to stated maturity
of the Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool was
approximately 359 months.
S-39
<PAGE>
Original Mortgage Loan Principal Balances
for the Adjustable Rate Mortgage
<TABLE>
<CAPTION>
Range of Original Mortgage Number of Aggregate Principal Percent of
Loan Principal Balances Mortgage Loans Balance Outstanding Loan Group
----------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
$100,000 or less............ 1,425 $ 93,830,623 25.2%
$100,001-$150,000........... 764 93,076,713 25.0
$150,001-$200,000........... 371 64,412,081 17.3
$200,001-$250,000........... 197 44,200,575 11.9
$250,001-$300,000........... 98 26,883,311 7.2
$300,001-$350,000........... 51 16,675,493 4.5
$350,001-$400,000 .......... 34 12,687,807 3.4
$400,001-$450,000........... 15 6,461,972 1.7
$450,001-$500,000........... 20 9,756,687 2.6
$600,001-$650,000........... 1 632,257 0.2
$700,001-$750,000........... 2 1,463,707 0.4
$900,001-$950,000........... 1 916,185 0.2
$950,001-$1,000,000......... 2 1,999,268 0.5
----- ------------ -----
Totals ................... 2,981 $372,996,679 100.0%
===== ============ =====
</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 $13,750 to approximately $1,000,000 and the average outstanding
principal balance of the Adjustable Rate Mortgage Loans in the Statistical
Mortgage Pool was approximately $125,125.
Product Types for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Product Type Mortgage Loans Balance Outstanding Loan Group
------------ -------------- ------------------- ----------
<S> <C> <C> <C>
Six-Month LIBOR Loan ......... 11 $ 1,493,036 0.4%
1/29 Loan .................... 55 7,638,271 2.0
2/28 Loan .................... 1,689 219,296,170 58.8
3/27 Loan .................... 1,151 136,049,482 36.5
5/25 Loan .................... 75 8,519,720 2.3
----- ------------ -----
Totals ..................... 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
S-40
<PAGE>
State Distributions of Mortgaged Properties
in the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
State Mortgage Loans Balance Outstanding Loan Group
----- -------------- ------------------- ----------
<S> <C> <C> <C>
Arizona ................ 83 $ 9,541,882 2.6%
Arkansas ............... 5 369,079 0.1
California ............. 435 81,457,376 21.8
Colorado ............... 183 26,508,038 7.1
Connecticut ............ 46 7,894,866 2.1
Delaware ............... 4 519,150 0.1
Florida ................ 321 37,731,324 10.1
Georgia ................ 71 9,623,487 2.6
Idaho .................. 5 696,538 0.2
Illinois ............... 151 15,017,319 4.0
Indiana ................ 64 4,328,235 1.2
Iowa ................... 5 329,223 0.1
Kansas ................. 4 684,090 0.2
Kentucky ............... 25 2,278,687 0.6
Louisiana .............. 32 3,428,019 0.9
Maine .................. 1 66,000 0.0
Maryland ............... 21 3,364,839 0.9
Massachusetts .......... 39 6,877,334 1.8
Michigan ............... 279 27,815,206 7.5
Minnesota .............. 107 11,254,475 3.0
Mississippi ............ 23 1,921,218 0.5
Missouri ............... 128 10,170,762 2.7
Montana ................ 6 843,396 0.2
Nebraska ............... 2 111,619 0.0
Nevada ................. 20 2,230,470 0.6
New Hampshire .......... 7 1,124,140 0.3
New Jersey ............. 79 10,941,413 2.9
New Mexico ............. 11 1,091,076 0.3
New York ............... 93 15,464,979 4.1
North Carolina ......... 41 4,219,080 1.1
North Dakota ........... 4 207,946 0.1
Ohio ................... 103 9,784,491 2.6
Oklahoma ............... 19 1,751,782 0.5
Oregon ................. 36 4,898,770 1.3
Pennsylvania ........... 42 3,725,340 1.0
Rhode Island ........... 11 1,151,216 0.3
South Carolina ......... 44 4,151,474 1.1
Tennessee .............. 122 10,989,058 2.9
Texas .................. 91 11,315,958 3.0
Utah ................... 18 2,741,132 0.7
Vermont ................ 8 1,068,424 0.3
Virginia ............... 33 4,291,963 1.2
Washington ............. 80 13,036,660 3.5
West Virginia .......... 2 106,572 0.0
Wisconsin .............. 74 5,584,193 1.5
Wyoming ................ 3 288,381 0.1
----- ------------ -----
Totals ............... 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
No more than approximately 0.3% 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-41
<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 Ratios Mortgage Loans Balance Outstanding Loan Group
----------------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
50.00% or less ................ 117 $ 11,021,715 3.0%
50.01%-55.00% ................. 39 4,521,645 1.2
55.01%-60.00% ................. 98 12,577,455 3.4
60.01%-65.00% ................. 106 12,355,888 3.3
65.01%-70.00% ................. 400 47,693,342 12.8
70.01%-75.00% ................. 430 49,996,891 13.4
75.01%-80.00% ................. 978 135,864,002 36.4
80.01%-85.00% ................. 489 58,219,422 15.6
85.01%-90.00% ................. 312 39,493,559 10.6
90.01%-95.00% ................. 12 1,252,759 0.3
----- ------------ -----
Totals ................... 2,981 $372,996,679 100.0%
===== ============ =====
</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 13.74% to 95.00%
and the weighted average Loan- to-Value Ratio of the Adjustable Rate Mortgage
Loans in the Statistical Mortgage Pool was approximately 76.87%.
Loan Purpose for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Loan Purpose Mortgage Loans Balance Outstanding Loan Group
------------ -------------- ------------------- ----------
<S> <C> <C> <C>
Purchase ..................... 1,533 $201,425,692 54.0%
Refinance--Rate/Term ......... 115 15,185,307 4.1
Refinance--Cashout ........... 1,333 156,385,681 41.9
----- ------------ -----
Totals .................. 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
Types of Mortgaged Properties for the Adjustable Rate
Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Property Type Mortgage Loans Balance Outstanding Loan Group
------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Single-family Detached .................... 2,335 $288,590,199 77.4%
Two- to Four-Family Dwelling Unit ......... 213 24,826,020 6.7
Planned Unit Development .................. 260 43,427,153 11.6
Condominium ............................... 106 11,117,199 3.0
Manufactured Housing ...................... 67 5,036,108 1.4
----- ------------ -----
Totals ............................... 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
S-42
<PAGE>
Documentation Summary for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Documentation Mortgage Loans Balance Outstanding Loan Group
------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Full Documentation .............. 1,979 $229,367,025 61.5%
24 Month Bank Statement ......... 252 41,492,326 11.1
Reduced Documentation ........... 92 16,497,287 4.4
Stated Documentation ............ 658 85,640,042 23.0
----- ------------ -----
Totals ..................... 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
Occupancy Types for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Occupancy Mortgage Loans Balance Outstanding Loan Group
--------- -------------- ------------------- ----------
<S> <C> <C> <C>
Owner-occupied ......... 2,694 $348,071,004 93.3%
Second Home ............ 42 3,589,130 1.0
Investment ............. 245 21,336,546 5.7
----- ------------ -----
Totals ............ 2,981 $372,996,679 100.0%
===== ============ =====
</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 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 .......................... 733 $ 93,746,819 25.1%
1 .......................... 956 119,432,262 32.0
2 .......................... 1,099 138,412,331 37.1
3 .......................... 155 17,444,158 4.7
4 .......................... 11 1,052,018 0.3
5 .......................... 16 1,759,482 0.5
6 .......................... 9 992,969 0.3
7 .......................... 2 156,640 0.0
----- ------------ -----
Totals ................ 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
As of the Cut-off Date, the weighted average age of the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool was approximately 1 month.
S-43
<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 .................. 1,131 $155,725,275 41.7%
A- .................. 970 125,947,500 33.8
B ................... 497 55,137,249 14.8
B- .................. 148 16,841,429 4.5
C ................... 222 18,190,445 4.9
C- .................. 13 1,154,781 0.3
----- ------------ -----
Totals ............ 2,981 $372,996,679 100.0%
===== ============ =====
</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>
2000 ................ 2,981 $372,996,679 100.0%
----- ------------ -----
Totals ............ 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
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>
13.000%-13.499% ................. 2 $ 291,500 0.1%
13.500%-13.999% ................. 1 99,000 0.0
14.000%-14.499% ................. 7 1,144,346 0.3
14.500%-14.999% ................. 19 2,824,966 0.8
15.000%-15.499% ................. 37 4,954,559 1.3
15.500%-15.999% ................. 176 26,508,496 7.1
16.000%-16.499% ................. 244 37,088,828 9.9
16.500%-16.999% ................. 548 74,477,898 20.0
17.000%-17.499% ................. 453 58,498,824 15.7
17.500%-17.999% ................. 588 74,120,849 19.9
18.000%-18.499% ................. 410 43,017,298 11.5
18.500%-18.999% ................. 305 31,249,522 8.4
19.000%-19.499% ................. 123 11,959,097 3.2
19.500%-19.999% ................. 49 4,845,133 1.3
20.000%-20.499% ................. 16 1,611,151 0.4
20.500%-20.999% ................. 2 95,862 0.0
21.000%-21.499% ................. 1 209,350 0.1
--- ------------ -----
Totals ..................... 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
As of the Cut-off Date, the Maximum Mortgage Rates for the Adjustable Rate
Mortgage Loans in the Statistical Mortgage Pool ranged from 13.450% per annum
to 21.000% per annum and the weighted average Maximum Mortgage Rate for the
Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool was 17.314% 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 .................... 893 $112,853,948 30.3%
12 months ............... 12 1,423,449 0.4
24 months ............... 856 120,234,036 32.2
36 months ............... 1,079 125,055,526 33.5
60 months ............... 141 13,429,720 3.6
----- ------------ -----
Totals ............. 2,981 $372,996,679 100.0%
===== ============ =====
</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 32 months. With respect to those
Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool (exclusive of
the Adjustable Rate Mortgage Loans in the Statistical Mortgage Pool that were
purchased by the Seller under its Small Lender Program) which have prepayment
penalties, approximately 81.3% 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-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>
January 2001 ........... 5 $ 429,622 0.1%
February 2001 .......... 4 646,613 0.2
March 2001 ............. 2 416,800 0.1
June 2001 .............. 2 411,946 0.1
July 2001 .............. 16 1,832,631 0.5
August 2001 ............ 21 2,608,645 0.7
September 2001 ......... 16 2,785,050 0.7
March 2002 ............. 3 245,029 0.1
April 2002 ............. 7 955,780 0.3
May 2002 ............... 9 889,806 0.2
June 2002 .............. 69 7,787,870 2.1
July 2002 .............. 599 76,697,845 20.6
August 2002 ............ 560 73,567,311 19.7
September 2002 ......... 442 59,152,528 15.9
February 2003 .......... 2 156,640 0.0
March 2003 ............. 6 747,940 0.2
April 2003 ............. 9 803,702 0.2
May 2003 ............... 2 162,212 0.0
June 2003 .............. 80 9,044,917 2.4
July 2003 .............. 450 55,959,769 15.0
August 2003 ............ 344 39,392,335 10.6
September 2003 ......... 258 29,781,966 8.0
June 2005 .............. 4 199,425 0.1
July 2005 .............. 29 3,492,463 0.9
August 2005 ............ 27 3,217,356 0.9
September 2005 ......... 15 1,610,475 0.4
--- ------------ -----
Totals ............ 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
Credit Scores for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Credit Scores Mortgage Loans Balance Outstanding Loan Group
---------------------- -------------- ------------------- ----------
<S> <C> <C> <C>
Not Scored ............. 26 $ 2,330,285 0.6%
464 to 500 ............. 7 617,097 0.2
501 to 550 ............. 563 62,065,093 16.6
551 to 600 ............. 835 105,720,064 28.3
601 to 650 ............. 763 97,673,669 26.2
651 to 700 ............. 544 71,005,981 19.0
701 to 750 ............. 178 24,351,238 6.5
751 to 798 ............. 65 9,233,254 2.5
--- ------------ -----
Totals ............ 2,981 $372,996,679 100.0%
===== ============ =====
</TABLE>
The Credit Scores of the Adjustable Rate Mortgage Loans in the Statistical
Mortgage Pool that were scored as of the Cut-off Date ranged from 464 to 798
and the weighted average Credit Score of the Adjustable Rate Mortgage Loans in
the Statistical Mortgage Pool that were scored as of the Cut-off Date was
approximately 614.
