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Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-67327
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 4, 1998)
$35,545,080 (APPROXIMATE)
RESECURITIZATION MORTGAGE TRUST, SERIES 1998-C
$20,027,000 CLASS A-1 6.50% CERTIFICATES
$15,518,000 CLASS A-2 6.50% CERTIFICATES
$80 CLASS R 6.50% CERTIFICATE
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
------------------------
The trust will issue four classes of certificates. Only
the three classes of certificates identified above are
being offered by this prospectus supplement and the
accompanying prospectus.
THE CERTIFICATES
o The certificates represent ownership interests in
assets of the trust.
o The trust assets consist primarily of two groups
of previously issued mortgage pass-through
certificates representing senior ownership
interests in two separate pools of mortgage loans.
o Each class of offered certificates represents
ownership interests in one of two groups of
underlying mortgage pass-through certificates.
o Distributions on the certificates will be made on
the third business day following the 24th day of
each month.
CREDIT ENHANCEMENT
o Certain interests issued together with the two
groups of underlying mortgage pass-through
certificates are subordinate in right of payment
to the related senior interests held in the trust.
o Certain losses on the mortgage loans in the
mortgage pools will be allocated to the
subordinate interests before they are allocated to
the related senior interests held in the trust.
o Each class of offered certificates will receive
the benefits of the subordination feature
available to the related group of underlying
mortgage pass-through certificates.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The offered certificates are being offered by Greenwich Capital Markets, Inc.
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the Depositor with respect to the
offered certificates are expected to be approximately $35,164,513, before
deducting issuance expenses payable by the Depositor, estimated to be $160,000.
See "Method of Distribution" in this prospectus supplement.
Delivery of the offered certificates will be made in book-entry form through the
facilities of The Depository Trust Company, Cedelbank and the Euroclear System
on or about December 11, 1998.
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GREENWICH CAPITAL
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December 11, 1998
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
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Summary of Terms............................S-3
Risk Factors................................S-6
Description of the Certificates.............S-8
Description of the Underlying Certificates..S-15
Description of the Mortgage Loans...........S-19
The Depositor...............................S-23
Yield, Prepayment and Maturity
Considerations............................S-23
Use of Proceeds.............................S-30
Certain Material Federal Income
Tax Consequences..........................S-30
ERISA Considerations........................S-32
Legal Investment Considerations.............S-33
Method of Distribution......................S-33
Legal Matters...............................S-33
Ratings.....................................S-33
Index of Defined Terms......................S-35
Appendix I..................................I-1
Exhibit A...................................A-1
Exhibit B...................................B-1
Exhibit C...................................C-1
Exhibit D...................................D-1
PROSPECTUS
Page
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Table of Contents........................... 2
Important Notice about Information.......... 4
Risk Factors................................ 5
The Trust Fund..............................12
Use of Proceeds.............................22
The Depositor...............................22
Mortgage Loan Program.......................23
Description of The
Securities ..............................25
Credit Enhancement..........................31
Yield and Prepayment
Considerations...........................38
The Pooling and Servicing Agreement.........39
Certain Legal Aspects
of the Loans.............................50
Certain Federal Income
Tax Considerations.......................59
State Tax Considerations....................84
ERISA Considerations........................84
Legal Investment............................87
Method of Distribution......................88
Legal Matters...............................88
Financial Information.......................89
Available Information.......................89
Rating......................................89
Index of Defined Terms......................90
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SUMMARY OF TERMS
o This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of an offering
of the offered certificates, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flow
priorities and other information to aid your understanding and is
qualified by the full description of these calculations, cash flow
priorities and other information in this prospectus supplement and the
accompanying prospectus. Some of the information consists of
forward-looking statements relating to future economic performance or
projections and other financial items. Forward-looking statements are
subject to a variety of risks and uncertainties that could cause actual
results to differ from the projected results. Those risks and
uncertainties include, among others, general economic and business
conditions, regulatory initiatives and compliance with governmental
regulations, and various other matters, all of which are beyond our
control. Accordingly, what actually happens may be very different from
what we project in our forward-looking statements.
The Certificates
On the closing date, Resecuritization Mortgage Trust 1998-C will issue four
classes of certificates: Class A-1, Class A-2, Class T and Class R. The
certificates will represent the beneficial ownership interests in the trust
assets and will be issued pursuant to a trust agreement between the Depositor
and the Trustee. Only the Class A-1, Class A-2 and Class R Certificates are
offered pursuant to this prospectus supplement and the accompanying
prospectus. The Class A-1 and Class A-2 Certificates will be book-entry
securities clearing through DTC (in the United States) or Cedelbank or
Euroclear (in Europe) in minimum denominations of $25,000. The Class R
Certificate will be issued in fully registered certificated form.
See "Description of the Certificates--General" and "--Book-Entry
Certificates" in this prospectus supplement.
The Depositor
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
The Trustee
The Bank of New York
The Trust Assets
The assets of the trust will consist primarily of certain previously issued
mortgage pass-through certificates. Each such underlying certificate
represents a senior ownership interest in one of two separate underlying trust
funds. The assets of each underlying trust fund consist primarily of
fixed-rate, fully amortizing mortgage loans secured by mortgages, deeds of
trust or other security instruments creating first liens on one- to
four-family residential properties.
The following table identifies the individual mortgage pass-through
certificates held in the trust.
Aggregate
Principal Principal Balance
Underlying Underlying Balance of of Underlying
Trust Fund Certificate Certificate* Mortgage Loans*
- ----------- ------------ ------------- -------------------
Chase Mortgage
Finance Corporation,
Series 1993-K Class 1A-7 $13,052,415.00 $ 68,330,354.66**
Class 1A-8 4,272,713.31
Class 1A-9 2,755,510.16
CWMBS, Inc., Class A-14 10,645,127.76 $133,213,775.99
Series 1994-13
Class A-15 4,914,315.37
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* Ending balances as of November 25, 1998.
** The underlying trust fund has two mortgage loan groups. This is the balance
of the related mortgage loan group (Group I).
Cut-off Date
December 1, 1998
Closing Date
On or about December 11, 1998
Distribution Dates
The trustee will make monthly distributions on the certificates on the third
business day following the 24th day of each calendar month beginning on
December 30, 1998. Distributions will be made to the holders of record of the
certificates as of the close of business on the last business day of the month
preceding the month of such distribution (or, in the case of the Distribution
Date in December 1998 as of the Closing Date).
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Distributions on the Certificates
Interest Distributions
The pass-through rate for each class of offered certificates will be
calculated at the rates specified on the cover, subject to the limitations
described under "Description of the Certificates --Pass-Through Rates" in
this prospectus supplement:
Interest payable on the offered certificates on a distribution date will
accrue during the calendar month preceding the month in which such
distribution date occurs. Interest will be calculated on the basis of an
assumed 360-day year consisting of twelve 30-day months.
Principal Distributions
On each distribution date available funds in the trust will be paid in the
order of priority described under "Description of the Certificates--Allocation
of Available Funds" in this prospectus supplement.
See "Description of the Certificates" in this prospectus supplement.
Advances
The servicer of the mortgage loans held in each of the underlying trust funds
will make cash advances with respect to delinquent payments of principal and
interest to the extent such servicer reasonably believes that the cash
advances are recoverable from future payments on the related mortgage loans.
See "Description of The Underlying Certificates--Advances" in this prospectus
supplement.
Optional Termination of the Trust
The holder of the Class R Certificate may purchase all of the remaining assets
of the trust after the combined principal balance of the certificates is 10%
or less of the combined principal balance of the certificates at issuance.
See "Description of The Certificates --Termination of the Trust" in this
prospectus supplement.
Optional Termination of the Underlying Trust Funds
The servicer of the mortgage loans held in each underlying trust fund may
terminate such trust fund on and after the distribution date for the related
underlying certificates on which the aggregate outstanding principal amount of
the mortgage loans in such trust fund is less than 10% of the aggregate
principal amount of the mortgage loans on the date on which such underlying
certificates were issued.
See "Description of The Underlying Certificates --Optional Termination of the
Underlying Trust Funds" in this prospectus supplement.
Ratings
It is a condition of the issuance of the offered certificates that they be
assigned a rating of "AAA" by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. and by Duff & Phelps Credit Rating Company.
A rating is not a recommendation to buy, sell or hold securities. These
ratings may be lowered or withdrawn at any time by either of the rating
agencies.
See "Ratings" in this prospectus supplement.
Tax Status
An election will be made to treat the trust as a "real estate mortgage
investment conduit" ("REMIC"). The Class A-1, Class A-2 and Class T
Certificates will represent "regular interests" in the REMIC. The Class R
Certificate will represent the sole class of "residual interests" in the
REMIC. The holder of the Class R Certificate will be subject to special
federal income tax rules that may significantly reduce the after-tax yield of
such certificate.
See "Certain Material Federal Income Tax Consequences" in this prospectus
supplement and "Certain Federal Income Tax Considerations" in the prospectus.
ERISA Considerations
The acquisition of an offered certificate by a pension or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974,
as amended, or to Section 4975 of the Internal Revenue Code of 1986, as
amended, or by a person investing assets of, or on behalf of, such a plan is
generally not permitted.
See "ERISA Considerations" in this prospectus supplement and in the
prospectus.
Legal Investment
Assuming the accuracy of certain representations contained in the agreements
pursuant to which the underlying trust funds were created (which information
is not subject to independent certification) and on the basis of certain
assumptions derived from statements included in the prospectus supplements
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pursuant to which the underlying certificates were publicly offered, the
offered certificates will be "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 as long as they are rated in
one of the two highest rating categories by at least one nationally recognized
statistical rating organization.
See "Legal Investment Considerations" in this prospectus supplement and "Legal
Investment" in the prospectus.
S-5
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RISK FACTORS
Information about the Underlying Certificates and Mortgage Loans
The information about the underlying mortgage pass-through
certificates and the related mortgage loans disclosed in this prospectus
supplement has been obtained from the disclosure documentation prepared in
connection with the initial offering of the underlying certificates as well as
from reports and other information supplied by the servicers of the related
mortgage loans and the trustees of the related underlying trust funds. Such
information has not been independently represented to the trust as being
accurate and complete. Additionally, the agreements pursuant to which the
underlying certificates were issued and the prospectuses pursuant to which the
underlying certificates were publicly offered contain information only as of
the dates of such documents. You should be aware, however, that material
changes may have occurred since the preparation of those documents and the
composition of the related mortgage pools may have changed significantly. As a
result, there may be considerable differences between the current mortgage
loan characteristics and the characteristics described in connection with the
issuance of the underlying certificates, and the underlying certificates may
not have performed as originally anticipated. The Depositor did not prepare
such prospectuses or underlying agreements and neither the Depositor nor the
Underwriter makes any representation as to the accuracy or completeness of
information provided in such prospectuses and underlying agreements.
Effect of Payment Priorities of the Underlying Certificates on Principal
Distributions on the Offered Certificates
The offered certificates represent senior ownership interests in
certain previously issued mortgage pass-through certificates. As described in
the excerpts from the related prospectuses that are annexed hereto as Exhibits
A and B, the underlying certificates are senior in priority of payment to the
related subordinate interests but are subsequent in payment priority to
certain other senior interests issued by the related underlying trust funds.
Since such other senior interests are entitled to receive principal before
principal is paid on the underlying certificates, it is possible that no
principal will be available for payment on either group of underlying
certificates for an extended period of time. Accordingly, it is possible that
no principal distributions will be made on the offered certificates for an
extended period of time.
Special Prepayment Considerations; Targeted Amortization Certificates
Each of the underlying certificates is a targeted amortization class.
Although this means that the underlying certificates were structured to
receive protection against prepayment risk, you should understand that this
prepayment protection is limited and may diminish over time. In particular, in
the case of the underlying CWMBS certificates, this prepayment protection has
been extinguished. While the underlying Chase certificates are protected
against prepayments occurring on the related mortgage loans at certain very
high rates, they are not protected against prepayments occurring at rates
below such rates. Additionally, each of the underlying certificates itself
provides protection against prepayment to other classes of certificates issued
by the underlying trust funds by receiving a disproportionate portion of
principal payments in certain circumstances. You should carefully consider the
prepayment characteristics of the underlying certificates and the related
mortgage loans described herein.
Optional Termination of the Trust
The holder of the Class R Certificate may purchase the assets in the
trust, in whole but not in part, on and after the distribution date on which
the combined principal balances of the underlying certificates is less than
10% of their combined principal balances as of the Cut-off Date. The purchase
of such assets will result in the receipt by you of principal payments that
could affect the yield to maturity on your certificate and have the effect of
shortening the weighted average life of such certificate.
Optional Termination of the Underlying Trust Funds
The servicer of the mortgage loans held in each underlying trust fund
may terminate such trust fund on and after the distribution date for the
related underlying certificates on which the aggregate outstanding principal
amount of the mortgage loans in such trust fund is less than 10% of the
aggregate principal amount of the mortgage loans on the date on which such
S-6
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underlying certificates were issued. For the holder of a particular offered
certificate, any such termination of the related underlying trust fund will
result in the receipt by such holder of principal payments that could affect
the yield to maturity on its certificate and have the effect of shortening the
weighted average life of such certificate.
Unpredictability of Prepayments and its Effect on Yields
Borrowers may prepay their mortgage loans in whole or in part at any
time. We cannot predict the rate at which borrowers will repay their mortgage
loans. A prepayment of a mortgage loan may result in a prepayment on the
related underlying certificates, which in turn would result in a prepayment on
the related offered certificates.
o If you purchase your certificates at a discount and principal
is repaid slower than you anticipate, then your yield may be
lower than you anticipate.
o If you purchase your certificates at a premium and principal is
repaid faster than you anticipate, then your yield may be lower
than you anticipate.
o The rate of prepayments on the mortgage loans will be sensitive
to prevailing interest rates. Generally, if prevailing interest
rates decline significantly below the interest rates on the
mortgage loans, those mortgage loans are more likely to prepay
than if prevailing rates remain above the interest rates on such
mortgage loans. Conversely, if prevailing interest rates rise
significantly, the prepayments on the mortgage loans are likely
to decrease.
o The seller of a mortgage loan to an underlying trust fund may
be required to purchase such mortgage loan from such trust fund
due to certain breaches of representations and warranties made
by such seller that have not been cured. These purchases will
have the same effect on the related offered certificates as a
prepayment of a mortgage loan.
o So long as the subordinate interests in the underlying trust
funds are outstanding, liquidations of defaulted mortgage loans
in such trust funds generally will have the same effect on the
related offered certificates as a prepayment of a mortgage loan.
o If the rate of default and the amount of losses on the mortgage
loans in the underlying trust fund related to your certificate
is higher than you expect, then your yield may be lower than you
expect.
Potential Inadequacy of Credit Enhancement
Credit enhancement is provided for the offered certificates first by
the right of the holders of the underlying certificates to receive certain
payments prior to the related subordinate interests. This form of credit
enhancement is provided solely from collections on the mortgage loans
otherwise payable to the holders of such subordinate interests. Credit
enhancement also is provided by the allocation of realized losses on mortgage
loans first to the related subordinate interests. Accordingly, if the
aggregate principal balance of the related subordinate interests were to be
reduced to zero, delinquencies and defaults on mortgage loans would reduce the
amount of funds available for payments to holders of the senior interests in
the related underlying trust fund, including the underlying certificates. This
reduction in funds available for payment to an underlying certificate would in
turn reduce the amount of funds available for distributions on the related
offered certificates.
S-7
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DESCRIPTION OF THE CERTIFICATES
General
Set forth below are summaries of the specific terms and provisions
pursuant to which the Certificates will be issued. 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 Trust Agreement. When
particular provisions or terms used in the Trust Agreement are referred to,
the actual provisions (including definitions of terms) are incorporated by
reference.
The Certificates will be issued pursuant to a trust agreement (the
"Trust Agreement"), dated as of November 1, 1998 between the Depositor and The
Bank of New York (the "Trustee") and will represent the entire beneficial
ownership interest in Resecuritization Mortgage Trust, Series 1998-C (the
"Trust"). The assets of the Trust will consist primarily of five classes of
previously issued mortgage pass-through certificates (the "Underlying
Certificates") representing senior ownership interests in two separate
underlying trust funds. The Certificates will consist of the Class A-1
Certificates, the Class A-2 Certificates, the Class T Certificates and the
Class R Certificate (the "Class R Certificate" or "Residual Certificate" and
together with the Class A-1 and Class A-2 Certificates, the "Offered
Certificates"). The Offered Certificates and the Class T Certificates are
collectively referred to herein as the "Certificates." Only the Offered
Certificates are offered hereby.
The Class T Certificates, which will represent the Trustee's fee,
will be composed of two components: the "T-1 Component" and the "T-2
Component". The T-1 Component will represent an ownership interest in the
Underlying Chase Certificates (as defined herein) and the T-2 Component will
represent an ownership interest in the Underlying CWMBS Certificates (as
defined herein). The initial principal balances of the T-1 Component and the
T-2 Component will be approximately $53,638 and $41,362, respectively.
The Class A-1 and Class A-2 Certificates will be issuable in
denominations of not less than $25,000 principal amount and in integral
multiples of $1,000 in excess thereof, with the exception of one Certificate
of each Class which may be issued in a lesser amount. The Class R Certificate
will be issued in fully registered certificated form as a single Certificate
(other than the REMIC "tax matters" certificate) in a denomination of $80.
Book-Entry Registration and Definitive Certificates
The Offered Certificates (other than the Class R Certificate)
initially will be Book-Entry Certificates (the "Book-Entry Certificates").
Persons acquiring beneficial ownership interests in the Book-Entry
Certificates ("Beneficial Owners") will hold such Certificates through DTC, in
the United States, or Cedelbank or Euroclear, in Europe, if they are
participants of such systems, or indirectly through organizations that are
participants in such systems. The Book-Entry Certificates initially will be
registered in the name of Cede & Co., the nominee of DTC. Cedelbank and
Euroclear will hold omnibus positions on behalf of Cedelbank Participants and
Euroclear Participants, respectively, through customers' securities accounts
in Cedelbank'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.
("Citibank") will act as depositary for Cedelbank, and Morgan Guaranty Trust
Company of New York ("Morgan") will act as depositary for Euroclear (Citibank
and Morgan, in such capacities, individually the "Relevant Depositary" and
collectively, the "European Depositaries"). 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" will be Cede & Co., as
nominee of DTC, or Citibank or Morgan, as nominees of Cedelbank and Euroclear,
respectively. Beneficial Owners will not be Certificateholders as that term is
used in the Trust Agreement. Beneficial Owners are permitted to exercise their
rights only indirectly through DTC and its Participants (including Cedelbank
and Euroclear).
The beneficial ownership of a Book-Entry Certificate will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC, if the Beneficial Owner's Financial Intermediary is not a Participant)
and on the records of Cedelbank or Euroclear, as appropriate.
S-8
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Beneficial Owners will receive all payments of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and its
Participants (including Cedelbank and Euroclear). While the Book-Entry
Certificates are outstanding (except under the circumstances described below),
under the rules, regulations and procedures creating and affecting DTC and its
operations (the "DTC Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit payments of principal of,
and interest on, such Certificates. Participants and indirect participants
with whom Beneficial Owners have accounts with respect to Book-Entry
Certificates are similarly required to make book-entry transfers and receive
and transmit such payments on behalf of their respective Beneficial Owners.
Accordingly, although Beneficial Owners will not possess certificates, the DTC
Rules provide a mechanism by which Beneficial Owners will receive payments and
will be able to transfer their interests.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Book-Entry
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Beneficial Owners who are not
Participants may transfer ownership of Book-Entry Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer Certificates, by book-entry transfer,
through DTC for the account of the purchasers of such Certificates, which
account is maintained with their respective Participants. Under the DTC Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Book-Entry 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
Beneficial Owners.
Because of time zone differences, credits of securities received in
Cedelbank 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 Participants or Cedelbank Participants on such business
day. Cash received in Cedelbank or Euroclear as a result of sales of
securities by or through a Cedelbank Participant or Euroclear Participant will
be received with value on the DTC settlement date but will be available in the
relevant Cedelbank 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 Book-Entry Certificates, see "Certain Material
Federal Income Tax Consequences--Taxation of Debt Securities" in the
Prospectus and "--Information Reporting and Backup Withholding" in "Exhibit D:
Global Clearance, Settlement and Tax Documentation Procedures--Certain U.S.
Federal Income Tax Documentation Requirements" hereto.
Transfers between Participants will occur in accordance with DTC
Rules. Transfers between Cedelbank 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 Cedelbank
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 counterparty 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. Cedelbank 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 ("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 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 its
Participants as in effect from time to time.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participating
organizations ("Cedelbank Participants") and facilitates the clearance and
settlement of securities transactions between Cedelbank Participants through
electronic book-entry changes in accounts of Cedelbank Participants, thereby
eliminating the need for physical movement of certificates. Transactions may
be settled in Cedelbank in any of 28 currencies,
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including United States Dollars. Cedelbank provides to its Cedelbank
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedelbank interfaces with domestic markets in several
countries. As a professional depositary, Cedelbank is subject to regulation by
the Luxembourg Monetary Institute. Cedelbank 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 Cedelbank is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedelbank Participant, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("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 be settled through Euroclear in any of 32
currencies, including United States Dollars. Euroclear provides various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. Euroclear is operated by
the Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the
"Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other
professional financial intermediaries. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that 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 (the "Federal Reserve Board") and the New York State Banking
Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution 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.
Payments 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 Participants in
accordance with DTC's normal procedures. Each Participant will be responsible
for disbursing such payments to the Beneficial Owners 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
that it represents.
Under a book-entry format, Beneficial Owners may experience some
delay in their receipt of payments because such payments will be forwarded by
the Trustee to Cede & Co. Payments with respect to Book-Entry Certificates
held through Cedelbank or Euroclear will be credited to the cash accounts of
Cedelbank Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "Certain Material Federal
Income Tax Consequences--Taxation of Debt Securities" in the Prospectus and
"--Information Reporting and Backup Withholding" in "Exhibit D: Global
Clearance, Settlement and Tax Documentation Procedures--Certain U.S. Federal
Income Tax Documentation Requirements" hereto. Because DTC has indicated that
it will act only on behalf of Financial Intermediaries, the ability of
Beneficial Owners to pledge Certificates to persons or entities that do not
participate in the depository system or otherwise take actions in respect of
such Certificates may be limited due to the lack of physical certificates
representing such Certificates. In addition, issuance of the Book-Entry
Certificates in book-entry form may reduce the liquidity of such Certificates
in the secondary market because certain potential investors may be unwilling
to purchase Certificates for which they cannot obtain physical certificates.
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The monthly and annual statements with respect to the Underlying
Certificates as described under "--Statements to Certificates" herein will be
provided by the Trustee to Cede & Co., as nominee of DTC and as
Certificateholder, and may be made available by such entity to Beneficial
Owners upon request, in accordance with the DTC Rules, and to the Financial
Intermediaries to whose DTC accounts the related Book-Entry Certificates are
credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by a
Certificateholder under the Trust 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 Certificates.
Cedelbank or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Certificateholder under the Trust Agreement
on behalf of a Cedelbank 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 Certificates that conflict with actions taken with respect to
other Certificates.
Definitive Certificates will be issued in registered form to
Beneficial Owners, or their nominees, rather than to DTC, only if (i) DTC or
the Trust advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as nominee and depositary with
respect to the Certificates and the Trust or the Trustee is unable to locate a
qualified successor, (ii) the Depositor, at its option, advises the Trustee
that it elects to terminate the book-entry system through DTC, or (iii) after
an Event of Default under the Trust Agreement, the Beneficial Owners
representing not less than 51% of the Certificate Balance of the Book-Entry
Certificates advise the Trustee and DTC that the book-entry system is no
longer in the best interests of such Beneficial Owners. Upon issuance of
Definitive Certificates to Beneficial Owners, such Certificates will be
transferable directly (and not exclusively on a book-entry basis), and
registered holders will deal directly with the Trustee with respect to
transfers, notices and payments. See "Description of the Securities--General"
in the Prospectus.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to use its best efforts to
notify all Beneficial Owners of the occurrence of such event and the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the global 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 Certificateholders under the Trust Agreement.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfer of Certificates among participants
of DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
Assignment of the Underlying Certificates
On the Closing Date, the Depositor will deliver the Underlying
Certificates to the Trustee. Each Underlying Certificate will be registered in
the name of the Trustee or its nominee, and all monthly distributions on each
Underlying Remittance Date for such Underlying Certificate will be made to the
Trustee.
Distributions
General. Distributions on the Offered Certificates will be made by
the Trustee on the third business day following the 24th day of each month,
beginning in December 1998 (each a "Distribution Date"), to the persons in
whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month of such Distribution Date
(the "Record Date").
Deposits to the Certificate Account
The Trustee shall establish and maintain a separate trust account
(the "Certificate Account") for the benefit of the holders of the
Certificates. The Certificate Account will be an Eligible Account (as defined
herein). Upon receipt by the Trustee of amounts in respect of the Underlying
Certificates, the Trustee will deposit such amounts in the Certificate
Account. Amounts so deposited may be invested in Permitted Investments (as
described in the Trust Agreement) maturing no later than one
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Business Day prior to the Distribution Date unless such Permitted Investments
are invested in investments managed or advised by the Trustee or an affiliate
thereof, in which case such Permitted Investments may mature on the related
Distribution Date.
An "Eligible Account" is a segregated account that is (i) an account
or accounts maintained with a federal or state chartered depository
institution or trust company the short-term unsecured debt obligations of
which (or, in the case of a depository institution or trust company that is
the principal subsidiary of a holding company, the short-term unsecured debt
obligations of such holding company) are rated P-1 by Moody's and A-1 by
Standard & Poor's (or comparable ratings if Moody's and Standard & Poor's are
not the Rating Agencies) at the time any amounts are held on deposit therein,
(ii) an account or accounts the deposits in which are fully insured by the
Federal Deposit Insurance Corporation (to the limits established by such
corporation), the uninsured deposits in which account are otherwise secured
such that, as evidenced by an opinion of counsel delivered to the Trustee and
to each Rating Agency, the Certificateholders will have a claim with respect
to the funds in such account or a perfected first priority security interest
against such collateral (which shall be limited to Permitted Investments)
securing such funds that is superior to claims of any other depositors or
creditors of the depository institution with which such account is maintained,
(iii) a trust account or accounts maintained with the trust department of a
federal or state chartered depository institution, national banking
association or trust company acting in its fiduciary capacity or (iv)
otherwise acceptable to each Rating Agency without reduction or withdrawal of
their then current ratings of the Certificates as evidenced by a letter from
each Rating Agency to the Trustee. Permitted Investments are specified in the
Trust Agreement and are limited to investments which meet the criteria of the
Rating Agencies from time to time as being consistent with their then current
ratings of the Certificates.
Withdrawals From the Certificate Account
The Trustee is permitted from time to time to withdraw funds from the
Certificate Account for the following purposes:
(i) to make payments to Certificateholders in the amounts and
in the manner as described under "Allocation of Available
Funds" below;
(ii) to reimburse the Depositor for any expenses
incurred by and reimbursable to the Depositor
pursuant to the Trust Agreement;
(iii) to pay any taxes imposed on the Trust; and
(iv) to clear and terminate the Certificate Account upon
termination of the Trust Agreement.
Allocation of Available Funds
General. On each Distribution Date, the Trustee will withdraw from
the Certificate Account an amount (the "Available Funds") equal to (i) the
aggregate of all amounts received by the Trustee on and prior to such
Distribution Date as distributions on the Underlying Certificates, reduced by
(ii) the sum of any expenses reimbursable to the Depositor and any taxes
imposed upon the Trust. The Trustee will then distribute such Available Funds
(in each case to the extent of the remaining Available Funds) as described
below.
On each Distribution Date, the portion of the Available Funds
attributable to the Underlying Chase Certificates will be distributed as
follows:
(i) solely from amounts received on account of interest on
the Underlying Chase Certificates, to the holders of the Class A-1
Certificates and the T-1 Component, pro rata, interest accrued on the
respective principal balances thereof during the preceding Interest
Accrual Period at the Pass-Through Rate, together with any accrued
and unpaid interest from prior Distribution Dates; and
(ii) solely from amounts received on account of principal on
the Underlying Chase Certificates, as principal to the holders of the
Class A-1 Certificates and the T-1 Component, pro rata, until the
respective principal balances thereof are reduced to zero.
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On each Distribution Date, the portion of the Available Funds
attributable to the Underlying CWMBS Certificates will be distributed as
follows:
(i) solely from amounts received on account of interest on
the Underlying CWMBS Certificates, to the holders of the Class A-2
Certificates, the T-2 Component and the Class R Certificate, pro
rata, interest accrued on the respective principal balances thereof
during the preceding Interest Accrual Period at the Pass-Through
Rate, together with any accrued and unpaid interest from prior
Distribution Dates; and
(ii) solely from amounts received on account of principal on
the Underlying CWMBS Certificates, first, as principal to the holder
of the Class R Certificate until the principal balance thereof is
reduced to zero, and, thereafter, as principal to the holders of the
Class A-2 Certificates and the T-2 Component, pro rata, until the
respective principal balances thereof are reduced to zero.
In the event that on any Underlying Remittance Date, the Trustee
shall not have received the cash distribution, if any, required to be made
under an Underlying Agreement in respect of an Underlying Certificate, the
Trustee shall effect the distribution set forth above on the business day
immediately following the date on which the cash distribution so required
shall have been received by the Trustee.
The "Pass-Through Rate" with respect to each Class and any
Distribution Date is 6.50%.
The "Certificate Principal Balance" with respect to any Certificate
and any date of determination is the initial principal balance of such
Certificate reduced by all distributions of principal made on such Certificate
on all Distribution Dates preceding such date of determination and further
reduced by all losses allocated to such Certificate on any such Distribution
Date.
Allocation of Losses
Losses on the Mortgage Loans in each Underlying Trust Fund are
allocated to the related Underlying Subordinate Interests before they are
allocated to the Underlying Senior Interests. If the aggregate principal
balance of the Underlying Subordinate Interests with respect to an Underlying
Trust Fund are reduced to zero, the amount of all future losses on the
Mortgage Loans held in such Underlying Trust Fund will be allocated to the
related Underlying Senior Interests, including the related Underlying
Certificates, pro rata, based on their respective outstanding principal
balances. In the case of any losses so allocated to the Underlying Chase
Certificates, such losses in turn will be allocated pro rata to the Class A-1
Certificates and the T-1 Component on the basis of their then outstanding
principal balances. In the case of any losses so allocated to the Underlying
CWMBS Certificates, such losses will be allocated pro rata to the Class A-2
Certificates, the T-2 Component and the Class R Certificate on the basis of
their then outstanding principal balances.
Statements to Certificateholders
Concurrently with each distribution on a Distribution Date, the
Trustee will forward to the holder of each Certificate a statement generally
setting forth the following information:
(i) the Available Funds attributable to the Underlying Chase
Certificates and the Underlying CWMBS Certificates, stated
separately, for such Distribution Date;
(ii) with respect to such Distribution Date, the aggregate amount
of principal and interest, stated separately, distributed to
holders of each Class of Certificates;
(iii) with respect to such Distribution Date, the amount of any
interest shortfall for each Class of Certificates, together
with the amount of any unpaid interest shortfall for such
Class immediately following such Distribution Date;
(iv) with respect to each Class of Certificates, the losses
allocated to such Class with respect to such Distribution
Date;
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(v) the Certificate Principal Balance of each Class of
Certificates, after giving effect to distributions of
principal of such Certificates on such Distribution Date;
and
(vi) any additional amount distributed to the holder of the
Residual Certificate on such Distribution Date.
In addition, the Trustee will furnish to Certificateholders copies of
the statements received by the Trustee for each Underlying Remittance Date as
the holder of the Underlying Certificates on behalf of the Trust Fund.
Within a reasonable period of time after the end of each calendar
year, the Trustee will prepare and deliver to each person who at any time
during the previous calendar year was a Certificateholder of record a
statement containing the information required to satisfy any requirements of
the Code, the REMIC Provisions and regulations thereunder as from time to time
are in force.
Representations and Warranties
The Depositor will represent and warrant to the Trustee as of the
Closing Date that (i) the Depositor was the sole owner of each Underlying
Certificate free and clear of any lien, pledge, charge or encumbrance of any
kind; (ii) the Depositor had not assigned any interest in any Underlying
Certificate or any distributions thereon, except as contemplated in the Trust
Agreement; and (iii) the endorsements and other documents furnished to the
Trustee in connection with each Underlying Certificate are sufficient to
effect the transfer of such Underlying Certificate to the Trustee. Upon
discovery of a breach of any of the foregoing representations and warranties
which materially and adversely affects the interests of the Certificateholders
in an Underlying Certificate, the Depositor or the Trustee shall give prompt
written notice to the other and to the Certificateholders. On or prior to the
Distribution Date in March 1999, the Depositor will be obligated to cure such
breach in all material respects or, if such breach cannot be cured, repurchase
such Underlying Certificate if so directed in writing by holders of at least
51% of the Percentage Interests (the "Majority in Interest") of each Class of
Offered Certificates. The "Percentage Interest" for any Class of Offered
Certificate will equal the percentage obtained by dividing the Certificate
Principal Balance of such Certificate by the aggregate Certificate Principal
Balance of such Class of Certificates.
Termination of the Trust
The holder of the Class R Certificate may at its option purchase the
Underlying Certificates, in whole but not in part, on and after the
Distribution Date on which the combined principal balances of the Underlying
Certificates is less than 10% of the combined principal balances thereof as of
the Cut-off Date. The purchase price will be equal to the combined balances of
the Underlying Certificates (after giving effect to all distributions thereon
on such Distribution Date). The obligations created by the Trust Agreement
will terminate upon the payment to Certificateholders of all amounts held by
the Trustee and required to be paid to them pursuant to the Trust Agreement
after the final payment or other liquidation of the Underlying Certificates,
including any exercise of the optional purchase described above. In no event,
however, will the Trust continue beyond a date specified in the Trust
Agreement. Written notice of termination of the Trust Agreement will be given
to each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency as
specified in the notice of termination.
The Trustee
The Bank of New York, a New York banking corporation, will act as
Trustee for the Certificates pursuant to the Trust Agreement. The Trustee's
principal corporate trust offices are located at 101 Barclay Street, New York,
New York 10286.
Amendment of the Trust Agreement
The Trust Agreement may be amended by the Depositor and the Trustee,
without the consent of any of the Certificateholders, (i) to cure any error or
ambiguity, (ii) to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein, (iii) to permit
any other provisions with respect to matters or questions arising under the
Trust Agreement which are not inconsistent with the provisions of the Trust
Agreement, (iv) to comply with the Securities Act of 1933, as amended (the
"Securities Act") or the Investment Company Act of 1940, as amended (the
"Investment Company Act"), (v) to amend any of the exhibits to the Trust
Agreement pursuant to the terms of the Trust Agreement or (vi) if
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such amendment is reasonably necessary, as evidenced by an opinion of counsel,
to comply with any requirements imposed by the Internal Revenue Code of 1986
(the "Code") or any successor or amendatory statute or any temporary or final
regulation, revenue ruling, revenue procedure or other written official
announcement or interpretation relating to federal income tax laws or any
proposed such action which, if made effective, would apply retroactively to the
Trust at least from the effective date of such amendment; provided that such
action (except any amendment described in (vi) above) shall not, as evidenced by
an opinion of counsel, which opinion of counsel shall not be an expense of the
Trustee, delivered to the Trustee, adversely affect in any material respect the
interests of any Certificateholder; provided, further, that any such amendment
shall be deemed not to adversely affect in any material respect the interests of
any Certificateholder if the person requesting the amendment obtains letters
from the Rating Agencies to the effect that such amendment would not result in a
downgrade or withdrawal of the ratings then assigned to the Offered
Certificates. The Trust Agreement may also be amended by the Depositor and the
Trustee with the consent of 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 Trust
Agreement or of modifying in any manner the rights of the holders of
Certificates; provided, however, that no such amendment may (a) reduce in any
manner the amount of, or delay the timing of, distributions required to be made
on any Certificate without the consent of the holder of such Certificate, (b)
adversely affect in any material respect the interest of the holders of the
Certificates of any Class in a manner other than as described in clause (a)
above without the consent of the holders of Certificates of such Class
representing not less than 66% of the Percentage Interests represented by such
Class or (c) reduce the aforesaid percentages of Certificates the holders of
which are required to consent to any such amendment without the consent of the
holders of all Certificates then outstanding. In no event will the Trustee
consent to any amendment unless the Trustee shall have obtained an opinion of
counsel to the effect that such amendment will not cause the Trust to fail to
qualify as a REMIC at any time that Certificates deemed to be "regular
interests" are outstanding.
Voting under the Underlying Agreement
In the event that there are any matters arising under an Underlying
Agreement which require the vote or direction of the holder of an Underlying
Certificate issued thereunder, the Trustee, as holder of such Underlying
Certificate on behalf of the Trust, will vote each such Underlying Certificate
in accordance with instructions received from the holders of a Majority in
Interest of each Class of related Certificates. In the absence of any such
instructions, the Trustee will not vote such Underlying Certificates,
provided, however, that, notwithstanding the absence of such instructions, in
the event a required distribution pursuant to an Underlying Agreement shall
not have been made, the Trustee shall, subject to the provisions of the Trust
Agreement, pursue such remedies as may be available to it as holder of the
related Underlying Certificates in accordance with the terms of such
Underlying Agreement.
DESCRIPTION OF THE UNDERLYING CERTIFICATES
All of the information contained herein with respect to each of the
Underlying Certificates is based solely on (i) information contained in the
related Underlying Agreement and (ii) information obtained from the monthly
statement provided by the related Underlying Trustee in connection with the
November 25, 1998 Underlying Remittance Date for such Underlying Certificate.
Neither the Depositor nor the Trustee has the ability independently to verify
the accuracy of this information and, accordingly, neither the Depositor nor
the Trustee will make any representation or warranty as to the accuracy of
such information. Prospective investors are advised to consider the limited
nature of such available information when evaluating the suitability of any
investment in the Offered Certificates.
General
The Trust assets will consist primarily of (i) Mortgage Pass-Through
Certificates, Series 1994-13, Class A-14 and Class A-15 (the "Underlying CWMBS
Certificates") issued pursuant to a pooling and servicing agreement (the
"CWMBS Agreement"), dated as April 1, 1994, among CWMBS, Inc. ("CWMBS"),
Countrywide Funding Corporation (the "CWMBS Servicer"), and The Bank of New
York (the "CWMBS Trustee") and (ii) Mortgage Pass-Through Certificates, Series
1993-K, Class 1A-7, Class 1A-8 and Class 1A-9 (the "Underlying Chase
Certificates" and together with the Underlying CWMBS Certificates, the
"Underlying Certificates") issued pursuant to a pooling and servicing
agreement (the "Chase Agreement" and together with the CWMBS Agreement, the
"Underlying Agreements"), dated as September 1, 1993, among Chase Mortgage
Finance Corporation ("Chase"), Chase Home Mortgage Corporation (the "Chase
Servicer" and together with the CWMBS
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Servicer, the "Servicers"), and Citibank, N.A. (the "Chase Trustee" and together
with the CWMBS Trustee, the "Underlying Trustees").