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. With the exception of
assignments relating to Mortgaged Properties in certain states, the Depositor
does not expect to cause the assignments to be recorded.
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
S-47
<PAGE>
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, 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 1.5% 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%;
S-48
<PAGE>
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 January 1, 2001; and
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 Fitch or S&P 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.
On September 13, 2000, The Chase Manhattan Corporation and J.P. Morgan &
Co. Incorporated announced their agreement to merge. The merger is anticipated
to occur in the first quarter of 2001. Chase Manhattan Mortgage Corporation is
a wholly-owned indirect subsidiary of The Chase Manhattan Corporation.
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
S-49
<PAGE>
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 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.
S-50
<PAGE>
The B&C Underwriting Guidelines utilize various credit grade categories to
grade the likelihood that the mortgagor will satisfy the repayment conditions
of the mortgage loan. These credit grade categories establish the maximum
permitted loan-to-value ratio, debt-to-income ratio and loan amount, given the
borrower's credit history considered in a manner generally consistent with
subprime mortgage industry practice, the occupancy status of the mortgaged
property, the type of mortgaged property and documentation type. A summary of
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.
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.
S-51
<PAGE>
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%
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.
S-52
<PAGE>
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.
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 June 30, 2000 in excess of $4.0 billion.
Advanta Parent, through its subsidiaries (including Advanta) had managed
assets (including mortgage loans) in excess of $12.4 billion as of June 30,
2000.
As of June 30, 2000, Advanta and its subsidiaries were servicing
approximately 106,000 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 $7.2 billion, and
approximately 193,700 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 $13.6 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
S-53
<PAGE>
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 partnerships
in respect of, all or a portion of Advanta's mortgage loan origination or
servicing businesses. Advanta Parent has entered into preliminary discussions
and has begun the due diligence process with respect to the strategic
alternatives.
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 capital ratios at approximately the
level that existed at March 31, 2000.
The agreements also provide that Advanta change its charge-off policy for
delinquent mortgage loans to 180 days, for which it is presently reserved.
However, Advanta's charge-off policy for mortgage loans owned by securitization
trusts will remain unchanged. In addition, the agreements provide that Advanta
will modify its accounting processes and methodology for its allowance for loan
losses and valuation of residual assets.
On July 31, 2000, Advanta Parent issued a press release stating that one
of its banking subsidiaries, Advanta National Bank, had reached an agreement
with its bank regulatory agency regarding the carrying value of the bank's
retained interests and contractual mortgage servicing rights in mortgage
securitizations and its allowance for loan losses. The agreement provides that
the carrying value for the bank's retained interests and contractual mortgage
servicing rights will be reduced by $201 million and $13 million, respectively.
In addition, pursuant to the agreement, Advanta National Bank recorded a $22
million non-cash charge to increase its allowance for mortgage loan loss
reserves at June 30, 2000. The agreement further provides that the bank will
maintain its allowance for loan losses at a level of at least 5.38% of the
unpaid principal balance of all loans owned by the bank or reported on its
books, less any loans held for sale.
On August 2, 2000, Advanta Parent reported a net loss for the second
quarter of $192.7 million, largely because of these non-cash charges recorded
by Advanta National Bank.
S-54
<PAGE>
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 contain information relating to the delinquency, loan
loss and foreclosure experience of Advanta for its servicing portfolio. The
servicing portfolio consists of fixed-rate and adjustable-rate mortgage loans
serviced as of June 30, 2000 and for each of the five prior year ends. This
servicing portfolio, called the Owned and Managed Servicing Portfolio,
includes, but is not limited to, the mortgage loans originated or purchased on
or prior to June 30, 2000. In addition to this portfolio, Advanta serviced, as
of June 30, 2000, approximately 193,700 mortgage loans with an aggregate
principal balance as of such date of approximately $13.6 billion; these loans,
called Third Party Servicing Portfolio, were not originated or purchased by
Advanta or its affiliates but are being serviced for third parties on a
contract servicing basis. No loans being serviced for third parties are
included in the tables below.
S-55
<PAGE>
Delinquency and Foreclosure Experience of
Advanta's Owned and Managed Servicing Portfolio
of Closed-end Mortgage Loans
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ending December 31
June 30, --------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- ---------------------------
(dollars in thousands)
Number Dollar Number Dollar Number Dollar
of Loans Amount of Loans Amount of Loans Amount
---------- --------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio 106,025 $ 7,220,017 109,091 $ 7,458,805 111,707 $ 7,664,919
Delinquency
30-59 days 2.95% 2.81% 3.01% 2.79% 3.05% 2.76%
60-89 days 0.93% 0.87% 0.92% 0.85% 1.10% 1.08%
90 days or
more 2.21% 2.06% 2.15% 1.97% 1.45% 1.22%
------- ----------- ------- ----------- ------- -----------
Total 6.09% 5.74% 6.08% 5.61% 5.60% 5.06%
Foreclosure rate 3.73% 3.17% 3.76% 3.57% 2.85% 2.98%
REO
properties 1.24% -- 1.30% -- 0.78% --
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Year Ending December 31
-------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------- ---------------------------
(dollars in thousands)
Number Dollar Number Dollar Number Dollar
of Loans Amount of Loans Amount of Loans Amount
---------- --------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio 74,525 $ 4,888,936 43,303 $ 2,595,981 32,592 $ 1,797,582
Delinquency
30-59 days 3.13% 2.99% 3.07% 2.90% 2.67% 2.44%
60-89 days 0.98% 0.98% 0.85% 0.90% 0.72% 0.71%
90 days or
more 1.39% 1.28% 1.45% 1.26% 1.69% 1.23%
------ ----------- ------ ----------- ------ -----------
Total 5.50% 5.25% 5.37% 5.06% 5.08% 4.38%
Foreclosure rate 2.10% 2.32% 1.62% 1.92% 1.29% 1.53%
REO
properties 0.40% -- 0.42% -- 0.52% --
</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 90 days or more delinquencies reflect the adoption of a new
charge-off policy which began in the second quarter of 2000. Under the new
policy, mortgage loans are generally charged off at the earlier of foreclosure
or 180 days delinquent. Under the previous policy, charge-off was at the
earlier of foreclosure or 12 months delinquent. If calculated under our prior
methodology, the information for June 30, 2000 would have indicated that 3.53%
of mortgage loans and 2.45% of the dollar amount were delinquent for 90 days or
more.
The foreclosure rate reflects the number of mortgage loans in foreclosure
as a percentage of the total number of mortgage loans or the dollar amount of
mortgage loans in foreclosure as a percentage of the total dollar amount of
mortgage loans, as the case may be, as of the date indicated. REO properties
are real estate owned properties which relate to foreclosed mortgages or
properties for which deeds in lieu of foreclosure have been accepted, and held
by Advanta pending disposition. The percentages for REO properties are
calculated based on the number of loans, not the dollar amount.
S-56
<PAGE>
Loan Loss Experience
of Advanta's Owned and Managed Servicing Portfolio
of Closed-end Mortgage Loans
<TABLE>
<CAPTION>
Six Months Year Ending December 31
Ending June 30,---------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------ ---------- ---------- --------- ---------- -----------
(dollars in thousands)
------------ -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average amount
outstanding ................. $7,358,692 $7,641,960 $6,223,870 $3,677,342 $2,102,643 $1,540,238
Net losses ................... $ 67,567 $ 60,350 $ 35,640 $ 18,435 $ 15,067 $ 13,830
Net losses as a percentage
of average amount
outstanding ................. 1.83% 0.79% 0.57% 0.50% 0.72% 0.90%
</TABLE>
The 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 judgements.
Net losses as a percentage of average amount outstanding reflects the
adoption of a new charge-off policy which began in the second quarter of 2000.
Under the new policy, mortgage loans are generally charged off at the earlier
of foreclosure or 180 days delinquent. Under the previous policy, charge-off
was at the earlier of foreclosure or 12 months delinquent. If calculated under
our prior methodology, the information for June 30, 2000 would have indicated
that net losses as a percentage of average amounts outstanding was 1.08%. The
net loss percentage is an annualized number.
The changes in the delinquency and loss levels reported in the tables
above are the result of changes in the mix of origination sources offset by
changes in the seasoning of the owned and managed servicing portfolio. It is
expected that the owned and managed servicing portfolio will continue to season
due to slower expected rates of new originations. As a result, Advanta expects
reported delinquency levels and loss levels to increase.
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 tables may not necessarily be material to your
decision to invest.
S-57
<PAGE>
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; 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 0.35% 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
S-58
<PAGE>
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 Subservicer's determination of nonrecoverability. In the event
the Subservicer previously made Advances which later are determined to be
nonrecoverable, the Subservicer will be entitled to reimbursement of such
Advances prior to distributions to certificateholders. If the Subservicer
determines on any Servicer Remittance Date to make an Advance, such Advance
will be included with the distribution to holders of the Offered Certificates
on the related Distribution Date. Any failure by the Subservicer to make an
Advance as required under the pooling and servicing agreement will constitute
an event of default thereunder, in which case the trustee, as successor
servicer, or such other entity as may be appointed as successor servicer, will
be obligated to make any such Advance in accordance with the terms of the
pooling and servicing agreement.
Master Servicer
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.
S-59
<PAGE>
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
S-60
<PAGE>
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.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the 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
S-61
<PAGE>
"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.
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.
S-62
<PAGE>
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.
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
S-63
<PAGE>
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 Master
Servicer 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 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
S-64
<PAGE>
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 Subservicer to direct any depository institution maintaining the
Collection Account to invest the funds in the Collection Account in one or more
investments acceptable to Fitch and S&P 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.
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
S-65
<PAGE>
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 commencing in October
2000, to the persons in whose names the certificates are registered at the
close of business on 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 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.
S-66
<PAGE>
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 the Residual Certificates, an amount equal to any prepayment
penalties and late payment fees received with respect to the related Loan Group
during the related Prepayment Period;
(2) 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;
(3) 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;
(4) 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;
(5) 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
(6) 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, ____%;
and class IIB, ____% and for any Distribution Date after the applicable
Optional Termination Date: class IIA-1, ____%; class IIM-1, ____%; class IIM-2,
____%; and class IIB, _____%. 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 in this prospectus supplement. The ratings of the Group II
Certificates do not address the likelihood of the payment of any Adjustable
Rate Certificate Carryover.
Distributions of Principal. On each Distribution Date, the Principal
Distribution Amount 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:
S-67
<PAGE>
(1) (a) with respect to Class A Group I Certificates, the Class A
Principal Distribution Amount for the Group I Certificates is required to
be distributed as follows: first, the Class IA-6 Distribution Amount to the
Class IA-6 Certificates, and second, the remaining Class A Principal
Distribution Amount shall be paid sequentially to the Class IA-1, Class
IA-2, Class IA-3, Class IA-4, Class IA-5 and Class IA-6 Certificates, in
that order, until the respective Certificate Principal Balances thereof
have been reduced to zero; provided, however, that, on any Distribution
Date on which the aggregate Certificate Principal Balances of the Class A
Group I Certificates are equal to or greater than the Stated Principal
Balances of the Fixed Rate Mortgage Loans, plus the amount on deposit in
the Pre-Funding Account allocable to such Loan Group on the preceding Due
Date, the Class A Principal Distribution Amount for the Class A Group I
Certificates will be distributed pro rata and not as described above; and
(b) with respect to Class A Group II Certificates, the Class A Principal
Distribution Amount for the Group II Certificates is required to be
distributed to the Class IIA-1 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero;
(2) to the Class M-1 Certificates of each Certificate Group, the Class
M-1 Principal Distribution Amount for such Certificate Group;
(3) to the Class M-2 Certificates of each Certificate Group, the Class
M-2 Principal Distribution Amount for such Certificate Group;
(4) to the Class B Certificates of each Certificate Group, the Class B
Principal Distribution Amount for such Certificate Group; and
(5) any remainder to be distributed as described under
"--Overcollateralization and Crosscollateralization Provisions" below.
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 exceeds 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.
S-68
<PAGE>
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;
(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) except with respect to any Distribution Date up to and
including the Distribution Date in March 2001, 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
S-69
<PAGE>
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 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
S-70
<PAGE>
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;
(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 has
occurred;
S-71
<PAGE>
(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);
(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; and
(17) the number and amount of prepayment penalties and the amount of
late payment fees received during the related Prepayment Period.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will prepare and deliver to each
certificateholder of record during the previous calendar year a statement
containing information necessary to enable certificateholders to prepare their
tax returns. Such statements will not have been examined and reported upon by
an independent public accountant.
Amendment
The pooling and servicing agreement may be amended by the Depositor, the
Subservicer, the Master Servicer and the trustee, without the consent of
certificateholders, for any of the purposes set forth under "The Pooling and
Servicing Agreement-- Amendment" in the prospectus. In addition, the pooling and
servicing agreement may be amended by the Depositor, the Subservicer, the Master
Servicer and the trustee and the holders of a majority in interest of each class
of certificates affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the pooling and
servicing agreement or of modifying in any manner the rights of the
certificateholders; provided, however, that no such amendment may
(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 2/3%; or
S-72
<PAGE>
(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 the 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.
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.
S-73
<PAGE>
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.
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
S-74
<PAGE>
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,
(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-6 certificates are not expected to receive distributions of
principal until the Distribution Date in October 2003 (except as otherwise
described herein). Thereafter,
S-75
<PAGE>
the relative entitlement of the class IA-6 certificates to payments in respect
of principal is subject to increase in accordance with the calculation of the
Class IA-6 Distribution Amount. See "Description of the
Certificates--Distributions."
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.
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
S-76
<PAGE>
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
S-77
<PAGE>
equal the amount of interest that would accrue at One-Month LIBOR plus the
margin on each class of the Group II Certificates. Furthermore, if the Group II
Available Funds Cap determines the Pass-Through Rate for a class of the Group
II Certificates for a Distribution Date, the market value of such class of
certificates may be temporarily or permanently reduced. Although the pooling
and servicing agreement provides a mechanism to pay, on a subordinated basis,
any Adjustable Rate Certificate Carryover, there is no assurance that funds
will be available to pay such amount. The ratings assigned to the Group II
Certificates do not address the likelihood of the payment of any such amount.
In addition, the Pass-Through Rate on each class of the Group II
Certificates is subject to the Group II Maximum Rate Cap, which is defined as
the weighted average of the maximum lifetime Mortgage Rate on the Adjustable
Rate Mortgage Loans less the Servicer Fee Rate and the Master Servicing Fee
Rate. The Group II Maximum Rate Cap may limit increases in the Pass-Through
Rates on such class of the Group II Certificates and any shortfall of interest
will not be recovered.
On any Distribution Date, the Pass-Through Rate for the class IA-1
certificates will equal the lesser of (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-1, 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 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-1,
class IA-2, class IA-3, class IA-4, class IA-5, class IA-6, 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
S-78
<PAGE>
(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 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.
S-79
<PAGE>
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
Initial Mortgage Loans
<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>
48,713,826.26 10.602 10.092 180 360 179
1,140,038.43 10.028 9.518 120 120 119
16,585,929.07 10.147 9.637 180 180 179
3,460,363.38 10.771 10.261 240 240 238
50,099,842.87 10.460 9.950 360 360 358
</TABLE>
Subsequent Mortgage Loans
<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>
16,237,942.09 10.602 10.092 180 360 179
380,012.81 10.028 9.518 120 120 119
5,528,643.02 10.147 9.637 180 180 179
1,153,454.46 10.771 10.261 240 240 238
16,699,947.62 10.460 9.950 360 360 358
</TABLE>
<PAGE>
Adjustable Rate Mortgage Loan Group
Initial Mortgage Loans
<TABLE>
<CAPTION>
Net Original Remaining
Current Mortgage Mortgage Term Term Gross
Balance Rate Rate (in months) (in months) Margin
------- ---- ---- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
10,281,992.25 10.261 9.751 360 359 4.839
246,930,861.61 10.335 9.825 360 359 5.885
153,193,810.34 10.363 9.853 360 359 5.623
9,593,335.81 9.508 8.998 360 359 5.321
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Number
of
Months
Until
Rate Next Rate
Current Initial Rate Periodic Maximum Minimum Change Adjustment
Balance Change Cap Cap Rate Rate Frequency Date Index
------- ---------- --- ---- ---- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
10,281,992.25 1.836 1.000 17.098 10.261 6 10 6 Mo. LIBOR
246,930,861.61 3.000 1.499 17.332 10.335 6 23 6 Mo. LIBOR
153,193,810.34 3.000 1.497 17.351 10.363 6 35 6 Mo. LIBOR
9,593,335.81 3.000 1.500 16.508 9.508 6 59 6 Mo. LIBOR
</TABLE>
Subsequent Mortgage Loans
<TABLE>
<CAPTION>
Net Original Remaining
Current Mortgage Mortgage Term Term Gross
Balance Rate Rate (in months) (in months) Margin
------- ---- ---- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
3,427,330.75 10.261 9.751 360 359 4.839
82,310,287.20 10.335 9.825 360 359 5.885
51,064,603.45 10.363 9.853 360 359 5.623
3,197,778.60 9.508 8.998 360 359 5.321
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Number
of
Months
Until
Rate Next Rate
Current Initial Rate Periodic Maximum Minimum Change Adjustment
Balance Change Cap Cap Rate Rate Frequency Date Index
------- ---------- --- ---- ---- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
3,427,330.75 1.836 1.000 17.098 10.261 6 12 6 Mo. LIBOR
82,310,287.20 3.000 1.499 17.332 10.335 6 25 6 Mo. LIBOR
51,064,603.45 3.000 1.497 17.351 10.363 6 37 6 Mo. LIBOR
3,197,778.60 3.000 1.500 16.508 9.508 6 61 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-80
<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 ....................
September 25, 2001 .........
September 25, 2002 .........
September 25, 2003 .........
September 25, 2004 .........
September 25, 2005 .........
September 25, 2006 .........
September 25, 2007 .........
September 25, 2008 .........
September 25, 2009 .........