The Underlying CWMBS Certificates and the Underlying Chase
Certificates evidence senior interests in two separate trust funds (each, an
"Underlying Trust Fund") created by the related Underlying Agreements and were
issued together with other senior interests (together with the Underlying
Certificates, the "Underlying Senior Interests"), certain subordinate
interests (the "Underlying Subordinate Interests") and certain residual
interests. Each Underlying Trust Fund consists primarily of one or more pools
of conventional, fixed-rate mortgage loans (the "Mortgage Loans") secured by
first liens on one- to four-family residential properties. The aggregate
outstanding principal balance of the Mortgage Loans (the "Mortgage Pool
Principal Balance") related to the Underlying CWMBS Certificates (the "CWMBS
Mortgage Loans") as of the Underlying Remittance Date in November 1998 was
approximately $133,213,775.99. The Mortgage Pool Principal Balance of the
Mortgage Loans related to the Underlying Chase Certificates (the "Chase
Mortgage Loans") as of the Underlying Remittance Date in November 1998 was
approximately $68,330,354.66.
Each of the Servicers is required to deposit, or cause to be
deposited, in the account maintained for receipt of payments on the related
Mortgage Loans (the "Underlying Certificate Account") on a daily basis the
payments and collections on such Mortgage Loans, except that each such
Servicer will deduct its servicing fee and any expenses of liquidating
defaulted Mortgage Loans or property acquired in respect thereof.
The Underlying Subordinate Interests are subordinate to the related
Underlying Senior Interests with respect to the right to receive distributions
from the related Underlying Trust Funds and, accordingly, no distributions
will be made on the Underlying Subordinate Interest on any Underlying
Remittance Date until all required distributions have been made on the
Underlying Senior Interests for such date. In addition, all losses on the
Mortgage Loans will be borne first by the Underlying Subordinate Interests
before being borne by the Underlying Senior Interests.
Based solely on the monthly statements provided by the Underlying
Trustees in connection with the November 25, 1998 Underlying Remittance Date
for the Underlying Certificates, which statements have not been independently
verified for accuracy, (A) the Underlying Chase Certificates had an aggregate
principal balance of approximately $20,080,638.47, after giving effect to the
November 1998 distributions thereon, representing approximately 29.39% of the
related Mortgage Pool Principal Balance, and (B) the Underlying CWMBS
Certificates had an aggregate principal balance of approximately
$15,559,443.13, after giving effect to the November 1998 distributions
thereon, representing approximately 11.68% of the related Mortgage Pool
Principal Balance.
Distributions on the Underlying Certificates
Distributions of principal and interest on the Underlying
Certificates will be made on the 25th day of each month or, if such day is not
an Underlying Business Day, the next succeeding Underlying Business Day (each,
an "Underlying Remittance Date"). As used herein, an "Underlying Business Day"
(i) with respect to the Underlying Chase Certificates is any day other than
(a) a Saturday or Sunday or (b) a legal holiday in the State of New York or
(c) a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to be closed, and (ii) with
respect to the Underlying CWMBS Certificates is any day other than (a) a
Saturday or Sunday or (b) a legal holiday in the State of California or the
State of New York or (c) a day on which banking or savings and loan
institutions in the State of California or the State of New York are
authorized or obligated by law or executive order to be closed.
Scheduled principal received on the Mortgage Loans held in each
Underlying Trust Fund will be passed through monthly on the Underlying
Remittance Date occurring in the month in which the related Due Date occurs.
With respect to the Underlying Chase Certificates, principal prepayments
received during the period from the first day of any month to the last day of
such month will be passed through on the Underlying Remittance Date occurring
in the month following receipt. With respect to the Underlying CWMBS
Certificates, principal prepayments received during the period from the first
day of any month to the fifteenth day of such month will be passed through on
the Underlying Remittance Date occurring in such month and principal
prepayments received during the period from the sixteenth day of any month to
the last day of such month will be passed through on the Underlying Remittance
Date occurring in the month following receipt. As used herein, the "Due Date"
is the first day of each calendar month, being the day of the month on which a
payment of interest and principal is due for each Mortgage Loan, exclusive of
any days of grace.
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Interest received on each Mortgage Loan will be passed through
monthly on the Underlying Remittance Date occurring in the month in which the
Due Date occurs, at the pass-through rate for such Mortgage Loan. Each of the
Underlying Chase Certificates and each of the Underlying CWMBS Certificates
bears interest at a floating rate based on COFI, subject to a minimum and
maximum rate (with respect to each Underlying Certificate, the "Underlying
Pass-Through Rate"). However, the sum of the interest accruing on the
Underlying Chase Certificates and the sum of the interest accruing on the
Underlying CWMBS Certificates is, in each case, equal to that produced by the
aggregate principal balance of the Underlying Chase Certificates or the
Underlying CWMBS Certificates, as applicable, bearing a fixed remittance rate
of 6.50%. "COFI" is the monthly weighted average cost of funds for member
institutions of the Eleventh District of the Federal Home Loan Bank System, as
published by the Federal Home Loan Bank of San Francisco.
On each Underlying Remittance Date, with respect to each of the
Underlying Chase Certificates and the Underlying CWMBS Certificates, there
will be distributed from available funds in the related Underlying Trust Fund,
first, to certain senior classes, an amount which reduces the balance of such
senior classes to their Planned Amortization Balances (as defined in Exhibit A
in the case of the Underlying Chase Certificates) or to their Planned Balances
(as defined in Exhibit B in the case of the Underlying CWMBS Certificates),
and, thereafter, to the related Underlying Certificates, an amount which
either would reduce the balances of such Underlying Certificates to a
specified amount (in the case of the Underlying Chase Certificates) or which
would reduce their current principal balances to zero (in the case of the
Underlying CWMBS Certificates). For a further description of the distribution
of principal on the Underlying Chase Certificates, see "DESCRIPTION OF THE
CERTIFICATES-Distributions of Principal and Interest" in the excerpts from the
Underlying Chase Prospectus attached hereto as Exhibit A and for a further
description of the distribution of principal on the Underlying CWMBS
Certificates, see "DESCRIPTION OF THE CERTIFICATES-Priority of Distributions
Among Certificates," "-Interest" and "-Principal" in the excerpts from the
Underlying CWMBS Prospectus attached hereto as Exhibit B.
Subordinated Interests
The Underlying Certificates, which represent senior interests in the
related Underlying Trust Funds, evidence the right of the holders thereof to
receive distributions on the related Mortgage Loans before any distributions
have been made to holders of the Underlying Subordinate Interests. This
subordination is intended to enhance the likelihood of regular receipt by
holders of such Underlying Senior Interests of the full amount of monthly
distributions due them and to protect holders of such Underlying Senior
Interests against losses and other cash flow shortfalls. If, on any Underlying
Remittance Date, holders of the Underlying Senior Interests are paid less than
the amount due to them on such date, the interest of the holders of such
Underlying Senior Interests in such Underlying Trust Fund will vary so as to
preserve the entitlement of such Underlying Senior Interests to unpaid
principal of the Mortgage Loans and interest thereon.
Amounts with respect to principal (other than scheduled monthly
distributions of principal) will be disproportionately allocated to the
Underlying Senior Interests under certain conditions specified in the
Underlying Agreements. This will have the effect of accelerating the
amortization of the Underlying Senior Interests and reducing their
proportionate share in the related Underlying Trust Fund while increasing the
proportionate share of the Underlying Subordinate Interests in such Underlying
Trust Fund. Increasing the interest of the Underlying Subordinate Interests in
the related Underlying Trust Fund relative to that of the related Underlying
Senior Interests is intended to preserve the availability of the benefits of
the subordination provided by such Underlying Subordinate Interests.
If at any time the Underlying Subordinate Interests have been
extinguished, all future losses or shortfalls due to delinquent payments on
the related Mortgage Loans for which no advance is made by the related
Servicer will be borne by the related Underlying Senior Interests. Amounts
actually paid at any time to the holder of an Underlying Certificate in
accordance with the terms of the related Underlying Agreement will not be
subsequently recoverable from such holder.
Adjustment to Servicing Fees in the Underlying Trust Funds in Connection with
Prepaid Mortgage Loans
When a mortgagor makes a full or partial principal prepayment of a
Mortgage Loan between Due Dates, the mortgagor may be required to pay interest
on the principal balance thereof only to the date of prepayment. In order to
minimize any resulting shortfall in interest, the amount of the servicing fee
owed to the related Servicer will be reduced to the extent necessary to
include an amount in payments in respect of the related Underlying
Certificates equal to a full month's interest payment at the applicable
Underlying Pass-Through Rate with respect to such prepaid Mortgage Loan. Such
reductions will be made only to
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<PAGE>
the extent that the aggregate amount of such interest shortfalls does not exceed
the aggregate amount of the related Servicing Fee on such Underlying Remittance
Date.
Advances
Each of the Servicers is obligated to make advances of cash each
month for distribution on the related Underlying Certificates equal to the
difference between the amount due on such Underlying Certificates and the
amount in the Underlying Certificate Account to be distributed to them
pursuant to the related Underlying Agreement, but only to the extent such
difference is attributable to delinquent monthly payments due during the
immediately preceding Due Period. Neither Servicer is under any obligation to
make an advance with respect to any Mortgage Loan if such Servicer determines,
in its sole discretion, that such advance will not be recoverable from future
payments and collections on such Mortgage Loan. Advances are intended to
maintain a regular flow of scheduled interest and principal payments on the
Underlying Certificates, not to guarantee or insure against losses.
Accordingly, any funds so advanced are recoverable by each Servicer out of
amounts received on the related Mortgage Loans.
Optional Termination of the Underlying Trust Funds
Each Servicer may, on any Underlying Remittance Date, purchase from
the related Underlying Trust Fund all Mortgage Loans remaining outstanding at
such time as the aggregate unpaid principal balance of such Mortgage Loans is
less than 10% of the aggregate unpaid principal balance of the Mortgage Loans
as of the date on which the related Underlying Certificates were issued. The
purchase price will be distributed on the Underlying Certificates in the month
following the month of such purchase.
For additional information on the Underlying Certificates, investors
should carefully review (i) the excerpts from the prospectus related to the
Underlying Chase Certificates (the "Underlying Chase Prospectus") and the
prospectus related to the Underlying CWMBS Certificates (the "Underlying CWMBS
Prospectus", and together with the Underlying Chase Prospectus, the
"Underlying Prospectuses") attached hereto as Exhibits A and B, respectively,
and (ii) the statements for the Underlying Certificates for the November 1998
Underlying Remittance Dates (the "Underlying Remittance Date Statements")
attached hereto as Exhibit C. Information regarding the Underlying
Certificates, as of the respective dates of issuance thereof, including but
not limited to information regarding related payment priorities and allocation
of losses is set forth in the attached Exhibits. Any information set forth in
this Prospectus Supplement (including Appendix I and the Exhibits hereto) with
respect to the Underlying Certificates or the related Mortgage Loans has been
obtained by the Depositor from the related Underlying Prospectuses or
Underlying Remittance Date Statements provided by the Underlying Trustees or
the related Servicers, and has not been independently verified by the
Depositor or the Underwriter. The Underlying Prospectuses and all other
offering materials described above for the Underlying Certificates were
prepared by the issuers of the related Underlying Certificates. Neither the
Depositor nor the Underwriter makes any representation as to the accuracy or
completeness of the information in the Underlying Prospectuses, other related
materials or the Underlying Remittance Date Statements.
DESCRIPTION OF THE MORTGAGE LOANS
All of the information contained herein with respect to the Mortgage
Loans is based solely on (i) information contained in the related Underlying
Prospectuses and (ii) information obtained from the Underlying Trustees in
connection with the related Underlying Remittance Date Statements. Neither the
Depositor nor the Trustee has the ability independently to verify the accuracy
of this information and, accordingly, neither the Depositor nor the Trustee
will make any representation or warranty as to the accuracy of such
information. Prospective investors are advised to consider the limited nature
of such available information when evaluating the suitability of any
investment in the Offered Certificates.
General
Each Underlying Trust Fund receives payments from a separate pool of
Mortgage Loans and will perform independently of the other. The information
with respect to the Mortgage Loans held in each of the Underlying Trust Funds
is therefore presented separately.
S-18
<PAGE>
The Underlying Chase Certificates
Origination and Underwriting. The Chase Mortgage Loans were
originated by Chase Manhattan Personal Financial Services, Inc., Chase Home
Mortgage Corporation, The Chase Manhattan Bank, N.A., Chase Manhattan
Financial Center, Inc. and Chase Bank of Maryland. For a complete description
of the underwriting policies applied to the Chase Mortgage Loans, see "THE
MORTGAGE POOL - Chase Financial Services", "- Chase Home Mortgage" and "-
Chase" in the excerpts from the Underlying Chase Prospectus attached hereto as
Exhibit A.
Selected Mortgage Loan Data. The tables on pages I-1 through I-4
summarize certain characteristics of the Chase Mortgage Loans as such Mortgage
Loans were constituted as of November 25, 1998. It is expected that the
information set forth herein will be representative of the characteristics of
the Chase Mortgage Loans as of the date hereof, although prior to issuance of
the Offered Certificates, certain of the Chase Mortgage Loans may be (or may
have been) prepaid in full or in part or may be repurchased as described
herein. The information contained herein with respect to the Chase Mortgage
Loans has been obtained from reports and other information supplied by Chase
and has not been independently represented to the Trust as being accurate and
complete.
Servicing of the Mortgage Loans. Chase Home Mortgage Corporation acts
as servicer and provides customary servicing functions with respect to the
Chase Mortgage Loans. Chase is entitled to a servicing fee for its servicing
activities.
The following table sets forth certain delinquency information with
respect to the Chase Mortgage Loans, all of which has been obtained from the
monthly statement provided by the Chase Trustee in connection with the
November 25, 1998 Underlying Remittance Date for the Underlying Chase
Certificates. The information contained in the following table may not be
indicative of future delinquent payment rates of the Chase Mortgage Loans or
reductions in the principal balance of the Underlying Chase Certificates.
S-19
<PAGE>
Underlying Chase Certificates
Mortgage Loan Delinquency Information as of November 25, 1998
<TABLE>
<CAPTION>
Mortgage Pool
Principal Mortgage Pool
Balance Principal
as of Balance as of 30 - 59 Days 60 - 89 Days 90 + Days
Original Issue November 25, Delinquent Delinquent Delinquent
Date(1) 1998(1) # Balance(1) %(2) # Balance(1) %(2) # Balance(1) %(2) #
- --------------- ------------- - ------------ ---- - ------------- ---- - ---------- ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$128,161,582.52 $68,330,354.66 3 $855,907.99 1.25% 0 $0 0% 1 $239,161.93 0.35% 0
Mortgage Pool
Principal
Balance
as of In Cumulative
Original Issue Foreclosure R.E.O. Cumulative Losses
Date(1) Balance(1) %(2) # Balance(1) %(2) Losses(1) %(3)
- --------------- ------------- ---- - ------------ ---- ------------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$128,161,582.52 $0 0% 0 $0 0% $0 0%
(1) As compiled from the monthly statement provided by the Underlying Trustee
in connection with the November 25, 1998 Underlying Remittance Date for
the Underlying Chase Certificates. Reflects the application of payments
on the Chase Mortgage Loans due on or before November 1, 1998.
(2) Delinquency, Foreclosure and R.E.O. percentages are represented as
percentages of the aggregate Mortgage Pool Principal Balance as of November
25, 1998.
(3) Represented as a percentage of the Mortgage Pool Principal Balance as of
the original Issue Date.
S-20
<PAGE>
The Underlying CWMBS Certificates
Origination and Underwriting. Each CWMBS Mortgage Loan was originated
with credit, appraisal and underwriting guidelines applied by Countrywide
Funding Corporation ("Countrywide") to evaluate the prospective borrower's
credit standing and repayment ability and the value and adequacy of the
mortgaged property as collateral in accordance with applicable federal and
state laws and regulations. For a complete description of the underwriting
policies applied to the CWMBS Mortgage Loans, see "THE MORTGAGE POOL -
Underwriting Standards" in the excerpts from the Underlying CWMBS Prospectus
attached hereto as Exhibit B.
Selected Mortgage Loan Data. The tables on pages I-5 through I-9
summarize certain characteristics of the CWMBS Mortgage Loans as such Mortgage
Loans were constituted as of November 25, 1998. It is expected that the
information set forth herein will be representative of the characteristics of
the CWMBS Mortgage Loans as of the date hereof, although prior to issuance of
the Offered Certificates, certain of the CWMBS Mortgage Loans may be (or may
have been) prepaid in full or in part or may be repurchased as described
herein. The information contained herein with respect to the CWMBS Mortgage
Loans has been obtained from reports and other information supplied by
Countrywide and has not been independently represented to the Trust as being
accurate and complete.
Servicing of the Mortgage Loans. Countrywide acts as servicer and
provides customary servicing functions with respect to the CWMBS Mortgage
Loans. Countrywide is entitled to a servicing fee for its servicing
activities.
The following table sets forth certain delinquency information with
respect to the CWMBS Mortgage Loans, substantially all of which has been
obtained from the monthly statement provided by the CWMBS Trustee in
connection with the November 25, 1998 Underlying Remittance Date for the
Underlying CWMBS Certificates. The information contained in the following
table may not be indicative of future delinquent payment rates of the CWMBS
Mortgage Loans or reductions in the principal balances of the Underlying CWMBS
Certificates.
S-21
<PAGE>
Underlying CWMBS Certificates
Mortgage Loan Delinquency Information as of November 25, 1998
</TABLE>
<TABLE>
<CAPTION>
Mortgage Pool Mortgage Pool
Principal Principal
Balance as of Balance as of 30 - 59 Days 60 - 89 Days 90 + Days
Original Issue November 25, Delinquent Delinquent Delinquent
Date(1) 1998(1) # Balance(1) %(2) # Balance(1) %(2) # Balance(1) %(2)
- ---------------- -------------- --- ----------- ----- --- ------------ ----- --- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$250,127,143.85 $133,213,775.99 2 $349,391.22 0.26% 0 $0 0% 0 $0 0%
<CAPTION>
In Cumulative
Foreclosure R.E.O. Cumulative Losses
# Balance(1) %(2) # Balance(1) %(2) Losses(1) %(3)
--- ------------- ----- --- ----------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
0 $0 0% 0 $0 0% $51,577.00 0.02%
</TABLE>
(1) As compiled from the monthly statement provided by the Underlying Trustee
in connection with the November 25, 1998 Underlying Remittance Date for
the Underlying CWMBS Certificates. Reflects the application of payments
on the CWMBS Mortgage Loans due on or before November 1, 1998.
(2) Delinquency, Foreclosure and R.E.O. percentages are represented as
percentages of the aggregate Mortgage Pool Principal Balance as of November
25, 1998.
(3) Represented as a percentage of the Mortgage Pool Principal Balance as of
the original Issue Date.
S-22
<PAGE>
THE DEPOSITOR
Greenwich Capital Acceptance, Inc., the Depositor, is a Delaware
corporation organized on April 23, 1987 for the limited purpose of acquiring,
owning and transferring certain mortgage-related assets and selling interests
therein or bonds secured thereby. It is a indirect, limited purpose finance
subsidiary of National Westminster Bank Plc and an affiliate of Greenwich
Capital Markets, Inc. Greenwich Capital Markets, Inc. is a registered
broker-dealer engaged in the U.S. government securities and related capital
markets business. The Depositor maintains its principal office at 600
Steamboat Road, Greenwich, Connecticut 06830. Its telephone number is (203)
625-2700.
Neither the Depositor nor any of its affiliates will ensure or
guarantee distributions on the Certificates.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Yield Considerations
If the purchaser of an Offered Certificate offered at a discount
calculates the anticipated yield to maturity of such Offered Certificate based
on an assumed rate of payment of principal that is faster than that actually
received on the related Mortgage Loans and, in turn, on the related Underlying
Certificates, the actual yield to maturity will be lower than that so
calculated. If the purchaser of an Offered Certificate offered at a premium
calculates the anticipated yield to maturity of such Offered Certificate based
on an assumed rate of payment of principal that is slower than that actually
received on the related Mortgage Loans and, in turn, on the related Underlying
Certificates, the actual yield to maturity will be lower than that so
calculated.
The yield to maturity of the Offered Certificates and the aggregate
amount of distributions on the Offered Certificates will be related to the
timing and amount of principal payments on the Underlying Certificates, which
will be related to the rate of payment of principal (including prepayments) on
the related Mortgage Loans and the allocation of such principal payments in
accordance with the priorities discussed in the excerpts from the related
Underlying Prospectuses contained in Exhibits A and B hereto, as applicable.
The rate of principal payments on the Mortgage Loans will be affected by the
amortization schedules of the Mortgage Loans and by the timing and amount of
principal prepayments thereon (for this purpose, the term "prepayment" also
includes payments resulting from refinancings and liquidations of the Mortgage
Loans due to defaults, casualties, condemnations and purchases of the Mortgage
Loans).
The model used in this Prospectus Supplement (the "PSA") represents
an assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of mortgage loans for the life of such mortgage
loans. The PSA does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool
of mortgage loans, including the Mortgage Loans. A 100% PSA assumes constant
prepayment rates of 0.2% per annum of the then outstanding principal balance
of the Mortgage Loans in the first month of the life of the mortgage loans and
an additional 0.2% per annum in each month thereafter until the thirtieth
month. Beginning in the thirtieth month and in each month thereafter during
the life of such Mortgage Loans, 100% PSA assumes a constant prepayment rate
of 6% per annum each month. As used in the table below, 0% PSA assumes
prepayment rates equal to 0% of the 100% PSA i.e., no prepayments.
Correspondingly, 300% PSA assumes prepayment rates equal to 300% of the 100%
PSA, and so forth.
The decrement tables on the following pages (the "DEC Tables")
indicate the weighted average lives of the Offered Certificates and set forth
the percentage of the principal amount of the Offered Certificates (after
giving effect to distributions in reduction of the principal amount of such
Offered Certificates on the November 1998 Underlying Remittance Date at each
of the indicated percentages of PSA) that would be outstanding after each of
the Distribution Dates shown at various percentages of PSA assuming that there
is no optional termination of the related Underlying Trust Fund. See "YIELD
AND PREPAYMENT CONSIDERATIONS" in the Prospectus.
Variations in actual prepayment experience (including prepayments
resulting from defaults) for the Mortgage Loans will increase or decrease the
percentages of principal amounts (and weighted average lives) shown in the DEC
Tables. There is no assurance that payments of the Mortgage Loans will conform
to any of the percentages of PSA described in the DEC Tables.
S-23
<PAGE>
Among other things, the DEC Tables assumed that (i) the Mortgage Loans prepay at
the indicated constant rates, notwithstanding the fact that such Mortgage Loans
may vary substantially as to geography, interest rate and remaining terms and
(ii) the Mortgage Loans funding each Underlying Trust Fund prepay at the same
rate, notwithstanding that prepayment rates for one Underlying Trust Fund may
vary from those for the other Underlying Trust Fund.
Factors Affecting Prepayments on the Mortgage Loans
All of the Mortgage Loans in the Underlying Trust Funds are
fixed-rate mortgage loans. The rate of payments (including prepayments) on
pools of mortgage loans are influenced by a variety of economic, geographic,
social, tax, legal and other factors. If prevailing mortgage rates fall,
significantly below the then current fixed rate on the Mortgage Loans, the
rate of prepayment resulting from refinancing would be expected to increase,
particularly because the availability of fixed or adjustable rate mortgage
loans at competitive interest rates may encourage borrowers to prepay their
Mortgage Loans. Conversely, if prevailing mortgage rates rise significantly
above the then current fixed rates on the Mortgage Loans, the rate of
prepayments on the Mortgage Loans would be expected to decrease. Other factors
affecting prepayment of mortgage loans include changes in borrowers' housing
needs, job transfers, unemployment, borrowers' net equity in the mortgaged
premises and servicing decisions. The Mortgage Loans may be prepaid at any
time by borrowers, in many cases, without payment of any penalty or prepayment
fee. No assurance can be given as to the rate of principal payments or
prepayments on the Mortgage Loans or, consequently, on the Offered
Certificates.
Substantially all of the Mortgage Loans are subject to assumption by
purchasers of the mortgaged premises who meet certain customary credit
requirements and underwriting standards. The weighted average lives of the
Offered Certificates will be increased to the extent that the Mortgage Loans
are assumed by purchasers of the mortgaged premises in connection with sales
of such mortgaged premises. Conversely, the weighted average lives of the
Offered Certificates will be decreased to the extent that the sale of
mortgaged premises with non-assumable Mortgage Loans will result in the
prepayment of such Mortgage Loans.
Investors are cautioned that past prepayment rates are unlikely to be
indicative of future prepayment rates.
The DEC Tables have been prepared based on the Modeling Assumptions
described below and should be read in conjunction therewith.
Payment Priorities of Underlying Trust Funds
Each of the classes of Underlying Certificates is a targeted
amortization class. Although the Underlying Certificates were structured to
receive limited protection against prepayment risk, the Underlying Certificates
themselves provide protection against prepayment to other classes of
certificates issued by the Underlying Trust Funds by receiving a
disproportionate portion of principal payments in certain circumstances. In this
regard, investors in the Offered Certificates should understand that their
prepayment protection is limited, and they should carefully consider the
prepayment characteristics of the Underlying Certificates and the related
Mortgage Loans, as described herein. See "DESCRIPTION OF THE
CERTIFICATES-Distributions of Principal and Interest" in the excerpts from the
Underlying Chase Prospectus attached hereto as Exhibit A and "DESCRIPTION OF THE
CERTIFICATES-Priority of Distributions Among Certificates," "-Interest" and
"-Principal" in the excerpts from the Underlying CWMBS Prospectus attached
hereto as Exhibit B.
Early Termination of Underlying Trust Funds
As noted in "DESCRIPTION OF THE UNDERLYING CERTIFICATES-Optional
Termination of the Underlying Trust Funds" herein, each Servicer may redeem
the related Underlying Certificates on or after any Underlying Remittance Date
on which, after taking into account payments of principal and allocations of
realized losses, if any, to be made on that date, the aggregate outstanding
principal amount of the related Mortgage Loans is less than 10% of their
aggregate initial principal amount. In such event, the related Underlying
Trust Fund may be terminated. In the case of an Offered Certificate, the
termination of the related Underlying Trust Fund will result in the receipt by
the related certificateholder of principal payments that could affect the
yield to maturity on such certificate and have the effect of shortening the
weighted average life of such certificate.
S-24
<PAGE>
Weighted Average Lives of the Certificates
Weighted average life refers to the average amount of time that will
elapse from the date of delivery of a security until each dollar of principal
of such security will be repaid to the investor. The weighted average life of
each Class of Offered Certificates will be influenced by the (i) rate at which
principal of the related Mortgage Loans is paid, which may be in the form of
scheduled amortization or prepayments (for this purpose, the term "prepayment"
includes payments resulting from refinancings, liquidations of such Mortgage
Loans due to defaults, casualties, indemnifications and purchases by or on
behalf of the related Servicer), (ii) optional termination with respect to an
Underlying Trust Fund and (iii) any purchase of the Underlying Certificates by
the holder of the Class R Certificate at its option or any required repurchase
by the Depositor of either the Underlying Chase Certificates or the Underlying
CWMBS Certificates as a result of a breach of certain representations and
warranties.
Modeling Assumptions
The DEC tables have been prepared on the basis of the characteristics
of the Mortgage Loans and the outstanding principal amount of each Class of
Certificates, in each case as of the November 25 Underlying Remittance Date,
as described herein and the following additional assumptions:
(i) all scheduled payments on the Mortgage Loans are timely
received on the first day of each month, commencing in December 1998;
(ii) the Mortgage Loans will prepay monthly at the specified
percentages of PSA;
(iii) all principal prepayments constitute prepayments in full of
the Mortgage Loans, are received on the last day of each month,
commencing in November 1998 and include 30 days' interest thereon;
(iv) there are no defaults, losses or interest shortfalls on the
Mortgage Loans prior to or after the Closing Date;
(v) the Closing Date is November 30, 1998, and cash distributions
are received by the Certificateholders on the 27th day of each month,
commencing in December 1998 (distributions will not include any
distributions received on the Underlying Certificates on or before
the November 25, 1998 Underlying Remittance Date);
(vi) the Mortgage Loans have been amortized using the respective
scheduled payment, outstanding principal balance (prior to giving
effect to prepayments received during the related prepayment period),
and interest rate;
(vii) no optional termination of the Trust or Underlying Trust Funds
occurs;
(viii) the Classes of Offered Certificates have the initial
principal amounts reflected on the cover page hereof;
(ix) payments of principal on the Underlying Trust Funds are
made in accordance with the methodologies and priorities set forth in
the respective Underlying Prospectuses; and
(x) the Underlying Certificates have the characteristics set
forth in the table below.
S-25
<PAGE>
Underlying Chase Certificates
Weighted
Average
Current Weighted Net Remaining Weighted
Principal Average Pass-Through Term to Average
Class Balance Coupon(1) Rate Maturity(1) Seasoning(1)
-----------------------------------------------------------------------------
IA-7 $13,052,415.00 7.272% 5.982% 115 months 63 months
IA-8 4,272,713.31 7.272% 6.470% 115 months 63 months
IA-9 2,755,510.16 7.272% 9.000% 115 months 63 months
(1) Characteristics of the Chase Mortgage Loans
Underlying CWMBS Certificates
Weighted
Average
Current Weighted Net Remaining Weighted
Principal Average Pass-Through Term to Average
Class Balance Coupon(1) Rate Maturity(1) Seasoning(1)
-----------------------------------------------------------------------------
A-14 $10,645,127.76 7.105% 6.232% 124 months 55 months
A-15 4,914,315.37 7.105% 7.081% 124 months 55 months
(1) Characteristics of the CWMBS Mortgage Loans
S-26
<PAGE>
Percent of Principal Balance Outstanding of the
Class A-1 Certificates at the Following Percentages of PSA
Distribution Date 0% 150% 300% 400% 500%
- ----------------- -- ---- ---- ---- ----
Initial Percent 100 100 100 100 100
November 1999 100 100 100 100 94
November 2000 100 100 100 74 50
November 2001 100 100 74 46 23
November 2002 100 100 52 27 7
November 2003 100 79 33 13 0
November 2004 100 59 20 4 0
November 2005 96 40 9 0 0
November 2006 67 23 1 0 0
November 2007 38 8 0 0 0
November 2008 0 0 0 0 0
November 2009 0 0 0 0 0
November 2010 0 0 0 0 0
November 2011 0 0 0 0 0
November 2012 0 0 0 0 0
November 2013 0 0 0 0 0
November 2014 0 0 0 0 0
November 2015 0 0 0 0 0
November 2016 0 0 0 0 0
November 2017 0 0 0 0 0
November 2018 0 0 0 0 0
November 2019 0 0 0 0 0
November 2020 0 0 0 0 0
November 2021 0 0 0 0 0
November 2022 0 0 0 0 0
November 2023 0 0 0 0 0
November 2024 0 0 0 0 0
November 2025 0 0 0 0 0
November 2026 0 0 0 0 0
November 2027 0 0 0 0 0
Weighted Average Life
in Years(1) 8.57 6.61 4.41 3.17 2.25
(1) The weighted average life is determined by (i) multiplying the
amount of each principal payment by the number of years from the Closing Date
to the related Distribution Date, (ii) summing the results, and (iii) dividing
the sum by the aggregate original principal balance of such Class of
Certificates.
S-27
<PAGE>
Percent of Principal Balance Outstanding of the
Class A-2 Certificates at the Following Percentages of PSA
Distribution Date 0% 150% 300% 400% 500%
- ----------------- -- ---- ---- ---- ----
Initial Percent 100 100 100 100 100
November 1999 100 100 100 86 39
November 2000 100 100 78 12 0
November 2001 100 100 31 0 0
November 2002 100 100 0 0 0
November 2003 100 75 0 0 0
November 2004 100 30 0 0 0
November 2005 100 0 0 0 0
November 2006 54 0 0 0 0
November 2007 0 0 0 0 0
November 2008 0 0 0 0 0
November 2009 0 0 0 0 0
November 2010 0 0 0 0 0
November 2011 0 0 0 0 0
November 2012 0 0 0 0 0
November 2013 0 0 0 0 0
November 2014 0 0 0 0 0
November 2015 0 0 0 0 0
November 2016 0 0 0 0 0
November 2017 0 0 0 0 0
November 2018 0 0 0 0 0
November 2019 0 0 0 0 0
November 2020 0 0 0 0 0
November 2021 0 0 0 0 0
November 2022 0 0 0 0 0
November 2023 0 0 0 0 0
November 2024 0 0 0 0 0
November 2025 0 0 0 0 0
November 2026 0 0 0 0 0
November 2027 0 0 0 0 0
Weighted Average Life
in Years(1) 8.08 5.59 2.64 1.50 0.96
(1) The weighted average life is determined by (i) multiplying the
amount of each principal payment by the number of years from the Closing Date
to the related Distribution Date, (ii) summing the results, and (iii) dividing
the sum by the aggregate original principal balance of such Class of
Certificates.
S-28
<PAGE>
Percent of Principal Balance Outstanding of the
Class R Certificate at the Following Percentages of PSA
Distribution Date 0% 150% 300% 400% 500%
- ----------------- -- ---- ---- ---- ----
Initial Percent 100 100 100 100 100
November 1999 100 100 100 0 0
November 2000 100 100 0 0 0
November 2001 100 100 0 0 0
November 2002 100 100 0 0 0
November 2003 100 0 0 0 0
November 2004 100 0 0 0 0
November 2005 100 0 0 0 0
November 2006 0 0 0 0 0
November 2007 0 0 0 0 0
November 2008 0 0 0 0 0
November 2009 0 0 0 0 0
November 2010 0 0 0 0 0
November 2011 0 0 0 0 0
November 2012 0 0 0 0 0
November 2013 0 0 0 0 0
November 2014 0 0 0 0 0
November 2015 0 0 0 0 0
November 2016 0 0 0 0 0
November 2017 0 0 0 0 0
November 2018 0 0 0 0 0
November 2019 0 0 0 0 0
November 2020 0 0 0 0 0
November 2021 0 0 0 0 0
November 2022 0 0 0 0 0
November 2023 0 0 0 0 0
November 2024 0 0 0 0 0
November 2025 0 0 0 0 0
November 2026 0 0 0 0 0
November 2027 0 0 0 0 0
Weighted Average Life
in Years(1) 7.41 4.49 1.66 0.91 0.58
(1) The weighted average life is determined by (i) multiplying the
amount of each principal payment by the number of years from the Closing Date
to the related Distribution Date, (ii) summing the results, and (iii) dividing
the sum by the aggregate original principal balance of such Class of
Certificates.
S-29
<PAGE>
USE OF PROCEEDS
The Depositor will apply the proceeds of the sale of the Offered
Certificates towards the purchase price of the Underlying Certificates, the
payment of expenses related to such purchase and other corporate purposes.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Certificates, Brown & Wood LLP, counsel to
the Depositor, delivered its opinion generally to the effect that, assuming
compliance with all provisions of the Trust Agreement, for federal income tax
purposes, the Trust qualifies as a REMIC under the Code.
The Class A-1, Class A-2 and Class T Certificates will represent
"regular interests" in the REMIC and the Class R Certificate will constitute
the sole class of "residual interests" in the REMIC. As REMIC regular
interests, such certificates will generally be treated as debt for federal
income tax purposes. Certificateholders will be required to include in income
all interest and original issue discount on such certificates in accordance
with the accrual method of accounting regardless of the Certificateholders'
usual methods of accounting.
Special Tax Attributes of the Offered Certificates
As is described more fully under "Certain Material Federal Income Tax
Consequences" in the Prospectus, the Offered Certificates (other than the
Class R Certificate) will represent qualifying assets under Section
856(c)(4)(A) and 7701(a)(19)(C)(v) of the Code, and net interest income
attributable to such 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 (other than the Class R Certificate) will
represent qualifying assets under Section 860G(a)(3) if acquired by a REMIC
within the prescribed time periods of the Code.
Original Issue Discount
The Offered Certificates may be issued with original issue discount
for federal income tax purposes. 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 at a
rate equal to 300% PSA. See "Yield, Prepayment and Maturity Considerations"
herein and "Certain Material Federal Income Tax Consequences" in the
Prospectus.
The Offered Certificates may be treated as being issued at a premium.
In such case, the Certificateholders may elect under Section 171 of the Code
to amortize such premium under the constant interest method and to treat such
amortizable premium as an offset to interest income on the Certificates.
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 holder will be permitted to offset such 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 of the Mortgage Loans
are received. Although the matter is not free from doubt, any such loss might
be treated as a capital loss.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a Mortgage Loan, the receipt of income from a source
other than a Mortgage Loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset
purchased with the payments on the Mortgage Loans for temporary investment
pending distribution on the Certificates. It is not anticipated that the Trust
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
S-30
<PAGE>
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which such trust fund issues all of
its interests could result in the imposition of a tax on the trust fund equal
to 100% of the value of the contributed property (the "Contributions Tax").
The Trust Fund will not accept contributions that would subject it to such
tax.
In addition, a trust fund that elects to be treated as a REMIC may
also be subject to federal income tax at the highest corporate rate on "net
income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property other
than qualifying rents and other qualifying income for a real estate investment
trust. It is not anticipated that the Trust will recognize net income from
foreclosure property subject to federal income tax.
In the event that any Prohibited Transactions Tax, Contributions Tax,
tax on net income from foreclosure property or state or local income or
franchise tax is imposed on the Trust Fund, such tax will be paid with amounts
otherwise distributable to the holders of the Certificates. Pursuant to the
Trust Agreement, the holder of the Class R Certificate, other than the Trustee
as "tax matters" person, are obligated to indemnify the Trust for the amount
of any such tax. There can be no assurance that the holder of the Class R
Certificate will have sufficient resources to pay any such indemnity to the
Trust. It is not anticipated that any material state or local income or
franchise tax will be imposed on the Trust.
The Residual Certificate
The holder of the Class R Certificate must include the taxable income
of the REMIC in its federal taxable income. The resulting tax liability of
such holder may exceed cash distributions to such holder during certain
periods. All or a portion of the taxable income from the Class R Certificate
recognized by a holder may be treated as "excess inclusion" income, which,
with limited exceptions, is subject to U.S. federal income tax.
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to
use net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a REMIC residual certificateholder. First,
alternative minimum taxable income for such residual holder is determined
without regard to the special rule that taxable income cannot be less than
excess inclusions. Second, a residual holder's alternative minimum taxable
income for a tax year cannot be less than the excess inclusions for the year.