September 25, 2010 .........
September 25, 2011 .........
September 25, 2012 .........
September 25, 2013 .........
September 25, 2014 .........
September 25, 2015 .........
September 25, 2016 .........
September 25, 2017 .........
September 25, 2018 .........
September 25, 2019 .........
September 25, 2020 .........
September 25, 2021 .........
September 25, 2022 .........
September 25, 2023 .........
September 25, 2024 .........
September 25, 2025 .........
September 25, 2026 .........
September 25, 2027 .........
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 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 ....................
September 25, 2001 .........
September 25, 2002 .........
September 25, 2003 .........
September 25, 2004 .........
September 25, 2005 .........
September 25, 2006 .........
September 25, 2007 .........
September 25, 2008 .........
September 25, 2009 .........
September 25, 2010 .........
September 25, 2011 .........
September 25, 2012 .........
September 25, 2013 .........
September 25, 2014 .........
September 25, 2015 .........
September 25, 2016 .........
September 25, 2017 .........
September 25, 2018 .........
September 25, 2019 .........
September 25, 2020 .........
September 25, 2021 .........
September 25, 2022 .........
September 25, 2023 .........
September 25, 2024 .........
September 25, 2025 .........
September 25, 2026 .........
September 25, 2027 .........
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 IA-5 Class IA-6
--------------------------------------- --------------------------------------
Distribution Date 0% 80% 100% 150% 200% 0% 80% 100% 150% 200%
----------------- -- --- ---- ---- ---- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ....................
September 25, 2001 .........
September 25, 2002 .........
September 25, 2003 .........
September 25, 2004 .........
September 25, 2005 .........
September 25, 2006 .........
September 25, 2007 .........
September 25, 2008 .........
September 25, 2009 .........
September 25, 2010 .........
September 25, 2011 .........
September 25, 2012 .........
September 25, 2013 .........
September 25, 2014 .........
September 25, 2015 .........
September 25, 2016 .........
September 25, 2017 .........
September 25, 2018 .........
September 25, 2019 .........
September 25, 2020 .........
September 25, 2021 .........
September 25, 2022 .........
September 25, 2023 .........
September 25, 2024 .........
September 25, 2025 .........
September 25, 2026 .........
September 25, 2027 .........
Weighted Average Life
in years .................
</TABLE>
S-83
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IM-1 Class IM-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 ....................
September 25, 2001 .........
September 25, 2002 .........
September 25, 2003 .........
September 25, 2004 .........
September 25, 2005 .........
September 25, 2006 .........
September 25, 2007 .........
September 25, 2008 .........
September 25, 2009 .........
September 25, 2010 .........
September 25, 2011 .........
September 25, 2012 .........
September 25, 2013 .........
September 25, 2014 .........
September 25, 2015 .........
September 25, 2016 .........
September 25, 2017 .........
September 25, 2018 .........
September 25, 2019 .........
September 25, 2020 .........
September 25, 2021 .........
September 25, 2022 .........
September 25, 2023 .........
September 25, 2024 .........
September 25, 2025 .........
September 25, 2026 .........
September 25, 2027 .........
Weighted Average Life
in years .................
</TABLE>
S-84
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IB Class IIA-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 ....................
September 25, 2001 .........
September 25, 2002 .........
September 25, 2003 .........
September 25, 2004 .........
September 25, 2005 .........
September 25, 2006 .........
September 25, 2007 .........
September 25, 2008 .........
September 25, 2009 .........
September 25, 2010 .........
September 25, 2011 .........
September 25, 2012 .........
September 25, 2013 .........
September 25, 2014 .........
September 25, 2015 .........
September 25, 2016 .........
September 25, 2017 .........
September 25, 2018 .........
September 25, 2019 .........
September 25, 2020 .........
September 25, 2021 .........
September 25, 2022 .........
September 25, 2023 .........
September 25, 2024 .........
September 25, 2025 .........
September 25, 2026 .........
September 25, 2027 .........
Weighted Average Life
in years .................
</TABLE>
S-85
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
<TABLE>
<CAPTION>
Class IIM-1 Class IIM-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 ....................
September 25, 2001 .........
September 25, 2002 .........
September 25, 2003 .........
September 25, 2004 .........
September 25, 2005 .........
September 25, 2006 .........
September 25, 2007 .........
September 25, 2008 .........
September 25, 2009 .........
September 25, 2010 .........
September 25, 2011 .........
September 25, 2012 .........
September 25, 2013 .........
September 25, 2014 .........
September 25, 2015 .........
September 25, 2016 .........
September 25, 2017 .........
September 25, 2018 .........
September 25, 2019 .........
September 25, 2020 .........
September 25, 2021 .........
September 25, 2022 .........
September 25, 2023 .........
September 25, 2024 .........
September 25, 2025 .........
September 25, 2026 .........
September 25, 2027 .........
Weighted Average Life
in years .................
</TABLE>
S-86
<PAGE>
Percentage of Initial Principal Balance Outstanding
at the Respective Percentages of the Prepayment
Model Set Forth Below
Class IIB
--------------------------------------
Distribution Date 0% 80% 100% 150% 200%
----------------- -- --- ---- ---- ----
Initial ....................
September 25, 2001 .........
September 25, 2002 .........
September 25, 2003 .........
September 25, 2004 .........
September 25, 2005 .........
September 25, 2006 .........
September 25, 2007 .........
September 25, 2008 .........
September 25, 2009 .........
September 25, 2010 .........
September 25, 2011 .........
September 25, 2012 .........
September 25, 2013 .........
September 25, 2014 .........
September 25, 2015 .........
September 25, 2016 .........
September 25, 2017 .........
September 25, 2018 .........
September 25, 2019 .........
September 25, 2020 .........
September 25, 2021 .........
September 25, 2022 .........
September 25, 2023 .........
September 25, 2024 .........
September 25, 2025 .........
September 25, 2026 .........
September 25, 2027 .........
Weighted Average Life
in years .................
S-87
<PAGE>
Group II Certificates: Hypothetical Available Funds Cap Table
Based upon the Modeling Assumptions and assuming further that the
Adjustable Rate Mortgage Loans prepay at a constant rate of 27% CPR, the
following table indicates the weighted average Net Mortgage Rate of the
Adjustable Rate Mortgage Loans that would result on each Distribution Date
under such an assumed hypothetical scenario. It is highly unlikely, however,
that prepayments on the Adjustable Rate Mortgage Loans will occur at a constant
rate of 27% CPR or at any other constant rate. There is no assurance,
therefore, of whether or to what extent the actual weighted average Net
Mortgage Rate of the Adjustable Rate Mortgage Loans on any Distribution Date
will conform to the corresponding rate set forth for such Distribution Date in
the following table. The rates shown for the October 25, 2000 and November 25,
2000 Distribution Dates are based upon the assumption that amounts on deposit
in the Capitalized Interest Account accrue interest at a rate of 7.00% per
annum.
<TABLE>
<CAPTION>
Distribution Date Available Funds Cap Distribution Date Available Funds Cap
----------------- ------------------- ----------------- -------------------
<S> <C> <C> <C>
October 25, 2000 9.111% June 25, 2004 12.386%
November 25, 2000 9.097 July 25, 2004 12.386
December 25, 2000 9.815 August 25, 2004 12.386
January 25, 2001 9.815 September 25, 2004 12.386
February 25, 2001 9.836 October 25, 2004 12.386
March 25, 2001 9.859 November 25, 2004 12.386
April 25, 2001 9.888 December 25, 2004 12.386
May 25, 2001 9.912 January 25, 2005 12.386
June 25, 2001 9.939 February 25, 2005 12.386
July 25, 2001 9.966 March 25, 2005 12.386
August 25, 2001 10.020 April 25, 2005 12.386
September 25, 2001 10.049 May 25, 2005 12.386
October 25, 2001 10.087 June 25, 2005 12.386
November 25, 2001 10.094 July 25, 2005 12.386
December 25, 2001 10.101 August 25, 2005 12.386
January 25, 2002 10.108 September 25, 2005 12.431
February 25, 2002 10.115 October 25, 2005 12.431
March 25, 2002 10.123 November 25, 2005 12.447
April 25, 2002 10.130 December 25, 2005 12.447
May 25, 2002 10.138 January 25, 2006 12.447
June 25, 2002 10.146 February 25, 2006 12.447
July 25, 2002 10.155 March 25, 2006 12.447
August 25, 2002 10.163 April 25, 2006 12.447
September 25, 2002 11.214 May 25, 2006 12.447
October 25, 2002 11.224 June 25, 2006 12.447
November 25, 2002 11.602 July 25, 2006 12.447
December 25, 2002 11.613 August 25, 2006 12.447
January 25, 2003 11.624 September 25, 2006 12.447
February 25, 2003 11.636 October 25, 2006 12.447
March 25, 2003 11.648 November 25, 2006 12.447
April 25, 2003 11.660 December 25, 2006 12.454
May 25, 2003 11.673 January 25, 2007 12.466
June 25, 2003 11.686 February 25, 2007 12.479
July 25, 2003 11.700 March 25, 2007 12.492
August 25, 2003 11.714 April 25, 2007 12.506
September 25, 2003 12.300 May 25, 2007 12.520
October 25, 2003 12.315 June 25, 2007 12.534
November 25, 2003 12.386 July 25, 2007 12.549
December 25, 2003 12.386 August 25, 2007 12.565
January 25, 2004 12.386 September 25, 2007 12.580
February 25, 2004 12.386 October 25, 2007 12.597
March 25, 2004 12.386 November 25, 2007 12.613
April 25, 2004 12.386 December 25, 2007 12.631
May 25, 2004 12.386
</TABLE>
S-88
<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.
S-89
<PAGE>
If the method for computing original issue discount described in the
prospectus results in a negative amount for any period with respect to a
certificateholder, such certificateholder will be permitted to offset such
excess amounts only against the respective future income, if any, from such
certificate. Although the tax treatment is uncertain, a certificateholder may
be permitted to deduct a loss to the extent that such holder's respective
remaining basis in such certificate exceeds the maximum amount of future
payments to which such holder is entitled, assuming no further Principal
Prepayments on the mortgage loans are received. Although the matter is not free
from doubt, any such loss might be treated as a capital loss.