Third, the amount of any alternative minimum tax net operating loss deductions
must be computed without regard to any excess inclusions. These rules are
effective for tax years beginning after December 31, 1986, unless a residual
holder elects to have such rules apply only to tax years beginning after
August 20, 1996.
Furthermore, the Small Business Job Protection Act of 1996, as part
of the repeal of the bad debt reserve method for thrift institutions, repealed
the application of Section 593(d) of the Code to any taxable year beginning
after December 31, 1995.
Also, purchasers of the Class R Certificate should consider carefully
the tax consequences of an investment in Residual Certificates discussed in
the Prospectus and should consult their own tax advisors with respect to those
consequences. See "Certain Federal Income Tax Consequences--REMIC
Certificates--b. Residual Certificates" in the Prospectus. Specifically,
prospective holders of the Class R Certificate should consult their tax
advisors regarding whether, at the time of acquisition, the Class R
Certificate will be treated as a "non-economic" residual interest, a
"non-significant value" residual interest and a "tax avoidance potential"
residential interest. See "Certain Federal Income Tax Consequences--REMIC
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Noneconomic Residual Certificates" in the Prospectus.
Additionally, for information regarding prohibited transactions and treatment
of Realized Losses, see "Certain Federal Income Tax Consequences--REMIC
Certificates--Prohibited Transactions and Other Taxes" and "--REMIC
Certificates-- Regular Certificates--Treatment of Realized Losses" in the
Prospectus.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--REMIC Certificates" in the Prospectus.
S-31
<PAGE>
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit or other plan (such as an individual
retirement account) that is subject to Title I of ERISA or to Section 4975 of
the Code from engaging in certain transactions involving "plan assets" with
persons that are "parties in interest" under ERISA or "disqualified persons"
under the Code with respect to the Plan. Certain governmental plans, although
not subject to ERISA or the Code, are subject to federal, state or local laws
("Similar Law") that impose similar requirements (such plans subject to ERISA,
Section 4975, or Similar Law referred to herein as "Plans"). A violation of
these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and the Code or under Similar Law for such persons.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the Offered
Certificates. However, there can be no assurance that an exemption will apply
with respect to any Plan's investment in the Offered Certificates, or, if an
exemption, did apply, that it would apply to all prohibited transactions that
may occur in connection with such investment. Furthermore, it is not clear
that any exemption would apply to transactions involved in operation of the
Trust if, as described below, the assets of the Trust were considered to
include Plan assets.
ERISA also imposes certain duties on persons who are fiduciaries of
Plans subject to ERISA, including the requirements of investment prudence and
diversification, and the requirement that such a Plan's investments be made in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of such Plan. Plan
fiduciaries must determine whether the acquisition and holding of Offered
Certificates and the operations of the Trust would result in prohibited
transactions if Plans that purchase the Offered Certificates were deemed to
own an interest in the underlying assets of the Trust under the rules
discussed below. There may also be an improper delegation of the
responsibility to manage Plan assets if Plans that purchase the Offered
Certificates are deemed to own an interest in the underlying assets of the
Trust.
Pursuant to Department of Labor Regulation ss.2510.3-101 (the "Plan
Assets Regulation"), in general when a Plan acquires an equity interest in an
entity such as the Trust and such interest does not represent a "publicly
offered security" or a security issued by an investment company registered
under the Investment Company Act of 1940, as amended, the Plan's assets
include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the
entity is an "operating company" or that equity participation in the entity by
"benefit plan investors" is not "significant". In general, an "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. It is
anticipated that the Offered Certificates will be considered equity interests
in the Trust for purposes of the Plan Assets Regulation, and that the assets
of the Trust may therefore constitute plan assets if Offered Certificates are
acquired by Plans. In such event, the fiduciary and prohibited transaction
restrictions of ERISA and section 4975 of the Code would apply to transactions
involving the assets of the Trust.
As a result, Offered Certificates shall not be transferred and the Trustee
shall not register any proposed transfer of Certificates unless it receives
(i) a representation substantially to the effect that the proposed transferee
is not a Plan, is not acquiring the Offered Certificates on behalf of or with
the assets of a Plan (including assets that may be held in an insurance
company's separate or general accounts where assets in such accounts may be
deemed "plan assets" for purposes of ERISA), or (ii) an opinion of counsel in
form and substance satisfactory to the Trustee and the Depositor that the
purchase or holding of the Offered Certificates by or on behalf of a Plan will
not constitute a prohibited transaction and will not result in the assets of
the Trust being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
ERISA and the Code or any Similar Law or subject the Trustee or the Depositor
to any obligation in addition to those undertaken in the Trust Agreement. Such
representation as described above shall be deemed to have been made to the
Trustee by the transferee's acceptance of an Offered Certificate. In the event
that such representation is violated or any transfer to a Plan or person
acting on behalf of a Plan or using a Plan's assets is attempted without such
opinion of counsel, such attempted transfer or acquisition shall be void and
of no effect.
S-32
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
Assuming the accuracy of certain representations contained in the
Underlying Agreements (which information is not subject to independent
certification) and on the basis of certain assumptions derived from statements
included in the Underlying Prospectus Supplements, the Offered Certificates
will constitute "mortgage related securities" for the purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so long as they
are rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization and, as such, are legal
investments for certain entities to the extent provided for in SMMEA.
There may be restrictions on the ability of certain investors,
including depository institutions, either to purchase the Offered Certificates
or to purchase Offered Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Offered Certificates
constitute legal investments for such investors. See "Legal Investment" in the
Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and Greenwich Capital Markets, Inc. (the
"Underwriter"), which is an affiliate of the Depositor, the Depositor has
agreed to sell to the Underwriter, and the Underwriter has agreed to purchase
from the Depositor, the Offered Certificates.
Distribution of the Offered Certificates will be made by the
Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. The Underwriter may
effect such transactions by selling Offered Certificates to or through dealers
and such dealers may receive from the Underwriter, for which they act as
agent, compensation in the form of underwriting discounts, concessions or
commissions. The Underwriter and any dealers that participate with the
Underwriter in the distribution of such Offered Certificates may be deemed to
be underwriters, and any discounts, commissions or concessions received by
them, and any profits on resale of the Certificates purchased by them, may be
deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended (the "1933 Act").
The Depositor has been advised by the Underwriter that it intends to
make a market in the Offered Certificates but has no obligation to do so.
There can be no assurance that a secondary market for the Offered Certificates
will develop or, if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriter against, or
make contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the 1933 Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Offered
Certificates will be passed upon for the Depositor and the Underwriter by
Brown & Wood LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that
they be rated "AAA" by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P") and by Duff & Phelps Credit Rating Company ("DCR" and,
together with S&P the "Rating Agencies").
The ratings assigned by the Rating Agencies to mortgage pass-through
certificates address the likelihood of the receipt of all distributions by the
related certificateholders under the agreements pursuant to which such
certificates are issued. The ratings by the Rating Agencies 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
S-33
<PAGE>
the mortgage pool is adequate to make the payments required by such
certificates. The ratings by the Rating Agencies on such certificates do not,
however, constitute a statement regarding frequency of prepayments of the
mortgage loans.
The Depositor has not engaged any rating agency other than the Rating
Agencies to provide ratings on the Offered Certificates. However, there can be
no assurance as to whether any other rating agency will rate the Offered
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. Any rating on the Offered Certificates by another rating
agency, if assigned at all, may be lower than the ratings assigned to such
Certificates by the Rating Agencies.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to any of the Offered Certificates by the Rating Agencies
are subsequently lowered for any reason, no person or entity is obligated to
provide any additional support or credit enhancement with respect to such
Offered Certificates.
S-34
<PAGE>
INDEX OF DEFINED TERMS
TERM Page
- ---- ----
1933 Act.......................................................... S-33
Available Funds................................................... S-12
Beneficial Owners................................................. S-8
Book-Entry Certificates........................................... S-8
Cedelbank Participants............................................ S-10
Certificate Account............................................... S-12
Chase Agreement................................................... S-16
Chase Mortgage Loans.............................................. S-16
Chase Servicer.................................................... S-16
Chase Trustee..................................................... S-16
Citibank.......................................................... S-8
Class R Certificate............................................... S-8
Code.............................................................. S-15
Cooperative....................................................... S-10
Contributions Tax................................................. S-30
Countrywide....................................................... S-21
CWMBS Agreement................................................... S-16
CWMBS Mortgage Loans.............................................. S-16
CWMBS Servicer.................................................... S-16
CWMBS Trustee..................................................... S-16
DEC Tables........................................................ S-18
DCR............................................................... S-34
Distribution Date................................................. S-11
DTC Rules......................................................... S-9
Eligible Account.................................................. S-12
ERISA............................................................. S-32
Euroclear Operator................................................ S-10
Euroclear Participants............................................ S-10
European Depositaries............................................. S-8
Federal Reserve Board............................................. S-10
Financial Intermediary............................................ S-8
Investment Company Act............................................ S-15
Majority in Interest.............................................. S-14
Morgan............................................................ S-8
Mortgage Loans.................................................... S-16
Mortgage Pool Principal Balance................................... S-16
Offered Certificates.............................................. S-8
Participants...................................................... S-9
Pass-Through Rate................................................. S-13
Percentage Interest............................................... S-14
Plans............................................................. S-32
Prohibited Transactions Tax....................................... S-30
PSA............................................................... S-23
PTE .............................................................. S-32
Rating Agencies................................................... S-33
Record Date....................................................... S-11
Relevant Depositary............................................... S-8
Residual Certificate.............................................. S-8
S&P............................................................... S-34
Securities Act.................................................... S-15
S-35
<PAGE>
Servicers......................................................... S-16
SMMEA............................................................. S-33
T-1 Component..................................................... S-8
T-2 Component..................................................... S-8
Terms and Conditions.............................................. S-10
thrift institutions............................................... S-31
Trust............................................................. S-8
Trustee........................................................... S-8
Trust Agreement................................................... S-8
Underlying Agreements............................................. S-16
Underlying Certificate Account.................................... S-16
Underlying Certificates........................................... S-8, S-16
Underlying Chase Certificates..................................... S-16
Underlying Chase Prospectus....................................... S-18
Underlying CWMBS Certificates..................................... S-16
Underlying CWMBS Prospectus....................................... S-18
Underlying Prospectuses........................................... S-18
Underlying Remittance Date........................................ S-18
Underlying Remittance Date Statements............................. S-18
Underlying Senior Interests....................................... S-16
Underlying Subordinate Interests.................................. S-16
Underlying Trust Fund............................................. S-16
Underlying Trustees................................................ S-16
Underwriter....................................................... S-33
S-36
<PAGE>
APPENDIX I
MORTGAGE LOAN CHARACTERISTICS OF THE CHASE MORTGAGE LOANS
CURRENT PRINCIPAL BALANCES OF THE CHASE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
RANGE OF PRINCIPAL MORTGAGE PRINCIPAL PRINCIPAL
BALANCES ($) LOANS BALANCE ($) BALANCE (%)
-------------------------- --------- ----------------- -------------
<S> <C> <C> <C>
34,321.03 - 50,000.00 2 81,246.51 0.12
50,000.01 - 100,000.00 6 481,607.71 0.70
100,000.01 - 150,000.00 18 2,314,266.60 3.39
150,000.01 - 200,000.00 45 7,957,584.64 11.65
200,000.01 - 250,000.00 40 8,993,239.34 13.16
250,000.01 - 300,000.00 25 6,693,305.53 9.80
300,000.01 - 350,000.00 17 5,503,337.91 8.05
350,000.01 - 400,000.00 13 4,928,674.87 7.21
400,000.01 - 450,000.00 10 4,273,979.53 6.25
450,000.01 - 500,000.00 8 3,713,908.43 5.44
500,000.01 - 550,000.00 5 2,567,426.96 3.76
550,000.01 - 600,000.00 7 4,023,462.45 5.89
600,000.01 - 650,000.00 8 5,009,270.32 7.33
650,000.01 - 700,000.00 2 1,333,689.86 1.95
700,000.01 - 750,000.00 3 2,136,049.49 3.13
750,000.01 - 800,000.00 2 1,531,484.00 2.24
800,000.01 - 850,000.00 1 842,509.69 1.23
850,000.01 - 900,000.00 2 1,742,092.55 2.55
900,000.01 - 950,000.00 1 935,682.85 1.37
1,000,000.01 - 1,050,000.00 1 1,005,263.67 1.47
1,100,000.01 - 1,146,279.80 2 2,262,271.75 3.31
---- ------------- ------
TOTAL 218 68,330,354.66 100.00
==== ============= ======
</TABLE>
I-1
<PAGE>
MORTGAGE INTEREST RATES OF THE CHASE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
RANGE OF MORTGAGE MORTGAGE PRINCIPAL PRINCIPAL
NTEREST RATES (%) LOANS BALANCE ($) BALANCE (%)
---------------------- -------- ----------- -----------
<S> <C> <C> <C>
6.625 - 6.750 13 3,666,102.82 5.37
6.751 - 7.000 57 17,535,131.28 25.66
7.001 - 7.250 54 16,707,825.72 24.45
7.251 - 7.500 45 14,490,191.77 21.21
7.501 - 7.750 38 12,165,826.82 17.80
7.751 - 8.000 9 3,385,446.52 4.95
8.001 - 8.125 2 379,829.73 0.56
---- ------------- ------
TOTAL 218 68,330,354.66 100.00
==== ============== =======
</TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE CHASE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
RANGE OF ORIGINAL LOAN- MORTGAGE PRINCIPAL PRINCIPAL
TO-VALUE RATIOS (%) LOANS BALANCE ($) BALANCE (%)
---------------------- -------- ---------------- -------------
<S> <C> <C> <C>
14.89 - 15.00 1 329,142.64 0.48
15.01 - 20.00 1 231,360.00 0.34
20.01 - 25.00 5 868,487.76 1.27
25.01 - 30.00 4 910,898.91 1.33
30.01 - 35.00 6 1,327,414.19 1.94
35.01 - 40.00 12 4,162,489.13 6.09
40.01 - 45.00 9 2,779,019.07 4.07
45.01 - 50.00 21 5,824,795.03 8.52
50.01 - 55.00 11 4,048,195.02 5.92
55.01 - 60.00 21 8,694,816.20 12.72
60.01 - 65.00 19 5,561,296.56 8.14
65.01 - 70.00 32 11,119,735.51 16.27
70.01 - 75.00 32 11,038,862.74 16.16
75.01 - 80.00 39 10,279,266.49 15.04
80.01 - 85.00 3 689,646.69 1.01
85.01 - 90.00 2 464,928.72 0.68
-------- -------------- -------
TOTAL 218 68,330,354.66 100.00
======== ============== =======
</TABLE>
I-2
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
OF THE CHASE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE ($) BALANCE (%)
---------------------- -------- ---------------- -------------
<S> <C> <C> <C>
California 50 22,077,516.46 32.31
New York 43 11,896,750.89 17.41
New Jersey 18 5,174,121.40 7.57
Florida 16 4,780,236.33 7.00
Texas 15 4,229,358.82 6.19
Maryland 11 2,777,133.60 4.06
Illinois 8 2,770,943.58 4.06
Pennsylvania 12 2,520,611.71 3.69
Connecticut 10 2,414,159.76 3.53
Massachusetts 7 2,192,272.97 3.21
Others(1) 28 7,497,249.14 10.97
---- ------------- ------
TOTAL 218 68,330,354.66 100.00
==== ============= ======
</TABLE>
(1) "Others" include ten states and the District of
Columbia, each with concentrations of less than 2%.
No more than approximately 4.40% of the Mortgage Loans are
secured by mortgaged properties located in any one postal
ZIP code.
PURPOSE OF THE CHASE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
LOAN PURPOSE LOANS BALANCE ($) BALANCE (%)
---------------------- -------- ---------------- -------------
<S> <C> <C> <C>
Cash Out Refinance 36 11,398,011.95 16.68
Purchase 41 14,327,810.03 20.97
Rate/Term Refinance 141 42,604,532.68 62.35
------ ------------- ------
TOTAL 218 68,330,354.66 100.00
====== ============= ======
</TABLE>
I-3
<PAGE>
TYPES OF MORTGAGED PROPERTIES OF THE CHASE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
TYPE LOANS BALANCE ($) BALANCE (%)
---------------------- -------- ---------------- -------------
<S> <C> <C> <C>
Condo High-Rise 5 1,337,460.58 1.96
Condo Low-Rise 5 854,047.79 1.25
Cooperative 29 7,807,383.99 11.43
De minimus PUD 12 4,310,250.19 6.31
PUD 3 598,002.81 0.88
Single Family 160 52,739,748.02 77.18
Two-Four Family 4 683,461.28 1.00
---- ------------- ------
TOTAL 218 68,330,354.66 100.00
==== ============= =======
</TABLE>
OCCUPANCY STATUS OF THE CHASE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
OCCUPANCY LOANS BALANCE ($) BALANCE (%)
---------------------- -------- ---------------- -------------
<S> <C> <C> <C>
Investor 5 795,497.34 1.16
Primary 198 62,346,152.94 91.24
Second Home 15 5,188,704.38 7.59
---- ------------- ------
TOTAL 218 68,330,354.66 100.00
==== ============= ======
</TABLE>
REMAINING TERM TO MATURITY OF THE CHASE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
REMAINING TERM MORTGAGE PRINCIPAL PRINCIPAL
(MONTHS) LOANS BALANCE ($) BALANCE (%)
---------------------- --------- ---------------- -------------
<S> <C> <C> <C>
33 - 60 9 2,472,393.12 3.62
61 - 118 209 65,857,961.54 96.38
------ ------------- ------
TOTAL 218 68,330,354.66 100.00
====== ============= ======
</TABLE>
I-4
<PAGE>
MORTGAGE LOAN CHARACTERISTICS OF THE CWMBS MORTGAGE LOANS
CURRENT PRINCIPAL BALANCES OF THE CWMBS MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
RANGE OF PRINCIPAL MORTGAGE PRINCIPAL PRINCIPAL
BALANCES ($) LOANS BALANCE ($) BALANCE (%)
---------------------- --------- ---------------- -------------
<S> <C> <C> <C>
2,011.69 - 50,000.00 156 4,614,327.08 3.46
50,000.01 - 100,000.00 134 9,583,543.87 7.19
100,000.01 - 150,000.00 41 5,063,085.19 3.80
150,000.01 - 200,000.00 178 32,173,077.62 24.15
200,000.01 - 250,000.00 142 31,597,574.27 23.72
250,000.01 - 300,000.00 66 17,762,177.48 13.33
300,000.01 - 350,000.00 28 8,981,286.53 6.74
350,000.01 - 400,000.00 22 8,243,128.28 6.19
400,000.01 - 450,000.00 7 2,964,128.72 2.23
450,000.01 - 500,000.00 10 4,737,283.03 3.56
500,000.01 - 550,000.00 5 2,557,266.02 1.92
550,000.01 - 600,000.00 4 2,277,940.38 1.71
600,000.01 - 650,000.00 2 1,221,582.68 0.92
650,000.01 - 700,000.00 1 687,987.65 0.52
700,000.01 - 749,387.19 1 749,387.19 0.56
------ -------------- ------
TOTAL 797 133,213,775.99 100.00
====== ============== ======
</TABLE>
I-5
<PAGE>
MORTGAGE INTEREST RATES OF THE CWMBS MORTGAGE LOANS
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
RANGE OF MORTGAGE MORTGAGE PRINCIPAL PRINCIPAL
INTEREST RATES (%) LOANS BALANCE ($) BALANCE (%)
- ------------------ --------- ---------------- --------------
6.000 - 6.000 3 682,469.15 0.51
6.001 - 6.250 24 4,796,975.51 3.60
6.251 - 6.500 40 9,210,555.58 6.91
6.501 - 6.750 107 25,251,011.01 18.96
6.751 - 7.000 128 29,104,698.56 21.85
7.001 - 7.250 93 22,196,185.50 16.66
7.251 - 7.500 64 14,635,813.66 10.99
7.501 - 7.750 199 18,132,698.07 13.61
7.751 - 8.000 116 8,004,745.80 6.01
8.001 - 8.250 20 1,065,703.14 0.80
8.251 - 8.500 2 104,224.43 0.08
8.501 - 8.750 1 28,695.58 0.02
--- -------------- ------
TOTAL 797 133,213,775.99 100.00
=== ============== ======
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE CWMBS MORTGAGE LOANS
PERCENTAGE OF
AGGREGATE
RANGE OF ORIGINAL NUMBER OF AGGREGATE UNPAID UNPAID
LOAN-TO-VALUE MORTGAGE PRINCIPAL PRINCIPAL
RATIOS (%) LOANS BALANCE ($) BALANCE (%)
- ------------------ --------- ---------------- --------------
9.32 - 10.00 1 16,080.73 0.01
10.01 - 15.00 10 513,256.00 0.39
15.01 - 20.00 26 883,370.64 0.66
20.01 - 25.00 24 1,687,546.59 1.27
25.01 - 30.00 33 1,955,725.53 1.47
30.01 - 35.00 38 2,574,771.76 1.93
35.01 - 40.00 62 5,519,722.36 4.14
40.01 - 45.00 50 5,598,495.81 4.20
45.01 - 50.00 74 8,649,909.36 6.49
50.01 - 55.00 63 10,301,362.70 7.73
55.01 - 60.00 79 14,273,658.61 10.71
60.01 - 65.00 46 13,252,714.79 9.95
65.01 - 70.00 70 16,841,548.27 12.64
70.01 - 75.00 70 16,513,771.89 12.40
75.01 - 80.00 120 28,586,267.49 21.46
80.01 - 85.00 6 1,135,664.34 0.85
85.01 - 90.00 25 4,909,909.12 3.69
--- -------------- ------
TOTAL 797 133,213,775.99 100.00
=== ============== ======
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
OF THE CWMBS MORTGAGE LOANS
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE ($) BALANCE (%)
- --------------------- --------- ---------------- -------------
California 411 58,944,876.56 44.25
New York 37 8,086,634.21 6.07
Massachusetts 37 7,585,194.84 5.69
Texas 29 5,229,401.84 3.93
Illinois 30 5,098,545.00 3.83
New Jersey 27 4,955,222.61 3.72
Florida 20 4,278,442.20 3.21
Washington 17 3,426,904.50 2.57
Pennsylvania 17 3,202,339.15 2.40
Connecticut 12 2,798,457.31 2.10
Virginia 12 2,795,928.24 2.10
Colorado 15 2,681,612.13 2.01
Others(1) 133 24,130,217.40 18.11
--- -------------- ------
TOTAL 797 133,213,775.99 100.00
=== ============== ======
(1) "Others" include thirty states and the District of Columbia, each with
concentrations of less than 2%.
No more than approximately 1.72% of the Mortgage Loans are
secured by mortgaged properties located in any one postal ZIP code.
PURPOSE OF THE CWMBS MORTGAGE LOANS
PERCENTAGE OF
AGGREGATE
NUMBER OF AGGREGATE UNPAID UNPAID
MORTGAGE PRINCIPAL PRINCIPAL
LOAN PURPOSE LOANS BALANCE ($) BALANCE (%)
- --------------------------- --------- ----------------- -------------
Cash Out Refinance 89 20,715,641.40 15.55
Construction Permanent 1 278,499.09 0.21
Purchase 57 14,101,682.07 10.59
Rate/Term Refinance 650 98,117,953.43 73.65
--- -------------- ------
TOTAL 797 133,213,775.99 100.00
=== ============== ======
<PAGE>
TYPES OF MORTGAGED PROPERTIES OF THE CWMBS MORTGAGE LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID AGGREGATE
MORTGAGE PRINCIPAL UNPAID
TYPE LOANS BALANCE ($) BALANCE (%)
---- ---------- ---------------- -------------
2-4 Units 2 160,210.09 0.12
Condominium 22 2,124,455.74 1.59
PUD 86 19,369,314.23 14.54
Single Family 687 111,559,795.93 83.74
--- -------------- -----
TOTAL 797 133,213,775.99 100.00
=== ============== ======
OCCUPANCY STATUS OF THE CWMBS MORTGAGE LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID AGGREGATE
MORTGAGE PRINCIPAL UNPAID
OCCUPANCY LOANS BALANCE ($) BALANCE (%)
--------- ---------- ---------------- -------------
Primary 786 130,919,284.37 98.28
Second Home 11 2,294,491.62 1.72
--- -------------- ------
TOTAL 797 133,213,775.99 100.00
=== ============== ======
REMAINING TERM TO MATURITY OF THE CWMBS MORTGAGE LOANS
PERCENTAGE OF
NUMBER OF AGGREGATE UNPAID AGGREGATE
REMAINING TERM MORTGAGE PRINCIPAL UNPAID
(MONTHS) LOANS BALANCE ($) BALANCE (%)
- -------------- ---------- ---------------- -------------
64 - 120 34 1,980,112.28 1.49
121 - 126 763 131,233,663.71 98.51
--- -------------- ------
TOTAL 797 133,213,775.99 100.00
=== ============== ======
<PAGE>
[This page intentionally left blank]
<PAGE>
EXHIBIT A
The information about the Underlying Chase Certificates and the Chase
Mortgage Loans contained in this Exhibit A has been obtained from the
Underlying Chase Prospectus, which was prepared in connection with the initial
offering of the Underlying Chase Certificates. Such information has not been
independently represented to the Trust as being accurate and complete.
Additionally the Underlying Chase Prospectus contains information only as of
the date of such document. You should be aware, however, that material changes
may have occurred since the preparation of the Underlying Chase Prospectus and
the composition of the related mortgage pools may have changed significantly.
There may be considerable differences between the current mortgage loan
characteristics and the characteristics described in connection with the
issuance of the Underlying Chase Certificates. All capitalized terms contained
in the following excerpts from the Chase Underlying Prospectus have the
meanings solely as specified in such excerpts.
EXCERPTS FROM THE UNDERLYING CHASE PROSPECTUS
* * * * *
THE MORTGAGE POOL
General
The mortgage pool with respect to the Certificates (the
"Mortgage Pool") [initially] will consist of approximately 772 conventional
mortgage loans (the "Mortgage Loans") evidenced by fixed interest rate
promissory notes (each, a "Mortgage Note") having an aggregate principal
balance on September 1, 1993 (the "Cut-off Date") of approximately
$325,140,777. References herein to percentages of Mortgage Loans refer in each
case to the percentage of the aggregate principal balance of the Mortgage
Loans or, as the case may be, the Mortgage Loans in the applicable Mortgage
Group as of the Cut-off Date, based on the outstanding balances of such
Mortgage Loans as of the Cut-off Date, after giving effect to scheduled
Monthly Payments (defined herein) due on or prior to the Cut-off Date, whether
or not received. Approximately 46.8% of the Mortgage Loans were originated by
Chase Manhattan Personal Financial Services, Inc. ("Chase Financial
Services"), approximately 38.8% of the Mortgage Loans were originated by or
for Chase Home Mortgage Corporation ("Chase Home Mortgage"), approximately
10.1% of the Mortgage Loans were originated by The Chase Manhattan Bank, N.A.
("Chase"), approximately 2.2% of the Mortgage Loans were originated by The
Chase Manhattan Financial Center, Inc. ("Chase Financial Center") and
approximately 2.1% of the Mortgage Loans were originated by Chase Bank of
Maryland ("Chase Maryland"), in each case in the ordinary course of their
respective real estate lending activities. Certain of the Mortgage Loans
originated by Chase Financial Services and all of the Mortgage Loans
originated by Chase Maryland were subsequently sold to Chase. All of the
Mortgage Loans originated by Chase Financial Center were subsequently sold to
Chase Financial Services. See "Mortgage Loans," "Chase Financial Services,"
"Chase Home Mortgage" and "Chase" below. The Mortgage Notes are secured by
mortgages or deeds of trust or other similar security instruments creating
first liens on single-family (one-to four-family) residential properties,
including stock allocated to dwelling units in residential cooperative housing
corporations (the "Mortgaged Properties"). The Mortgaged Properties consist of
individual dwelling units, individual cooperative apartment units, individual
condominium units, two- to four-family dwelling units, de minimis planned unit
developments, planned unit developments and townhouses. The Trust Fund
includes, in addition to the Mortgage Pool, (i) the amounts held from time to
time in one or more accounts (collectively, the "Certificate Account")
maintained in the name of the Trustee pursuant to the Pooling and Servicing
Agreement (the "Agreement") to be dated as of September 1, 1993 by and among
Chase Mortgage Finance Corporation (the "Company"), Chase Home Mortgage, as
master servicer (in such capacity, the "Master Servicer") and Citibank, N.A.,
as trustee (the "Trustee"), (ii) any property which initially secured a
Mortgage Loan and which is acquired by foreclosure or deed-in-lieu of
foreclosure, (iii) all insurance policies and the proceeds thereof described
below and (iv) certain rights to require repurchase of the Mortgage Loans by
Chase Home Mortgage, Chase Financial Services and Chase for breach of
representation or warranty.
The Company will purchase approximately 38.8% of the
Mortgage Loans from Chase Home Mortgage, approximately 2.9% of the Mortgage
Loans from Chase Financial Services and approximately 58.3% of the Mortgage
Loans from Chase and will cause the Mortgage Loans to be assigned to the
Trustee. The Master Servicer will service the Mortgage Loans either by itself
or through other mortgage servicing institutions, including
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
affiliates of the Master Servicer (the "Sub-servicers"), pursuant to the
Agreement. With respect to those Mortgage Loans serviced by the Master Servicer
through a Sub-servicer, the Master Servicer will remain liable for its servicing
obligations under the Agreement as if the Master Servicer alone were servicing
such Mortgage Loans.
* * * * *
Mortgage Loans
* * * * *
The Mortgage Loans were originated between March 1993 and
August 1993. The Mortgage Loans will be divided into two groups: "Mortgage
Group One" and "Mortgage Group Two" (each, a "Mortgage Group"). Mortgage Group
One, constituting approximately 39.4% of the Mortgage Loans, consists of
Mortgage Loans which had original terms to stated maturity of approximately 10
years or approximately 15 years, as well as Balloon Loans. Each "Balloon Loan"
had an original term to stated maturity of approximately 10 years or
approximately 15 years and provided for level monthly payments of principal
and interest based on a 30-year amortization schedule with a balloon payment
of its outstanding principal balance (a "Balloon Amount") due on each such
Mortgage Loans, consists of Mortgage Loans which had original terms to stated
maturity or approximately 20 years, approximately 25 years or approximately 30
years.
The weighted average number of months since origination of
the Mortgage Loans in Mortgage Group One and Mortgage Group Two (calculated in
each case of the Cut-off Date) was approximately 2 months and approximately 2
months, respectively. ...[T]he weighted average number of months since
origination of the Mortgage Loans in Mortgage Group One (calculated as of the
Cut-off Date) was approximately 2 months, and the weighted average number of
months since origination of the Mortgage Loans in Mortgage Group Two
(calculated as of the Cut-off Date) was approximately 3 months.
Monthly payments of principal and interest on the Mortgage
Loans ("Monthly Payments") will be due on the first day of each month (each,
a "Due Date").
All of the Mortgage Loans having Loan-to-Value Ratios of
greater than 85%, and approximately 48.5% of the Mortgage Loans having
Loan-to-Value Ratios of greater than 80%, are insured under [primary mortgage
insurance policies]. Not more than approximately 0.3% of the Mortgage Loans in
Mortgage Group One, and not more than approximately 0.9% of the Mortgage Loans
in Mortgage Group Two are insured by any one [primary mortgage insurance
policy] insurer. At the time of origination of the Mortgage Loans, each of the
[primary mortgage insurance policy] insurers was approved by the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC").
* * * * *
Chase Financial Services
* * * * *
Underwriting Policies. The following is a description of the
underwriting policies customarily employed by Chase Financial Services with
respect to residential mortgage loans which it originated generally during the
period of origination of the ... Mortgage Loans [originated by Chase Financial
Services or by affiliates of Chase Financial Services ("CMFS Mortgage
Loans")]. Chase Financial Services has represented to the Company that the
CMFS Mortgage Loans were originated generally in accordance with such
policies.
Chase Financial Services' real estate lending process for one- to
four-family residential mortgage loans follows procedures established to
comply with applicable federal and state laws and regulations. Underwriting
standards have been established which are designed to evaluate a borrower's
credit standing and repayment ability and the value and adequacy of the
mortgaged property as collateral. Typically, a prospective borrower is
required to fill out an application designed to provide pertinent information
about the prospective borrower, the property to be financed and the type of
loan desired, including assets and liabilities and a statement of income and
expenses of the prospective borrower and proof of employment. Chase Financial
Services obtains a credit report which summarizes the prospective borrower's
credit history with lenders and local merchants and a record of any
bankruptcy. Each prospective borrower is required to provide proof of income,
such as a paycheck stub or W-2 form and submit federal income tax returns for
the last two years.
A-2
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
Once the employment verification and the credit report are received,
a determination is made as to whether the prospective borrower has sufficient
monthly income available to meet the borrower's monthly obligations on the
proposed loan and other expenses related to the residence (such as property
taxes, hazard insurance and maintenance and utility costs) as well as to meet
other financial obligations and monthly living expenses. Chase Financial
Services' lending guidelines require that all current fixed obligations of the
borrower (including mortgage payments based on Chase Financial Services'
mortgage rates at the time of the application and other expenses related to
the residence) generally not exceed 40% of the borrower's gross income in the
case of a borrower with income of under $75,000. 42% of the borrower's gross
income in the case of a borrower with income of between $75,000 and $150,000
and 44% of the borrower's gross income in the case of a borrower with income
in excess of $150,000. On occasion, however, other credit considerations may
cause Chase Financial Services to depart from these guidelines. Where there
are two individuals signing the mortgage note or documents as co-borrowers,
the income and debt of both are generally included in the computation.
Chase Financial Services requires an appraisal to be made of each
property to be financed. The appraisal is conducted by an independent fee
appraiser. The person conducting the appraisal personally visits the property
and estimates its market value on the basis of comparable properties. The
independent appraisers do not receive any compensation dependent upon either
the amount of the loan or its consummation. In normal practice, the lower of
purchase price or appraised value determines the maximum amount which will be
lent on the property.
None of the CMFS Mortgage Loans were originated using underwriting
criteria generally consistent with Chase Home Mortgage's Alternative
Documentation Program. Approximately 3.0% of the CMFS Mortgage Loans were
originated using underwriting criteria generally consistent with Chase Home
Mortgage's Limited Documentation Program. None of the CMFS Mortgage Loans were
originated using underwriting criteria generally consistent with Chase Home
Mortgage's Reduced Documentation Program. See "Chase Home
Mortgage--Underwriting Policies."
Chase Financial Services Streamlined Refinancing Program, introduced
in July 1993, is available with respect to mortgage loans originated using Chase
Financial Services underwriting polices that are currently serviced by Chase
Financial Services. Underwriting criteria used in connection with this program
are generally consistent with those used in connection with the Chase Financial
Services origination guidelines described above, except that (i) to qualify for
refinancing under this program, the mortgagor's payment history must reflect no
delinquencies of 30 days or more during the most recent 12-month period, (ii)
the mortgage loan must have been originally underwritten within the preceding
two years, (iii) verification of income and employment is not required, although
Chase Financial Services may request additional supportive documentation in
appropriate cases, (iv) a reappraisal of the mortgaged property may not be
required, depending on the loan-to-value ratio and the interval since the last
appraisal by a Chase-approved appraiser and (v) the mortgaged property must be
an owner-occupied, primary or secondary residential property, and cannot be an
investment property or two- to four-unit dwelling. None of the CMFS Mortgage
Loans were originated using this program.
From time to time, exceptions to Chase Financial Services'
underwriting policies may be made. Such exceptions may be made only if
specifically approved on a loan-by-loan basis by certain managers of Chase
Financial Services. Exceptions may be made only after careful consideration of
certain mitigating factors such as borrower capacity, liquidity, employment
and residential stability and local economic conditions.
Chase Financial Services obtains a search of the liens of record to
which the property being financed is subject at the time of origination. Title
insurance is required in the case of all mortgage loans.
Chase Home Mortgage
* * * * *
Underwriting Policies. The following is a description of the
underwriting policies customarily employed by Chase Home Mortgage with respect
to residential mortgage loans which it originated during the period of
origination of the ... Mortgage Loans [originated by Chase Home Mortgage
("CHMC Mortgage Loans")]. Chase Home Mortgage has represented to the Company
that the CHMC Mortgage Loans were originated generally in accordance with such
policies.
A-3
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
Chase Home Mortgage's real estate lending process for one- to
four-family residential mortgage loans follows procedures established to
comply with applicable federal and state laws and regulations. Chase Home
Mortgage's underwriting standards are designed to evaluate a borrower's credit
standing and repayment ability and the value and adequacy of the mortgaged
property as collateral. The CHMC Mortgage Loans were originated using one of
the underwriting policies described below.
Approximately 66.6% of the CHMC Mortgage Loans were originated in a
manner generally consistent, except as provided below and as to loan amounts,
with FNMA or FHLMC published underwriting guidelines. Chase Home Mortgage
believes that each CHMC Mortgage Loan originated in such a manner generally
meets the credit, appraisal and underwriting standards described in such
published underwriting guidelines, except for the original principal balances
of such CHMC Mortgage Loans and that income ratios may have exceeded
FNMA/FHLMC guidelines in certain cases. Initially, a prospective borrower is
required to fill out an application designed to provide pertinent information
about the prospective borrower, the property to be financed and the type of
loan desired, including assets and liabilities and a statement of income and
expenses of the prospective borrower, proof of employment and income, such as
a verification of employment of the prospective borrower, proof of employment
and income, such as a verification of employment and proof of cash assets,
such as verification of deposits. Chase Home Mortgage obtains a credit report
which summarizes the prospective borrower's credit history with local
merchants and lenders and a record of any bankruptcy. Self-employed
prospective borrowers are generally required to submit their federal income
tax returns for the last two years or a separate statement of income and
expenses independently verified by a third-party agency.
Approximately 31.1% of the CHMC Mortgage Loans were originated using
Chase Home Mortgage's Alternative Documentation Program, which is generally
consistent with the corresponding FNMA and FHLMC programs. The underwriting
guidelines of this program are substantially identical to those set forth
above except that the prospective borrower's employment, income and assets are
not verified by a third-party agency, although statements issued by third
parties (such as bank statements and pay stubs) with respect to such matters
are reviewed. The maximum Loan-to-Value Ratio of any mortgage loan originated
under this program is 95%.
Approximately 1.9% of the CHMC Mortgage Loans were originated using
Chase Home Mortgage's Limited Documentation Program. Pursuant to this program,
verification of the information included in the prospective borrower's
application is generally limited to a review by Chase Home Mortgage of the
prospective borrower's credit report. Statements issued by third parties (such
as bank statements) with respect to the borrower's assets are reviewed and
borrowers must satisfy a minimum 30% downpayment requirement (35% for
condominiums and cooperative units) from their own assets. No "cash out"
refinancings are allowed under this program. The maximum Loan-to-Value Ratio
of any mortgage loan originated under this program is approximately 70% (65%
for condominiums and cooperative units).