Special Tax Attributes of the Offered Certificates
As is described more fully under "Federal Income Tax Consequences" in the
prospectus, the certificates will represent qualifying assets under Sections
856(c)(5)(B) and 7701(a)(19)(C)(v) of the Code, and net interest income
attributable to the Offered Certificates will be "interest on obligations
secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, to the extent the assets of the trust fund are assets
described in such sections. The Offered Certificates will represent qualifying
assets under Section 860G(a)(3) if acquired by a REMIC within the prescribed
time periods of the Code.
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
S-90
<PAGE>
in either case out of its own funds. In the event that either the Subservicer
or the trustee, as the case may be, fails to pay or is not required to pay any
such tax as provided above, such tax will be paid by the trust fund first with
amounts that might otherwise be distributable to the holders of certificates in
the manner provided in the pooling and servicing agreement. It is not
anticipated that any material state or local income or franchise tax will be
imposed on the trust fund.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Federal Income Tax
Consequences--REMIC Certificates" in the prospectus.
State Taxes
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the federal,
state, local or foreign income tax consequences of the purchase, ownership and
disposition of the Offered Certificates.
ERISA Considerations
Section 406 of 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.
S-91
<PAGE>
The DOL has granted the Exemption to Chase Securities Inc. 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 Exemption. The Exemption applies to mortgage loans such
as the mortgage loans in the trust fund.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated
party;
(2) the rights and interests evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic
rating categories S&P, Fitch or Moody's Investors Service;
(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 or Fitch 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, including the Exemption, 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:
S-92
<PAGE>
(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;
(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 Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust and the fiduciary (or its
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-93
<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 Exemption would not apply to Plans sponsored by the Restricted Group.
It is expected that the Exemption will apply to the acquisition and
holding of the Class A Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors will be met. In
addition, as of the date hereof, there is no single mortgagor that is the
obligor on five percent (5%) of the mortgage loans included in the trust fund
by aggregate unamortized principal balance of the assets of the trust fund.
The Exemption does not apply to the initial purchase, the holding or the
subsequent resale of the Subordinated Certificates because the Subordinated
Certificates are subordinate to 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 or any substantially similar federal, state or
local law, 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 PTCE 95-60) and
that the purchase and holding of such certificates are covered under
Section V(e) of PTCE 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.
The U.S. Department of Labor has proposed amendments which would affect
the Exemption and which, if finalized in their current form, generally would be
effective as of
S-94
<PAGE>
August 23, 2000. Among other changes, it is anticipated that the proposed
amendments would affect the Exemption to permit Plans to purchase Subordinated
Certificates rated in any of the four highest ratings categories (provided that
all other requirements of the Exemption are met). It is not certain if and when
these proposed amendments will be issued in final form, and it is not certain
that these proposed amendments, if finalized, will contain the same relief as
is currently proposed. Plan fiduciaries should, and other potential investors
who may be analyzing the potential liquidity of their investment may wish to,
consult with their advisors regarding these proposed amendments.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the prospectus and the Exemptions, and the potential consequences
in their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Offered Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
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
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
S-95
<PAGE>
purposes, or as to the ability of particular investors to purchase the Offered
Certificates under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Offered
Certificates) may adversely affect the liquidity of the Offered Certificates.
Use of Proceeds
Substantially all of the net proceeds to be received from the sale of the
Offered Certificates will be applied by the Depositor to the purchase price of
the mortgage loans.
Method of Distribution
Subject to the terms and conditions of the underwriting agreement dated
December 16, 1998 and the terms agreement dated September __, 2000 between the
Depositor and Chase Securities Inc., as underwriter and as representative of
Bear, Stearns & Co. Inc., as underwriter, the Offered Certificates are being
purchased from the Seller by the underwriters in the respective initial
Certificate Principal Balance of each class of Offered Certificates set forth
below, in each case upon issuance of each class.
<TABLE>
<CAPTION>
Chase
Class of Certificate Securities Inc. Bear, Stearns & Co. Inc.
-------------------- --------------- ------------------------
<S> <C> <C>
Class IA-1 Certificates ..........
Class IA-2 Certificates ..........
Class IA-3 Certificates ..........
Class IA-4 Certificates ..........
Class IA-5 Certificates ..........
Class IA-6 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 .........................
</TABLE>
S-96
<PAGE>
The Depositor has been advised that the underwriters propose initially to
offer the Offered Certificates to the public at the offering prices set forth
below. The Depositor has been advised that the underwriters propose initially
to offer the Offered Certificates to certain dealers at such offering prices
less a selling concession not to exceed the percentage of the certificate
denomination set forth below, and that the underwriters may allow and such
dealers may reallow a reallowance discount not to exceed the percentage of the
certificate denomination set forth below:
<TABLE>
<CAPTION>
Price to Underwriting Selling Reallowance
Class of Certificate Public Discount Concession Discount
-------------------- ------ -------- ---------- --------
<S> <C> <C> <C> <C>
Class IA-1 Certificates ..........
Class IA-2 Certificates ..........
Class IA-3 Certificates ..........
Class IA-4 Certificates ..........
Class IA-5 Certificates ..........
Class IA-6 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 each underwriter that it intends to make
a market in the Offered Certificates, but neither underwriter has any
obligation to do so. There can be no assurance that a secondary market for the
Offered Certificates, or any particular class 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
underwriters and some selling group members to bid for and purchase the Offered
Certificates. As an exception to these rules, the underwriters are 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 either of the underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Depositor nor either of the underwriters
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 underwriters against, or make
contributions to the underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
Chase Securities Inc. is an affiliate of the Depositor and the Master
Servicer.
S-97
<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 underwriters by Cadwalader,
Wickersham & Taft, New York, New York. The material federal income tax
consequences of the certificates will be passed upon for the Depositor by
Morgan, Lewis & Bockius LLP.
Ratings
It is a condition of the issuance of the Offered Certificates that they be
assigned the ratings designated below by S&P and Fitch.
CLASS S&P Fitch
----- --- -----
IA-1 ..................... AAA AAA
IA-2 ..................... AAA AAA
IA-3 ..................... AAA AAA
IA-4 ..................... AAA AAA
IA-5 ..................... AAA AAA
IA-6 ..................... AAA AAA
IM-1 ..................... AA AA
IM-2 ..................... A A
IB ....................... BBB BBB
IIA-1 .................... AAA AAA
IIM-1 .................... AA AA
IIM-2 .................... A A
IIB ...................... BBB BBB
The security ratings assigned to the Offered Certificates should be
evaluated independently from similar ratings on other types of securities. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the Rating Agencies. The
ratings on the Offered Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the mortgage loans, the
payment of the Adjustable Rate Certificate Carryover or the anticipated yields
in light of prepayments.
The ratings of S&P on mortgage pass-through certificates addressed the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. S&P rating opinions address the
structural and legal issues and tax-related aspects associated with the
certificates, including the nature of the underlying mortgage loans. S&P
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 Fitch to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage
loans by the related certificateholders under the agreements in which such
certificates are issued. Fitch ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make the
payments required by such certificates. Fitch ratings on such certificates do
not, however, constitute a statement regarding frequency of prepayments of the
mortgage loans or address the likelihood of receipt of Interest Carryover
Amounts.
The Depositor has not requested a rating of the Offered Certificates by
any rating agency other than S&P and Fitch. However, there can be no assurance
as to whether any other rating agency will rate the Offered Certificates or, if
it does, what ratings would be assigned by such other rating agency. The
ratings assigned by any such other rating agency to the Offered Certificates
could be lower than the respective ratings assigned by the Rating Agencies.
S-98
<PAGE>
Glossary of Defined Terms
1/29 Loans means mortgage loans which bear interest at a
fixed rate for a period of one year after
origination and thereafter have semiannual
interest rate and payment adjustments in
substantially the same manner as Six-Month LIBOR
Loans.
2/28 Loans means mortgage loans which bear interest at a
fixed rate for a period of two years after
origination 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 after origination 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 after origination 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.
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.
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
S-99
<PAGE>
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 comprised of Group
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, with respect to a Servicer Remittance Date,
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, such latter amount
to be calculated after taking into account any
rental income.
Advanta means Advanta Mortgage Corp. USA., a Delaware
corporation.
Advanta Parent means Advanta Corp., a Delaware corporation.
Applied Realized Loss
Amount means, with respect to any class of Subordinated
Certificates and as to any Distribution Date, the
sum of the Realized Losses with respect to
mortgage loans which have been applied in
reduction of the Certificate Principal Balance of
such class.
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
S-100
<PAGE>
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.
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 the class IA-1, class IA-2, class IA-3,
class IA- 4, class IA-5 and class IA-6
certificates.
Class A Group II
Certificates means the class IIA-1 certificates.
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 85.00% for the
Fixed Rate Mortgage Loan Group and approximately
68.50% for the Adjustable Rate Mortgage Loan
Group, of the Stated Principal Balances of the
mortgage loans in such loan group as of the end of
the
S-101
<PAGE>
immediately preceding Due Period, and (2) the
excess of the Stated Principal Balances of the
mortgage loans in such loan group as of the end of
the immediately preceding Due Period over
approximately $800,000 for the Fixed Rate Mortgage
Loan Group and approximately $2,800,000 for the
Adjustable Rate Mortgage Loan Group; provided,
however, that in no event will the Class A
Principal Distribution Amount for a Certificate
Group with respect to any Distribution Date exceed
the Certificate Principal Balance of the related
Class A Certificates.
Class B Certificates means collectively, the class IB and class IIB
certificates.
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 97.50% for the Fixed Rate Mortgage
Loan Group and approximately 96.50% for the
Adjustable Rate Mortgage Loan Group, of the Stated
Principal Balances of the mortgage loans in such
loan group as of the end of the immediately
preceding Due Period, and (B) the excess of the
Stated Principal Balances of the mortgage loans in
such loan group as of the end of the immediately
preceding Due Period over approximately $800,000
for the Fixed Rate Mortgage Loan Group and
approximately $2,800,000 for the Adjustable Rate
Mortgage Loan Group; provided, however, that after
the Certificate Principal Balances of the Class A,
Class M-1 and Class M-2 Certificates for such
Certificate Group are reduced to zero, the Class B
Principal Distribution Amount for such
S-102
<PAGE>
Distribution Date will equal 100% of the Principal
Distribution Amount for the related loan group
remaining after any distributions on such Class A,
Class M-1 and Class M-2 Certificates; and
provided, further, however, that in no event will
the Class B Principal Distribution Amount for a
Certificate Group with respect to any Distribution
Date exceed the Certificate Principal Balance of
the related Class B Certificates.