Approximately 0.4% of the CHMC Mortgage Loans were originated using
Chase Home Mortgage's Reduced Documentation Program, which is substantially
identical to its Limited Documentation Program except that statements issued
by third parties with respect to a borrower's assets are not reviewed.
Once the necessary information is received, a determination is made
as to whether the prospective borrower has sufficient monthly income available
to meet the borrower's monthly obligations on the proposed loan and other
expenses related to the residence (such as property taxes and insurance) as
well as to meet other financial obligations and monthly living expenses. For
loans with a Loan-to-Value Ratio of 80% or less, Chase Home Mortgage's lending
guidelines require that all current fixed obligations of the borrower
(including mortgage payments based on Chase Home Mortgage's mortgage rates at
the time of the application and other expenses related to the residence)
generally may not exceed 40% of the borrower's gross income in the case of a
borrower with income of under $75,000, 42% of the borrower's gross income in
the case of a borrower with income of between $75,000 and $150,000 and 44% of
the borrower's gross income in the case of a borrower with income in excess of
$150,000. For loans with a Loan-to-Value Ratio between 80.01% and 90%, Chase
Home Mortgage's lending guidelines require that the mortgage payments (based
on Chase Home Mortgage's mortgage rates at the time of application) plus
applicable real property taxes, any condominium common charges and hazard
insurance, generally may not exceed 28% of the borrower's gross income and
that all monthly payments, including those mentioned above and other fixed
obligations, such as car payments, generally may not exceed 36% of the
borrower's gross income. Other credit considerations may cause Chase Home
Mortgage to depart from these guidelines in certain cases. Where there are two
individuals co-signing the mortgage note or documents, the income and debt of
both are included in the computation.
A-4
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
Chase Home Mortgage requires an appraisal to be made of each property
to be financed. The appraisal is conducted by an independent fee appraiser.
The person conducting the appraisal personally visits the property and
estimates its market value on the basis of comparable properties. The
independent appraisers do not receive any compensation dependent upon either
the amount of the loan or its consummation. In normal practice, the lower of
purchase price or appraised value determines the maximum amount which will be
lent on the property.
Chase Home Mortgage's Streamlined Refinancing Program, introduced in
1992, is available with respect to mortgage loans originated using Chase Home
Mortgage's underwriting policies that are currently serviced by Chase Home
Mortgage. Underwriting criteria used in connection with this program are
generally consistent with those used in connection with Chase Home Mortgage's
origination guidelines described above, except that (i) to qualify for
refinancing under this program, the mortgagor's payment history must reflect
no delinquencies of 30 days or more during the most recent 12-month period,
(ii) verification of income and employment is not required, although Chase
Home Mortgage may request additional supportive documentation in appropriate
cases, (iii) the mortgaged property must be an owner-occupied one- or
two-family dwelling and (iv) no "cash out" refinancings are permitted. None of
the CHMC Mortgage Loans were originated using this program.
From time to time, exceptions to Chase Home Mortgage's underwriting
policies may be made. Such exceptions may be made only if specifically
approved on a loan-by-loan basis by certain managers of Chase Home Mortgage.
Exceptions may be made only after careful consideration of certain mitigating
factors such as borrower capacity, liquidity, employment and residential
stability and local economic conditions.
Chase Home Mortgage obtains a search of the liens of record to which
the property being financed is subject at the time of origination. Title
insurance is required in the case of all mortgage loans.
* * * * *
Chase
* * * * *
Underwriting Policies. Approximately 10.1% of the Mortgage Loans were
originated by Chase. The underwriting policies used in originating such
Mortgage Loans were substantially the same as those described above under "Chase
Home Mortgage--Underwriting Policies."
* * * * *
DESCRIPTION OF THE CERTIFICATES
* * * * *
Distributions of Principal and Interest
Distributions of principal and interest on the Certificates will be
made on the 25th day of each month, or, if such day is not a business day, the
next succeeding business day (each, a "Remittance Date") beginning October 25,
1993, to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month in
which payment is made (each, a "Record Date"). Distributions will be made to
each Class as described below and on a pro rata basis among the Certificates
of each Class.
* * * * *
Principal received as part of a regularly scheduled Monthly Payment
on each Mortgage Loan will be passed through monthly on the Remittance Date
occurring in the month in which the related Due Date occurs. The Class IA
Certificates and Class IIA Certificates will be entitled to an amount equal to
the Class IA Percentage and Class IIA Percentage, respectively, of scheduled
principal amounts due with respect to Mortgage Group One and Mortgage Group
Two, respectively. Principal prepayments and certain other unscheduled amounts
of principal received during the period from the first day of any month to the
last day of such month (a "Principal Prepayment Period") will be passed
through on the Remittance Date occurring in the month following the month of
receipt. The Class IA Certificates and Class IIA Certificates will be entitled
to an amount equal to the Class IA Prepayment Percentage and Class IIA
Prepayment Percentage, respectively, of such unscheduled amounts of principal
paid with respect to the Mortgage Loans in Mortgage Group One and Mortgage
Group Two, respectively.
The Class IA-1, Class IA-2, Class IA-3, Class IA-4, Class IA-5 and
Class IA-6 Certificates, together with PAC Segment One, are sometimes
collectively referred to herein as the "PACs."
A-5
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
The Class IA-7, Class IA-8 and Class IA-9 Certificates are sometimes
collectively referred to herein as the "Group One TACs."
The Class IIA-1, Class IIA-2, Class IIA-3, Class IIA-4, Class IIA-5
and Class IIA-6 Certificates are sometimes collectively referred to herein as
the "Group Two TACs."
"TACs" means the Group One TACs and the Group Two TACs, referred to
collectively.
"Class IA Certificates" means the Class IA-1, Class IA-2, Class IA-3,
Class IA-4, Class IA-5, Class IA-6, Class IA-7, Class IA-8, Class IA-9, Class
IA-10 and Class IA-11 Certificates, referred to collectively.
"Class IIA Certificates" means the Class IIA-1, Class IIA-2, Class
IIA-3, Class IIA-4, Class IIA-5, Class IIA-6, Class IIA-7 and Class IIA-8
Certificates, refereed to collectively.
"Class A Certificates" means the Class IA and Class IIA Certificates,
referred to collectively.
"Offered Certificates" means the Class A and Class M Certificates,
referred to collectively.
"PAC Segment One" means the Class IA-1, Class IA-3, Class IA-4, Class
IA-5 and Class IA-6 Certificates, referred to collectively.
On any Remittance Date, for any PAC, the "Planned Amortization
Balance" means the amount specified for such Class or Segment for such
Remittance Date in Annex I hereto.
On any Remittance Date, for any TAC, the "Targeted Balance" means the
amount specified for such Class for such Remittance Date in Annex II hereto.
Except during such time as the Class IA Percentage equals 100%,
distributions in respect of principal will be made on each Remittance Date to
the Class IA Certificates as described below. On each Remittance Date, the
portion of the Class IA Distribution Amount (defined herein) remaining after
payment of interest as described below to the Class IA Certificateholders will
be distributed to the Class IA Certificateholders as follows:
(i) to the Class IA-2 Certificates and PAC Segment One, as
follows:
(A) 35.060334852528% to the Class IA-2 Certificates and
64.939665147472% to PAC Segment One, until the principal balance of
the Class IA-2 Certificates has been reduced to its Planned
Amortization Balance; and then
(B) to PAC Segment One until the aggregate principal balance
of PAC Segment One has been reduced to its Planned Amortization Balance;
(ii)amounts remaining after making the distributions in (i)
above will be distributed to the Group One TACs, pro rata based upon
their outstanding principal balances, in each case up to the amount
necessary to reduce the principal balance of each such Class to its
respective Targeted Balance;
(iii) amounts remaining after making the distributions in
(i) and (ii) above will be distributed to the Class IA-10 and Class
IA-11 Certificates, pro rata based upon their outstanding principal
balances until their principal balances have been reduced to zero;
(iv)amounts remaining after making the distributions in (i)
through (iii) above will be distributed to the Group One TACs, pro
rata based upon their outstanding principal balances, without regard
to their Targeted Balances, until their principal balances have been
reduced to zero; and
(v) amounts remaining after making the distributions in (i)
through (iv) above will be distributed to the Class IA-2 Certificates
and PAC Segment One in accordance with (i) above, without regard to
their Planned Amortization Balances, until their principal balances
have been reduced to zero.
A-6
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
Whenever principal payments are allocated to PAC Segment One, the
aggregate amount of such allocated principal will be paid as follows:
first, to the Class IA-1, Class IA-3, Class IA-4 and Class
IA-5 Certificates, sequentially, in that order, until their principal
balances have been reduced to their respective Planned Amortization
Balances;
second, to the Class IA-6 Certificates, until their principal
balance has been reduced to zero; and
third, to the Class IA-1, Class IA-3, Class IA-4 and Class
IA-5 Certificates, sequentially, in that order, until their principal
balances have been reduced to zero.
On any Remittance Date, the Class IA Certificates will be entitled to
any amounts remaining with respect to payments of Mortgage Loans in Mortgage
Group Two after distribution to the Class IIA Certificateholders of the Class
IIA Distribution Amount (defined herein) up to the amount of any unpaid Class
IA Distribution Amount.
Except during such time as the Class IIA Percentage equals 100%,
distributions in respect of principal will be made on each Remittance Date to
the Class IIA Certificates as described below. On each Remittance Date the
portion of the Class IIA Distribution Amount remaining after payment of
interest as described below to the Class IIA Certificateholders will be
distributed as follows:
(i) to the Group Two TACs, in each case up to the amount
necessary to reduce the principal balance of each such Class to its
Targeted Balance, as follows:
first, 75% to the class IIA-1 and Class IIA-3
Certificates, sequentially, in that order, and 25% to the Class IIA-2
Certificates;
second, to the Class IIA-4 and Class IIA-5
Certificates, pro rata based upon their outstanding principal balances; and
third, to the Class IIA-6 Certificates;
(ii)amounts remaining after making the distributions in (i)
above will be distributed to the Class IIA-7 and Class IIA-8
Certificates, pro rata based upon their respective principal balances
until such principal balances have been reduced to zero; and
(iii) amounts remaining after making the distributions in
(i) and (ii) above will be distributed to the Group Two TACs in
accordance with (i) above, without regard to their Targeted Balances,
until their principal balances have been reduced to zero.
On any Remittance Date, the Class IIA Certificateholders will be
entitled to any amounts remaining with respect to payments of Mortgage Loans
in Mortgage Group One after distribution to the Class IA Certificateholders of
the Class IA Distribution Amount, up to the amount of any unpaid Class IIA
Distribution Amount.
If the Class IA Percentage increases to 100%, distributions among the
remaining Classes of Class IA Certificates will be made pro rata in accordance
with their respective outstanding principal balances and not in accordance
with the priorities set forth above (and, in the case of the PACs and Group
One TACs, without regard to their Planned Amortization Balances or Targeted
Balances, as the case may be). Similarly, if the Class IIA Percentage
increases to 100%, distributions among the remaining Classes of Class IIA
Certificates will be made pro rata in accordance with their respective
outstanding principal balances and not in accordance with the priorities set
forth above (and, in the case of the Group Two TACs, without regard to their
Targeted Balances).
Principal distributions made to each Class of Certificates will be
paid pro rata among the Certificates of such Class in accordance with their
respective outstanding principal balances.
Interest received on each Mortgage Loan at a rate of 6.50% per annum
(with respect to Mortgage Group One) (the "Mortgage Group One Remittance
Rate") or 7.00% per annum (with respect to Mortgage Group Two) (the "Mortgage
Group Two Remittance Rate") will be passed through monthly on the Remittance
Date occurring in
A-7
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
the month in which the related Due Date occurs. Interest will be payable to each
Class of Offered Certificates at a rate equal to the applicable rate of interest
(the "Certificate Rate") specified or described on the front cover hereof, less
any Prepayment Interest Shortfalls allocated thereto, on the respective
outstanding principal balances of such Certificates as of the relevant
Determination Date.
Interest will be payable on the Class IA-7, Class IA-8 and Class IA-9
Certificates on each Remittance Date and will accrue at their respective
Certificate Rates during the one-month period beginning on the first day of
the month preceding the month in which the related Remittance Date occurs and
ending on the last day of the month preceding the month in which such
Remittance Date occurs (such period, the "COFI Floating Rate Interest Accrual
Period"). Such Certificate Rates will be calculated as follows:
(i) the Certificate Rate on the Class IA-7 Certificates with
respect to the first Remittance Date will be 5.20300%, and as to any
Remittance Date thereafter, the Certificate Rate on the Class IA-7
Certificates will equal the lesser of (A) 1.10% plus COFI and (B)
10.00%.
(ii)the Certificate Rate on the Class IA-8 Certificates with
respect to the first Remittance Date will be 8.84984%, and as to any
Remittance Date thereafter, the Certificate Rate on the Class IA-8
Certificates will equal approximately 21.3838% minus the product of
(A) 3.05483 and (B) COFI, but not less than 0.00%.
(iii) the Certificate Rate on the Class IA-9 Certificates
with respect to the first Remittance Date will be 9.00%, and as to
any Remittance Date thereafter, the Certificate Rate on the Class
IA-9 Certificates will equal approximately 42.1579% minus the product
of (A) 4.73684 and (B) COFI, but not greater than 9.00% or less than
0.00%.
Interest will be payable on the Class IA-10, Class IA-11, Class IIA-7
and Class IIA-8 Certificates on each Remittance Date and will accrue at their
respective Certificate Rates during the one-month period beginning on the 25th
day of the month preceding the month in which the related Remittance Date
occurs and ending on the 24th day of the month of such Remittance Date (such
period, the "LIBOR Floating Rate Interest Accrual Period"). Such Certificate
Rates will be calculated as follows:
(i) the Certificate Rate on the Class IA-10 Certificates
with respect to the first Remittance Date will be 4.18750%, and as to
any Remittance Date thereafter, the Certificate Rate on the Class
IA-10 Certificates will equal the lesser of (A) 1.00% plus LIBOR as
determined as of the second London Business Day (defined below)
preceding the related LIBOR Floating Rate Interest Accrual Period
(each such day, a "Rate Adjustment Date") ("LIBOR") and (B)
approximately 10.00%.
(ii) the Certificate Rate on the Class IA-11 Certificates
with respect to the first Remittance Date will be 10.79538%, and as
to any Remittance Date thereafter, the Certificate Rate on the Class
IA-11 Certificates will equal approximately 16.7161% minus the
product of (A) 1.857466 and (B) LIBOR, but not less than 0.00%.
(iii) the Certificate Rate on the Class IIA-7 Certificates
with respect to the first Remittance Date will be 4.12500%, and as to
any Remittance Date thereafter, the Certificate Rate on the Class
IIA-7 Certificates will equal the lesser of (A) 1.00% plus LIBOR and
(B) 10.00%.
(iv) the Certificate Rate on the Class IIA-8 Certificates
with respect to the first Remittance Date will be 13.70762%, and as
to any Remittance Date thereafter, the Certificate Rate on the Class
IIA-8 Certificates will equal approximately 20.9985% minus the
product of (A) 2.333086 and (B) LIBOR, but not less than 0.00%.
The portion of each regular Monthly Payment that represents interest
on the related Mortgage Loan in excess of the applicable Remittance Rate plus
the Servicing Fee will constitute "Excess Interest." Excess Interest is
expected to be initially retained by Chase, Chase Home Mortgage and Chase
Financial Services and is not offered hereby. Excess Interest will not be
available for distribution to the Certificateholders.
The Master Servicer will deposit, or will cause to be deposited, in
the Certificate Account on a daily basis the payments and collections
described in "Description of the Certificates--Certificates Evidencing
Interests in
A-8
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
Mortgage Loans--Payments on Mortgage Loans" in the Prospectus, except that the
Master Servicer will deduct its Servicing Fee and any expenses of liquidating
defaulted Mortgage Loans or property acquired in respect thereof.
On each Remittance Date, there will be distributed to the holders of
the Class IA and Class IIA Certificates from the Available Distribution Amount
and Advances made by the Master Servicer, plus or minus any Excess Allocation
Amounts (defined herein), as the case may be, an amount, to the extent
available, equal to the applicable Class A Distribution Amount.
The "Available Distribution Amount" means, generally, with respect to
each Mortgage Group, or, as the context requires, both Mortgage Groups, as of
any Remittance Date, an amount equal to the amount on deposit in the
Certificate Account as of the close of business on the related Determination
Date with respect to the related Mortgage Group, except: (a) amounts received
on Mortgage Loans in the related Mortgage Group as late payments or other
recoveries of principal or interest (including net liquidation proceeds and
insurance proceeds) and respecting which the Master Servicer previously made
an unreimbursed Advance; (b) amounts representing reimbursement for Advances
with respect to Mortgage Loans in the related Mortgage Group determined to be
nonrecoverable and amounts representing reimbursement for certain losses and
expenses incurred by the Master Servicer, as described in the Agreement; (c)
the Servicing Fee relating to Mortgage Loans in the related Mortgage Group, as
adjusted as provided in the Agreement with respect to principal prepayments;
(d) all amounts representing Monthly Payments with respect to Mortgage Loans
in the related Mortgage Group due after the related Due Date; (e) all
principal prepayments, liquidation proceeds, insurance proceeds, condemnation
proceeds and repurchase proceeds received with respect to Mortgage Loans in
the related Mortgage Group after the related Principal Prepayment Period; (f)
where permitted by the Agreement, that portion of net liquidation proceeds and
insurance proceeds representing unpaid Servicing Fees relating to Mortgage
Loans in the related Mortgage Group; and (g) any other amounts not included in
accordance with the Agreement.
The "Class IA Distribution Amount" and the "Class IIA Distribution
Amount," (each, a "Class A Distribution Amount") mean generally as of any
Remittance Date, an amount, not in excess of the applicable Class A Principal
Balance plus interest thereon at the applicable Remittance Rate, equal to the
sum of: (a) an amount equal to the applicable Class A Percentage times all
Monthly Payments (including Balloon Amounts), whether or not received, which
were due on the related Due Date on outstanding Mortgage Loans in the related
Mortgage Group as of such Due Date, with the interest portion of each such
Monthly Payment adjusted to the applicable Remittance Rate; (b) an amount
equal to the applicable Class A Prepayment Percentage times all principal
prepayments on Mortgage Loans in the related Mortgage Group received during
the related Principal Prepayment Period, plus the applicable Class A
Percentage times interest paid thereon by the Mortgagor and the amount of
compensating interest paid by the Master Servicer pursuant to the Agreement,
each adjusted to the applicable Remittance Rate; (c) with respect to each
Mortgage Loan in the related Mortgage Group not described in (d) below, an
amount equal to the applicable Class A Percentage times the sum of all
insurance proceeds, condemnation awards and any other cash proceeds from a
source other than the Mortgagor, to the extent required to be deposited in the
Certificate Account, which were received during the related Principal
Prepayment Period, net of related unreimbursed servicing advances and net of
any portion thereof which, as to any Mortgage Loan in the related Mortgage
Group, constitutes a late collection with respect to which an Advance has
previously been made; (d) with respect to each Mortgage Loan in the related
Mortgage Group which has become a liquidated Mortgage Loan during the related
Principal Prepayment Period, an amount equal to the applicable Class A
Prepayment Percentage times an amount equal to the principal balance of such
Mortgage Loan (net of Advances with respect to principal) as of the Due Date
immediately preceding the date on which it became a liquidated Mortgage Loan
plus the applicable Class A Percentage times one month's interest thereon at
the applicable Remittance Rate;(e) with respect to each Mortgage Loan in the
related Mortgage Group repurchased during the related Principal Prepayment
Period, an amount equal to the applicable Class A Prepayment Percentage times
the principal portion of the purchase price thereof plus the applicable Class
A Percentage times the principal portion of the purchase price thereof
adjusted to the applicable Remittance Rate (net of amounts with respect to
which a distribution has previously been made to the Class A
Certificateholders); and (f) an amount equal to any amounts that were not
distributed to the applicable Class A Certificateholders on any prior
Remittance Date that would have constituted part of the applicable Class A
Distribution Amount had they been so distributed, together with interest
thereon at the applicable Remittance Rate (net of amounts with respect to
which a distribution has been previously made to the applicable Class A
Certificateholders).
The "Class IA Principal Balance" and "Class IIA Principal Balance"
(each, a "Class A Principal Balance") mean, generally, as of any Remittance
Date, (a) the applicable Class A Principal Balance for the preceding
A-9
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
Remittance Date less (b) amounts distributed to the applicable Class A
Certificateholders on such preceding Remittance Date allocable to principal
(including Advances) and any losses allocated to the applicable Class A
Certificates plus (c) the applicable Class A Interest Shortfall, if any, for
the preceding Remittance Date; provided that (i) the Class IA Principal
Balance on the first Remittance Date will be the initial Class IA Principal
Balance, which is expected to be approximately $122,073,000; and (ii) the
Class IIA Principal Balance on the first Remittance Date will be the initial
Class IIA Principal Balance, which is expected to be approximately
$187,622,000. On any Remittance Date, the "Class A Interest Shortfall" will
equal the excess, if any, of the amounts payable to the Class A
Certificateholders allocable to interest over amounts actually distributed
with respect to interest to the Class A Certificateholders.
The "Class IA Prepayment Percentage" and "Class IIA Prepayment
Percentage" (each, a "Class A Prepayment Percentage") mean, generally, subject
to certain conditions set forth in the Agreement, as of any Remittance Date up
to and including the Remittance Date in September 1998, 100%; as of any
Remittance Date in the first year thereafter, the applicable Class A
Percentage plus 70% of the applicable Subordinated Percentage for such
Remittance Date; as of any Remittance Date in the second year thereafter, the
applicable Class A Percentage plus 60% of the applicable Subordinated
Percentage for such Remittance Date; as of any Remittance Date in the third
year thereafter, the applicable Class A Percentage plus 40% of the applicable
Subordinated Percentage for such Remittance Date; as of any Remittance Date in
the fourth year thereafter, the applicable Class A Percentage plus 20% of the
applicable Subordinated Percentage for such Remittance Date; and as of any
Remittance Date after the fourth year thereafter, the applicable Class A
Percentage; provided that, if either Class A Percentage as of any such
Remittance Date is greater than the initial applicable Class A Percentage, the
Class IA Prepayment Percentage and the Class IIA Prepayment Percentage shall
each be 100%. As of any Remittance Date, the "Mortgage Group One Subordinated
Percentage" means the difference between 100% and the Class IA Percentage and
the "Mortgage Group Two Subordinated Percentage" means the difference between
100% and the Class IIA Percentage, and each is a "Subordinated Percentage."
On each Remittance Date, the Class IM and Class IIM
Certificateholders will be entitled to receive, from the portion, if any, of
the Available Distribution Amount applicable to Mortgage Group One or Mortgage
Group Two respectively, remaining after making all distributions of interest
and principal payable to the Class A Certificateholders on such Remittance
Date; (i) one month's interest at the applicable Certificate Rate on the
outstanding principal balance of the Class IM or Class IIM Certificates, as
the case may be (which balance shall be deemed to include all interest due on
prior Remittance Dates but not yet paid for so long as the Class B Percentage
is greater than zero), less any Prepayment Interest Shortfalls allocable to
the applicable Class M Certificates, (ii) any amounts distributable with
respect to principal to the applicable Class M Certificateholders on any prior
Remittance Date which were not previously distributed and (iii) principal
distributions up to the amount calculated pursuant to the following paragraph.
On each Remittance Date on which the Class B Percentage is greater
than or equal to the initial Class B Percentage (approximately 3.00%), the
portion of the Available Distribution Amount relating to payments of principal
of the Mortgage Loans remaining after all distributions of principal and
interest to the Class A Certificates with respect to such Remittance Date have
been made (the "Subordinated Principal Distribution Amount") will be allocated
between the Class M and Class B Certificates pro rata based upon the
outstanding principal balances of the Class M and Class B Certificates. On any
Remittance Date on which the Class B Percentage is less than approximately
3.00%, the Class M Certificates will be allocated all of the Subordinated
Principal Distribution Amount. On any Remittance Date, no distribution of
principal or interest will be made on the Class B Certificates until the Class
M Certificates have received all distributions of principal and interest to
which they are entitled on such Remittance Date. On each Remittance Date, the
portion of the Subordinated Principal Distribution Amount distributable to the
Class M Certificates (the "Class M Principal Distribution Amount") will be
allocated between the Class IM Certificates and the Class IIM Certificates as
follows. The Class IM Certificates will receive the percentage of the Class M
Principal Distribution Amount for such Remittance Date which is equal to the
percentage of the Subordinated Principal Distribution Amount for such
Remittance Date that relates to amounts received with respect to Mortgage
Loans in Mortgage Group One, and the Class IIM Certificates will receive the
percentage of the Class M Principal Distribution Amount for such Remittance
Date which is equal to the percentage of the Subordinated Principal
Distribution Amount for such Remittance Date that relates to amounts received
with respect to Mortgage Loans in Mortgage Group Two.
* * * * *
A-10
<PAGE>
EXHIBIT A - Excerpts from Underlying Chase Prospects (cont'd)
Subordinated Certificates and Shifting Interests
The Class M Certificates are Subordinated Certificates, evidencing
the right of the holders thereof to receive distributions on the respective
Mortgage Loans, which right is subordinate to the rights of the holders of the
Class A Certificates and the Class B Certificates are Subordinated
Certificates evidencing the right of the holders thereof to receive
distributions on the respective Mortgage Loans which right is subordinate to
the rights of the holders of the Class A and Class M Certificates each to the
extent described below. The subordination provided by the Class M and Class B
Certificates is intended to enhance the likelihood of regular receipt by the
Class A Certificateholders of the full amount of monthly distributions due
them and to protect the Class A Certificateholders against losses and the
subordination provided by the Class B Certificates is intended to enhance the
likelihood of regular receipt by the Class A and Class M Certificateholders of
the full amount of monthly regular receipt by the Class A and Class M
Certificateholders of the full amount of monthly distributions due them and to
protect the Class A and Class M Certificateholder against losses.
* * * * *
If the principal balance of the Class B Certificates has been reduced
to zero, all future Realized Losses (defined below) on the Mortgage Loans in
Mortgage Group One will be allocated to the Class IM Certificates until the
principal balance of the Class IM Certificates has been reduced to zero and
then to the Class IIM Certificates until the principal balance of the Class
IIM Certificates has been reduced to zero, and all future Realized Losses on
the Mortgage Loans in Mortgage Group Two will be allocated to the Class IIM
Certificates until the principal balance of the Class IIM Certificates has
been reduced to zero and then to the Class IM Certificates until the principal
balance of the Class IM Certificates has been reduced to zero. If the
aggregate principal balance of the Class M and Class B Certificates has been
reduced to zero, all future Realized Losses on the Mortgage Loans in Mortgage
Group One will be allocated among the outstanding Class IA Certificates pro
rata based upon their respective outstanding principal balances and all future
Realized Losses on the Mortgage Loans in Mortgage Group Two will be allocated
among the outstanding Class IIA Certificates pro rata based upon their
respective outstanding principal balances. In addition, if the applicable
Class Percentage increases to 100%, (i) payments to the Class IA
Certificateholders based upon principal on the Mortgage Loans in Mortgage
Group One will be made pro rata among the Classes of Class IA Certificates in
accordance with their respective outstanding principal balances, and not in
accordance with the priorities set forth herein or (ii) payments to the Class
IIA Certificateholders based upon principal on the Mortgage Loans in Mortgage
Group Two will be made pro rata among the Classes of Class IIA Certificates in
accordance with their respective outstanding principal balances and not in
accordance with the priorities set forth herein.
A "Realized Loss" is generally the amount, if any, with respect to
any defaulted Mortgage Loan which has been liquidated in accordance with the
Agreement, by which the unpaid principal balance and accrued interest thereon
at a rate equal to the Remittance Rate exceeds the amount actually recovered
by the Master Servicer with respect thereto (net of reimbursement of certain
expenses) at the time such defaulted Mortgage Loan was liquidated.
A-11
<PAGE>
[This page intentionally left blank]
<PAGE>
EXHIBIT B
The information about the Underlying CWMBS Certificates and the CWMBS
Mortgage Loans contained in this Exhibit A has been obtained from the
Underlying CWMBS Prospectus, which was prepared in connection with the initial
offering of the Underlying CWMBS Certificates. Such information has not been
independently represented to the Trust as being accurate and complete.
Additionally the Underlying CWMBS Prospectus contains information only as of
the date of such document. You should be aware, however, that material changes
may have occurred since the preparation of the Underlying CWMBS Prospectus and
the composition of the related mortgage pools may have changed significantly.
There may be considerable differences between the current mortgage loan
characteristics and the characteristics described in connection with the
issuance of the Underlying CWMBS Certificates. All capitalized terms contained
in the following excerpts from the CWMBS Underlying Prospectus have the
meanings solely as specified in such excerpts.
EXCERPTS FROM THE UNDERLYING CWMBS PROSPECTUS
THE MORTGAGE POOL
General
* * * * *
Certain information with respect to the Mortgage Loans expected to be
included in the Mortgage Pool is set forth below. Prior to the Closing Date,
Mortgage Loans may be removed from the Mortgage Pool and other Mortgage Loans
may be substituted therefor. The Depositor believes that the information set
forth herein with respect to the Mortgage Pool as presently constituted is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the Closing Date, although certain characteristics of the
Mortgage Loans in the Mortgage Pool may vary. Unless otherwise indicated,
information presented herein expressed as a percentage (other than rates of
interest) are approximate percentages based on the Stated Principal Balances
of the Mortgage Loans as of the Cut-off Date.
As of the Cut-off Date, the aggregate of the Stated Principal
Balances of the Mortgage Loans is expected to be approximately $250,127,143.99
(the "Cut-off Date Pool Principal Balance"). The Mortgage Loans provide for
the amortization of the amount financed over a series of substantially equal
monthly payments. All the Mortgage Loans provide for payments due as of the
first day of each month (the "Due Date"). The Mortgage Loans to be included in
the Mortgage Pool were originated or acquired by the Seller in the normal
course of its business substantially in accordance with the underwriting
criteria specified herein. At origination, substantially all of the Mortgage
Loans had stated terms to maturity of 15 years. Scheduled monthly payments
made by the Mortgagors on the Mortgage Loans ("Scheduled Payments") either
earlier or later than the scheduled Due Dates thereof will not affect the
amortization schedule or the relative application of such payments to
principal and interest. The Mortgagors may prepay their Mortgage Loans at any
time without penalty.
Each Mortgage Loan was originated on or after March 19, 1993.
The latest date on which any Mortgage Loan matures is May 1, 2009.
The earliest stated maturity date of any Mortgage Loan is March 1, 2004.
* * * * *
No Mortgage Loans will be subject to a buydown agreement. No Mortgage
Loan provides for deferred interest or negative amortization.
No Mortgage Loan had a Loan-to-Value Ratio at origination of more
than 90%. Each Mortgage Loan with a Loan-to-Value Ratio at origination of
greater than 80% is covered by a primary mortgage guaranty insurance policy
issued by a mortgage insurance company acceptable to the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), which policy provides coverage in an amount equal to the excess of
the original principal balance of the related Mortgage Loan over 75% of the
value of the related Mortgaged Property, plus accrued interest thereon and
related foreclosure expenses. No such primary mortgage guaranty insurance
policy will be required with respect to any such Mortgage Loan after the date
on which
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
the related Loan-to-Value Ratio is 80% or less or, based on a new appraisal,
the principal balance of such Mortgage Loan represents 80% or less of the new
appraised value.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of determination and the
denominator of which is (a) in the case of a purchase, the lesser of the
selling price of the Mortgaged Property or its appraised value at the time of
sale, or (b) in the case of a refinance, the appraised value of the Mortgaged
Property at the time of such refinance, except in the case of a Mortgage Loan
underwritten pursuant to Countrywide's Streamlined Refinance Documentation
Program (the "Streamlined Documentation Program") as described herein under
"--Underwriting Standards." With respect to Mortgage Loans originated pursuant
to the Streamlined Documentation Program (a) if the loan-to-value ratio at the
time of the origination of the mortgage loan being refinanced was 60% or less,
the "Loan-to-Value Ratio" will be the ratio of the principal amount of the
Mortgage Loan outstanding at the date of determination divided by the
appraised value of the related mortgaged property at the time of the
origination of the mortgage loan being refinanced and (b) if the loan-to-value
ratio at the time of the origination of the mortgage loan being refinanced was
greater than 60%, then the "Loan-to-Value Ratio" will be the ratio of the
principal amount of the Mortgage Loan outstanding at the date of determination
divided by the appraised value as determined by an appraisal at the time of
the origination of such Mortgage Loan. See "--Underwriting Standards" herein.
No assurance can be given that the value of any Mortgaged Property has
remained or will remain at the level that existed on the appraisal or sales
date. If residential real estate values generally or in a particular
geographic area decline, the Loan-to-Value Ratios might not be a reliable
indicator of the rates of delinquencies, foreclosures and losses that could
occur with respect to such Mortgage Loans.
* * * * *
Underwriting Standards
All mortgage loans must meet credit, appraisal and underwriting
standards acceptable to Countrywide. Such underwriting standards are applied
to evaluate the prospective borrower's credit standing and repayment ability
and the value and adequacy of the mortgaged property as collateral. These
standards are applied in accordance with applicable federal and state laws and
regulations. Such underwriting procedures are generally consistent with those
identified under "Mortgage Loan Program--Underwriting Standards" in the
Prospectus except as otherwise provided herein.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's assets, liabilities, income,
credit history, employment history and other personal information. In
addition, each applicant is required to have sufficient cash resources to pay
the downpayment and closing costs. Countrywide requires a credit report on
each applicant from a credit reporting company. The report typically contains
information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults,
bankruptcy, dispossession, suits or judgments. All adverse information in the
credit report is required to be explained by the prospective borrower to the
satisfaction of the lending officer. Self-employed individuals are generally
required to submit their two most recent federal income tax returns. In
determining whether a prospective borrower has sufficient monthly income
available (i) to meet the borrower's monthly obligations relating to the
proposed mortgage loan (including property taxes, hazard insurance premiums,
and where applicable, primary mortgage guaranty insurance premiums and
homeowners' association dues) and (ii) to meet monthly housing expenses
described in clause (i) above and other financial obligations of the borrower
(including consumer and installment debt), Countrywide generally applies
ratios with respect to fixed rate mortgage loans of up to 33% and 38%,
respectively, of the proposed borrower's acceptable stable monthly gross
income. Exceptions to the underwriting standards described herein are made in
certain circumstances where compensating factors are demonstrated by a
prospective borrower.
Countrywide's underwriting standards generally allow Loan-to-Value
Ratios at origination of up to 90% for mortgage loans with original principal
balances of up to $350,000, up to 85% for mortgage loans with original
principal balances of up to $400,000, up to 80% for mortgage loans with
original principal balances of up to $650,000, up to 70% for mortgage loans
with original principal balances of up to $750,000 and up to 65% for mortgage
loans with original principal balances of up to $1,000,000. Countrywide
generally does not originate cash-out refinance mortgage loans with original
principal balances in excess of $1,000,000. A refinance mortgage loan is
classified as a cash-out refinance mortgage loan by Countrywide if the
borrower retains greater than 1.0% of the entire amount of the proceeds from
the refinancing of the existing mortgage loan.
B-2
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
Except as described below with respect to its Streamlined
Documentation Program, Countrywide obtains appraisals from independent
appraisers or appraisal services for properties that are to secure mortgage
loans. Such appraisers inspect and appraise the subject property and verify
that such property is in acceptable condition. Following each appraisal, the
appraiser prepares a report which includes a market data analysis based on
recent sales of comparable homes in the area and, when deemed appropriate, a
replacement cost analysis based on the current cost of constructing a similar
home. All appraisals are required to conform to FNMA or FHLMC appraisal
standards then in effect. Every independent appraisal is reviewed by a
Countrywide underwriter before the loan is funded.
Countrywide requires title insurance on all of its mortgage loans
secured by liens on real property. Countrywide also requires that fire and
extended coverage casualty insurance be maintained on the secured property in
an amount at least equal to the principal balance of the related single-family
loan or the replacement cost of the property, whichever is less.
Countrywide also originates or acquires mortgage loans pursuant to
alternative sets of underwriting criteria under its Alternative Documentation
Loan Program (the "Alternative Documentation Program"), its Reduced
Documentation Loan Program (the "Reduced Documentation Program") and its
Streamlined Documentation Program. The Alternative Documentation Program
permits a borrower to provide W-2 forms instead of tax returns covering the
most recent two years, permits bank statements in lieu of verifications of
deposits and permits alternative methods of employment verification. Under the
Reduced Documentation Program, relatively more emphasis is placed on property
underwriting than on credit underwriting and certain credit underwriting
documentation concerning income and employment verification therefore is
waived. However, under the Reduced Documentation Program, Countrywide obtains
from prospective borrowers either a verification of deposits or bank
statements for the most recent two-month period preceding the loan
application. Mortgage loans underwritten under the Reduced Documentation
Program generally are limited to self-employed borrowers with credit histories
that demonstrate an established ability to repay indebtedness in a timely
fashion. Permitted maximum Loan-to-Value Ratios (including secondary
financing) under the Reduced Documentation Program, which range up to 70%, are
more restrictive than under Countrywide's standard underwriting criteria.
Mortgage loans underwritten pursuant to the Reduced Documentation Program
generally must be secured by owner-occupied primary residences. The
Streamlined Documentation Program allows a borrower to refinance an existing
Countrywide mortgage loan provided that, among other things, such mortgage
loan has not been more than 30 days delinquent in payment during the previous
twelve-month period. Under the Streamlined Documentation Program, appraisals
are obtained only on a limited basis: (i) if the loan being refinanced had a
loan-to-value ratio at the time of origination in excess of 60%, only a
short-form appraisal is obtained; and (ii) if the loan being refinanced had a
loan-to-value ratio at the time of origination of 60% or less, no new
appraisal is required. In addition, under the Streamlined Documentation
Program, a credit report is obtained but only a limited credit review is
conducted, no income or asset verification is required, and telephonic
verification of employment is permitted.
Countrywide does not maintain separate records regarding the
delinquency or foreclosure rates of mortgage loans underwritten under any of
the Alternative Documentation Program, the Reduced Documentation Program or
the Streamlined Documentation Program, as compared to mortgage loans
underwritten pursuant to its standard underwriting criteria. However,
Countrywide does not believe that there are material differences regarding the
delinquency and foreclosure rates of mortgage loans underwritten under the
Alternative Documentation Program and the Reduced Documentation Program as
compared to mortgage loans underwritten under its standard underwriting
criteria. Because Countrywide only recently began originating mortgage loans
under the Streamlined Documentation Program, it does not yet have any
meaningful information regarding delinquency and foreclosure rates for
mortgage loans originated under that program.
* * * * *
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Agreement.
Set forth below are summaries of the specific terms and provisions to which
the Certificates will be issued.
B-3
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
* * * * *
The Mortgage Pass-Through Certificates, Series 1994-13 will consist
of the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class
A-7, Class A-8, Class A-9, Class A-10, Class A-11, Class A-12, Class A-13,
Class A-14, Class A-15, Class A-16, Class PO and Class AR Certificates
(collectively, the "Senior Certificates") and the Class M, Class B-1 and Class
B-2 Certificates (collectively, the "Subordinated Certificates"). The Senior
Certificates and Subordinated Certificates are collectively referred to herein
as the "Certificates."
* * * * *
The Class Certificate Balance of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof reduced by
the sum of (i) all amounts previously distributed to holders of Certificates
of such Class as payments of principal, (ii) the amount of Realized Losses
(including Excess Losses) allocated to such Class and (iii) in the case of any
Class of Subordinated Certificates, any amounts allocated to such Class in
reduction of its Class Certificate Balance in respect of payments of Class PO
Deferred Amounts, as described below under "--Allocation of Losses." In
addition, the Class Certificate Balance of the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation
will be reduced if and to the extent that the aggregate of the Class
Certificate Balances of all Classes of Certificates, following all
distributions and all the allocation of Realized Losses on a Distribution
Date, exceeds the Pool Principal Balance as of the Due Date occurring in the
month of such Distribution Date.
The Senior Certificates will have an initial aggregate
principal balance of approximately $243,248,063 and will evidence in the
aggregate an initial beneficial ownership interest of approximately 97.25% in
the Trust Fund. The Class M, Class B-1 and Class B-2 Certificates will each
evidence in the aggregate an initial beneficial ownership interest of
approximately 1.65%, 0.75% and 0.35%, respectively, in the Trust Fund.
* * * * *
Distributions
Distributions on the Certificates will be made by the Trustee on the
25th day of each month, or if such day is not a business day, on the first
business day thereafter, commencing in May 1994 (each, a "Distribution Date"),
to the persons in whose names such Certificates are registered at the close of
business on the last business day of the month preceding the month of such
Distribution Date (the "Record Date").
* * * * *
Priority of Distributions Among Certificates
As more fully described herein, distributions will be made on each
Distribution Date from Available Funds in the following order of priority: (i)
concurrently, to interest on each interest bearing Class of Senior
Certificates and to payment of the Excess Master Servicing Fee for such
Distribution Date; (ii) to principal on the Classes of Senior Certificates
then entitled to receive distributions of principal, in the order and subject
to the priorities set forth herein under "--Principal," in each case in an
aggregate amount up to the maximum amount of principal to be distributed on
such Classes on such Distribution Date; (iii) to any Class PO Deferred Amounts
with respect to the Class PO Certificates, but only from amounts that would
otherwise be distributable on such Distribution Date as principal of the
Subordinated Certificates; and (iv) to interest on and then principal of each
Class of Subordinated Certificates, in the order of their numerical Class
designations, beginning with the Class M Certificates until the respective
Class Certificate Balances thereof are reduced to zero.
"Available Funds" with respect to any Distribution Date will be equal
to the sum of (i) all scheduled installments of interest (net of the related
Expense Fees, other than the related Excess Master Servicing Fee) and
principal due on the Due Date in the month in which such Distribution Date
occurs and received prior to the related Determination Date, together with any
Advances in respect thereof; (ii) all proceeds of any primary mortgage
guaranty insurance policies and any other insurance policies with respect to
the Mortgage Loan, to the extent such proceeds are not applied to the
restoration of the related Mortgaged Property or released to the Mortgagor in
accordance with the Master Servicer's normal servicing procedures
(collectively, "Insurance Proceeds") and all other cash amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans, by
foreclosure or otherwise ("Liquidation Proceeds") during the calendar month
preceding the month of such Distribution Date (in each case, net of
unreimbursed expenses incurred in connection with a liquidation or foreclosure
and unreimbursed Advances, if any); (iii) all partial or full prepayments
received during the related Prepayment Period (net of any
B-4
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
Prepayment Interest Excess); and (iv) amounts received with respect to such
Distribution Date as the Substitution Adjustment Amount or purchase price in
respect of a Deleted Mortgage Loan or a Mortgage Loan repurchased by the Seller
or the Master Servicer as of such Distribution Date, reduced by amounts in
reimbursement for Advances previously made and other amounts as to which the
Master Servicer is entitled to be reimbursed from the Certificate Account
pursuant to the Agreement.
Interest
* * * * *
Each Class of COFI Certificates will bear interest during its initial
Interest Accrual Period at the initial Pass-Through Rate set forth below, and
will bear interest during each Interest Accrual Period thereafter, subject to
the applicable Maximum and Minimum Pass-Through Rates, at the per annum rate
determined as described below:
Class Initial Pass- Maximum/Minimum Formula for Calculation
Through Rate Pass-Through Rate of Pass-Through Rate
- ---------------- ------------- ----------------- -----------------------
A-14............ 5.06% 9.50% 1.35% COFI + 135 basis points
A-15............ 9.61925% 17.65566% 0.00% 17.65566% - (2.16615 x COFI)
On each Distribution Date, to the extent of funds available therefor,
each interest bearing Class of Certificates will be entitled to receive an
amount allocable to interest (as to each such Class, the "Interest
Distribution Amount") with respect to the related Interest Accrual Period. The
Interest Distribution Amount for any interest bearing Class will be equal to
the sum of (i) interest at the applicable Pass-Through Rate on the related
Class Certificate Balance and (ii) the sum of the amounts, if any, by which
the amount described in clause (i) above on each prior Distribution Date
exceeded the amount actually distributed as interest on such prior
Distribution Dates and not subsequently distributed ("Unpaid Interest
Amounts"). The Class PO Certificates are Principal Only Certificates and will
not bear interest.
With respect to each Distribution Date, the "Interest Accrual Period"
for each interest bearing Class of Certificates will be the calendar month
preceding the month of such Distribution Date.
The interest entitlement described above for each Class of
Certificates and the Excess Master Servicing Fee payable to the Master
Servicer with respect to a Distribution Date will be reduced by the amount of
"Net Interest Shortfalls" for such Distribution Date. With respect to any
Distribution Date, the "Net Interest Shortfall" is equal to (i) the amount of
interest that would otherwise have been received with respect to any Mortgage
Loan that was the subject of (x) a Relief Act Reduction or (y) a Special
Hazard Loss, Fraud Loss, Debt Service Reduction or Deficient Valuation, after
the exhaustion of the respective amounts of coverage provided by the
Subordinated Certificates for such types of losses and (ii) any Net Prepayment
Interest Shortfalls with respect to such Distribution Date. Net Interest
Shortfalls on any Distribution Date will be allocated pro rata among all
Classes of Certificates entitled to receive distributions of interest on such
Distribution Date and the Excess Master Servicing Fee (i) in the case of such
Certificates, based on the amount of interest each such Class of Certificates
would otherwise be entitled to receive on such Distribution Date and (ii) in
the case of the Excess Master Servicing Fee, based on the amount of the Excess
Master Servicing Fee that the Master Servicer would otherwise be entitled to
receive with respect to such Distribution Date, in each case, before taking
into account any reduction in such amounts resulting from such Net Interest
Shortfalls. A "Relief Act Reduction" is a reduction in the amount of monthly
interest payment on a Mortgage Loan pursuant to the Soldiers' and Sailors'
Civil Relief Act of 1940. See "Certain Legal Aspects of Mortgage
Loans--Soldiers' and Sailors' Civil Relief Act" in the Prospectus. With
respect to any Distribution Date, a "Net Prepayment Interest Shortfall" is the
amount by which the aggregate of Prepayment Interest Shortfalls during the
related Prepayment Period exceeds one-half of the aggregate amount of the
Basic Master Servicing Fee payable on such Distribution Date. A "Prepayment
Interest Shortfall" is the amount by which interest paid by a borrower in
connection with a prepayment of principal on a Mortgage Loan received from the
sixteenth day (or, in the case of the first Distribution Date, from the
Cut-off Date) through the last day of the month preceding the month of such
Distribution Date is less than one month's interest at the related Mortgage
Rate on the Stated Principal Balance of such Mortgage Loan.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each interest bearing Class of Certificates, on the
basis of the related Class Certificate Balance immediately prior to such
B-5
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
Distribution Date. Interest will be calculated and payable on the basis of a
360-day year divided into twelve 30-day months.
In the event that, on a particular Distribution Date, Available Funds
in the Certificate Account applied in the order described above under
"--Priority of Distributions Among Certificates" are not sufficient to make a
full distribution of the interest entitlement on the Certificates, interest
will be distributed on each Class of Certificates of equal priority based on
the amount of interest each such Class would otherwise have been entitled to
receive in the absence of such shortfall. Any Unpaid Interest Amount will be
carried forward and added to the amount holders of each such Class of
Certificates will be entitled to receive on the next Distribution Date. Such a
shortfall could occur, for example, if losses realized on the Mortgage Loans
were exceptionally high or were concentrated in a particular month. Any Unpaid
Interest Amount so carried forward will not bear interest.
Principal
General. All payments and other amounts received in respect of
principal of the Mortgage Loans will be allocated between ... the Senior
Certificates (other than the Class PO Certificates) and the Subordinated
Certificates... based on the applicable Non-PO Percentage... of such amounts.
The Non-PO Percentage with respect to any Mortgage Loan with an
Adjusted Net Mortgage Rate ("ANMR") less than 6.50% (each such Mortgage Loan,
a "Discount Mortgage Loan") will be equal to ANMR / 6.50%. The Non-PO
Percentage with respect to any Mortgage Loan with an Adjusted Net Mortgage
Rate equal to or greater than 6.50% (each such Mortgage Loan, "Non-Discount
Mortgage Loan") will be 100%.
* * * * *
Segments. Solely for purposes of calculating distributions of
principal, all or a portion of the Class Certificate Balances of certain
Classes of Certificates set forth in the table below will be represented by
five segments (each, a "Segment"). Distributions of principal made with
respect to any Segment on any Distribution Date will be aggregated and then
allocated among the respective Classes comprising such Segment as described
under "--Senior Principal Distribution Amount" below. Segments are not
separate Classes and will not be separately issued or transferable.
B-6
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
<TABLE>
<CAPTION>
Segment Initial Segment Class Certificate
Designation Balance Balances Comprising Segment
- -------------- ---------------------- --------------------------------------------------
<S> <C> <C>
A $93,914,000 $20,129,000 of Class A-1 Class Certificate Balance
$12,457,000 of Class A-2 Class Certificate Balance
$34,445,000 of Class A-3 Class Certificate Balance
$15,298,000 of Class A-8 Class Certificate Balance
$ 4,064,000 of Class A-9 Class Certificate Balance
$ 2,293,000 of Class A-11 Class Certificate Balance
$ 5,228,000 of Class A-12 Class Certificate Balance
B $48,698,000 $35,297,000 Class Certificate Balances comprising Segment E
$12,053,565.74 of Class A-5 Class Certificate Balance
$ 944,050.24 of Class A-10 Class Certificate Balance
$ 403,384.02 of Class A-11 Class Certificate Balance
C $19,761,000 $ 1,048,000 of ClassA-6 Class Certificate Balance
$18,713,000 of Class A-7 Class Certificate Balance
D $41,605,000 $20,397,000 of Class A-8 Class Certificate Balance
$ 3,960,000 of Class A-9 Class Certificate Balance
$ 4,932,000 of Class A-10 Class Certificate Balance
$ 6,864,000 of Class A-11 Class Certificate Balance
$ 4,802,000 of Class A-12 Class Certificate Balance
$ 650,000 of Class A-13 Class Certificate Balance
E $35,297,000 $20,194,000.00 of Class A-4 Class Certificate Balance
$13,584,434.26 of Class A-5 Class Certificate Balance
$ 1,063,949.76 of Class A-10 Class Certificate Balance
$ 454,615.98 of Class A-11 Class Certificate Balance
</TABLE>
The Segment Balance with respect to any Segment as of any
Distribution Date is the initial Segment Balance thereof set forth above,
reduced by all amounts applied and losses allocated in reduction of the
principal balance of such Segment on previous Distribution Dates.
Designations. The Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6 and Class A-7 Certificates are "Primary Planned Principal
Classes" and the Class A-13 Certificates are a "Secondary Planned Principal
Class." The Class A-8, Class A-9, Class A-10, Class A-11 and Class A-12
Certificates are "Scheduled Principal Classes." The Class A-14 and Class A-15
Certificates are "Targeted Principal Classes." The Class A-16 and Class A-R
Certificates are "Support Classes." The Planned Balances and the Targeted
Balances for the related Classes and Segments for each Distribution Date are
set forth in the Principal Balance Schedules herein.
Non-PO Formula Principal Amount. On each Distribution Date, the
Non-PO Formula Principal Amount will be distributed as principal of the Senior
Certificates (other than the Class PO Certificates) and the Subordinated
Certificates, to the extent of the amount available from Available Funds for
the distribution of principal on such respective Classes, as described below.
The Non-PO Formula Principal Amount for any Distribution Date will
equal the sum of the applicable Non-PO Percentage of (a) all monthly payments
of principal due on each Mortgage Loan on the related Due Date, (b) the
principal portion of the purchase price of each Mortgage Loan that was
repurchased by the Seller or another person pursuant to the Agreement as of
such Distribution Date, (c) the Substitution Adjustment Amount in connection
with any Deleted Mortgage Loan received with respect to such Distribution
Date, (d) any Insurance Proceeds or Liquidation Proceeds allocable to
recoveries of principal of Mortgage Loans that are not yet Liquidated Mortgage
Loans received during the calendar month preceding the month of such
Distribution Date, (e) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the amount of the Liquidation Proceeds allocable to
principal received with respect to such
B-7
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
Mortgage Loan and (f) all partial and full principal prepayments by borrowers
received during the related Prepayment Period.
Senior Principal Distribution Amount.
On each Distribution Date prior to the Senior Credit Support
Depletion Date, the Non-PO Formula Principal Amount, up to the amount of the
Senior Principal Distribution Amount for such Distribution Date, will be
distributed as principal of the following Segments and Classes of Senior
Certificates in the following order of priority:
sequentially, to Segment A, Segment B and Segment C, in that order,
until the Segment Balances thereof are reduced to their respective Planned
Balances for such Distribution Date;
to Segment D, until the Segment Balance thereof is reduced to its
Planned Balance for such Distribution Date;
concurrently, to the Class A-14 and Class A-15 Certificates, in
proportion to their initial Class Certificate Balances, until the Class
Certificate Balances thereof are reduced to their respective Targeted Balances
for such Distribution Date;
concurrently, to the Class A-16 and Class A-R Certificates, in
proportion to their initial Class Certificate Balances, until the Class
Certificate Balances thereof are reduced to zero;
concurrently, to the Class A-14 and Class A-15 Certificates, in
proportion to their initial Class Certificate Balances, without regard to
their respective Targeted Balances and until the Class Certificate Balances
thereof are reduced to zero;
to Segment D, without regard to its Planned Balance and until the
Segment Balance thereof is reduced to zero; and
sequentially, to Segment A, Segment B and Segment C, in that order,
without regard to their Planned Balances and until their respective Segment
Balances are reduced to zero.
On each Distribution Date, the aggregate distribution allocated to
Segment A as described in clauses (a)(i) and (a)(vii) above, will be
distributed as principal of the following Classes of Senior Certificates in
the following order of priority:
concurrently, to the Class A-3 and Class A-12 Certificates, in the
proportions of 94.4332048470% and 5.5667951530%, respectively, until aggregate
principal distributions in the amount of $25,357,605.98 are distributed
pursuant to this clause (b)(i);
concurrently, to the Class A-1, Class A-3 and Class A-12
Certificates, in the proportions of 48.5777148063%, 45.8554900407% and
5.5667951530%, respectively, until aggregate principal distributions in the
amount of $7,532,358.72 are distributed pursuant to this clause (b)(ii);
concurrently, to the Class A-1, Class A-2, Class A-3, Class A-8,
Class A-9, Class A-11 and Class A-12 Certificates, in the proportions of
48.5777148063%, 13.8790932147%, 7.8492583847%, 17.0444222524%, 4.5279469234%,
2.5547692655% and 5.5667951530%, respectively, until aggregate principal
distributions in the amount of $33,904,337.26 are distributed pursuant to this
clause (b)(iii); and
concurrently, to the Class A-2, Class A-3, Class A-8, Class A-9,
Class A-11 and Class A-12 Certificates, in the proportions of 28.5821229142%,
16.1644903211%, 35.1006916867%, 9.3246967587%, 5.2612031663% and
5.5667951530%, respectively, until aggregate principal distributions in the
amount of $27,119,698.04 are distributed pursuant to this clause (b)(iv).
B-8
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
On each Distribution Date, the aggregate distribution allocated to
Segment B as described in clauses (a)(i) and (a)(vii) above, will be
distributed as principal of the following Classes of Senior Certificates in
the following order of priority:
to Segment E, until the Segment Balance thereof is reduced to its
Planned Balance for such Distribution Date;
concurrently, to the Class A-5, Class A-10 and Class A-11
Certificates, in the proportions of 89.9452708392%, 7.0446253157% and
3.0101038451%, respectively, until aggregate principal distributions in the
amount of $13,401,000 are distributed pursuant to this clause (c)(ii); and
to Segment E, without regard to its Planned Balance and until the
Segment Balance thereof is reduced to zero.
On each Distribution Date, the aggregate distribution allocated to
Segment C as described in clauses (a)(i) and (a)(vii) above, will be
distributed as principal sequentially, to the Class A-6 and Class A-7
Certificates, in that order, until the Class Certificate Balances thereof are
reduced to zero.
On each Distribution Date, the aggregate distribution allocated to
Segment D as described in clauses (a)(ii) and (a)(vi) above, will be
distributed as principal of the following Classes of Senior Certificates in
the following order of priority:
concurrently, (A) 49.0253575291% to the Class A-8 Certificates, (B)
16.4980170653% to the Class A-11 Certificates, (C) 21.3724311982% first, to
the Class A-9 Certificates, until aggregate principal distributions in the
amount of $3,960,000 are distributed to such Class of Certificates pursuant to
this clause (e)(i)(C) and then to the Class A-10 Certificates, and (D)
13.1041942074% first, to the Class A-12 Certificates, until aggregate
principal distributions in the amount of $4,802,000 are distributed to such
Class of Certificates pursuant to this clause (e)(i)(D), and then to the Class
A-13 Certificates, until the respective Class Certificate Balances thereof are
reduced to zero or as otherwise specified.
On each Distribution Date, the aggregate distribution allocated to
Segment E as described in clauses (c)(i) and (c)(iii) above will be
distributed as principal of the following Classes of Senior Certificates in
the following order of priority:
concurrently, to the Class A-5, Class A-10 and Class A-11
Certificates, in the proportions of 89.9452708392%, 7.0446253157% and
3.0101038451%, respectively, until aggregate principal distributions in the
amount of $12,987,000 are distributed pursuant to this clause (f)(i); and
concurrently, to the Class A-4, Class A-5, Class A-10 and Class A-11
Certificates, in the proportions of 90.5154639176%, 8.5308916672%,
0.6681500299% and 0.2854943853%, respectively, until aggregate principal
distributions in the amount of $22,310,000 are distributed pursuant to this
clause (f)(ii).
Notwithstanding the foregoing, on each Distribution Date on and after
the Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount
will be distributed, concurrently, as principal of the Classes of Senior
Certificates (other than the Class PO Certificates), pro rata, in accordance
with their respective Class Certificate Balances immediately prior to such
Distribution Date, without regard to any Segment Balances, Planned Balances or
Targeted Balances for such Distribution Date.
The Senior Credit Support Depletion Date is the date on which the
Class Certificate Balance of each Class of Subordinated Certificates has been
reduced to zero.
The Senior Principal Distribution Amount for any Distribution Date
will equal the sum of (i) the Senior Percentage of the applicable Non-PO
Percentage of all amounts described in clauses (a) through (d) of the
definition of "Non-PO Formula Principal Amount" for such Distribution Date,
(ii) with respect to each Mortgage Loan that became a Liquidated Mortgage Loan
during the calendar month preceding the month of such Distribution Date, the
lesser of (x) the Senior Percentage of the applicable Non-PO Percentage of the
Stated Principal Balance of such Mortgage Loan and (y) either (A) the Senior
Prepayment Percentage or (B), if an Excess Loss was sustained with respect to
such Liquidated Mortgage Loan during such preceding calendar month, the Senior
Percentage, of the
B-9
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
applicable Non-PO Percentage of the amount of the Liquidation Proceeds allocable
to principal received with respect to such Mortgage Loan, and (iii) the Senior
Prepayment Percentage of the applicable Non-PO Percentage of amounts described
in clause (f) of the definition of "Non-PO Formula Principal Amount" for such
Distribution Date; provided, however, that if a Bankruptcy Loss that is an
Excess Loss is sustained with respect to a Mortgage Loan that is not a
Liquidated Mortgage Loan, the Senior Principal Distribution Amount will be
reduced on the related Distribution Date by the Senior Percentage of the
applicable Non-PO Percentage of the principal portion of such Bankruptcy Loss.
"Stated Principal Balance" means as to any Mortgage Loan and Due
Date, the unpaid principal balance of such Mortgage Loan as of such Due Date,
as specified in the amortization schedule at the time relating thereto (before
any adjustment to such amortization schedule by reason of any moratorium or
similar waiver or grace period), after giving effect to any previous partial
prepayments and Liquidation Proceeds received and to the payment of principal
due on such Due Date and irrespective of any delinquency in payment by the
related Mortgagor. The Pool Principal Balance with respect to any Distribution
Date equals the aggregate of the Stated Principal Balances of the Mortgage
Loans outstanding on the Due Date in the month preceding the month of such
Distribution Date.
The Prepayment Period with respect to any Distribution Date will be
the period from the sixteenth day of the month preceding the month of such
Distribution Date (or, in the case of the first Distribution Date, from the
Cut-off Date) through the fifteenth day of the month of such Distribution
Date.
The Senior Percentage for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates (other than the
Class PO Certificates) as of such date and the denominator of which is the
aggregate of the Class Certificate Balances of all Classes of Certificates,
other than the Class PO Certificates, as of such date. The Subordinated
Percentage for any Distribution Date will be calculated as the difference
between 100% and the Senior Percentage for such date.
The Senior Prepayment Percentage for any Distribution Date occurring
during the five years beginning on the first Distribution Date will equal
100%. Thereafter, the Senior Prepayment Percentage will, except as described
below, be subject to gradual reduction as described in the following
paragraph. This disproportionate allocation of certain unscheduled payments in
respect of principal will have the effect of accelerating the amortization of
the Senior Certificates while, in the absence of Realized Losses, increasing
the interest in the Pool Principal Balance evidenced by the Subordinated
Certificates. Increasing the respective interest of the Subordinated
Certificates relative to that of the Senior Certificates is intended to
preserve the availability of the subordination provided by the Subordinated
Certificates.
The Senior Prepayment Percentage for any Distribution Date occurring
on or after the fifth anniversary of the first Distribution Date will be as
follows: for any Distribution Date in the first year thereafter, the Senior
Percentage plus 70% of the Subordinated Percentage for such Distribution Date;
for any Distribution Date in the second year thereafter, the Senior Percentage
plus 60% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the third year thereafter, the Senior Percentage plus 40%
of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the fourth year thereafter, the Senior Percentage plus
20% of the Subordinated Percentage for such Distribution Date; and for any
Distribution Date thereafter, the Senior Percentage for such Distribution Date
(unless on any of the foregoing Distribution Dates the Senior Percentage
exceeds the initial Senior Percentage, in which case the Senior Prepayment
Percentage for such Distribution Date will once again equal 100%).
Notwithstanding the foregoing, no decrease in the Senior Prepayment Percentage
will occur if (i) as of the first Distribution Date as to which any such
decrease applies, more than an average of 2% of the dollar amount of all
monthly payments on the Mortgage Loans due in each of the preceding twelve
months were delinquent 60 days or more (including for this purpose any
Mortgage Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust Fund) or (ii)
cumulative Realized Losses with respect to the Mortgage Loans exceed (a) with
respect to the Distribution Date on the fifth anniversary of the first
Distribution Date, 30% of the aggregate of the principal balances of the
Subordinated Certificates as of the Cut-off Date (the "Original Subordinated
Principal Balance"), (b) with respect to the Distribution Date on the sixth
anniversary of the first Distribution Date, 35% of the Original Subordinated
Principal Balance, (c) with respect to the Distribution Date on the seventh
anniversary of the first Distribution Date, 40% of the Original Subordinated
Principal Balance, (d) with respect to the Distribution Date on the eighth
anniversary of the first Distribution Date, 45% of the Original Subordinated
Principal Balance, and (e) with respect to the Distribution Date on the ninth
anniversary of the first Distribution Date, 50% of the Original Subordinated
Principal Balance. The Subordinated
B-10
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
Prepayment Percentage as of any Distribution Date will be calculated as the
difference between 100% and the Senior Prepayment Percentage for such date.
If on any Distribution Date the allocation to the Class of Senior
Certificates then entitled to distributions of principal of full and partial
principal prepayments and other amounts in the percentage required above would
reduce the outstanding Class Certificate Balance of such Class below zero, the
distribution to such Class of Certificates of the Senior Prepayment Percentage
of such amounts for such Distribution Date will be limited to the percentage
necessary to reduce the related Class Certificate Balance to zero.
Subordinated Principal Distribution Amount. On each Distribution
Date, the Non-PO Formula Principal Amount, up to the amount of the
Subordinated Principal Distribution Amount for such Distribution Date, will be
distributed as principal of the Subordinated Certificates. Each Class of
Subordinated Certificates will be entitled to receive its pro rata share of
the Subordinated Principal Distribution Amount (based on its respective Class
Certificate Balance), in each case to the extent of the amount available from
Available Funds for distribution of principal. Distributions of principal of
the Subordinated Certificates will be made sequentially to the Classes of
Subordinated Certificates in the order of their numerical Class designations,
beginning with the Class M Certificates, until the respective Class
Certificate Balances thereof are reduced to zero.
For purposes of making distributions of principal of the Subordinated
Certificates, the Class M Certificates will be deemed to have a lower
numerical Class designation than each other Class of Subordinated
Certificates.
The Subordinated Principal Distribution Amount for any Distribution
Date will equal (A) the sum of (i) the Subordinated Percentage of the
applicable Non-PO Percentage of all amounts described in clauses (a) through
(d) of the definition of "Non-PO Formula Principal Amount" for such
Distribution Date, (ii) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the applicable Non-PO Percentage of the Liquidation
Proceeds allocable to principal received with respect to such Mortgage Loan,
after application of such amounts pursuant to clause (ii) of the definition of
Senior Principal Distribution Amount, up to the Subordinated Percentage of the
applicable Non-PO Percentage of the Stated Principal Balance of such Mortgage
Loan and (iii) the Subordinated Prepayment Percentage of the applicable Non-PO
Percentage of the amounts described in clause (f) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date reduced by (B) the amount
of any payments in respect of Class PO Deferred Amounts on the related
Distribution Date.
* * * * *
Allocation of Losses
* * * * *
On each Distribution Date, the applicable Non-PO Percentage of any
Realized Loss, other than any Excess Loss, will be allocated first to the
Subordinated Certificates, in the reverse order of their numerical Class
designations (beginning with the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation), in each case until
the Class Certificate Balance of the respective Class of Certificates has been
reduced to zero, and then to the Senior Certificates (other than the Class PO
Certificates) pro rata, based upon their respective Class Certificate
Balances.
* * * * *
On each Distribution Date, the applicable Non-PO Percentage of Excess
Losses will be allocated pro rata among the Classes of Senior Certificates
(other than the Class PO Certificates) and the Subordinated Certificates based
upon their respective Class Certificate Balances.
Any reduction in the Class Certificate Balances of the Planned
Principal Classes and Scheduled Principal Classes due to the allocation
thereto of an Excess Loss will cause the Segment Balances of the Segments to
be reduced, in the aggregate, by the same amount, any such reduction being
allocated among such Segments pro rata based on their respective Segment
Balances.
B-11
<PAGE>
EXHIBIT B- Excerpts from Underlying CWMBS Prospectus (cont'd)
Because principal distributions are paid to certain Classes of
Certificates (other than the Class PO Certificates) before other Classes of
Certificates, holders of such Certificates that are entitled to receive
principal later bear a greater risk of being allocated Realized Losses on the
Mortgage Loans than holders of Classes that are entitled to receive principal
earlier.
In general, a "Realized Loss" means, with respect to a Liquidated
Mortgage Loan, the amount by which the remaining unpaid principal balance of
the Mortgage Loan exceeds the amount of Liquidation Proceeds applied to the
principal balance of the related Mortgage Loan. "Excess Losses" are (i)
Special Hazard Losses in excess of the Special Hazard Loss Coverage Amount,
(ii) Bankruptcy Losses in excess of the Bankruptcy Loss Coverage Amount and
(iii) Fraud Losses in excess of the Fraud Loss Coverage Amount. "Bankruptcy
Losses" are losses that are incurred as a result of Debt Service Reductions
and Deficient Valuations. "Special Hazard Losses" are Realized Losses in
respect of Special Hazard Mortgage Loans. "Fraud Losses" are losses sustained
on a Liquidated Mortgage Loan by reason of a default arising from fraud,
dishonesty or misrepresentation.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which
the Master Servicer has determined that all recoverable liquidation and
insurance proceeds have been received. A "Special Hazard Mortgage Loan" is a
Liquidated Mortgage Loan as to which the ability to recover the full amount
due thereunder was substantially impaired by a hazard not insured against
under a standard hazard insurance policy ... .