Class IA-6 Distribution
Amount means for any Distribution Date prior to the
Distribution Date in October 2009, the product of
(1) a fraction, the numerator of which is the
Certificate Principal Balance of the class IA-6
certificates and the denominator of which is the
aggregate Certificate Principal Balance of all
Class A Group I Certificates, in each case
immediately prior to such Distribution Date, (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
October 2000 through September 2003...........0%
October 2003 through September 2005..........45%
October 2005 through September 2006..........80%
October 2006 through September 2007.........100%
October 2007 through September 2009.........300%
With respect to the Distribution Date occurring in
October 2009 and each Distribution Date thereafter
until the Certificate Principal Balance of the
class IA-6 certificates has been reduced to zero,
the Class IA-6 Principal Distribution Amount will
equal the Class A Principal Distribution Amount
with respect to the Fixed Rate Mortgage Loan Group
for such Distribution Date.
Class M-1 Certificates means collectively, the class IM-1 and class IIM-1
certificates.
Class M-1 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 Certificates for such Certificate Group
has been reduced to zero and a Trigger Event
exists, or, as long as a Trigger Event does not
exist for such Certificate Group, is the excess of
(1) the sum for
S-103
<PAGE>
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 89.50% for the Fixed Rate Mortgage
Loan Group and approximately 79.50% for the
Adjustable Rate Mortgage Loan Group of the Stated
Principal Balances of the mortgage loans in such
loan group as of the end of the immediately
preceding Due Period, and (B) the excess of the
Stated Principal Balances of the mortgage loans in
such loan group as of the end of the immediately
preceding Due Period over approximately $800,000
for the Fixed Rate Mortgage Loan Group and
approximately $2,800,000 for the Adjustable Rate
Mortgage Loan Group. Notwithstanding the above,
(1) on any Distribution Date prior to the Stepdown
Date on which the Certificate Principal Balance of
each class of Class A Certificates for a
Certificate Group has been reduced to zero, the
Class M-1 Principal Distribution Amount for such
Certificate Group will equal the lesser of (A) the
outstanding Certificate Principal Balance of the
related Class M-1 Certificates and (B) 100% of the
Principal Distribution Amount for such Certificate
Group remaining after any distributions on such
Class A Certificates and (2) in no event will the
Class M-1 Principal Distribution Amount for a
Certificate Group with respect to any Distribution
Date exceed the Certificate Principal Balance of
the related Class M-1 Certificates.
Class M-2 Certificates means collectively, the class IM-2 and class IIM-2
certificates.
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, 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
S-104
<PAGE>
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 93.50% for the Fixed Rate Mortgage
Loan Group and approximately 89.00% for the
Adjustable Rate Mortgage Loan Group, of the
aggregate Stated Principal Balances of the
mortgage loans in such loan group as of the end of
the immediately preceding Due Period, and (B) the
excess of the Stated Principal Balances of the
mortgage loans in such loan group as of the end of
the immediately preceding Due Period over
approximately $800,000 for the Fixed Rate Mortgage
Loan Group and approximately $2,800,000 for the
Adjustable Rate Mortgage Loan Group.
Notwithstanding the above, (1) on any Distribution
Date prior to the Stepdown Date on which the
aggregate Certificate Principal Balance of each
class of Class A Certificates and the Class M-1
Certificates for a Certificate Group has been
reduced to zero, the Class M-2 Principal
Distribution Amount for such Certificate Group
will equal the lesser of (A) the outstanding
Certificate Principal Balance of the related Class
M-2 Certificates and (B) 100% of the Principal
Distribution Amount for such Certificate Group
remaining after any distributions on such Class A
and Class M-1 Certificates and (2) in no event
will the Class M-2 Principal Distribution Amount
for a Certificate Group with respect to any
Distribution Date exceed the Certificate Principal
Balance of the related Class M-2 Certificates.
Clearstream Luxembourg means Clearstream Banking, societe anonyme.
Closing Date means September 28, 2000.
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 of such mortgaged property 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
S-105
<PAGE>
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 the related month, which the
Subservicer is obligated to deposit into the
Collection Account for distribution to
Certificateholders on that Distribution Date, in
an amount up to the amount of any shortfall in
interest payments resulting from prepayments
received during the prior Prepayment Period;
provided, that any such deposit in reduction of
the Servicing Fee otherwise payable with respect
to that Distribution Date will be limited to the
product of (1) one-twelfth of 0.35% and (2) the
aggregate Stated Principal Balance of the mortgage
loans with respect to the related Distribution
Date.
Complaint means the complaint filed by Fleet on January 22,
1999 against Advanta Parent and some of its
subsidiaries 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. 27% CPR, which represents 100% of the
prepayment model for the Adjustable Rate Mortgage
Loan Group, assumes a constant prepayment rate of
27% per annum.
Credit Scores means statistical credit scores obtained by many
mortgage lenders in connection with the loan
application.
Current Interest means with respect to each class of the Offered
Certificates and each Distribution Date, 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 September 1, 2000.
S-106
<PAGE>
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 Date means a scheduled monthly payment date for any
mortgage loan.
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 the administrative exemption, Prohibited
Transaction Exemption 90-33, 55 Fed. Reg. 23151
(1990), granted by the U.S. Department of Labor to
Chase Securities Inc. f/k/a Chemical Securities,
Inc.
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 $2,000,000 for the Fixed
Rate Mortgage Loan Group and approximately
$9,800,000 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, (A) the sum of (x)
the aggregate Certificate Principal Balances of
the certificates of such Certificate Group and (y)
the greater of (a) 2.50% for the
S-107
<PAGE>
Fixed Rate Mortgage Loan Group and 3.50% for the
Adjustable Rate Mortgage Loan Group of the Stated
Principal Balances of the mortgage loans in the
related loan group, and (b) approximately $800,000
for the Fixed Rate Mortgage Loan Group and
approximately $2,800,000 for the Adjustable Rate
Mortgage Loan Group less (B) the Stated Principal
Balances of the mortgage loans in the related loan
group as of the end of the immediately preceding
Due Period; provided, however, that if on any
Distribution Date, a Trigger Event is in effect,
the Extra Principal Distribution Amount for the
related loan group will not be reduced to the
applicable percentage of the then- current Stated
Principal Balance of such loan group (and will
remain fixed at the applicable percentage of the
Stated Principal Balance of the mortgage loans in
the related loan group as of the Due Date
immediately prior to the occurrence of the Trigger
Event) until the next Distribution Date on which
the Trigger Event is not in effect.
Notwithstanding the foregoing, the Extra Principal
Distribution Amount with respect to the Fixed Rate
Mortgage Loan Group will be zero for each
Distribution Date up to and including the
Distribution Date in March 2001, and the Extra
Principal Distribution Amount with respect to the
Adjustable Rate Mortgage Loan Group will be zero
for each Distribution Date up to and including the
Distribution Date in December 2000.
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 Mortgage Loan Group comprised of Fixed
Rate Mortgages.
Fleet means Fleet Financial Group, Inc. and some of its
affiliates.
Fleet Transaction means the transaction between Fleet and Advanta
Parent and some of its affiliates, which closed on
February 20, 1998, whereby Advanta Parent
contributed substantially all of Advanta Parent's
consumer credit card business to a limited
liability company controlled by Fleet.
S-108
<PAGE>
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) November 28, 2000.
Gross Margin means a fixed percentage amount specified in the
related mortgage note.
Group I Certificates means the Class A Group I Certificates and the
Subordinated Group I Certificates.
Group I Original
Pre-Funded Amount means approximately $40,000,000 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 October 2000, 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 November
2000, 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
December 2000 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 A Group II Certificates and the
Subordinated Group II Certificates.
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
Servicer Fee Rate.
Group II Original
Pre-Funded Amount means approximately $140,000,000 on the Closing
Date.
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
S-109
<PAGE>
loans for the life of such mortgage loans. 20%
HEP, which represents 100% of the prepayment model
for the Fixed Rate Mortgage Loan Group, assumes
prepayment rates of 2.0% per annum of the then
outstanding principal balance of the related
mortgage loans in the first month of the life of
such mortgage loans and an additional 2.0% 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, 20% HEP assumes a constant
prepayment rate of 20% 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 for the related Accrual Period.
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.
Interest Funds means, with respect to each loan group and any
Distribution Date, the sum, without duplication,
of (1) all scheduled interest due during the
related Due Period and received before the related
Servicer Remittance Date or advanced on or before
the related Servicer Remittance Date 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), (5) prepayment
S-110
<PAGE>
penalties and late payment fees received with
respect to the related Mortgage Loans, less all
non-recoverable Advances relating to interest and
certain expenses reimbursed during the related Due
Period, and (6) the portion of any amounts removed
from the Capitalized Interest Account 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 payable to the Master Servicer 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 such
mortgage loan and (2) all investment income earned
on funds in the Certificate Account and the
Distribution Account.
Master Servicer Fee Rate means 0.0073% per annum.
Maximum Mortgage Rate means the rate which the Mortgage Rate on the
related Adjustable Rate Mortgage Loan will never
exceed.
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.
S-111
<PAGE>
Minimum Mortgage Rate means the rate which the Mortgage Rate on the
related Adjustable Rate Mortgage Loan will never
be less than.
Modeling Assumptions means the following assumptions:
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 on October 25, 2000, in
accordance with the payment priorities defined
in this prospectus supplement;
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 October 1,
2000, and prepayments represent payment in full
of individual mortgage loans and are assumed to
be received on the last day of each month,
commencing in September 2000, and include 30
days' interest thereon;
o 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;
o the Closing Date for the certificates is
September 28, 2000;
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 Date and the mortgage loans
in the
S-112
<PAGE>
Adjustable Rate Mortgage Loan Group are
purchased on the first applicable Optional
Termination Date;
o the Subsequent Mortgage Loans are purchased on
November 28, 2000 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-80.
Moody's means Moody's Investors Service, Inc. or any
successor.