B-12
<PAGE>
EXHIBIT C
REMITTANCE DATE STATEMENTS FOR THE UNDERLYING CERTIFICATES FOR
NOVEMBER 1998 DISTRIBUTIONS
CHASE MORTGAGE FINANCE CORPORATION
MONTHLY CERTIFICATE HOLDER'S REPORT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
GROUP ONE GROUP TWO TOTAL
<S> <C> <C> <C>
Initial Certificate Balance $ 128,161,582.52 $ 196,979,194.39 $ 325,140,776.91
Beginning Certificate Balance 69,190,744.69 121,960,285.89 191,151,030.58
Scheduled Principal 413,732.19 166,146.48 579,878.67
Curtailments 230,027.83 67,291.48 297,319.31
Repurchase Principal 0.00 0.00 0.00
Paid In Full Principal 216,630.01 911,772.83 1,128,402.84
Default Principal 0.00 0.00 0.00
Other 0.00 0.00 0.00
Total Principal 860,390.03 1,145,210.79 2,005,600.82
Plus % Accretion 0.00 0.00 0.00
Total Principal Distribution 860,390.03 1,145,210.79 2,005,600.82
Ending Certificate Balance 68,330,354.66 120,815,075.10 189,145,429.76
- --------------------------------------- ---------------------------------- ---------------------------- ---------------------------
Interest Distribution Class A 349,314.63 660,259.66 1,009,574.29
Interest Distribution Class SUBORD 25,468.53 51,174.92 76,643.45
Less % Accretion 0.00 0.00 0.00
Total Interest Distribution 374,783.16 711,434.58 1,086,217.74
- --------------------------------------- ---------------------------------- ---------------------------- ---------------------------
Initial Loan Count 298 474 772
Beginning Loan Count 219 320 539
Paid In Full Loans 1 2 3
Repurchased Loans 0 0 0
Defaulted Loans 0 0 0
Ending Loan Count 218 318 536
- --------------------------------------- ---------------------------------- ---------------------------- ---------------------------
Beginning Class A 93.204463471139% 92.806802783397% 92.950743619266%
Ending Class A 93.173369005312% 92.765998090250% 92.913164210730%
Beginning Class M 2.504257206312% 2.650455528544% 2.597536270108%
Ending Class M 2.515715977992% 2.665490699182% 2.611383339406%
Beginning Class B 4.291279322550% 4.542741688058% 4.451720110627%
Ending Class B 4.310915016697% 4.568511210568% 4.475452449864%
- --------------------------------------- ---------------------------------- ---------------------------- ---------------------------
Beginning Weighted Average Coupon 7.270933854723% 7.606474986757% 7.485019503472%
Ending Weighted Average Coupon 7.271662652307% 7.606814689635% 7.485738237485%
- --------------------------------------- ---------------------------------- ---------------------------- ---------------------------
Loss For Current Due Period 0.00 0.00 0.00
Recovery For Current Due Period 0.00 0.00 0.00
Cumulative Losses 0.00 0.00 0.00
- --------------------------------------- ---------------------------------- ---------------------------- ---------------------------
Beginning Weighted Average Service Fee 0.268590027225% 0.265676090898% 0.266730845475%
Ending Weighted Average Service Fee 0.268582068560% 0.265641683982% 0.266703922289%
Class A Principal Prepayment Percentage 97.961339041342% 97.842040835019% 97.879415003828%
</TABLE>
C-1
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CHASE MORTGAGE FINANCE CORPORATION
MONTHLY CLASS DISTRIBUTION DETAIL REPORT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Class Initial Beginning Beginning Principal Interest
Certificate Certificate Balance Pool Distribution Distribution
Balance Factor
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
IA-1 $ 33,600,000.00 $ 0.00 0.0000000000 $ 0.00 $ 0.00
IA-2 29,694,000.00 11,245,606.44 0.3787164559 288,605.76 60,913.70
IA-3 8,700,000.00 8,129,405.08 0.9344143770 534,563.11 44,034.28
IA-4 10,700,000.00 10,700,000.00 1.0000000000 0.00 57,958.33
IA-5 2,000,000.00 2,000,000.00 1.0000000000 0.00 10,833.33
IA-6 10,064,000.00 10,064,000.00 1.0000000000 0.00 54,513.33
IA-7 13,650,000.00 13,052,415.00 0.9562208791 0.00 65,066.29
IA-8 4,468,333.00 4,272,713.31 0.9562208792 0.00 23,037.47
IA-9 2,881,667.00 2,755,510.16 0.9562208819 0.00 20,666.33
IA-10 4,105,000.00 1,475,077.87 0.3593368745 0.00 7,682.70
IA-11 2,210,000.00 794,134.50 0.3593368778 0.00 4,608.87
TOTALS $ 122,073,000.00 $ 64,488,862.36 0.5282811298 $ 823,168.87 349,314.63
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
IIA-1 $ 75,000,000.00 $ 25,351,546.34 0.3380206179 $ 834,098.80 $ 147,884.02
IIA-2 30,000,000.00 13,450,515.51 0.4483505170 278,032.94 78,461.34
IIA-3 15,000,000.00 15,000,000.00 1.0000000000 0.00 87,500.00
IIA-4 27,533,000.00 27,533,000.00 1.0000000000 0.00 172,081.25
IIA-5 13,767,000.00 13,767,000.00 1.0000000000 0.00 68,835.00
IIA-6 8,400,000.00 8,400,000.00 1.0000000000 0.00 49,000.00
IIA-7 12,545,000.00 6,779,549.94 0.5404184886 0.00 35,310.16
IIA-8 5,377,000.00 2,905,830.21 0.5404184880 0.00 21,187.89
TOTALS 187,622,000.00 113,187,442.00 0.6032738272 1,112,131.74 660,259.66
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
IM $ 2,243,734.00 $ 1,732,714.21 0.7722458233 $ 13,716.56 $ 9,385.54
B-1 ONE 3,844,848.52 2,969,168.12 0.7722457997 23,504.60 16,082.99
B-2 ONE 0.00 0.00 0.00 0.00 0.00
TOTALS $ 6,088,582.52 $4,701,882.33 0.7722458084 $ 37,221.16 $ 25,468.53
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
IIM $ 3,447,817.00 $ 3,232,503.14 0.9375506705 $ 12,188.55 $ 18,856.27
B-1 TWO 5,909,377.39 5,540,340.75 0.9375506732 20,890.50 32,318.65
B-2 TWO 0.00 0.00 0.00 0.00 0.00
TOTALS $ 9,357,194.39 $ 8,772,843.89 0.9375506722 $ 33,079.05 $ 51,174.92
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
B-1 $ 9,754,255.91 $ 8,509,508.87 0.8723920225 $ 44,395.10 $ 48,401.64
B-2 0.00 0.00 0.00 0.00 0.00
TOTALS $ 9,754,225.91 $ 8,509,508.87 0.8723920225 $ 44,395.10 $ 48,401.64
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
A-X Notional Amount 0.00 0.0000000000 0.00 $ 52,545.47
A-I Notional Amount 0.00 0.0000000000 0.00 $ 11,055.76
TOTALS Notional Amount $ 0.00 0.0000000000 $ 0.00 $ 63,601.23
- -------------------------------- --------------------- ------------------- ------------------- ------------------
<CAPTION>
- --------------------------------------------------------
Class Ending Ending
Certificate Pool
Balance Factor
- -------------- --------------------- -------------------
<S> <C> <C>
IA-1 $ 0.00 0.0000000000
IA-2 10,957,000.68 0.3689971267
IA-3 7,594,841.97 0.8729703414
IA-4 10,700,000.00 1.0000000000
IA-5 2,000,000.00 1.0000000000
IA-6 10,064,000.00 1.0000000000
IA-7 13,052,415.00 0.9562208791
IA-8 4,272,713.31 0.9562208792
IA-9 2,755,510.16 0.9562208819
IA-10 1,475,077.87 0.3593368745
IA-11 794,134.50 0.3593360778
TOTALS 63,665,693.49 0.5215378789
- -------------- --------------------- -------------------
IIA-1 $ 24,517,447.54 0.3268993005
IIA-2 13,172,482.57 0.4390827523
IIA-3 15,000,000.00 1.0000000000
IIA-4 27,533,000.00 1.0000000000
IIA-5 13,767,000.00 1.0000000000
IIA-6 8,400,000.00 1.0000000000
IIA-7 6,779,549.94 0.5404184886
IIA-8 2,905,830.21 0.5404184880
TOTALS 112,075,310.26 0.5973463147
- -------------- --------------------- -------------------
- -------------- --------------------- -------------------
IM $ 1,718,997.65 0.7661325496
B-1 ONE 2,945,663.52 0.7661325289
B-2 ONE 0.00 0.0000000000
TOTALS $ 4,664,661.17 0.7661325365
- -------------- --------------------- -------------------
IIM $ 3,220,314.59 0.9340155205
B-1 TWO 5,519,450.25 0.9340155292
B-2 TWO 0.00 0.0000000000
TOTALS $ 8,739,764.84 0.9340155260
- -------------- --------------------- -------------------
B-1 $ 8,465,113.77 0.8678406516
B-2 0.00 0.0000000000
TOTALS $ 8,465,113.77 0.8678406516
- -------------- --------------------- -------------------
A-X 0.00 0.0000000000
A-I 0.00 0.0000000000
TOTALS $ 0.00 0.0000000000
- -------------- --------------------- -------------------
</TABLE>
C-2
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CHASE MORTGAGE FINANCE CORPORATION
MONTHLY CLASS DISTRIBUTION DETAIL REPORT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Class Initial Beginning Beginning Principal Interest
Certificate Certificate Balance Pool Distribution Distribution
Balance Factor
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Notional Balances:
A-X $ 265,008,574.49 $ 167,474,542.66 0.6319589582
A-I $ 325,140,776.91 $ 191,151,030.58 0.5879023615
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
A $ 309,695,000.00 $ 177,676,304.36 0.5737138293 $1,935,300.61 $1,009,574.29
M $ 5,691,551.00 $ 4,965,217.35 0.8723838809 $ 25,905.11 $ 28,241.81
B $ 9,754,225.91 $ 8,509,508.87 0.8723920225 $ 44,395.10 $ 48,401.64
A-W Notional Amount $ 0.00 0.0000000000 $ 0.00 $ 63,601.23
TOTALS $ 325,140,776.91 $ 191,151,030.58 0.5879023615 $2,005,600.82 $1,149,818.97
- -------------------------------- --------------------- ------------------- ------------------- ------------------
Notional Balances:
A-W $ 325,140,776.91 $ 191,151,030.58 0.5879023615
<CAPTION>
- --------------------------------------------------------------------------
Class Ending Ending
Certificate Pool
Balance Factor
- ------------ ------------------- --------------------- -------------------
<S> <C> <C> <C>
Notional Balances:
A-X $165,542,635.12 0.6246689770
A-I $189,145,429.76 0.5817339540
- ------------ ------------------- --------------------- -------------------
A $175,741,003.75 0.5674647758
M $ 4,939,312.24 0.8678323782
B $ 8,465,113.77 0.8678406516
A-W Notional Amount $ 0.00 0.0000000000
TOTALS $189,145,429.76 0.5817339540
- -------------------------------- --------------------- -------------------
Notional Balances:
A-W $189,145,429.76 0.5817339540
</TABLE>
C-3
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CHASE MORTGAGE FINANCE CORPORATION
MONTHLY PRINCIPAL DISTRIBUTION DETAIL REPORT
<TABLE>
<CAPTION>
Class Beginning Scheduled Principal Total
Certificate Principal Adjustment/ Principal
Balance Distribution Shortfall Distribution
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
IA-1 $ 0.00 $ 0.00 $ 0.00 $ 0.00
IA-2 11,245,606.44 288,605.76 0.00 288,605.76
IA-3 8,129,405.08 534,563.11 0.00 534,563.11
IA-4 10,700,000.00 0.00 0.00 0.00
IA-5 2,000,000.00 0.00 0.00 0.00
IA-6 10,064,000.00 0.00 0.00 0.00
IA-7 13,052,415.00 0.00 0.00 0.00
IA-8 4,272,713.31 0.00 0.00 0.00
IA-9 2,755,510.16 0.00 0.00 0.00
IA-10 1,475,077.87 0.00 0.00 0.00
IA-11 794,134.50 0.00 0.00 0.00
TOTALS $ 64,488,862.36 $ 823,168.87 $ 0.00 $ 823,168.87
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
IIA-1 $ 25,351,546.34 $ 834,098.80 $ 0.00 $ 834,098.80
IIA-2 13,450,515.51 278,032.94 0.00 278,032.94
IIA-3 15,000,000.00 0.00 0.00 0.00
IIA-4 27,533,000.00 0.00 0.00 0.00
IIA-5 13,767,000.00 0.00 0.00 0.00
IIA-6 8,400,000.00 0.00 0.00 0.00
IIA-7 6,779,549.94 0.00 0.00 0.00
IIA-8 2,905,830.21 0.00 0.00 0.00
TOTALS $ 113,187,442.00 $ 1,112,131.74 $ 0.00 $ 1,112,131.74
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
IM $ 1,732,714.21 $ 13,716.56 $ 0.00 $ 13,716.56
B-1 ONE 2,969,168.12 23,504.60 0.00 23,504.60
B-2 ONE 0.00 0.00 0.00 0.00
TOTALS $ 4,701,882.33 $ 37,221.16 $ 0.00 $ 37,221.16
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
IIM $ 3,232,503.14 $ 12,188.55 $ 0.00 $ 12,188.55
B-1 TWO 5,540,340.75 20,890.50 0.00 20,890.00
B-2 TWO 0.00 0.00 0.00 0.00
TOTALS $ 8,772,843.89 $ 33,079.05 $ 0.00 $ 33,079.05
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
B-1 $ 8,509,508.87 $ 44,395.10 $ 0.00 $ 44,395.10
B-2 0.00 0.00 0.00 0.00
TOTALS $ 8,509,508.87 $ 44,395.10 $ 0.00 $ 44,395.10
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
A-X $ 0.00 $ 0.00 $ 0.00 $ 0.00
A-I 0.00 0.00 0.00 0.00
TOTALS $ 0.00 $ 0.00 $ 0.00 $ 0.00
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
<CAPTION>
Class Principal Ending
Distribution Certificate
Factor (per $1000) Balance
- ----------------------- ---------------------- ----------------------
<S> <C> <C>
IA-1 $ 0.0000000 $ 0.00
IA-2 9.7193292 10,957,000.68
IA-3 61.4440356 7,594,841.97
IA-4 0.0000000 10,700,000.00
IA-5 0.0000000 2,000,000.00
IA-6 0.0000000 10,064,000.00
IA-7 0.0000000 13,052,415.00
IA-8 0.0000000 4,272,713.31
IA-9 0.0000000 2,755,510.16
IA-10 0.0000000 1,475,077.87
IA-11 0.0000000 794,134.50
TOTALS $ 6.7432509 $ 63,665,693.49
- ----------------------- ---------------------- ----------------------
IIA-1 $11.1213173 $ 24,517,447.54
IIA-2 9.2677647 13,172,482.57
IIA-3 0.0000000 15,000,000.00
IIA-4 0.0000000 27,533,000.00
IIA-5 0.0000000 13,767,000.00
IIA-6 0.0000000 8,400,000.00
IIA-7 0.0000000 6,779,549.94
IIA-8 0.0000000 2,905,830.21
TOTALS $ 5.9275124 $112,075,310.26
- ----------------------- ---------------------- ----------------------
IM $ 6.1132737 $ 1,718,997.65
B-1 ONE 6.1132708 2,945,663.52
B-2 ONE 0.0000000 0.00
TOTALS $ 6.1132718 $ 4,664,661.17
- ----------------------- ---------------------- ----------------------
IIM $ 3.5351499 $ 3,220,314.59
B-1 TWO 3.5351440 5,519,450.25
B-2 TWO 0.0000000 0.00
TOTALS $ 3.5351462 $ 8,739,764.84
- ----------------------- ---------------------- ----------------------
B-1 $ 4.5513709 $ 8,465,113.77
B-2 0.0000000 0.00
TOTALS $ 4.5513709 $ 8,465,113.77
- ----------------------- ---------------------- ----------------------
A-X $ 0.0000000 $ 0.00
A-I 0.0000000 0.00
TOTALS $ 0.0000000 $ 0.00
- ----------------------- ---------------------- ----------------------
</TABLE>
C-4
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CHASE MORTGAGE FINANCE CORPORATION
MONTHLY PRINCIPAL DISTRIBUTION DETAIL REPORT
<TABLE>
<CAPTION>
Class Beginning Scheduled Principal Total
Certificate Principal Adjustment/ Principal
Balance Distribution Shortfall Distribution
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
A $ 177,676,304.36 $1,935,300.61 $ 0.00 $1,935,300.61
M $4,965,217.35 25,905.11 0.00 25,905.11
B 8,509,508.87 44,395.10 0.00 44,395.10
A-W 0.00 0.00 0.00 0.00
TOTALS $191,151,030.58 $2,005,600.82 $ 0.00 $2,005,600.82
- ----------------------- ---------------------- ---------------------- ---------------------- ----------------------
<CAPTION>
Class Principal Ending
Distribution Certificate
Factor (per $1000) Balance
- ----------------------- ---------------------- ----------------------
<S> <C> <C>
A $ 6.2490535 $175,741,003.75
M 4.5515027 4,939,312.24
B 4.5513709 8,465,113.77
A-W 0.0000000 0.00
TOTALS 6.1684075 $189,145,429.76
- ----------------------- ---------------------- ----------------------
</TABLE>
C-5
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CHASE MORTGAGE FINANCE CORPORATION
MONTHLY INTEREST DISTRIBUTION DETAIL REPORT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Class Pass Gross Prepayment % Accretion Interest
Thru Interest Interest Adjustment/
Rate Distribution Shortfall Shortfall
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
IA-1 6.500000% $ .00 $ 0.00 $ 0.00 $ 0.00
IA-2 6.500000% 60,913.70 0.00 0.00 0.00
IA-3 6.500000% 44,034.28 0.00 0.00 0.00
IA-4 6.500000% 57,958.33 0.00 0.00 0.00
IA-5 6.500000% 10,833.33 0.00 0.00 0.00
IA-6 6.500000% 54,513.33 0.00 0.00 0.00
IA-7 5.982000% 65,066.29 0.00 0.00 0.00
IA-8 6.470120% 23,037.47 0.00 0.00 0.00
IA-9 9.000000% 20,666.33 0.00 0.00 0.00
IA-10 6.250000% 7,682.70 0.00 0.00 0.00
IA-11 6.964364% 4,608.87 0.00 0.00 0.00
TOTALS $ 349,314.63 $ 0.00 $ 0.00 $ 0.00
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
IIA-1 7.000000% $ 147,884.02 $ 0.00 $ 0.00 $ 0.00
IIA-2 7.000000% 78,461.34 0.00 0.00 0.00
IIA-3 7.000000% 87,500.00 0.00 0.00 0.00
IIA-4 7.500000% 172,081.25 0.00 0.00 0.00
IIA-5 6.000000% 68,835.00 0.00 0.00 0.00
IIA-6 7.000000% 49,000.00 0.00 0.00 0.00
IIA-7 6.250000% 35,310.16 0.00 0.00 0.00
IIA-8 8.749811% 21,187.89 0.00 0.00 0.00
TOTALS $ 660,259.66 $ 0.00 $ 0.00 $ 0.00
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
IM 6.500000% $ 9,385.54 $ 0.00 $ 0.00 $ 0.00
B-1 ONE 6.500000% 16,082.99 0.00 0.00 0.00
B-2 ONE 0.000000% 0.00 0.00 0.00 0.00
TOTALS $ 25,468.53 $ 0.00 $ 0.00 $ 0.00
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
IIM 7.000000% $ 18,856.27 $ 0.00 $ 0.00 $ 0.00
B-1 TWO 7.000000% 32,318.65 0.00 0.00 0.00
B-2 TWO 0.000000% 0.00 0.00 0.00 0.00
TOTALS $ 51,174.92 $ 0.00 $ 0.00 $ 0.00
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
B-1 6.825537% $ 48,401.64 $ 0.00 $ 0.00 $ 0.00
B-2 0.000000% 0.00 0.00 0.00 0.00
TOTALS $ 48,401.64 $ 0.00 $ 0.00 $ 0.00
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
A-X Variable $ 52,545.47 $ 0.00 $ 0.00 $ 0.00
A-I Variable 11,055.76 0.00 0.00 0.00
TOTALS $ 63,601.23 $ 0.00 $ 0.00 $ 0.00
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
<CAPTION>
- ----------------------------------------------------------
Class Total Interest
Interest Distribution
Distribution Factor (per $1000)
- ------------ --------------------- ----------------------
<S> <C> <C>
IA-1 $ 0.00 $ 0.0000000
IA-2 60,913.70 2.0513808
IA-3 44,034.28 5.0614115
IA-4 57,958.33 5.4166664
IA-5 10,833.33 5.4166650
IA-6 54,513.33 5.4166663
IA-7 65,066.29 4.7667612
IA-8 23,037.47 5.1557191
IA-9 20,666.33 7.1716579
IA-10 7,682.70 1.8715469
IA-11 4,608.87 2.0854615
TOTALS $ 349,314.63 $ 2.8615224
- ------------ --------------------- ----------------------
IIA-1 $ 147,884.02 $ 1.9717869
IIA-2 78,461.34 2.6153780
IIA-3 87,500.00 5.8333333
IIA-4 172,081.25 6.2500000
IIA-5 68,835.00 5.0000000
IIA-6 49,000.00 5.8333333
IIA-7 35,310.16 2.8146800
IIA-8 21,187.89 3.9404668
TOTALS $ 660,259.66 $ 3.5190951
- ------------ --------------------- ----------------------
- ------------ --------------------- ----------------------
IM $ 9,385.54 $ 4.1830003
B-1 ONE 16,082.99 4.1829970
B-2 ONE 0.00 0.0000000
TOTALS $ 25,468.53 $ 4.1829982
- ------------ --------------------- ----------------------
IIM $ 18,856.27 $ 5.4690461
B-1 TWO 32,318.65 5.4690449
B-2 TWO 0.00 0.0000000
TOTALS $ 51,174.92 $ 5.4690453
- ------------ --------------------- ----------------------
B-1 $ 48,401.64 $ 4.9621201
B-2 0.00 0.0000000
TOTALS $ 48,401.64 $ 4.9621201
- ------------ --------------------- ----------------------
A-X $ 52,545.47 $ 0.1982784
A-I 11,055.76 0.0340030
TOTALS $ 63,601.23 $ 0.1956114
- ------------ --------------------- ----------------------
</TABLE>
C-6
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CHASE MORTGAGE FINANCE CORPORATION
MONTHLY INTEREST DISTRIBUTION DETAIL REPORT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Class Pass Gross Prepayment % Accretion Interest
Thru Interest Interest Adjustment/
Rate Distribution Shortfall Shortfall
- ------------ ------------------- --------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
A $ 1,009,574.29 $ 0.00 $ 0.00 $ 0.00
M 28,241.81 0.00 0.00 0.00
B 48,401.64 0.00 0.00 0.00
A-W Variable 63,601.23 0.00 0.00 0.00
TOTALS $ 1,149,918.97 $ 0.00 $ 0.00 $ 0.00
<CAPTION>
- --------------------------------------------------------
Class Total Interest
Interest Distribution
Distribution Factor (per $1000)
- ----------- --------------------- ----------------------
<S> <C> <C>
A $ 1,009,574.29 $ 3.2598986
M 28,241.81 4.9620587
B 48,401.64 4.9621201
A-W 63,601.23 0.1956114
TOTALS $ 1,149,918.97 $ 3.5363727
</TABLE>
C-7
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CHASE MORTGAGE FINANCE CORPORATION
<TABLE>
<CAPTION>
DELINQUENCY STATISTICS
- -------------------------------------------------------------------------------------------------------------------
Period Number of Loans Principal Balance Percent
- --------------------------------- -------------------- ------------------------------- ----------------------------
<S> <C> <C> <C>
30 DAYS
Group One 3 $ 855,907.99 1.2526%
Group Two 0 0.00 0.0000%
Totals 3 $ 855,907.99 0.4525%
- --------------------------------- -------------------- ------------------------------- ----------------------------
60 DAYS
Group One 0 $ 0.00 0.0000%
Group Two 0 0.00 0.0000%
Totals 0 $ 0.00 0.0000%
- --------------------------------- -------------------- ------------------------------- ----------------------------
90 DAYS and Up
Group One 1 $ 239,161.93 0.3500%
Group Two 2 689,739.62 0.5709%
Totals 3 $ 928,901.55 0.4911%
- --------------------------------- -------------------- ------------------------------- ----------------------------
FORECLOSURES
Group One 0 $ 0.00 0.0000%
Group Two 0 0.00 0.0000%
Totals 0 $ 0.00 0.0000%
- --------------------------------- -------------------- ------------------------------- ----------------------------
TOTAL DELINQUENCIES
Group One 4 $1,095,069.92 1.6026%
Group Two 2 689,739.62 0.5709%
Totals 6 $1,784,809.54 0.9436%
- --------------------------------- -------------------- ------------------------------- ----------------------------
<CAPTION>
Real Estate Owned Number of Loans Principal Balance Book Value
- --------------------------------- -------------------- ------------------------------- ----------------------------
<S> <C> <C> <C>
Group One 0 $ 0.00 $ 0.00
Group Two 0 0.00 0.00
Totals 0 $ 0.00 $ 0.00
- --------------------------------- -------------------- ------------------------------- ----------------------------
</TABLE>
C-8
<PAGE>
MONTHLY MASTER SERVICER SUMMARY REPORT
SERVICER ADVANCES SUMMARY AMOUNT
- ------------------------------------------------------ ------------------------
ADVANCE BY MASTER SERVICER FOR DUE PERIOD
Group One $37,487.31
Group Two 33,672.18
Totals $71,159.49
- ------------------------------------------------------ ------------------------
DELINQUENCY FOR DUE PERIOD
Group One $37,487.31
Group Two 33,672.18
Totals $71,159.49
- ------------------------------------------------------ ------------------------
ADVANCES RECOVERED
Group One $40,296.44
Group Two 47,711.73
Totals $88,008.17
- ------------------------------------------------------ ------------------------
SERVICING (ESCHOW) ADVANCES
Group One $ 0.00
Group Two 0.00
Totals $ 0.00
====================================================== ========================
SERVICE FEES AMOUNT
- ------------------------------------------------------ ------------------------
SERVICING FEES
Group One $15,486.62
Group Two 27,001.61
Totals $42,488.23
- ------------------------------------------------------ ------------------------
ADDITIONAL SERVICING COMPENSATION $ 0.00
- ------------------------------------------------------ ------------------------
C-9
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CWMBS INC
Certificateholder Monthly Distribution Summary
<TABLE>
<CAPTION>
- -------------- ------------ -------------- ------------ ------------------ ------------ -------------- -------------
Class Cusip Class Certificate Beginning Balance Pass Principal Interest
Description Rate Type Through Distribution Distribution
Rate (%)
- -------------- ------------ -------------- ------------ ------------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
A1 126690J72 Senior Fix-30/360 $ 0.00 6.500000 $ 0.00 $ 0.00
A2 126690J80 Senior Fix-30/360 592,237.01 6.500000 496,312.59 3,207.95
A3 126690J98 Senior Fix-30/360 334,936.99 6.500000 280,687.34 1,814.24
A4 126690K21 Senior Fix-30/360 20,194,000.00 6.500000 0.00 109,394.17
A5 25,638,000.00 6.500000 0.00 138,872.50
A5 126690K39 Senior Fix-30/360 12,053,565.74 6.500000 0.00 65,290.15
A5 126690K39 Senior Fix-30/360 13,584,434.26 6.500000 0.00 73,582.35
A6 126690K47 Senior Fix-30/360 1,048,000.00 6.500000 0.00 5,676.67
A7 126690K54 Senior Fix-30/360 18,713,000.00 6.500000 0.00 101,362.08
A8 12,118,552.55 6.500000 1,471,003.02 65,642.16
A8 126690K62 Senior Fix-30/360 727,305.39 6.500000 609,503.89 3,939.57
A8 126690K62 Senior Fix-30/360 11,391,247.16 6.500000 861,499.13 61,702.59
A9 227,186.70 6.500000 195,892.03 1,230.60
A9 126690K70 Senior Fix-30/360 193,212.82 6.500000 161,918.15 1,046.57
A9 126690K70 Senior Fix-30/360 33,973.88 6.500000 33,973.88 184.03
A10 6,940,000.00 6.500000 341,593.62 37,591.67
A10 126690K88 Senior Fix-30/360 944,050.24 6.500000 0.00 5,113.61
A10 126690K88 Senior Fix-30/360 4,932,000.00 6.500000 341,593.62 26,715.00
A10 126690K88 Senior Fix-30/360 1,063,949.76 6.500000 0.00 5,763.06
A11 4,800,398.41 6.500000 381,269.60 26,002.16
A11 126690K96 Senior Fix-30/360 109,015.01 6.500000 91,357.85 590.50
A11 126690K96 Senior Fix-30/360 403,394.02 6.500000 0.00 2,185.00
A11 126690K96 Senior Fix-30/360 3,833,383.40 6.500000 289,911.75 20,764.16
A11 126690K96 Senior Fix-30/360 454,615.98 6.500000 0.00 2,462.50
A12 2,510,161.46 6.500000 326,938.02 13,596.71
A12 126690L20 Senior Fix-30-360 115,347.06 6.500000 96,664.29 624.80
A12 126690L20 Senior Fix-30/360 2,394,814.40 6.500000 230,273.73 12,971.91
A13 126690L38 Senior Fix-30/360 650,000.00 6.500000 0.00 3,520.83
A14 126690L46 Senior Var-30/360 10,645,127.76 6.249000 0.00 55,434.50
A15 126690L53 Senior Var-30/360 4,914,315.37 7.043691 0.00 28,845.77
A16 126690L61 Senior Fix-30/360 20,992,917.00 6.500000 0.00 113,711.63
PO 126690L79 Strip PO Fix-30/360 1,044,405.41 0.000000 11,362.37 0.00
AR Senior Fix-30/360 980.79 6.500000 0.00 5.49
- -------------- ------------ -------------- ------------ ------------------ ------------ -------------- -------------
M 126690L95 Mezzanine Fix-30/360 3,261,974.47 6.500000 19,323.20 17,669.03
B1 126690M29 Junior Fix-30/360 1,482,505.40 6.500000 8,782.03 8,030.24
B2 Junior Fix-30/360 642,043.70 6.500000 3,803.32 3,477.74
- -------------- ------------ -------------- ------------ ------------------ ------------ -------------- -------------
Totals $136,750,743.02 $3,536,967.14 $735,076.14
- -------------- ------------ -------------- ------------ ------------------ ------------ -------------- -------------
<CAPTION>
- -------------- -------------- ------------- ---------------- --------------
Class Total Current Ending Balance Cumulative
Distribution Realized Realized
Losses Losses
- -------------- -------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
A1 $ $ 0.00 0.00 0.00
0.00
A2 499,520.54 0.00 95,924.43 0.00
A3 282,501.58 0.00 54,249.65 0.00
A4 109,384.17 0.00 20,194,000.00 0.00
A5 138,872.50 0.00 25,638,000.00 0.00
A5 65,290.15 0.00 12,053,565.74 0.00
A5 73,582.35 0.00 13,584,434.26 0.00
A6 5,676.67 0.00 1,048,000.00 0.00
A7 101,362.08 0.00 18,713,000.00 0.00
A8 1,536,645.18 0.00 10,647,549.53 0.00
A8 613,443.46 0.00 117,801.50 0.00
A8 923,201.72 0.00 10,529,748.03 0.00
A9 197,122.62 0.00 31,294.67 0.00
A9 162,964.72 0.00 31,294.67 0.00
A9 34,157.90 0.00 0.00 0.00
A10 379,185.29 0.00 6,598,406.38 0.00
A10 5,113.61 0.00 944,050.24 0.00
A10 368,308.62 0.00 4,590,406.38 0.00
A10 5,763.06 0.00 1,063,949.76 0.00
A11 407,271.76 0.00 4,419,128.81 0.00
A11 91,948.35 0.00 17,657.16 0.00
A11 2,185.00 0.00 403,384.02 0.00
A11 310,675.91 0.00 3,543,471.65 0.00
A11 2,462.50 0.00 454,615.98 0.00
A12 340,534.72 0.00 2,183,223.44 0.00
A12 97,289.08 0.00 18,682.77 0.00
A12 243,245.64 0.00 2,164,540.67 0.00
A13 3,520.83 0.00 650,000.00 0.00
A14 55,434.50 0.00 10,645,127.76 0.00
A15 28,845.77 0.00 4,914,315.37 0.00
A16 113,711.63 0.00 20,992,917.00 0.00
PO 11,362.37 0.00 1,033,043.05 0.00
AR 5.49 0.00 980.79 0.00
- -------------- -------------- ------------- ---------------- --------------
M 36,992.23 0.00 3,242,651.27 0.00
B1 16,812.26 0.00 1,473,723.38 0.00
B2 7,281.06 0.00 638,240.38 51,577.00
- -------------- -------------- ------------- ---------------- --------------
Totals $4,272,043.25 $0.00 $133,213,775.91 $51,577.00
- -------------- -------------- ------------- ---------------- --------------
</TABLE>
C-10
<PAGE>
CWMBS INC
Principal Distribution Detail
<TABLE>
<CAPTION>
- -------------- ------------ ----------------- --------------- ----------------- ------------- ---------------
Class Cusip Original Beginning Scheduled Accretion Unscheduled
Certificate Certificate Principal Principal Principal
Balance Balance Distribution Adjustments
- -------------- ------------ ----------------- --------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
A1 126690J72 $ 20,129,000.00 $ 0.00 $ 0.00 $ 0.00 $0.00
A2 126690J80 12,457,000.00 592,237.01 496,312.59 0.00 0.00
A3 126690J98 34,445,000.00 334,936.99 280,687.34 0.00 0.00
A4 126690K21 20,194,000.00 20,194,000.00 0.00 0.00 0.00
A5 25,638,000.00 25,638,000.00 0.00 0.00 0.00
A5 126690K39 12,053,565.74 12,053,565.74 0.00 0.00 0.00
A5 126690K39 13,584,434.26 13,584,434.26 0.00 0.00 0.00
A6 126690K47 1,048,000.00 1,048,000.00 0.00 0.00 0.00
A7 126690K54 18,713,000.00 18,713,000.00 0.00 0.00 0.00
A8 35,695,000.00 12,118,552.55 1,471,003.02 0.00 0.00
A8 126690K62 15,298,000.00 727,305.39 609,503.89 0.00 0.00
A8 126690K62 20,397,000.00 11,391,247.16 861,499.13 0.00 0.00
A9 8,024,000.00 227,186.70 195,892.03 0.00 0.00
A9 126690K70 4,064,000.00 193,212.82 161,918.15 0.00 0.00
A9 126690K70 3,960,000.00 33,973.88 33,973.88 0.00 0.00
A10 6,940,000.00 6,940,000.00 341,593.62 0.00 0.00
A10 126690K88 944,050.24 944,050.24 0.00 0.00 0.00
A10 126690K88 4,932,000.00 4,932,000.00 341,593.62 0.00 0.00
A10 126690K88 1,063,949.76 1,063,949.76 0.00 0.00 0.00
A11 10,015,000.00 4,800,398.41 381,269.60 0.00 0.00
A11 126690K96 2,293,000.00 109,015.01 91,357.85 0.00 0.00
A11 126690K96 403,384.02 403,384.02 0.00 0.00 0.00
A11 126690K96 6,864,000.00 3,833,383.40 289,911.75 0.00 0.00
A11 126690K96 454,615.98 454,615.98 0.00 0.00 0.00
A12 10,030,000.00 2,510,161.46 326,938.02 0.00 0.00
A12 126690L20 5,228,000.00 115,347.06 96,664.29 0.00 0.00
A12 126690L20 4,802,000.00 2,394,814.40 230,273.73 0.00 0.00
A13 126690L38 650,000.00 650,000.00 0.00 0.00 0.00
A14 126690L46 11,108,000.00 10,645,127.76 0.00 0.00 0.00
A15 126690L53 5,128,000.00 4,914,315.37 0.00 0.00 0.00
A16 126690L61 21,404,000.00 20,992,917.00 0.00 0.00 0.00
PO 126690L79 1,629,063.00 1,044,405.41 11,362.37 0.00 0.00
AR 1,000.00 980.79 0.00 0.00 0.00
- -------------- ------------ ----------------- --------------- ----------------- ------------- ---------------
M 126690L95 4,127,682.00 3,261,974.47 19,323.20 0.00 0.00
B1 126690M29 1,875,953.00 1,482,505.40 8,782.03 0.00 0.00
B2 875,445.85 642,043.70 3,803.32 0.00 0.00
- -------------- ------------ ----------------- --------------- ----------------- ------------- ---------------
Totals $489,402,143.85 $136,750,743.02 $3,536,967.14 $0.00 $0.00
- -------------- ------------ ----------------- --------------- ----------------- ------------- ---------------
<CAPTION>
- -------------- ------------- --------------- --------------- -----------------
Class Net Current Ending Ending
Principal Realized Certificate Certificate
Distribution Losses Balance Factor
- -------------- ------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
A1 $ 0.00 $0.00 $ 0.00 0.00000000000
A2 496,312.59 0.00 95,924.43 0.00770044353
A3 280,687.34 0.00 54,249.65 0.00157496440
A4 0.00 0.00 20,194,000.00 1.00000000000
A5 0.00 0.00 25,638,000.00 1.00000000000
A5 0.00 0.00 12,053,565.74 1.00000000000
A5 0.00 0.00 13,584,434.26 1.00000000000
A6 0.00 0.00 1,048,000.00 1.00000000000
A7 0.00 0.00 18,713,000.00 1.00000000000
A8 1,471,003.02 0.00 10,647,549.53 0.29829246477
A8 609,503.89 0.00 117,801.50 0.00770045130
A8 861,499.13 0.00 10,529,748.03 0.51624003657
A9 195,892.03 0.00 31,294.67 0.00390013335
A9 161,918.15 0.00 31,294.67 0.00770045985
A9 33,973.88 0.00 0.00 0.00000000000
A10 341,593.62 0.00 6,598,406.38 0.95077901729
A10 0.00 0.00 944,050.24 1.00000000000
A10 341,593.62 0.00 4,590,406.38 0.93073933102
A10 0.00 0.00 1,063,949.76 1.00000000000
A11 381,269.60 0.00 4,419,128.81 0.44125100449
A11 91,357.85 0.00 17,657.16 0.00770046340
A11 0.00 0.00 403,384.02 1.00000000000
A11 289,911.75 0.00 3,543,471.65 0.51624004174
A11 0.00 0.00 454,615.98 1.00000000000
A12 326,938.02 0.00 2,183,223.44 0.21766933599
A12 96,664.29 0.00 18,682.77 0.00357359807
A12 230,273.73 0.00 2,164,540.67 0.45075815621
A13 0.00 0.00 650,000.00 1.00000000000
A14 0.00 0.00 10,645,127.76 0.95832983075
A15 0.00 0.00 4,914,315.37 0.95832983034
A16 0.00 0.00 20,992,917.00 0.98079410391
PO 11,362.37 0.00 1,033,043.05 0.63413326941
AR 0.00 0.00 980.79 0.98079000000
- -------------- ------------- --------------- --------------- -----------------
M 19,323.20 0.00 3,242,651.27 0.78558650454
B1 8,782.03 0.00 1,473,723.38 0.78558651364
B2 3,803.32 0.00 638,240.38 0.72904609751
- -------------- ------------- --------------- --------------- -----------------
Totals $3,536,967.14 $0.00 $133,213,775.91
- -------------- ------------- --------------- --------------- -----------------
</TABLE>
C-11
<PAGE>
CWMBS INC
Interest Distribution Detail
<TABLE>
<CAPTION>
- -------------- ---------------- ---------------- ----------------- ---------------- --------------- -------------- --------------
Class Beginning Pass Accrued Cumulative Deferred Total Net
Certificate Through Optimal Interest Unpaid Interest Interest Interest Due Prepayment
Balance Rate (%) Int Shortfall
- -------------- ---------------- ---------------- ----------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
A1 $ 0.00 6.500000 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
A2 592,237.01 6.500000 3,207.95 0.00 0.00 3,207.95 0.00
A3 334,936.99 6.500000 1,814.24 0.00 0.00 1,814.24 0.00
A4 20,194,000.00 6.500000 109,384.17 0.00 0.00 109,384.17 0.00
A5 25,638,000.00 6.500000 138,872.50 0.00 0.00 138,872.50 0.00
A5 12,053,565.74 6.500000 65,290.15 0.00 0.00 65,290.15 0.00
A5 13,584,434.26 6.500000 73,582.35 0.00 0.00 73,582.35 0.00
A6 1,048,000.00 6.500000 5,676.67 0.00 0.00 5,676.67 0.00
A7 18,713,000.00 6.500000 101,362.08 0.00 0.00 101,362.08 0.00
A8 12,118,552.55 6.500000 65,642.16 0.00 0.00 65,642.16 0.00
A8 727,305.39 6.500000 3,939.57 0.00 0.00 3,939.57 0.00
A8 11,391,247.16 6.500000 61,702.59 0.00 0.00 61,702.59 0.00
A9 227,186.70 6.500000 1,230.60 0.00 0.00 1,230.60 0.00
A9 193,212.82 6.500000 1,046.57 0.00 0.00 1,046.57 0.00
A9 33,973.88 6.500000 184.03 0.00 0.00 184.03 0.00
A10 6,940,000.00 6.500000 37,591.67 0.00 0.00 37,591.67 0.00
A10 944,050.24 6.500000 5,113.61 0.00 0.00 5,113.61 0.00
A10 4,932,000.00 6.500000 26,715.00 0.00 0.00 26,715.00 0.00
A10 1,063,949.76 6.500000 5,763.06 0.00 0.00 5,763.06 0.00
A11 4,800,398.41 6.500000 26,002.16 0.00 0.00 26,002.16 0.00
A11 109,015.01 6.500000 590.50 0.00 0.00 590.50 0.00
A11 403,384.02 6.500000 2,185.00 0.00 0.00 2,185.00 0.00
A11 3,833,383.40 6.500000 20,764.16 0.00 0.00 20,764.16 0.00
A11 454,615.98 6.500000 2,462.50 0.00 0.00 2,462.50 0.00
A12 2,510,161.46 6.500000 13,596.71 0.00 0.00 13,596.71 0.00
A12 115,347.06 6.500000 624.80 0.00 0.00 624.80 0.00
A12 2,394,814.40 6.500000 12,971.91 0.00 0.00 12,971.91 0.00
A13 650,000.00 6.500000 3,520.83 0.00 0.00 3,520.83 0.00
A14 10,645,127.76 6.249000 55,434.50 0.00 0.00 55,434.50 0.00
A15 4,914,315.37 7.043691 28,845.77 0.00 0.00 28,845.77 0.00
A16 20,992,917.00 6.500000 113,711.63 0.00 0.00 113,711.63 0.00
PO 1,044,405.41 0.000000 0.00 0.00 0.00 0.00 0.00
AR 980.79 6.500000 5.31 0.00 0.00 5.31 0.00
- -------------- ---------------- ---------------- ----------------- ---------------- --------------- -------------- --------------
M 3,261,974.47 6.500000 17,669.03 0.00 0.00 17,669.03 0.00
B1 1,482,505.40 6.500000 8,030.24 0.00 0.00 8,030.24 0.00
B2 642,043.70 6.500000 3,477.74 0.00 0.00 3,477.74 0.00
- -------------- ---------------- ---------------- ----------------- ---------------- --------------- -------------- --------------
Totals $136,750,743.02 $735,075.96 $0.00 $0.00 $735,075.96 $0.00
- -------------- ---------------- ---------------- ----------------- ---------------- --------------- -------------- --------------
<CAPTION>
- -------------- --------------- -----------------
Class Unscheduled Interest
Interest Paid
Adjustment
- -------------- --------------- -----------------
<S> <C> <C>
A1 $ 0.00 $ 0.00
A2 0.00 3,207.95
A3 0.00 1,814.24
A4 0.00 109,384.17
A5 0.00 138,872.50
A5 0.00 65,290.15
A5 0.00 73,582.35
A6 0.00 5,676.67
A7 0.00 101,362.08
A8 0.00 65,642.16
A8 0.00 3,939.57
A8 0.00 61,702.59
A9 0.00 1,230.60
A9 0.00 1,046.57
A9 0.00 184.03
A10 0.00 37,591.67
A10 0.00 5,113.61
A10 0.00 26,715.00
A10 0.00 5,763.06
A11 0.00 26,002.16
A11 0.00 590.50
A11 0.00 2,185.00
A11 0.00 20,764.16
A11 0.00 2,462.50
A12 0.00 13,596.71
A12 0.00 624.80
A12 0.00 12,971.91
A13 0.00 3,520.83
A14 0.00 55,434.50
A15 0.00 28,845.77
A16 0.00 113,711.63
PO 0.00 0.00
AR 0.00 5.49
- -------------- --------------- ---------------
M 0.00 17,669.03
B1 0.00 8,030.24
B2 0.00 3,477.75
- -------------- --------------- ---------------
Totals $ $0.00 $ 735,076.14
- -------------- - --------------- ---------------
</TABLE>
C-12
<PAGE>
CWMBS INC
Current Payment Information
Factors per $1,000
<TABLE>
<CAPTION>
- -------------- ---------------- ---------------- ---------------------- ------------------- -------------------
Class Cusip Original Beginning Cert. Principal Interest
Certificate Notional Balance Distribution Distribution
Balance
- -------------- ---------------- ---------------- ---------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
A1 126690J72 20,129,000.00 0.000000000 0.000000000 0.000000000
A2 126690J80 12,457,000.00 47.542507185 39.842063659 0.257521914
A3 126690J98 34,445,000.00 9.723820217 8.148855813 0.052670693
A4 126690K21 20,194,000.00 1,000.000000000 0.000000000 5.416666667
A5 25,638,000.00 1,000.000000000 0.000000000 5.416666667
A5 126690K39 12,053,565.74 1,000.000000000 0.000000000 5.416666667
A5 126690K39 13,584,434.26 1,000.000000000 0.000000000 5.416666667
A6 126690K47 1,048,000.00 1,000.000000000 0.000000000 5.416666667
A7 126690K54 18,713,000.00 1,000.000000000 0.000000000 5.416666667
A8 35,695,000.00 339.502802914 41.210338143 1.838973526
A8 126690K62 15,298,000.00 47.542514958 39.842063659 0.257521956
A8 126690K62 20,397,000.00 558.476597311 42.236560740 3.025081569
A9 8,024,000.00 28.313397308 24.413263958 0.153364905
A9 126690K70 4,064,000.00 47.542523504 39.842063659 0.257522002
A9 126690K70 3,960,000.00 8.579262301 8.579262301 0.046471004
A10 6,940,000.00 1,000.000000000 49.220982709 5.416667147
A10 126690K88 944,050.24 1,000.000000000 0.000000000 5.416666667
A10 126690K88 4,932,000.00 1,000.000000000 69.260668976 5.416666667
A10 126690K88 1,063,949.76 1,000.000000000 0.000000000 5.416666667
A11 10,015,000.00 479.320859710 38.069855217 2.596321518
A11 126690K96 2,293,000.00 47.542527062 39.842063659 0.257522022
A11 126690K96 403,384.02 1,000.000000000 0.000000000 5.416666667
A11 126690K96 6,864,000.00 558.476602481 42.236560740 3.025081597
A11 126690K96 454,615.98 1,000.000000000 0.000000000 5.416666667
A12 10,030,000.00 250.265349950 32.596013958 1.355604187
A12 126690L20 5,228,000.00 22.063323779 18.489725706 0.119509670
A12 126690L20 4,802,000.00 498.711869067 47.953712860 2.701355957
A13 126690L38 650,000.00 1,000.000000000 0.000000000 5.416666667
A14 126690L46 11,108,000.00 958.329830753 0.000000000 4.990502594
A15 126690L53 5,128,000.00 958.329830343 0.000000000 5.625149454
A16 126690L61 21,404,000.00 980.794103906 0.000000000 5.312634729
PO 126690L79 1,629,063.00 641.108055111 6.974785703 0.000000000
AR 1,000.00 980.790000000 0.000000000 5.487835524
- -------------- ---------------- ---------------- ---------------------- ------------------- -------------------
M 126690L95 4,127,682.00 790.267872342 4.681367801 4.280617642
B1 126690M29 1,875,953.00 790.267881492 4.681367855 4.280617691
B2 875,445.85 733.390536866 4.344439354 3.972532075
- -------------- ---------------- ---------------- ---------------------- ------------------- -------------------
Totals 489,402,143.85 546.724921234 14.140676960 2.938809954
- -------------- ---------------- ---------------- ---------------------- ------------------- -------------------
<CAPTION>
- -------------- ------------------------ ---------------
Class Ending Cert. Pass
Notional Through
Balance Rate (%)
- -------------- ------------------------ ---------------
<S> <C> <C>
A1 0.000000000 6.500000
A2 7.700443526 6.500000
A3 1.574964404 6.500000
A4 1,000.000000000 6.500000
A5 1,000.000000000 6.500000
A5 1,000.000000000 6.500000
A5 1,000.000000000 6.500000
A6 1,000.000000000 6.500000
A7 1,000.000000000 6.500000
A8 298.292464771 6.500000
A8 7.700451299 6.500000
A8 516.240036571 6.500000
A9 3.900133350 6.500000
A9 7.700459845 6.500000
A9 0.000000000 6.500000
A10 950.779017291 6.500000
A10 1,000.000000000 6.500000
A10 930.739331024 6.500000
A10 1,000.000000000 6.500000
A11 441.251004493 6.500000
A11 7.700463403 6.500000
A11 1,000.000000000 6.500000
A11 516.240041740 6.500000
A11 1,000.000000000 6.500000
A12 217.669335992 6.500000
A12 3.573598072 6.500000
A12 450.758156207 6.500000
A13 1,000.000000000 6.500000
A14 958.329830753 6.249000
A15 958.329830343 7.043691
A16 980.794103906 6.500000
PO 634.133269408 0.000000
AR 980.790000000 6.500000
- -------------- ------------------------ ---------------
M 785.586504541 6.500000
B1 785.586513637 6.500000
B2 729.046097512 6.500000
- -------------- ------------------------ ---------------
Totals 532.584244395
- -------------- ------------------------ ---------------
</TABLE>
C-13
<PAGE>
EXHIBIT C - Remittance Date Statements (cont'd)
CWMBS INC
<TABLE>
<S> <C>
Pool Level Data
Distribution Date 11/25/98
Cut-off Date 4/1/94
Determination Date 11/1/98
Accrual Period Begin 10/1/98
End 11/1/98
Number of Days in Accrual Period 31
- -------------------------------------------------------------------
Collateral Information
- -------------------------------------------------------------------
Group 1
Cut-Off Date Balance $250,127,143.85
Beginning Aggregate Pool Stated Principal Balance 136,750,743.11
Ending Aggregate Certificate Stated Principal Balance 133,213,775.99
Beginning Aggregate Certificate Stated Principal Balance 136,750,743.02
Ending Aggregate Certificate Stated Principal Balance 133,213,775.90
Beginning Aggregate Loan Count 827
Loans Paid Off or Otherwise Removed Pursuant to Pooling and
Servicing Agreement 16
Ending Aggregate Loan Count 811
Beginning Weighted Average Loan Rate (WAC) 7.105231%
Ending Weighted Average Loan Rate (WAC) 7.104761%
Beginning Net Weighted Average Loan Rate 6.853981%
Ending Net Weighted Average Loan Rate 6.853511%
Weighted Average Maturity (WAM) (Months) 124
Servicer Advances 5,150.83
Aggregate Pool Prepayment $2,726,863.47
</TABLE>
C-14
<PAGE>
CWMBS INC
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Certificate Information
- -------------------------------------------------------------------
<S> <C>
Group 1
Senior Percentage 96.0307501684%
Senior Prepayment Percentage 100.0000000000%
Subordinate Percentage 3.9692498316%
Subordinate Prepayment Percentage 0.0000000000%
Certificate Account
Beginning Balance 0.00
Deposit
Payments of Interest and Principal $ 4,349,017.33
Liquidation Proceeds 0.00
All Other Proceeds 0.00
Other Amounts 0.00
----------------
Total Deposits $ 4,349,017.33
Withdrawals
Reimbursement of Servicer Advances 0.00
Payment of Master Servicer Fees $ 73,846.27
Payment of Sub Servicer Fees 0.00
Payment of Other Fees 0.00
Payment of Insurance Premium(s) 0.00
Payment of Personal Mortgage Insurance 0.00
Other Permitted Withdrawal per the Pooling and Service Agreement 0.00
Payment of Principal and Interest 4,272,043.24
----------------
Total Withdrawals 4,345,889.51
Ending Balance 3,127.82
Prepayment Compensation
Total Gross Prepayment Interest Shortfall 640.02
Compensation for Gross PPIS from Servicing Fees 0.00
Other Gross PPIS Compensation 0.00
----------------
Total Net PPIS (Non-Supported PPIS) 640.02
Master Servicing Fees Paid 73,846.27
Sub Servicing Fees Paid 0.00
Insurance Premium(s) Paid 0.00
Personal Mortgage Insurance Fees Paid 0.00
Other Fees Paid 0.00
----------------
Total Fees $ 73,846.27
</TABLE>
C-15
<PAGE>
CWMBS INC
<TABLE>
<CAPTION>
- --------------------------------------------------------
Delinquency Information
- --------------------------------------------------------
Group 1
30-59 Days 60-89 Days 90+ Days Totals
<S> <C> <C> <C> <C>
Delinquency
Scheduled Principal Balance 349,391.22 0.00 0.00 349,391.22
Percentage of Total Pool Balance 0.262279% 0.000000% 0.000000% 0.262279%
Number of Loans 2 0 0 2
Percentage of Total Loans 0.246609% 0.000000% 0.000000% 0.246609%
Foreclosure
Scheduled Principal Balance 0.00 0.00 0.00 0.00
Percentage of Total Pool Balance 0.000000% 0.000000% 0.000000% 0.000000%
Number of Loans 0 0 0 0
Percentage of Total Loans 0.000000% 0.000000% 0.000000% 0.000000%
Bankruptcy
Scheduled Principal Balance 0.00 0.00 0.00 0.00
Percentage of Total Pool Balance 0.000000% 0.000000% 0.000000% 0.000000%
Number of Loans 0 0 0 0
Percentage of Total Loans 0.000000% 0.000000% 0.000000% 0.000000%
REO
Scheduled Principal Balance 0.00 0.00 0.00 0.00
Percentage of Total Pool Balance 0.000000% 0.000000% 0.000000% 0.000000%
Number of Loans 0 0 0 0
Percentage of Total Loans 0.000000% 0.000000% 0.000000% 0.000000%
Book Value of all REO Loans 0.00
Percentage of Total Pool Balance 0.000000%
Current Realized Losses 0.00
Additional Gains (Recoveries)/Losses 0.00
Total Realized Losses 51,577.00
</TABLE>
C-16
<PAGE>
CWMBS INC
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Subordination/Credit Enhancement Information
- ---------------------------------------------------------------
Protection Original Current
- ---------- -------- -------
<S> <C> <C>
Bankruptcy Loss 100,000.00 100,000.00
Bankruptcy Percentage 0.039980% 0.075067%
Credit/Fraud Loss 2,501,271.44 1,250,635.72
Credit/Fraud Loss percentage 1.000000% 0.938819%
Special hazard Loss 1,493,103.00 1,493,103.00
Special Hazard Loss Percentage 0.596938% 1.1208.32%
Credit Support Original Current
- -------------- -------- -------
Class A 482,523,063.00 127,859,160.87
Class A Percentage 98.594391% 95.980434%
Class M 4,127,682.00 3,242,651.27
Class M Percentage 0.843413% 2.434171%
Credit Support Original Current
- -------------- -------- -------
Class B1 1,875,953.00 1,473,723.38
Class B1 Percentage 0.383315% 1.106285%
Class B2 875,445.85 638,240.38
Class B2 Percentage 0.178881% 0.479110%
</TABLE>
C-17
<PAGE>
[This page intentionally left blank]
<PAGE>
EXHIBIT D
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Resecuritization Mortgage Trust Certificates, Series 1998-C (the "Global
Securities"), will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through DTC, Cedel or
Euroclear. The Global Securities will be traceable as home market instruments
in both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (I.E., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between participants of Cedel or
Euroclear and Participants holding Certificates will be effected on a
delivery-against-payment basis through the Relevant Depositaries of Cedel and
Euroclear (in such capacity) and as 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, as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their Relevant
Depositaries, which in turn will hold such positions in accounts as
Participants.