Mortgage Index means, with respect to the Adjustment Date of a
Six-Month LIBOR Loan, the average of the London
interbank offered rates for six-month U.S. dollar
deposits in the London market, as set forth in The
Wall Street Journal, or, if such rate ceases to be
published in The Wall Street Journal or becomes
unavailable for any reason, then based upon a new
index selected by the trustee, as holder of the
related mortgage note, based on comparable
information, in each case as most recently
announced as of a date 45 days prior to such
Adjustment Date.
Mortgage Loan Schedule means the schedule of mortgage loans appearing as
an exhibit to the pooling and servicing agreement
from time to time.
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.
S-113
<PAGE>
Optional Termination
Amount means with respect to either loan group, the
Repurchase Price 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 $180,000,000, subject to a
permitted variance of plus or minus five percent.
Owned and Managed
Servicing Portfolio means the servicing portfolio of Advanta
consisting of fixed-rate and adjustable-rate
mortgage loans, which includes mortgage loans
originated or purchased by Advanta or its
affiliated orginators.
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.
Pass-Through Margin means, for the class IA-1 certificates, ___%; and
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, ___%; and class
IIB, ___%; and for any Distribution Date after the
Optional Termination Date: class IIA-1, ___%;
class IIM-1, ___%; class IIM-2, ___%; and class
IIB, ___%.
Pass-Through Rate means:
o with respect to 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 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;
provided, however, with respect to the class
IA-5 certificates on any Distribution Date after
the Optional Termination Date, ______%;
o with respect to the class IA-1 certificates, on
any Distribution Date, 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;
S-114
<PAGE>
o with respect to the Group II Certificates, on
any Distribution Date, 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, with respect to any certificate, the
percentage derived by dividing the denomination 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 any Adjustable Rate Mortgage Loan may
increase or decrease on an Adjustment Date.
Plan means a plan or other arrangement subject to ERISA
or 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 and any
Distribution Date, 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 during the related Prepayment Period,
(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
S-115
<PAGE>
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.
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 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
S-116
<PAGE>
Advances, in each case previously incurred by the
Subservicer in the performance of its servicing
obligations with respect to such mortgage loans.
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 such
Distribution Date, prior to giving effect to
distributions to be made on such Distribution
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-117
<PAGE>
S&P means Standard and Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. or any
successor.
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. In addition, the Subservicer shall
be entitled to receive as additional servicing
compensation certain fees (generally not in excess
of $500) with respect to any mortgage loan for
which the Subservicer has engaged in certain loss
mitigation activities such as modifying the
mortgage loan, accepting a short payoff, or
acquiring the related mortgaged property by deed
in lieu of foreclosure; provided, however, that
the additional servicing compensation shall not be
used to pay Compensating Interest.
Servicing Fee Rate for each mortgage loan means 0.50% 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.
Stepdown Date means, with respect to each Certificate Group, the
later to occur of (1) the Distribution Date in
October 2003 or (2) the first Distribution Date on
which (A) the Certificate
S-118
<PAGE>
Principal Balance of the Class A Certificates in
such Certificate Group is less than or equal to
(B) 85.00%, for the Fixed Rate Mortgage Loan
Group, and 68.50%, 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.
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 first day of the month in which the
related Subsequent Transfer Date occurs;
designated by the Depositor as 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
designated as the regular interests in the
Subsidiary REMIC.
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.
S-119
<PAGE>
Third Party Servicing
Portfolio means the portfolio of mortgage loans that were
not originated or purchased by Advanta or its
affiliates 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) 2.0,
for the Fixed Rate Mortgage Loan Group, and 2.5,
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.
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.
S-120
<PAGE>
Annex 1
Global Clearance, Settlement and Tax Documentation Procedures
Except in limited circumstances, the globally offered Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 2000-3 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
A-2
<PAGE>
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.
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:
A-3
<PAGE>
(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
(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).
A-4
<PAGE>
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). For payments made on or after January 1, 2001, Form W-8
and Form 1001 generally must be replaced with Form W-8BEN. If Form W-8BEN
contains a taxpayer identification number, then the form generally remains
effective as long as the information on the form remains unchanged. If Form
W-8BEN does not contain a taxpayer identification number, then the form remains
effective for no longer than three calendar years. For payments made on or
after January 1, 2001, Form 4224 generally must be replaced with Form W-8ECI.
Form W-8ECI generally remains effective for three calendar years.
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
(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>
PROSPECTUS
Chase Manhattan Acceptance Corporation
Chase Funding, Inc.
Seller, as specified in the related Prospectus Supplement
Mortgage Pass-through Certificates
(Issuable in Series)
You should carefully Chase Manhattan Acceptance Corporation or Chase
consider the risk Funding, Inc. from time to time will offer
factors beginning on mortgage pass-through certificates. We will offer
page 4 of this the certificates through this prospectus and a
prospectus. separate prospectus supplement for each series.
Neither the certificates For each series we will establish a trust fund
or notes of any series consisting primarily of a segregated pool of
nor the related various types of conventional one- to four-family
underlying mortgage residential first mortgage loans, which may, if so
loans will be insured by specified in the related prospectus supplement,
any governmental include cooperative apartment loans together with
agency or other assets described herein.
instrumentality.
The certificates of a series will evidence
The securities will not beneficial ownership interests in the trust fund.
represent interests in or The notes of a series will evidence indebtedness
obligations of Chase of the trust fund.
Manhattan Acceptance
Corporation, Chase Assets of Each Trust Fund--
Funding, Inc. or any of
their respective o will be sold to the related trust by Chase
affiliates. Manhattan Acceptance Corporation or Chase
Funding, Inc.;
This prospectus may be
used to offer and sell o will be serviced by the entity that is
any series of certificates identified in the prospectus supplement as the
only if accompanied by master servicer, individually or together with
the prospectus other servicers.
supplement for that
series. Each Series of Certificates--
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.
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 August 8, 2000.
<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.
ii
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <S> <C>
Summary Information ...................... 1 The Trustee ........................... 36
The Trust Fund ........................ 1 Events of Default ..................... 37
Principal Parties ..................... 1 Rights upon Event of Default .......... 38
The Mortgage Loans .................... 1 Amendment ............................. 39
Distributions on the Certificates ..... 1 Termination; Purchase of Mortgage
Credit Enhancement .................... 2 Loans ............................. 39
Pre-Funding Account ................... 3 Material Legal Aspects of the Mort-
ERISA Considerations .................. 3 gage Loans ............................ 41
Tax Status ............................ 3 General ............................... 41
Legal Investment ...................... 4 Foreclosure ........................... 41
Risk Factors ............................. 5 Right of Redemption ................... 43
Glossary ................................. 7 Anti-Deficiency Legislation and
Description of the Certificates .......... 7 Other Limitations on Lenders ...... 43
General ............................... 8 Consumer Protection Laws .............. 44
Classes of Certificates ............... 8 Enforceability of Due-on-Sale
Distributions of Principal and Inter- Clauses ........................... 45
est ............................... 9 Applicability of Usury Laws ........... 46
Reports to Certificateholders ......... 11 Soldiers' and Sailors' Civil Relief
The Mortgage Pools ....................... 12 Act ............................... 46
Credit Support ........................... 14 Late Charges, Default Interest and
General ............................... 14 Limitations on Prepayment ......... 46
Limited Guarantee of the Guarantor..... 15 Environmental Considerations .......... 47
Subordination ......................... 15 Forfeiture in Drug and RICO Pro-
Certificate Guaranty Insurance Poli- ceedings .......................... 48
cies .............................. 16 Legal Investment Matters ................. 49
Overcollateralization ................. 17 ERISA Considerations ..................... 50
Cross-Support ......................... 17 Federal Income Tax Consequences .......... 53
Pool Insurance ........................ 17 General ............................... 53
Special Hazard Insurance .............. 19 REMIC Elections ....................... 53
Bankruptcy Bond ....................... 20 REMIC Certificates .................... 53
Repurchase Bond ....................... 21 Tax Opinion .............................. 53
Guaranteed Investment Contracts ....... 21 Status of Certificates ................... 54
Reserve Accounts ...................... 21 Income from Regular Certificates ......... 54
Other Insurance and Guarantees ........ 22 Income from Residual Certificates ........ 59
Yield, Maturity and Weighted Average Sale or Exchange of Certificates ......... 61
Life Considerations ................... 22 Taxation of Certain Foreign Investors..... 61
Chase Manhattan Acceptance Corpora- Transfers of Residual Certificates ....... 63
tion .................................. 24 Servicing Compensation and Other
Chase Funding, Inc. ...................... 24 REMIC Pool Expenses ................... 65
Servicing of the Mortgage Loans .......... 25 Reporting and Administrative Matters...... 65
Collection and Other Servicing Pro- Non-REMIC Certificates ................... 66
cedures ........................... 25 Trust Fund as Grantor Trust .............. 66
Private Mortgage Insurance ............ 26 Status of the Certificates ............... 66
Hazard Insurance ...................... 27 Possible Application of Stripped Bond
Advances .............................. 28 Rules ................................. 67
Servicing and Other Compensation Taxation of Certificates if Stripped
and Payment of Expenses ........... 29 Bond Rules Do Not Apply ............... 67
Resignation, Succession and Indem- Taxation of Certificates if Stripped
nification of the Servicer ........ 29 Bond Rules Apply .................. 68
The Pooling and Servicing Agreement....... 31 Sales of Certificates ................. 69
Assignment of Mortgage Loans; Foreign Investors ..................... 69
Warranties ........................ 31 Reporting ............................. 70
Payments on Mortgage Loans; Col- Backup Withholding .................... 70
lection Account ................... 33 Plan of Distribution ..................... 70
Repurchase or Substitution ............ 34 Incorporation of Certain Documents by
Certain Modifications and Refinanc- Reference ............................. 71
ings............................... 35 Use of Proceeds .......................... 73
Forward Commitments; Pre-Funding 36 Legal Matters ............................ 73
Evidence as to Compliance ............. 36 Glossary of Prospectus Definitions ....... 74
</TABLE>
iii
<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.
<PAGE>
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:
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
1
<PAGE>
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 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
<PAGE>
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.
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
2
<PAGE>
o allocating to the subordinated certificates all or a portion of 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
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
<PAGE>
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 of 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 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.