Investors selecting to hold their Global Securities through DTC will
follow DTC settlement practice. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Because 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 Participants. Secondary market trading between
Participants will be settled using the procedures applicable to prior
asset-backed issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the Procedures applicable to conventional eurobonds in same day funds.
Trading between DTC Seller and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one Business Day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, 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 the actual number of days in such
accrual period and a year assumed to consist of 360 days. 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
D-1
<PAGE>
respective Depositary to the Participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (I.E., the trade
fails), the Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of
credit to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they clear the overdraft when the Global Securities are credited to
their accounts. However, interest on the Global Securities would accrue from
the value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or
offset the amount of such overdraft charges, although this result will depend
on each Cedel Participant's or Euroclear Participant's particular cost of
funds.
Because the settlement is taking place during New York business
hours, Participants can employ their usual procedures for sending Global
Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the Participants a
cross-market transaction will settle no differently than a trade between two
Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one Business Day prior to settlement. In these cases,
Cedel or Euroclear will instruct the Relevant Depositary, as appropriate, to
deliver the Global Securities to the 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 the actual number of days in such accrual period and a year assumed
to consist of 360 days. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the
Cedel Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(I.E., the trade fails), receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their Cedel or Euroclear account in order
to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
D-2
<PAGE>
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemptions 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.
Exemptions 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 of Business in the
United States).
Exemption or Reduced Rate for Non-U.S. Persons Resident in
Treaty Countries (Form 01). Non-U.S. Persons 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 beneficial owners or their agents.
Exemptions for U.S. Persons (Form W-9). U.S. Persons can
obtain a complete exemption from the withholding tax by filing Form
W-9 (Payer's Request for Taxpayer Identification Number and
Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial
owner of a Global Security or, in the case of a Form 1001 or a Form
4224 filer, his agent, files by submitting the appropriate form to
the person through whom it holds (the clearing agency, in the case of
persons holding directly on the books of the clearing agency). Form
W-8 and Form 1001 are effective for three calendar years, and Form
4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States, any state thereof or the District of Columbia, (iii) an
estate that is subject to United States federal income tax, regardless of the
source of its income or (iv) a trust if (a) a court in the United States is
able to exercise primary supervision over the administration of the trust, and
(b) one or more United States persons have the authority to control all
substantial decisions of the trust. The term "Non-U.S. Person" means any
person who is not 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 Global Securities or with the application of recently issued Treasury
Regulations relating to tax documentation requirements that are generally
effective with respect to payments made after December 31, 1999. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of Global Securities.
<PAGE>
[This page intentionally left blank}
<PAGE>
DATED DECEMBER 4, 1998
PROSPECTUS
Mortgage Pass-Through Certificates
(Issuable in Series)
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
Consider carefully the risk factors The Certificates
beginning on page 5 of this
prospectus. Greenwich Capital Acceptance, Inc.,
as depositor, will sell the
The certificates represent obligations certificates. Each issue of
of the trust only and do not represent certificates will have its own
an interest in or obligation of the series designation and will evidence
depositor, the seller, the master the ownership of certain trust
servicer or any of their affiliates. assets.
This prospectus may be used to offer Each series of certificates will
and sell the securities only if consist of one or more classes. Each
accompanied by a prospectus supplement. class of certificates will represent
the entitlement to a specified
portion of future interest payments
and a specified portion of future
principal payments on the assets in
the related trust. In each case, the
specified portion may equal from
100% to 0%. A series may include one
or more classes of securities that
are senior in right of payment to
one or more other classes. One or
more classes of securities may be
entitled to receive distributions of
principal, interest or both prior to
one or more other classes or before
or after certain specified events
have occurred. The related
prospectus supplement will specify
each of these features.
The Trust and Its Assets
As specified in the related prospectus supplement, the assets of a trust will
include primarily the following:
o mortgage loans secured by senior liens on one- to four-family
residential properties or participation interests in loans of this
type;
o mortgage loans secured by senior liens on multifamily residential
properties (including cooperative apartment buildings) or participation
interests in loans of this type;
o conditional sales contracts, installment sales agreements or loan
agreements secured by manufactured housing;
o mortgage pass-through securities issued or guaranteed by the Government
National Mortgage Association (Ginnae Mae), the Federal National
Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage
Corporation (Freddie Mac); or
o private mortgage-backed securities.
Each trust may be subject to early termination in certain circumstances.
Market for the Certificates
No market will exist for the certificates of any series before they are issued.
In addition, even after the certificates of a series have been issued and sold,
there can be no assurance that a resale market will develop.
Offers of the Certificates
Offers of the certificates may be made through one or more different methods,
including through underwriters. All certificates will be distributed by, or sold
through underwriters managed by, Greenwich Capital Markets, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
December 4, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT...................4
RISK FACTORS........................................................................................................5
The Mortgage Loans--General........................................................................................12
Single Family Loans................................................................................................15
Multifamily Loans..................................................................................................15
Contracts..........................................................................................................16
Agency Securities..................................................................................................16
Private Mortgage-Backed Securities.................................................................................20
USE OF PROCEEDS....................................................................................................22
THE DEPOSITOR......................................................................................................22
MORTGAGE LOAN PROGRAM..............................................................................................23
Underwriting Standards.............................................................................................23
Qualifications of Sellers..........................................................................................24
Representations by Sellers; Repurchases............................................................................24
DESCRIPTION OF THE CERTIFICATES....................................................................................25
General............................................................................................................25
Distributions on Certificates......................................................................................27
Advances...........................................................................................................29
Reports to Certificateholders......................................................................................30
CREDIT ENHANCEMENT.................................................................................................31
General............................................................................................................31
Subordination......................................................................................................31
Mortgage Pool Insurance Policies...................................................................................32
FHA Insurance; VA Guarantees.......................................................................................33
Special Hazard Insurance Policies..................................................................................35
Bankruptcy Bonds...................................................................................................36
FHA Insurance on Multifamily Loans.................................................................................36
Reserve Accounts...................................................................................................37
Cross Support......................................................................................................37
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar Instruments or Agreements.................37
YIELD AND PREPAYMENT CONSIDERATIONS................................................................................38
THE POOLING AND SERVICING AGREEMENT................................................................................39
Assignment of Mortgage Assets......................................................................................39
Payments on Mortgage Loans; Deposits to Certificate Account........................................................41
Sub-Servicing by Sellers...........................................................................................42
Collection Procedures..............................................................................................44
Hazard Insurance...................................................................................................45
Realization upon Defaulted Mortgage Loans..........................................................................46
Servicing and Other Compensation and Payment of Expenses...........................................................47
Evidence as to Compliance..........................................................................................47
Certain Matters Regarding the Master Servicer and the Depositor....................................................48
Events of Default..................................................................................................49
Rights upon Event of Default.......................................................................................49
Amendment..........................................................................................................49
Termination; Optional Termination..................................................................................50
The Trustee........................................................................................................50
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS........................................................................50
General............................................................................................................51
Foreclosure/Repossession...........................................................................................53
Environmental Risks................................................................................................55
Rights of Redemption...............................................................................................56
Anti-Deficiency Legislation and Other Limitations on Lenders.......................................................57
Due-on-Sale Clauses................................................................................................58
Prepayment Charges.................................................................................................58
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Applicability of Usury Laws........................................................................................58
Soldiers'and Sailors'Civil Relief Act..............................................................................59
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................................................59
General............................................................................................................59
NON-REMIC CERTIFICATES.............................................................................................59
Single Class of Senior Certificates................................................................................59
Multiple Classes of Senior Certificates............................................................................63
Possible Application of Contingent Payment Regulations to Certain Non-REMIC Certificates...........................66
Sale or Exchange of a Senior Certificate...........................................................................66
Non-U.S. Persons...................................................................................................67
Information Reporting and Backup Withholding.......................................................................67
New Withholding Regulations........................................................................................68
REMIC CERTIFICATES.................................................................................................68
Tiered REMIC Structures............................................................................................69
Regular Certificates...............................................................................................69
Residual Certificates..............................................................................................77
Prohibited Transactions and Other Taxes............................................................................81
Liquidation and Termination........................................................................................81
Administrative Matters.............................................................................................81
Tax-Exempt Investors...............................................................................................82
Non-U.S. Persons...................................................................................................82
Tax-Related Restrictions on Transfers of Residual Certificates.....................................................82
STATE TAX CONSIDERATIONS...........................................................................................84
ERISA CONSIDERATIONS...............................................................................................84
LEGAL INVESTMENT...................................................................................................87
METHOD OF DISTRIBUTION.............................................................................................88
LEGAL MATTERS......................................................................................................88
FINANCIAL INFORMATION..............................................................................................89
AVAILABLE INFORMATION..............................................................................................89
RATINGS............................................................................................................89
INDEX OF DEFINED TERMS.............................................................................................90
</TABLE>
3
<PAGE>
MPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of certificates is contained in two separate
documents:
o this prospectus, which provides general information, some of which may
not apply to a particular series; and
o the accompanying prospectus supplement for a particular series, which
describes the specific terms of the certificates of that series. If the
prospectus supplement contains information about a particular series
that differs from the information contained in this prospectus, you
should rely on the information in the prospectus supplement.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus and
the accompanying prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
Beginning with the section titled "The Trust Fund", certain capitalized terms
are used in this prospectus to assist you in understanding the terms of the
certificates. The capitalized terms used in this prospectus are defined on the
pages indicated under the caption "Index of Defined Terms" beginning on page 90
of this prospectus.
---------------------
If you require additional information, the mailing address of our principal
executive offices is Financial Asset Securities Corp., 600 Steamboat Road,
Greenwich, Connecticut 06830 and the telephone number is (203) 625-2756. For
other means of acquiring additional information about us or a series of
securities, see "The Trust Fund -- Incorporation of Certain Information by
Reference" beginning on page 22 of this prospectus.
--------------------
4
<PAGE>
RISK FACTORS
You should carefully consider the following information, since it identifies
certain significant sources of risk associated with an investment in the
certificates.
Limited Liquidity.......................... No market will exist for the
certificates of any series
before they are issued. In
addition, there can be no
assurance that a resale market
will develop following the
issuance and sale of any series
of the certificates. Even if a
resale market does develop, it
might not provide investors with
liquidity of investment or
continue for the life of the
certificates.
Limited Assets............................. Unless the applicable prospectus
supplement provides otherwise,
the certificates of each series
will be payable solely from the
assets of the related trust,
including any applicable credit
enhancement, and will not have a
claim against the assets of any
other trust. Moreover, at the
times specified in the related
prospectus supplement, certain
assets of the trust (and/or the
related security account) may be
released to the depositor,
master servicer, any servicer,
credit enhancement provider or
other specified person, if:
o all payments then due on the
related certificates have
been made;
o adequate provision for
future payments on certain
classes of the certificates
has been made; and
o any other payments specified
in the related prospectus
supplement have been made.
Once released, such assets will
no longer be available to make
payments to certificateholders.
There will be no recourse
against the depositor or the
master servicer if any required
distribution on the certificates
is not made. The certificates
will not represent an interest
in the depositor, the master
servicer, any servicer or any of
their respective affiliates, nor
will the certificates represent
an obligation of any of them.
The only obligations of the
depositor with respect to the
related trust or the
certificates would arise from
the representations and
warranties that the depositor
may make concerning the related
trust assets. The depositor does
not have significant assets and
is unlikely to have significant
assets in the future. If the
depositor should be required to
repurchase a loan from a trust
because of the breach of a
representation or warranty, the
depositor's sole source of funds
for the
5
<PAGE>
repurchase would be:
o funds obtained from
enforcing any similar
obligation of the seller or
originator of the loan, or
o funds from a reserve account
or similar credit
enhancement established to
pay for loan repurchases.
In addition, the master servicer
may be obligated to make certain
advances if loans are
delinquent, but only to the
extent it deems the advances to
be recoverable from amounts it
expects to receive on those
loans.
Credit Enhancement......................... Credit enhancement is intended
to reduce the effect of
delinquent payments or loan
losses on those classes of
certificates that have the
benefit of the credit
enhancement. Nevertheless, the
amount of any credit enhancement
is subject to the limits
described in the related
prospectus supplement. Moreover,
the amount of credit enhancement
may decline or be depleted under
certain circumstances before the
certificates are paid in full.
As a result, certificateholders
may suffer losses. In addition,
credit enhancement may not cover
all potential sources of risk of
loss, such as fraud or
negligence by a loan originator
or other parties.
Prepayment and Yield Considerations........ The timing of principal payments
on the certificates of a series
will be affected by a number of
factors, including the
following:
o the extent of prepayments on
the underlying loans in the
trust or, if the trust is
comprised of underlying
securities, on the loans
backing the underlying
securities;
o how payments of principal
are allocated among the
classes of certificates of
that series as specified in
the related prospectus
supplement;
o if any party has an option
to terminate the related
trust early, the effect of
the exercise of the option;
o the rate and timing of
defaults and losses on the
assets in the related trust;
and
o repurchases of assets in the
related trust as a result of
material breaches of
representations and
warranties made by the
depositor or master
servicer.
The rate of prepayment of the
loans included in or underlying
the assets in each trust may
affect the yield to maturity of
the certificates.
6
<PAGE>
Interest payable on the
certificates on any given
distribution date will include
all interest accrued during the
related interest accrual period.
The interest accrual period for
the certificates of each series
will be specified in the
applicable prospectus
supplement. If the interest
accrual period ends two or more
days before the related
distribution date, your
effective yield will be less
than it would be if the interest
accrual period ended the day
before the distribution date. As
a result, your effective yield
at par would be less than the
indicated coupon rate.
Balloon Payments........................... Certain of the underlying loans
may not be fully amortizing and
may require a substantial
principal payment (i.e., a
"balloon" payment) at their
stated maturity. Loans of this
type involve a greater degree of
risk than fully amortizing loans
since the related borrower must
generally be able to refinance
the loan or sell the related
property prior to the loan's
maturity date. The borrower's
ability to do so will depend on
such factors as the level of
available mortgage rates at the
time of sale or refinancing, the
relative strength of the local
housing market, the borrower's
equity in the property, the
borrower's general financial
condition and tax laws.
Nature of Mortgages........................ The following factors, among
others, could adversely affect
property values in such a way
that the outstanding balance of
the related loans would equal or
exceed those values:
o an overall decline in the
residential real estate
markets where the
properties are located,
o failure of borrowers to
maintain their properties
adequately, and
o natural disasters that are
not necessarily covered by
hazard insurance, such as
earthquakes and floods.
If property values decline,
actual rates of delinquencies,
foreclosures and losses on the
underlying loans could be higher
than those currently experienced
by the mortgage lending industry
in general.
Even if you assume that the
properties provide adequate
security for the loans,
substantial delays could occur
before defaulted loans are
liquidated and the proceeds
forwarded to investors. Property
foreclosure actions are
regulated by state statutes and
rules and are subject to many of
the delays and expenses that
characterize other types of
lawsuits if defenses or
counterclaims are made. As a
result, foreclosure actions can
sometimes take several years to
complete. Moreover, some states
prohibit a mortgage lender from
obtaining a judgment against the
borrower for amounts not covered
by property proceeds if the
property is sold outside of a
judicial proceeding.
7
<PAGE>
As a result, if a borrower
defaults, these restrictions may
impede the servicer's ability to
dispose of the borrower's
property and obtain sufficient
proceeds to repay the loan in
full. In addition, the servicer
is entitled to deduct from
liquidation proceeds all the
expenses it reasonably incurs in
trying to recover on the
defaulted loan, including legal
fees and costs, real estate
taxes, and property preservation
and maintenance expenses.
State laws generally regulate
interest rates and other loan
charges, require certain
disclosures, and often require
licensing of loan originators
and servicers. In addition, most
states have other laws and
public policies for the
protection of consumers that
prohibit unfair and deceptive
practices in the origination,
servicing and collection of
loans. Depending on the
provisions of the particular law
or policy and the specific facts
and circumstances involved,
violations may limit the ability
of the servicer to collect
interest or principal on the
loans. Also, the borrower may be
entitled to a refund of amounts
previously paid and the servicer
may be subject to damage claims
and administrative sanctions.
Environmental Risks........................ Federal, state and local laws
and regulations impose a wide
range of requirements on
activities that may affect the
environment, health and safety.
In certain circumstances, these
laws and regulations impose
obligations on owners or
operators of residential
properties such as those that
secure the loans included in a
trust. Failure to comply with
these laws and regulations can
result in fines and penalties
that could be assessed against
the trust as owner of the
related property.
In some states, a lien on the
property due to contamination
has priority over the lien of an
existing mortgage. Further, a
mortgage lender may be held
liable as an "owner" or
"operator" for costs associated
with the release of petroleum
from an underground storage tank
under certain circumstances. If
the trust is considered the
owner or operator of a property,
it will suffer losses as a
result of any liability imposed
for environmental hazards on the
property.
Certain Other Legal Considerations Regarding
the Loans.................................. The loans may also be subject to
federal laws relating to the
origination and underwriting.
These laws
o require certain disclosures
to the borrowers regarding
the terms of the loans;
o prohibit discrimination on
the basis of age, race,
color, sex, religion,
marital status, national
origin, receipt of public
assistance or the exercise
of any right under the
consumer
8
<PAGE>
credit protection act, in
the extension of credit;
o regulate the use and
reporting of information
related to the borrower's
credit experience; and
o require additional
application disclosures,
limit changes that may be
made to the loan documents
without the borrower's
consent and restrict a
lender's ability to declare
a default or to suspend or
reduce a borrower's credit
limit to certain enumerated
events.
Certain loans are also subject
to federal laws which impose
additional disclosure
requirements on creditors with
respect to non-purchase money
mortgage loans with high
interest rates or high up-front
fees and charges. These laws can
impose specific statutory
liabilities upon creditors that
fail to comply and may affect
the enforceability of the
related loans. In addition, any
assignee of the creditor
(including the trust) would
generally be subject to all
claims and defenses that the
borrower could assert against
the creditor, including the
right to rescind the loan.
Certain loans relating to home
improvement contracts are
subject to federal laws that
protect the borrower from
defective or incomplete work by
a contractor. These laws permit
the borrower to withhold payment
if the work does not meet the
quality and durability standards
agreed to between the borrower
and the contractor. These laws
have the effect of subjecting
any assignee of the seller
(including the trust) to all
claims and defenses which the
borrower in a sale transaction
could assert against the seller
of defective goods.
If certain provisions of these
federal laws are violated, the
master servicer may be unable to
collect all or part of the
principal or interest on the
loans. The trust also could be
subject to damages and
administrative enforcement.
Ratings of the Certificates................ Any class of certificates issued
under this prospectus and the
accompanying prospectus
supplement will be rated in one
of the four highest rating
categories of a nationally
recognized rating agency. A
rating is based on the adequacy
of the value of the trust assets
and any credit enhancement for
that class and reflects the
rating agency's assessment of
how likely it is that holders of
the class of certificates will
receive the payments to which
they are entitled. A rating does
not constitute an assessment of
how likely it is that principal
prepayments on the underlying
loans will be made, the degree
to which the rate of prepayments
might differ from that
originally anticipated or the
likelihood of early, optional
termination of the certificates.
You must not view a rating as a
recommendation to purchase, hold
or sell certificates because it
does not address the market
price
9
<PAGE>
or suitability of the
certificates for any particular
investor.
There is no assurance that any
rating will remain in effect for
any given period of time or that
the rating agency will not lower
or withdraw it entirely in the
future. The rating agency could
lower or withdraw its rating due
to:
o any decrease in the
adequacy of the value of
the trust assets or any
related credit enhancement,
o an adverse change in the
financial or other
condition of a credit
enhancement provider or
o a change in the rating of
the credit enhancement
provider's long-term debt.
Book-Entry Registration.................... Limit on Liquidity of
Certificates. Certificates
issued in book-entry form may
have only limited liquidity in
the resale market, since
investors may be unwilling to
purchase certificates for which
they cannot obtain physical
instruments.
Limit on Ability to Transfer or
Pledge. Transactions in
book-entry certificates can be
effected only through The
Depository Trust Company
("DTC"), its participating
organizations, its indirect
participants and certain banks.
As a result, your ability to
transfer or pledge certificates
issued in book-entry form may be
limited.
Delays in Distributions. You may
experience some delay in the
receipt of distributions on
book-entry certificates since
the distributions will be
forwarded by the trustee to DTC
for DTC to credit the accounts
of its participants. In turn,
these participants will
thereafter credit the
distributions to your account
either directly or indirectly
through indirect participants.
Pre-Funding Accounts....................... The related prospectus
supplement may provide that the
depositor deposit a specified
amount in a pre-funding account
on the date the securities are
issued. In this case, the
deposited funds may only be used
to acquire additional assets for
the trust during a set period
after the initial issuance of
the certificates. Any amounts
remaining in the account at the
end of the period will be
distributed as a prepayment of
principal to the holders of the
related certificates.
Lower Credit Quality Trust Fund
Assets..................................... Certain of the trust assets may
have been made to lower credit
quality borrowers who fall into
one of two categories:
o customers with moderate
income, limited assets and
other income
characteristics that cause
difficulty in borrowing
10
<PAGE>
from banks and other
traditional lenders; and
o customers with a history of
irregular employment,
previous bankruptcy
filings, repossession of
property, charged-off loans
or garnishment of wages.
The average interest rate
charged on loans made to these
types of borrowers is generally
higher than that charged by
lenders that typically impose
more stringent credit
requirements. There is a greater
likelihood of late payments on
loans made to these types of
borrowers than on loans to
borrowers with a higher credit
quality. Payments from borrowers
with a lower credit quality are
more likely to be sensitive to
changes in the economic climate
in the areas in which they
reside.
Delinquent Trust Fund Assets............... No more than 20% (by principal
balance) of the trust assets for
any particular series of
certificates will be
contractually delinquent as of
the related cut-off date.
Other Considerations....................... There is no assurance that the
value of the trust assets for
any series of certificates at
any time will equal or exceed
the principal amount of the
outstanding certificates of the
series. If trust assets have to
be sold because of an event of
default or otherwise, providers
of services to the trust
(including the trustee, the
master servicer and the credit
enhancer, if any) generally will
be entitled to receive the
proceeds of the sale to the
extent of their unpaid fees and
other amounts due them before
any proceeds are paid to
investors. As a result, the
proceeds of such a sale may be
insufficient to pay the full
amount of interest and principal
of the related certificates.
11
<PAGE>
THE TRUST FUND
The trust fund (each, a "Trust Fund") for each series (each, a
"Series") of Mortgage Pass-Through Certificates (the "Certificates") will be
held by the Trustee for the benefit of the related Certificateholders. Each
Trust Fund will consist of certain mortgage-related assets (the "Mortgage
Assets") consisting of (A) a mortgage pool (a "Mortgage Pool") comprised of (i)
first lien mortgage loans (or participation interests therein) secured by one-
to four-family residential properties ("Single Family Loans"), (ii) first lien
mortgage loans (or participation interests therein) secured by multifamily
residential properties, including cooperative apartment buildings ("Multifamily
Loans"), (iii) conditional sales contracts and installment sales or loan
agreements secured by manufactured housing ("Contracts"), (iv) mortgage
pass-through securities (the "Agency Securities") issued or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") or
(v) Private Mortgage-Backed Securities (as defined herein), in each case, as
specified in the related Prospectus Supplement, together with payments in
respect of such Mortgage Assets and certain other accounts, obligations or
agreements, in each case as specified in the related Prospectus Supplement.
The Certificates* will be entitled to payment from the assets of the
related Trust Fund or Funds or other assets pledged for the benefit of the
holders of the Certificates as specified in the related Prospectus Supplement
and will not be entitled to payments in respect of the assets of any other trust
fund established by the Depositor. Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Assets of any Trust Fund will consist of
Mortgage Loans, Agency Securities or Private Mortgage-Backed Securities but not
a combination thereof.
The Mortgage Loans and Agency Securities will be acquired by the
Depositor, either directly or through affiliates, from originators or sellers
which may be affiliates of the Depositor (the "Sellers"), and conveyed by the
Depositor to the related Trust Fund. Mortgage Loans acquired by the Depositor
will have been originated in accordance with the underwriting criteria specified
below under "Mortgage Loan Program--Underwriting Standards" or as otherwise
described in a related Prospectus Supplement. See "Mortgage Loan
Program--Underwriting Standards".
The following is a brief description of the Mortgage Assets expected to
be included in the Trust Funds. If specific information respecting the Mortgage
Assets is not known at the time the related Series of Certificates initially is
offered, more general information of the nature described below will be provided
in the related Prospectus Supplement, and specific information will be set forth
in a report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Certificates (the
"Detailed Description"). A copy of the Agreement with respect to each Series of
Certificates will be attached to the Form 8-K and will be available for
inspection at the corporate trust office of the Trustee specified in the related
Prospectus Supplement. A schedule of the Mortgage Assets relating to such Series
will be attached to the Agreement delivered to the Trustee upon delivery of the
Certificates.
The Mortgage Loans--General
For purposes hereof, Single Family Loans, Multifamily Loans and
Contracts are collectively referred to as "Mortgage Loans", and the real
property and Manufactured Homes, as the case may be, which secure repayment of
the Mortgage Loans are collectively referred to as "Mortgaged Properties". The
Mortgaged Properties may be located in any one of the fifty states, the District
of Columbia, Guam, Puerto Rico or any other territory of the United States.
Mortgage Loans with certain Loan-to-Value Ratios and/or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Mortgage Insurance
- --------
* Whenever the terms "Mortgage Pool" and "Certificates" are used in this
Prospectus, such terms will be deemed to apply, unless the context indicates
otherwise, to one specific Mortgage Pool and the Certificates representing
certain undivided interests, as described below, in a single Trust Fund
consisting primarily of the Mortgage Loans in such Mortgage Pool. Similarly, the
term "Pass-Through Rate" will refer to the Pass-Through Rate borne by the
Certificates of one specific Series and the term "Trust Fund" will refer to one
specific Trust Fund.
12
<PAGE>
Policy"). The existence, extent and duration of any such coverage will be
described in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans in a Mortgage Pool** will have monthly payments due on the
first day of each month. The payment terms of the Mortgage Loans to be included
in a Trust Fund will be described in the related Prospectus Supplement and may
include any of the following features or combination thereof or other features
described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable
from time to time in relation to an index (which will be specified in
the related Prospectus Supplement), a rate that is fixed for a period
of time or under certain circumstances and is followed by an adjustable
rate, a rate that otherwise varies from time to time or a rate that is
convertible from an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest
may be deferred and added to the principal of a loan for such periods
and under such circumstances as may be specified in the related
Prospectus Supplement. Mortgage Loans may provide for the payment of
interest at a rate lower than the specified interest rate borne by such
Mortgage Loan (the "Mortgage Rate") for a period of time or for the
life of the loan, and the amount of any difference may be contributed
from funds supplied by the seller of the Mortgaged Property or another
source.
(b) Principal may be payable on a level debt service basis to
fully amortize the Mortgage Loan over its term, may be calculated on
the basis of an assumed amortization schedule that is significantly
longer than the original term to maturity or on an interest rate that
is different from the interest rate on the Mortgage Loan or may not be
amortized during all or a portion of the original term. Payment of all
or a substantial portion of the principal may be due on maturity (a
"balloon payment"). Principal may include interest that has been
deferred and added to the principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed
for the life of the Mortgage Loan, may increase over a specified period
of time or may change from period to period. Mortgage Loans may include
limits on periodic increases or decreases in the amount of monthly
payments and may include maximum or minimum amounts of monthly
payments.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Mortgage Loan or may
decline over time, and may be prohibited for the life of the Mortgage
Loan or for certain periods ("lockout periods"). Certain Mortgage Loans
may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection
with any such subsequent prepayment. Other Mortgage Loans may permit
prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The Mortgage Loans may include
"due-on-sale" clauses which permit the mortgagee to demand payment of
the entire Mortgage Loan in connection with the sale or certain
transfers of the related Mortgaged Property. Other Mortgage Loans may
be assumable by persons meeting the then applicable underwriting
standards of the Seller.
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then specifically known to the
Depositor, with respect to the Mortgage Loans contained in the related Mortgage
Pool, including (i) the aggregate outstanding principal balance and the average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing each Mortgage Loan (e.g., one- to
four-family houses, individual units in condominium projects or in buildings
owned by
- --------
* Whenever the terms "Mortgage Pool" and "Certificates" are used in this
Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Mortgage Pool and the Certificates
representing certain undivided interests, as described below, in a
single Trust Fund consisting primarily of the Mortgage Loans in such
Mortgage Pool. Similarly, the term "Pass-Through Rate" will refer to
the Pass-Through Rate borne by the Certificates of one specific Series
and the term "Trust Fund" will refer to one specific Trust Fund.
13
<PAGE>
cooperative housing corporations, vacation and second homes, Manufactured Homes,
multifamily apartments or other real property), (iii) the original terms to
maturity of the Mortgage Loans, (iv) the largest principal balance and the
smallest principal balance of any of the Mortgage Loans, (v) the earliest
origination date and latest maturity date of any of the Mortgage Loans, (vi) the
aggregate principal balance of Mortgage Loans having Loan-to-Value Ratios at
origination exceeding 80%, (vii) the Mortgage Rates or APRs or range of Mortgage
Rates or APRs borne by the Mortgage Loans, and (viii) the geographical location
of the related Mortgaged Properties on a state-by-state basis. If specific
information respecting the Mortgage Loans is not known to the Depositor at the
time the related Certificates are initially offered, more general information of
the nature described above will be provided in the related Prospectus
Supplement, and specific information will be set forth in the Detailed
Description.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio, expressed as a percentage, of the then outstanding principal balance of
the Mortgage Loan to the Collateral Value of the related Mortgaged Property.