3
<PAGE>
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.
4
<PAGE>
Risk Factors
You should consider, among other things, the following factors in
connection with the purchase of the certificates:
1. 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 governmental
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, 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."
5
<PAGE>
5. 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.
6
<PAGE>
Glossary
A glossary of defined terms can be found beginning on page 74 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 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.
7
<PAGE>
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 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
8
<PAGE>
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 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.
9
<PAGE>
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 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 per-
10
<PAGE>
centages 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;
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 and 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.
11
<PAGE>
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 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
12
<PAGE>
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.
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 and warranties which materially and
13
<PAGE>
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.
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,
14
<PAGE>
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 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
15
<PAGE>
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.
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.
16
<PAGE>
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 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 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.
17
<PAGE>
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
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 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.
18
<PAGE>
As specified in the prospectus supplement, the original amount of coverage
under any pool insurance policy will be reduced over the life of the related
series of certificates by the aggregate dollar amount of claims paid less the
aggregate of the net amounts realized by the pool insurer upon disposition of
all foreclosed properties. The amount of claims paid will include certain
expenses incurred by the Servicer as well as accrued interest on delinquent
mortgage loans to the date of payment of the claim. See "Material Legal Aspects
of the Mortgage Loans--Foreclosure". Accordingly, if aggregate net claims paid
under any pool insurance policy reach the original policy limit, coverage under
that pool insurance policy will be exhausted and any further losses will be
borne by one or more classes of certificateholders unless assumed by some other
entity, if and to the extent specified in the prospectus supplement.
Since any mortgage pool insurance policy may require that the property
subject to a defaulted mortgage loan be restored to its original condition
prior to claiming against the pool insurer, 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
19
<PAGE>
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 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.
In lieu of a bankruptcy bond, the Servicer may obtain a Limited Guarantee
to cover bankruptcy-related losses.
20
<PAGE>
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, 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 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 are
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.
21
<PAGE>
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.
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;
22
<PAGE>
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. 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
23
<PAGE>
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. 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.
24
<PAGE>
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
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 its 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 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
25
<PAGE>
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.
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
26
<PAGE>
prevailing interest rates are low relative to the interest rate borne by the
defaulted mortgage loan, in order to reduce the aggregate amount of accrued
interest that the insurer would be obligated to pay upon payment of a claim.
Hazard Insurance
The Servicer will cause to be maintained for each mortgaged property a
standard hazard insurance policy. The coverage of 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.
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
27
<PAGE>
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.
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
28
<PAGE>
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 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 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.
29
<PAGE>
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 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.
30
<PAGE>
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;
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
31
<PAGE>
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 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
32
<PAGE>
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 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.
33
<PAGE>
Repurchase or Substitution
The trustee will review the documents delivered to it with respect to the
assets of the applicable trust fund within 270 days after execution and
delivery of the related 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 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:
34
<PAGE>
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 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.
35
<PAGE>
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 to the requirements
specified in the pre-funding agreement. If a pre-funding agreement is to be
utilized, the related trustee will be required to deposit in the Purchase
Account all or a portion of the proceeds received by the trustee in connection
with the sale of one or more classes of securities of the related series; the
additional mortgage loans will be transferred to the related trust and in
exchange for money released from the related Pre-Funding Account. Each
pre-funding agreement will set a specified period during which the transfers
must occur. The pre-funding agreement 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.
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
36
<PAGE>
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.
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,
37
<PAGE>
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.
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
38
<PAGE>
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.
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 662/3%
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
39
<PAGE>
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 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.
40
<PAGE>
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 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 attorneys' 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.
41
<PAGE>
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 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
42
<PAGE>
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.
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.
43
<PAGE>
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 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.
44
<PAGE>
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.
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.
45
<PAGE>
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.
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
46
<PAGE>
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon involuntary prepayment is unclear under the laws of many states.
Most conventional single-family mortgage loans may be prepaid in full or in
part without penalty. The regulations of the Federal Home Loan Bank Board, as
succeeded by the OTS, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage. The absence of a restraint on
prepayment, particularly with respect to mortgage loans having higher mortgage
rates, may increase the likelihood of refinancing or other early retirements of
the mortgage loans.
Environmental Considerations
Under 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,
47
<PAGE>
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 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 foreclosed 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 environmental 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.
48
<PAGE>
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, 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,
49
<PAGE>
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 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 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.
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
50
<PAGE>
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 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;
51
<PAGE>
(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 PTE 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.
52
<PAGE>
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 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.
53
<PAGE>
Status of Certificates
The certificates will be:
o assets described in Code Section 7701(a)(19)(C) (relating to the
qualification of certain corporations, trusts, or associations as real
estate investment trusts); and
o "real estate assets" under Code Section 856(c)(5)(B) (relating to real
estate interests, interests in real estate mortgages, and shares or
certificates of beneficial interests in real estate investment trusts),
to the extent the assets of the related REMIC Pool are so treated.
Interest on the Regular Certificates will be "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.
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".
54
<PAGE>
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
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.
55
<PAGE>
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.
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.
56
<PAGE>
An Owner may be required to defer a portion of the deduction for interest
expense on any indebtedness that the Owner incurs or maintains in order to
purchase or carry a Regular Certificate that has market discount. The deferred
amount would not exceed the market discount that has accrued but not been taken
into income. Any such deferred interest expense is, in general, allowed as a
deduction not later than the year in which the related market discount income
is recognized.
Market discount with respect to a Regular Certificate will be considered
to be zero if such market discount is de minimis under a rule similar to that
described above in the fourth paragraph under "Original Issue Discount". Owners
should consult their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election with respect
to market discount.
Discount on a Regular Certificate that is neither original issue discount
nor market discount, as defined above, must be allocated ratably among the
principal payments on the certificate and included in income (as gain from the
sale or exchange of the certificate) as the related principal payments are made
(whether as scheduled payments or prepayments).
Premium. A Regular Certificate, other than an Accrual Certificate or, as
discussed above under "Original Issue Discount", an Interest Only Certificate,
purchased at a cost (net of accrued interest) greater than its principal amount
is considered to be purchased at a premium. The Owner may elect under Code
Section 171 to amortize such premium under the constant yield method, using the
Prepayment Assumption. To the extent the amortized premium is allocable to
interest income from the Regular Certificate, it is treated as an offset to
such interest rather than as a separate deduction. An election made by an Owner
would apply to all its debt instruments and may not be revoked without the
consent of the Internal Revenue Service.
Special Election to Apply OID Rules. In lieu of the rules described above
with respect to de minimis discount, acquisition premium, market discount and
premium, an Owner of a Regular Certificate may elect to accrue such discount,
or adjust for such premium, by applying the principles of the OID rules
described above. An election made by a taxpayer with respect to one obligation
can affect other obligations it holds. Owners should consult with their tax
advisors regarding the merits of making this election.
Retail Regular Certificates. For purposes of the original issue and market
discount rules, a repayment in full of a Retail Certificate that is subject to
payment in units or other increments, rather than on a pro rata basis with
other Retail Certificates, will be treated in the same manner as any other
prepayment.
Variable Rate Regular Certificates. The Regular Certificates may provide
for interest that varies based on an interest rate index. The OID Regulations
provide special rules for calculating income from certain "variable rate debt
instruments" or "VRDIs." A debt instrument must meet certain technical
requirements to qualify as a VRDI, which are outlined in the next paragraph.
Under the regulations, income on a VRDI is calculated by
(1) creating a hypothetical debt instrument that pays fixed interest at
rates equivalent to the variable interest,
57
<PAGE>
(2) applying the original issue discount rules of the Code to that fixed
rate instrument, and
(3) adjusting the income accruing in any accrual period by the difference
between the assumed fixed interest amount and the actual amount for the period.
In general, where a variable rate on a debt instrument is based on an interest
rate index (such as LIBOR), a fixed rate equivalent to a variable rate is
determined based on the value of the index as of the issue date of the debt
instrument. In cases where rates are reset at different intervals over the life
of a VRDI, adjustments are made to ensure that the equivalent fixed rate for
each accrual period is based on the same reset interval.
A debt instrument must meet a number of requirements in order to qualify
as a VRDI. A VRDI cannot be issued at a premium above its principal amount that
exceeds a specified percentage of its principal amount (15% or if less, 1.5%
times its weighted average life). As a result, Interest Only Certificates will
never be VRDIs. Also, a debt instrument that pays interest based on a multiple
of an interest rate index is not a VRDI if the multiple is less than or equal
to 0.65 or greater than 1.35, unless, in general, interest is paid based on a
single formula 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.
58
<PAGE>
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 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
59
<PAGE>
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 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 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.
60
<PAGE>
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.
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 certifi-
61
<PAGE>
cate 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.
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.
62
<PAGE>
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 recordholders 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.
63
<PAGE>
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."
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
64
<PAGE>
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.
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.
65
<PAGE>
An Owner of a Residual Certificate is required to treat items on its
federal income tax return consistently with the treatment of the items on the
REMIC Pool's return, unless the Owner owns 100% of the Residual Certificate for
the entire calendar year or the Owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Pool. The Internal Revenue Service may
assess a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC
level. Any person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC Pool, in a manner to be provided in
Treasury regulations, the name and address of such other person and other
information.
Non-REMIC Certificates
The discussion in this section applies only to a series of certificates
for which no REMIC election is made.
Trust Fund as Grantor Trust
Upon issuance of each series of certificates, Morgan, Lewis & Bockius LLP,
counsel to the Seller, will deliver an additional opinion, dated as of the date
of such issuance, to the effect that, under then current law, 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.
66
<PAGE>
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.
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.
67
<PAGE>
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. 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
68
<PAGE>
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
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
69
<PAGE>
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 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
70
<PAGE>
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.
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
71
<PAGE>
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 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
72
<PAGE>
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.
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.
73
<PAGE>
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.
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.
74
<PAGE>
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.
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.
75
<PAGE>
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.
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.
76
<PAGE>
$720,000,000 (Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 2000-3
[GRAPHIC OMITTED]
Chase Funding, Inc.
Depositor
Advanta Mortgage Corp. USA
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------
Chase Securities Inc.
Bear, Stearns & Co. Inc.
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 December
__, 2000.
September __, 2000