Unless otherwise specified in the related Prospectus Supplement, the "Collateral
Value" of a Mortgaged Property, other than with respect to Contracts and certain
Mortgage Loans the proceeds of which were used to refinance an existing mortgage
loan ("Refinance Loans"), is the lesser of (a) the appraised value determined in
an appraisal obtained by the originator at origination of such Mortgage Loan and
(b) the sales price for such property. In the case of Refinance Loans, the
"Collateral Value" of the related Mortgaged Property is the appraised value
thereof determined in an appraisal obtained at the time of refinancing. Unless
otherwise specified in the related Prospectus Supplement, for purposes of
calculating the Loan-to-Value Ratio of a Contract relating to a new Manufactured
Home, the Collateral Value is no greater than the sum of a fixed percentage of
the list price of the unit actually billed by the manufacturer to the dealer
(exclusive of freight to the dealer site) including "accessories" identified in
the invoice (the "Manufacturer Invoice Price"), plus the actual cost of any
accessories purchased from the dealer, a delivery and set-up allowance,
depending on the size of the unit), and the cost of state and local taxes,
filing fees and up to three years' prepaid hazard insurance premiums. Unless
otherwise specified in the related Prospectus Supplement, the Collateral Value
of a used Manufactured Home is the least of the sales price, appraised value,
and National Automobile Dealers' Association book value plus prepaid taxes and
hazard insurance premiums. The appraised value of a Manufactured Home is based
upon the age and condition of the manufactured housing unit and the quality and
condition of the mobile home park in which it is situated, if applicable.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
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 Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect the
timely payment by borrowers of scheduled payments of principal and interest on
the Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to any Mortgage Pool. In the case of
Multifamily Loans, such other factors could include excessive building resulting
in an oversupply of rental housing stock or a decrease in employment reducing
the demand for rental units in an area; federal, state or local regulations and
controls affecting rents; prices of goods and energy; environmental
restrictions; increasing labor and material costs; and the relative
attractiveness to tenants of the Mortgaged Properties. To the extent that such
losses are not covered by subordination provisions or alternative arrangements,
such losses will be borne, at least in part, by the holders of the Certificates
of the related Series.
The Depositor will cause the Mortgage Loans comprising each Mortgage
Pool to be assigned to the Trustee named in the related Prospectus Supplement
for the benefit of the holders of the Certificates of the related Series. The
Master Servicer named in the related Prospectus Supplement will service the
Mortgage Loans, either directly or through other mortgage servicing institutions
(each, a "Sub-Servicer"), pursuant to a Pooling and Servicing Agreement (each,
an "Agreement") among the Depositor, the Master Servicer and the Trustee, and
will receive a fee for such services. See "Mortgage Loan Program" and "The
Pooling and Servicing Agreement". With respect to Mortgage Loans serviced by the
Master Servicer through a Sub-Servicer, the Master Servicer will remain liable
for its servicing obligations under the related Agreement as if the Master
Servicer alone were servicing such Mortgage Loans.
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Unless otherwise specified in the related Prospectus Supplement, the
only obligations of the Depositor with respect to a Series of Certificates will
be to obtain certain representations and warranties from the Sellers and to
assign to the Trustee for such Series of Certificates the Depositor's rights
with respect to such representations and warranties. See "The Pooling and
Servicing Agreement--Assignment of Mortgage Assets". The obligations of the
Master Servicer with respect to the Mortgage Loans will consist principally of
its contractual servicing obligations under the related Agreement (including its
obligation to enforce the obligations of the Sub-Servicers or Sellers, or both,
as more fully described herein under "Mortgage Loan Program--Representations by
Sellers; Repurchases" and "The Pooling and Servicing Agreement--Sub-Servicing by
Sellers" and "--Assignment of Mortgage Assets") and its obligation to make
certain cash advances in the event of delinquencies in payments on or with
respect to the Mortgage Loans in the amounts described herein under "Description
of the Certificates--Advances". The obligations of the Master Servicer to make
advances may be subject to limitations, to the extent provided herein and in the
related Prospectus Supplement.
Single Family Loans
Unless otherwise specified in the related Prospectus Supplement, Single
Family Loans will consist of mortgage loans, deeds of trust or participations or
other beneficial interests therein, secured by first liens on one- to
four-family residential properties. If so specified in the related Prospectus
Supplement, Single Family Loans may include cooperative apartment loans
("Cooperative Loans") secured by security interests in shares issued by private,
non-profit, cooperative housing corporations ("Cooperatives") and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in such Cooperatives' buildings. If so specified in the
related Prospectus Supplement, the Mortgage Assets of the related Trust Fund may
include mortgage participation certificates evidencing interests in Single
Family Loans. Such loans may be conventional loans (i.e., loans that are not
insured or guaranteed by any governmental agency), loans insured by the Federal
Housing Administration (the "FHA") or partially guaranteed by the Veterans
Administration (the "VA"), as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, Single Family
Loans will all have individual principal balances at origination of not less
than $25,000 and not more than $1,000,000, and original terms to stated maturity
of from ten to 40 years.
The Mortgaged Properties relating to Single Family Loans will consist
of detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units, individual
units in planned unit developments, and certain other dwelling units. Such
Mortgaged Properties may include vacation and second homes, investment
properties and leasehold interests. In the case of leasehold interests, the term
of the leasehold will exceed the scheduled maturity of the Mortgage Loan by at
least five years, unless otherwise specified in the related Prospectus
Supplement.
Multifamily Loans
Multifamily Loans will consist of mortgage loans, deeds of trust or
participations or other beneficial interests therein, secured by first liens on
rental apartment buildings or projects containing five or more residential
units. If so specified in the related Prospectus Supplement, the Mortgage Assets
of the related Trust Fund may include mortgage participation certificates
evidencing interests in Multifamily Loans. Such loans may be conventional loans
or FHA-insured loans, as specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, Multifamily Loans will
all have original terms to stated maturity of not more than 40 years.
Mortgaged Properties which secure Multifamily Loans may include
high-rise, mid-rise and garden apartments. Certain of the Multifamily Loans may
be secured by apartment buildings owned by Cooperatives. A Cooperative owns all
the apartment units in its building and all common areas and is owned by
tenant-stockholders who, through ownership of stock, shares or membership
certificates in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific apartments or units.
Generally, a tenant-stockholder of a Cooperative must make a monthly payment to
the Cooperative representing such tenant-stockholder's pro rata share of the
Cooperative's payments for the Cooperative's mortgage loan, real property taxes,
maintenance expenses and other capital or ordinary expenses. Those payments are
in addition to any payments of principal and interest the tenant-stockholder
must make on any loans to the tenant-stockholder secured by his shares in the
Cooperative. The Cooperative will be directly responsible for building
management and, in most cases,
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payment of real estate taxes and hazard and liability insurance. A Cooperative's
ability to meet debt service obligations on a Multifamily Loan, as well as all
other operating expenses, will be dependent in large part on the receipt of
maintenance payments from the tenant-stockholders, as well as any rental income
from units or commercial areas the Cooperative might control. Unanticipated
expenditures may in some cases have to be paid by special assessments on the
tenant-stockholders.
Contracts
The Contracts will consist of manufactured housing conditional sales
contracts and installment sales or loan agreements each secured by a
Manufactured Home. Contracts may be conventional, insured by the FHA or
partially guaranteed by the VA, as specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
each Contract will be fully amortizing and will bear interest at a fixed
percentage rate ("APR"). Unless otherwise specified in the related Prospectus
Supplement, Contracts will all have individual principal balances at origination
of not less than $10,000 and not more than [$1,000,000] and original terms to
stated maturity of from five to 30 years.
"Manufactured Homes" securing the Contracts will consist of
manufactured homes within the meaning of 42 U.S.C. ss. 5402(6) which defines a
"manufactured home" as "a structure, transportable in one or more sections
which, in the traveling mode, is eight body feet or more in width or forty body
feet or more in length or, when erected on site, is three hundred twenty or more
square feet, and which is built on a permanent chassis and designed to be used
as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of this paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under this chapter."
The related Prospectus Supplement will specify for the Contracts
contained in the related Trust Fund, among other things, the dates of
origination of the Contracts, the APRs on the Contracts, the Loan-to-Value
Ratios of the Contracts, the minimum and maximum outstanding principal balances
as of the Cut-off Date and the average outstanding principal balance, the
outstanding principal balances of the Contracts included in the related Trust
Fund, and the original maturities of the Contracts and the last maturity date of
any Contract.
Agency Securities
Government National Mortgage Association. GNMA is a wholly-owned
corporate instrumentality of the United States within the Department of Housing
and Urban Development. Section 306(g) of Title II of the National Housing Act of
1934, as amended (the "Housing Act"), authorizes GNMA to guarantee the timely
payment of the principal of and interest on certificates which represent an
interest in a pool of mortgage loans insured by the FHA under the Housing Act or
under Title V of the Housing Act of 1949 ("FHA Loans"), or partially guaranteed
by the VA under the Servicemen's Readjustment Act of 1944, as amended, or
Chapter 37 of Title 38 of the United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guaranty under this subsection." In order to
meet its obligations under any such guarantee, GNMA may, under Section 306(d) of
the Housing Act, borrow from the United States Treasury in an unlimited amount
which is at any time sufficient to enable GNMA to perform its obligations under
its guarantee.
GNMA Certificates. Each "GNMA Certificate" held in a Trust Fund will be
a "fully modified pass-through" mortgage-backed certificate issued and serviced
by a mortgage banking company or other financial concern (a "GNMA Issuer")
approved by GNMA or approved by FNMA as a seller-servicer of FHA Loans and/or VA
Loans. The GNMA Certificates may be issued under either the GNMA I program
("GNMA I Certificates") or under the GNMA II program ("GNMA II Certificates").
The mortgage loans underlying the GNMA Certificates will consist of FHA Loans
and/or VA Loans. Each such mortgage loan is secured by a one- to four-family or
multifamily residential property. GNMA will approve the issuance of each such
GNMA Certificate in accordance with a guaranty agreement (each, a "Guaranty
Agreement") between GNMA and the GNMA Issuer. Pursuant to
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its Guaranty Agreement, a GNMA Issuer will be required to advance its own funds
in order to make timely payments of all amounts due on each such GNMA
Certificate, even if the payments received by the GNMA Issuer on the FHA Loans
or VA Loans underlying each such GNMA Certificate are less than the amounts due
on each such GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
and backed by a pool of FHA Loans or VA Loans secured by one- to four-family
residential properties and will provide for the payment by or on behalf of the
GNMA Issuer to the registered holder of such GNMA Certificate scheduled monthly
payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly principal and
interest payment on each FHA Loan or VA Loan underlying such GNMA Certificate,
less the applicable servicing and guarantee fee which together equal the
difference between the interest on the FHA Loan or VA Loan and the pass-through
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans or VA Loans underlying such GNMA Certificate and liquidation proceeds in
the event of a foreclosure or other disposition of any such FHA Loans or VA
Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate
as it becomes due, it must promptly notify GNMA and request GNMA to make such
payment. Upon notification and request, GNMA will make such payments directly to
the registered holder of such GNMA Certificate. In the event no payment is made
by a GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make
such payment, the holder of such GNMA Certificate will have recourse only
against GNMA to obtain such payment. The Trustee or its nominee, as registered
holder of the GNMA Certificates held in a Trust Fund, will have the right to
proceed directly against GNMA under the terms of the Guaranty Agreements
relating to such GNMA Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA I Certificate must have
the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on such GNMA I
Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying such GNMA I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate are due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or
by "buydown" mortgage loans for which funds will have been provided (and
deposited into escrow accounts) for application to the payment of a portion of
the borrowers' monthly payments during the early years of such mortgage loans.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other GNMA Certificates and will include amounts to be
collected from both the borrower and the related escrow account. The graduated
payment mortgage loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the amount of
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stated interest on such mortgage loans. The interest not so paid will be added
to the principal of such graduated payment mortgage loans and, together with
interest thereon, will be paid in subsequent years. The obligations of GNMA and
of a GNMA Issuer will be the same irrespective of whether the GNMA Certificates
are backed by graduated payment mortgage loans or "buydown" mortgage loans. No
statistics comparable to the FHA's prepayment experience on level payment,
non-"buydown" mortgage loans are available in respect of graduated payment or
"buydown" mortgages. GNMA Certificates related to a Series of Certificates may
be held in book-entry form.
If specified in a Prospectus Supplement, GNMA Certificates may be
backed by multifamily mortgage loans having the characteristics specified in
such Prospectus Supplement.
Federal Home Loan Mortgage Corporation. FHLMC is a shareholder-owned,
government sponsored enterprise created pursuant to Title III of the Emergency
Home Finance Act of 1970, as amended (the "FHLMC Act"). FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced degree
of liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional mortgages. The principal
activity of FHLMC currently consists of the purchase of first lien conventional
mortgage loans or participation interests in such mortgage loans and the sale of
the mortgage loans or participations so purchased in the form of mortgage
securities, primarily FHLMC Certificates. FHLMC is confined to purchasing, so
far as practicable, mortgage loans that it deems to be of such quality, type and
class as to meet generally the purchase standards imposed by private
institutional mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a "FHLMC Certificate Group"), FHLMC Certificates
are sold under the terms of a Mortgage Participation Certificate Agreement. A
FHLMC Certificate may be issued under either FHLMC's Cash Program or its
Guarantor Program.
Mortgage loans underlying the FHLMC Certificates held by a Trust Fund
will consist of mortgage loans with original terms to maturity of from ten to 40
years. Each such mortgage loan must meet the applicable standards set forth in
the FHLMC Act. A FHLMC Certificate Group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and/or
participations comprising another FHLMC Certificate Group. Under the Guarantor
Program, any such FHLMC Certificate Group may include only whole loans or
participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
FHLMC Certificate Group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
collection by such holder of all principal on the underlying mortgage loans,
without any offset or deduction, to the extent of such holder's pro rata share
thereof, but does not, except if and to the extent specified in the related
Prospectus Supplement for a Series of Certificates, guarantee the timely payment
of scheduled principal. Under FHLMC's Gold PC Program, FHLMC guarantees the
timely payment of principal based on the difference between the pool factor,
published in the month preceding the month of distribution, and the pool factor
published in such month of distribution. Pursuant to its guarantees, FHLMC
indemnifies holders of FHLMC Certificates against any diminution in principal by
reason of charges for property repairs, maintenance and foreclosure. FHLMC may
remit the amount due on account of its guaranty of collection of principal at
any time after default on an underlying mortgage loan, but not later than (i) 30
days following foreclosure sale, (ii) 30 days following payment of the claim by
any mortgage insurer or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and FHLMC has not adopted standards which
require that the demand be made within any specified period.
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FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, or entitled to,
the full faith and credit of the United States. If FHLMC were unable to satisfy
such obligations, distributions to holders of FHLMC Certificates would consist
solely of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial repayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, there is no limitation on the amount by
which interest rates on the mortgage loans underlying a FHLMC Certificate may
exceed the pass-through rate on the FHLMC Certificate. Under such program, FHLMC
purchases groups of whole mortgage loans from sellers at specified percentages
of their unpaid principal balances, adjusted for accrued or prepaid interest,
which, when applied to the interest rate of the mortgage loans and
participations purchased, results in the yield (expressed as a percentage)
required by FHLMC. The required yield, which includes a minimum servicing fee
retained by the servicer, is calculated using the outstanding principal balance.
The range of interest rates on the mortgage loans and participations in a FHLMC
Certificate Group under the Cash Program will vary since mortgage loans and
participations are purchased and assigned to a FHLMC Certificate Group based
upon their yield to FHLMC rather than on the interest rate on the underlying
mortgage loans. Under FHLMC's Guarantor Program, the pass-through rate on a
FHLMC Certificate is established based upon the lowest interest rate on the
underlying mortgage loans, minus a minimum servicing fee and the amount of
FHLMC's management and guaranty income as agreed upon between the seller and
FHLMC.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser becomes a registered
holder of the FHLMC Certificates. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
Federal National Mortgage Association. FNMA is a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act, as amended (the "Charter Act"). FNMA
was originally established in 1938 as a United States government agency to
provide supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by legislation enacted in
1968.
FNMA provides funds to the mortgage market primarily by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending. FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are Guaranteed Mortgage
Pass-Through Certificates representing fractional undivided interests in a pool
of mortgage loans formed by FNMA. Each mortgage loan must meet the applicable
standards of the FNMA purchase program. Mortgage loans comprising a pool are
either provided by FNMA from its own portfolio or purchased pursuant to the
criteria of the FNMA purchase program.
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Mortgage loans underlying FNMA Certificates held by a Trust Fund will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be from eight to 15 years or
from 20 to 40 years. The original maturities of substantially all of the fixed
rate level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest
rates that vary by as much as two percentage points from one another. The rate
of interest payable on a FNMA Certificate is equal to the lowest interest rate
of any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Under a
regular servicing option (pursuant to which the mortgagee or each other servicer
assumes the entire risk of foreclosure losses), the annual interest rates on the
mortgage loans underlying a FNMA Certificate will be between 50 basis points and
250 basis points greater than is its annual pass-through rate and under a
special servicing option (pursuant to which FNMA assumes the entire risk for
foreclosure losses), the annual interest rates on the mortgage loans underlying
a FNMA Certificate will generally be between 55 basis points and 255 basis
points greater than the annual FNMA Certificate pass-through rate. If specified
in the related Prospectus Supplement, FNMA Certificates may be backed by
adjustable rate mortgages.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guarantees are obligations solely of FNMA and are not backed by, or entitled
to, the full faith and credit of the United States. Although the Secretary of
the Treasury of the United States has discretionary authority to lend FNMA up to
$2.25 billion outstanding at any time, neither the United States nor any agency
thereof is obligated to finance FNMA's operations or to assist FNMA in any other
manner. If FNMA were unable to satisfy its obligations, distributions to holders
of FNMA Certificates would consist solely of payments and other recoveries on
the underlying mortgage loans and, accordingly, monthly distributions to holders
of FNMA Certificates would be affected by delinquent payments and defaults on
such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage loans
formed on or after May 1, 1985 (other than FNMA Certificates backed by pools
containing graduated payment mortgage loans or mortgage loans secured by
multifamily projects) are available in book-entry form only. Distributions of
principal and interest on each FNMA Certificate will be made by FNMA on the 25th
day of each month to the persons in whose name the FNMA Certificate is entered
in the books of the Federal Reserve Banks (or registered on the FNMA Certificate
register in the case of fully registered FNMA Certificates) as of the close of
business on the last day of the preceding month. With respect to FNMA
Certificates issued in book-entry form, distributions thereon will be made by
wire and, with respect to fully registered FNMA Certificates, distributions
thereon will be made by check.
Stripped Mortgage-Backed Securities. Agency Securities may consist of
one or more stripped mortgage-backed securities, each as described herein and in
the related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of the principal distributions (but not the
interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA or GNMA
Certificates. The underlying securities will be held under a trust agreement by
FHLMC, FNMA or GNMA, each as trustee, or by another trustee named in the related
Prospectus Supplement. FHLMC, FNMA or GNMA will guaranty each stripped Agency
Security to the same extent as such entity guarantees the underlying securities
backing such stripped Agency Security, unless otherwise specified in the related
Prospectus Supplement.
Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by FHLMC, FNMA or GNMA. The characteristics of any such
mortgage pass-through certificates will be described in such Prospectus
Supplement. If so specified, a combination of different types of Agency
Securities may be held in a Trust Fund.
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Private Mortgage-Backed Securities
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates or participation certificates evidencing an undivided
interest in a pool of Mortgage Loans or (b) collateralized mortgage obligations
secured by Mortgage Loans. Private Mortgage-Backed Securities may include
stripped mortgage-backed securities representing an undivided interest in all or
a part of the principal distributions (but not the interest distributions) or
the interest distributions (but not the principal distributions) or in some
specified portion of the principal and interest distributions (but not all of
such distributions) on certain Mortgage Loans. Private Mortgage-Backed
Securities will have been issued pursuant to a pooling and servicing agreement,
an indenture or similar agreement (a "PMBS Agreement"). Unless otherwise
specified in the related Prospectus Supplement, the seller/servicer of the
underlying Mortgage Loans will have entered into the PMBS Agreement with the
trustee under such PMBS Agreement (the "PMBS Trustee"). The PMBS Trustee or its
agent, or a custodian, will possess the Mortgage Loans underlying such Private
Mortgage-Backed Security. Mortgage Loans underlying a Private Mortgage-Backed
Security will be serviced by a servicer (the "PMBS Servicer") directly or by one
or more subservicers which may be subject to the supervision of the PMBS
Servicer. Unless otherwise specified in the related Prospectus Supplement, the
PMBS Servicer will be a FNMA- or FHLMC-approved servicer and, if FHA Loans
underlie the Private Mortgage-Backed Securities, approved by HUD as an FHA
mortgagee.
The issuer of the Private Mortgage-Backed Securities (the "PMBS
Issuer") will be a financial institution or other entity engaged generally in
the business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose corporation organized for the
purpose of, among other things, establishing trusts and acquiring and selling
housing loans to such trusts and selling beneficial interests in such trusts. If
so specified in the related Prospectus Supplement, the PMBS Issuer may be an
affiliate of the Depositor. The obligations of the PMBS Issuer will generally be
limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Unless otherwise specified in the related
Prospectus Supplement, the PMBS Issuer will not have guaranteed any of the
assets conveyed to the related trust or any of the Private Mortgage-Backed
Securities issued under the PMBS Agreement. Additionally, although the Mortgage
Loans underlying the Private Mortgage-Backed Securities may be guaranteed by an
agency or instrumentality of the United States, the Private Mortgage-Backed
Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Underlying Loans. The Mortgage Loans underlying the Private
Mortgage-Backed Securities may consist of fixed rate, level payment, fully
amortizing loans or graduated payment mortgage loans, buydown loans, adjustable
rate mortgage loans, or loans having balloon or other special payment features.
Such Mortgage Loans may be secured by single family property, multifamily
property, Manufactured Homes or by an assignment of the proprietary lease or
occupancy agreement relating to a specific dwelling within a Cooperative and the
related shares issued by such Cooperative. Except as otherwise specified in the
related Prospectus Supplement, (i) no Mortgage Loan will have had a
Loan-to-Value Ratio at origination in excess of 95%, (ii) each Single Family
Loan secured by a Mortgaged Property having a Loan-to-Value Ratio in excess of
80% at origination will be covered by a primary mortgage insurance policy, (iii)
each Mortgage Loan will have had an original term to stated maturity of not less
than 5 years and not more than 40 years, (iv) no Mortgage Loan that was more
than 30 days delinquent as to the payment of principal or interest will have
been eligible for inclusion in the assets under the related PMBS Agreement, (v)
each Mortgage Loan (other than a Cooperative Loan) will be required to be
covered by a standard hazard insurance policy (which may be a blanket policy),
and (vi) each Mortgage Loan (other than a Cooperative Loan or a Contract secured
by a Manufactured Home) will be covered by a title insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of reserve funds, subordination of other private mortgage
certificates issued under the PMBS Agreement, letters of credit, surety bonds,
insurance policies or other types of credit support may be provided with respect
to the Mortgage Loans
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underlying the Private Mortgage-Backed Securities or with respect to the Private
Mortgage-Backed Securities themselves.
Additional Information. The Prospectus Supplement for a Series for
which the Trust Fund includes Private Mortgage-Backed Securities will specify
(i) the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Mortgage Loans which comprise the underlying assets for
the Private Mortgage-Backed Securities including (A) the payment features of
such Mortgage Loans, (B) the approximate aggregate principal balance, if known,
of underlying Mortgage Loans insured or guaranteed by a governmental entity, (C)
the servicing fee or range of servicing fees with respect to the Mortgage Loans,
and (D) the minimum and maximum stated maturities of the underlying Mortgage
Loans at origination, (iii) the maximum original term-to-stated maturity of the
Private Mortgage-Backed Securities, (iv) the weighted average term-to-stated
maturity of the Private Mortgage-Backed Securities, (v) the pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vi) the weighted
average pass-through or certificate rate of the Private Mortgage-Backed
Securities, (vii) the PMBS Issuer, the PMBS Servicer (if other than the PMBS
Issuer) and the PMBS Trustee for such Private Mortgage-Backed Securities, (viii)
certain characteristics of credit support, if any, such as reserve funds,
insurance policies, surety bonds, letters of credit or guaranties relating to
the Mortgage Loans underlying the Private Mortgage-Backed Securities or to such
Private Mortgage-Backed Securities themselves, (ix) the term on which the
underlying Mortgage Loans for such Private Mortgage-Backed Securities may, or
are required to, be purchased prior to their stated maturity or the stated
maturity of the Private Mortgage-Backed Securities and (x) the terms on which
Mortgage Loans may be substituted for those originally underlying the Private
Mortgage-Backed Securities.
Incorporation of Certain Information by Reference
There are incorporated herein by reference all documents and reports
filed or caused to be filed by Greenwich Capital Acceptance, Inc. ("GCA") with
respect to a Trust Fund pursuant to Section 13(a), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, prior to the termination of the offering of
Certificates evidencing interests therein. Upon request by any person to whom
this Prospectus is delivered in connection with the offering of one or more
classes of Certificates, GCA will provide or cause to be provided without charge
a copy of any such documents and/or reports incorporated herein by reference, in
each case to the extent such documents or reports relate to such classes of
Certificates, other than the exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Requests to GCA
should be directed in writing to: Paul D. Stevelman, Greenwich Capital
Acceptance, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, telephone
number (203) 625-2700. GCA has determined that its financial statements are not
material to the offering of any Certificates.
Investors may read and copy the documents and/or reports incorporated
herein by reference at the Public Reference Room of the Securities and Exchange
Commission (the "SEC") at 450 Fifth Street, N.W., Washington, DC 20549.
Investors may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website
at http:\\www.sec.gov containing reports, proxy and information statements and
other information regarding issuers, including each Trust Fund, that file
electronically with the SEC.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Mortgage Assets or will be used
by the Depositor for general corporate purposes. The Depositor expects to sell
Certificates in Series from time to time, but the timing and amount of offerings
of Certificates will depend on a number of factors, including the volume of
Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
THE DEPOSITOR
Greenwich Capital Acceptance, Inc., the Depositor, is a Delaware
corporation organized on April 23, 1987 for the limited purpose of acquiring,
owning and transferring Mortgage Assets and selling interests therein or bonds
secured thereby. It is an indirect, limited purpose finance subsidiary of
National Westminster Bank Plc and an
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affiliate of Greenwich Capital Markets, Inc. Greenwich Capital Markets, Inc. is
a registered broker-dealer engaged in the U.S. government securities and related
capital markets business. The Depositor maintains its principal office at 600
Steamboat Road, Greenwich, Connecticut 06830. Its telephone number is (203)
625-2700.
Neither the Depositor nor any of the Depositor's affiliates will ensure
or guarantee distributions on the Certificates of any Series.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor, either
directly or through affiliates, from Sellers. Unless otherwise specified in the
related Prospectus Supplement, the Mortgage Loans so acquired by the Depositor
will have been originated in accordance with the underwriting criteria specified
below under "Underwriting Standards".
Underwriting Standards
Unless otherwise specified in the related Prospectus Supplement, each
Seller will represent and warrant that all Mortgage Loans originated and/or sold
by it to the Depositor or one of its affiliates will have been underwritten in
accordance with standards consistent with those utilized by mortgage lenders or
manufactured home lenders generally during the period of origination for similar
types of loans. As to any Mortgage Loan insured by the FHA or partially
guaranteed by the VA, the Seller will represent that it has complied with the
underwriting policies of the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to
evaluate a prospective borrower's credit standing and repayment ability, and the
value and adequacy of the Mortgaged Property as collateral. In general, a
prospective borrower applying for a Single Family Loan or for financing secured
by a Manufactured Home is required to fill out a detailed application designed
to provide to the underwriting officer pertinent credit information. As part of
the description of the borrower's financial condition, the borrower generally is
required to provide a current list of assets and liabilities and a statement of
income and expenses, as well as an authorization to apply for a credit report
which summarizes the borrower's credit history with local merchants and lenders
and any record of bankruptcy. In most cases, an employment verification is
obtained from an independent source (typically the borrower's employer) which
verification reports the borrower's length of employment with that organization,
his current salary, and whether it is expected that the borrower will continue
such employment in the future. If a prospective borrower is self-employed, the
borrower may be required to submit copies of signed tax returns. The borrower
may also be required to authorize verification of deposits at financial
institutions where the borrower has demand or savings accounts. Underwriting
standards which pertain to the creditworthiness of borrowers seeking Multifamily
Loans will be described in the related Prospectus Supplement.
In determining the adequacy of the Mortgaged Property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. In connection with a Single Family
Loan, the appraisal is based on the market value of comparable homes, the
estimated rental income (if considered applicable by the appraiser) and the cost
of replacing the subject home. In connection with a Contract, the appraisal is
based on recent sales of comparable Manufactured Homes and, when deemed
applicable, a replacement cost analysis based on the cost of a comparable
Manufactured Home. In connection with a Multifamily Loan, the appraisal must
specify whether an income analysis, a market analysis or a cost analysis was
used. An appraisal employing the income approach to value analyzes a multifamily
project's cashflow, expenses, capitalization and other operational information
in determining the property's value. The market approach to value focuses its
analysis on the prices paid for the purchase of similar properties in the
multifamily project's area, with adjustments made for variations between these
other properties and the multifamily project being appraised. The cost approach
calls for the appraiser to make an estimate of land value and then determine the
current cost of reproducing the building less any accrued depreciation. In any
case, the value of the property being financed, as indicated by the appraisal,
must be such that it currently supports, and is anticipated to support in the
future, the outstanding loan balance.
In the case of Single Family Loans and Contracts, once all applicable
employment, credit and property information is received, a determination
generally is made as to whether the prospective borrower has sufficient
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monthly income available (i) to meet the borrower's monthly obligations on the
proposed mortgage loan (generally determined on the basis of the monthly
payments due in the year of origination) and other expenses related to the
Mortgaged Property (such as property taxes and hazard insurance) and (ii) to
meet monthly housing expenses and other financial obligations and monthly living
expenses. The underwriting standards applied by Sellers, particularly with
respect to the level of loan documentation and the mortgagor's income and credit
history, may be varied in appropriate cases where factors such as low
Loan-to-Value Ratios or other favorable credit exist.
In the case of a Single Family or Multifamily Loan secured by a
leasehold interest in real property, the title to which is held by a third-party
lessor, the Seller will represent and warrant, among other things, that the
remaining term of the lease and any sublease is at least five years longer than
the remaining term of the Mortgage Note.
Certain of the types of Mortgage Loans which may be included in the
Mortgage Pools are recently developed and may involve additional uncertainties
not present in traditional types of loans. For example, certain of such Mortgage
Loans may provide for escalating or variable payments by the mortgagor or
obligor. These types of Mortgage Loans are generally underwritten on the basis
of a judgment that mortgagors or obligors will have the ability to make the
monthly payments required initially; in some instances, however, their incomes
may not be sufficient to permit continued loan payments as such payments
increase. These types of Mortgage Loans may also be underwritten primarily upon
the basis of Loan-to-Value Ratios or other favorable credit factors.
Qualifications of Sellers
Unless otherwise specified in the related Prospectus Supplement, each
Seller will be required to satisfy the qualifications set forth herein. Each
Seller must be an institution experienced in originating and servicing Mortgage
Loans of the type contained in the related Mortgage Pool in accordance with
accepted practices and prudent guidelines and must maintain satisfactory
facilities to originate and service those Mortgage Loans. Each Seller must be a
seller/servicer approved by either FNMA or FHLMC. Each Seller must be a
mortgagee approved by the FHA or an institution the deposit accounts in which
are insured by the Federal Deposit Insurance Corporation (the "FDIC").
Representations by Sellers; Repurchases
Each Seller will have made representations and warranties in respect of
the Mortgage Loans sold by such Seller and evidenced by a Series of
Certificates. Such representations and warranties, unless otherwise provided in
the related Prospectus Supplement, generally include, among other things: (i)
that title insurance (or in the case of Mortgaged Properties located in areas
where such policies are generally not available, an attorney's certificate of
title) in the case of Single Family Loans and Multifamily Loans (other than a
Cooperative Loan or a contract secured by a Manufactured Home) and any required
hazard insurance policy and Primary Mortgage Insurance Policy were effective at
the origination of each Mortgage Loan (other than Cooperative Loans), and that
each policy (or certificate of title as applicable) remained in effect on the
date of purchase of the Mortgage Loan from the Seller by or on behalf of the
Depositor; (ii) that the Seller had good title to each such Mortgage Loan and
such Mortgage Loan was subject to no offsets, defenses, counterclaims or rights
of rescission except to the extent that any buydown agreement described herein
may forgive certain indebtedness of a Mortgagor; (iii) that each Mortgage Loan
constituted a valid first lien on, or a first perfected security interest with
respect to, the related Mortgaged Property (subject only to permissible title
insurance exceptions, if applicable, and certain other exceptions described in
the Agreement) and that the Mortgaged Property was free from damage and was in
good repair; (iv) that there were no delinquent tax or assessment liens against
the Mortgaged Property; (v) that no required payment on a Mortgage Loan was
delinquent more than 30 days; and (vi) that each Mortgage Loan was made in
compliance with, and is enforceable under, all applicable local, state and
federal laws and regulations in all material respects.
If so specified in the related Prospectus Supplement, the
representations and warranties of a Seller in respect of a Mortgage Loan will be
made not as of the Cut-off Date but as of the date on which such Seller sold the
Mortgage Loan to the Depositor or one of its affiliates. Under such
circumstances, a substantial period of time may have elapsed between such date
and the date of initial issuance of the Series of Certificates evidencing an
interest in such Mortgage Loan. Since the representations and warranties of a
Seller do not address events that may occur following the sale of a Mortgage
Loan by such Seller, its repurchase obligation described below will not arise if
the relevant event that would otherwise have given rise to such an obligation
with respect to a Mortgage Loan occurs
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after the date of sale of such Mortgage Loan by such Seller to the Depositor or
its affiliates. However, the Depositor will not include any Mortgage Loan in the
Trust Fund for any Series of Certificates if anything has come to the
Depositor's attention that would cause it to believe that the representations
and warranties of the related Seller will not be accurate and complete in all
material respects in respect of such Mortgage Loan as of the date of initial
issuance of the related Series of Certificates. If the Master Servicer is also a
Seller of Mortgage Loans with respect to a particular Series, such
representations will be in addition to the representations and warranties made
by the Master Servicer in its capacity as a Master Servicer.
The Master Servicer, or the Trustee if the Master Servicer is the
Seller, will promptly notify the relevant Seller of any breach of any
representation or warranty made by such Seller in respect of a Mortgage Loan
which materially and adversely affects the interests of the Certificateholders
in such Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, if such Seller cannot cure such breach within 90 days after notice
from the Master Servicer or the Trustee, as the case may be, then such Seller
will be obligated to repurchase such Mortgage Loan from the Trust Fund at a
price (the "Purchase Price") equal to 100% of the unpaid principal balance
thereof as of the date of the repurchase plus accrued interest thereon to the
first day of the month following the month of repurchase at the Mortgage Rate
(less any Advances or amount payable as related servicing compensation if the
Seller is the Master Servicer). If a REMIC election is to be made with respect
to a Trust Fund, unless otherwise provided in the related Prospectus Supplement,
the Master Servicer or a holder of the related residual certificate will be
obligated to pay any prohibited transaction tax which may arise in connection
with any such repurchase. The Master Servicer, unless otherwise specified in the
related Prospectus Supplement, will be entitled to reimbursement for any such
payment from the assets of the related Trust Fund or from any holder of the
related residual certificate. See "Description of the Certificates--General".
Except in those cases in which the Master Servicer is the Seller, the Master
Servicer will be required under the applicable Agreement to enforce this
obligation for the benefit of the Trustee and the holders of the Certificates,
following the practices it would employ in its good faith business judgment were
it the owner of such Mortgage Loan. This repurchase obligation will constitute
the sole remedy available to holders of Certificates or the Trustee for a breach
of representation by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master
Servicer is the Seller) will be obligated to purchase a Mortgage Loan if a
Seller defaults on its obligation to do so, and no assurance can be given that
Sellers will carry out their respective repurchase obligations with respect to
Mortgage Loans. However, to the extent that a breach of a representation and
warranty of a Seller may also constitute a breach of a representation made by
the Master Servicer, the Master Servicer may have a repurchase obligation as
described under "The Pooling and Servicing Agreement--Assignment of Mortgage
Assets".
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an Agreement,
dated as of the related Cut-off Date, among the Depositor, the Master Servicer
and the Trustee for the benefit of the holders of the Certificates of such
Series. The provisions of each Agreement will vary depending upon the nature of
the Certificates to be issued thereunder and the nature of the related Trust
Fund. A form of such Agreement is an exhibit to the Registration Statement of
which this Prospectus is a part. The following summaries describe certain
provisions which may appear in each Agreement. The Prospectus Supplement for a
Series of Certificates will describe any provision of the Agreement relating to
such Series that materially differs from the description thereof contained in
this Prospectus. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Agreement for each Series of Certificates and the applicable Prospectus
Supplement. The Depositor will provide a copy of the Agreement (without
exhibits) relating to any Series without charge upon written request of a holder
of record of a Certificate of such Series addressed to Greenwich Capital
Acceptance, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention:
Asset Backed Finance Group.
General
Unless otherwise specified in the Prospectus Supplement, the
Certificates of each Series will be issued in fully registered form only, in the
authorized denominations specified in the related Prospectus Supplement, will
evidence specified beneficial ownership interests in the related Trust Fund
created pursuant to each Agreement and will not be entitled to payments in
respect of the assets included in any other Trust Fund established by the
Depositor. The Certificates will not represent obligations of the Depositor or
any affiliate of the Depositor. The
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Mortgage Loans will not be insured or guaranteed by any governmental entity or
other person, unless otherwise specified in the related Prospectus Supplement.
To the extent provided in the Agreement, each Trust Fund will consist of (i) the
Mortgage Assets, as from time to time are subject to the related Agreement
(exclusive of any amounts specified in the related Prospectus Supplement (the
"Retained Interest")); (ii) such assets as from time to time are required to be
deposited in the related Certificate Account as defined under "The Pooling and
Servicing Agreement--Payments on Mortgage Loans; Deposits to the Certificate
Account"; (iii) property which secured a Mortgage Loan and which is acquired on
behalf of the Certificateholders by foreclosure or deed in lieu of foreclosure
and (iv) Primary Mortgage Insurance Policies, FHA Insurance and VA Guarantees,
if any, and any other insurance policies or other forms of credit enhancement
required to be maintained pursuant to the Agreement. If so specified in the
related Prospectus Supplement, a Trust Fund may also include one or more of the
following: reinvestment income on payments received on the Mortgage Assets, a
reserve fund, a mortgage pool insurance policy, a special hazard insurance
policy, a bankruptcy bond, one or more letters of credit, a surety bond,
guaranties or similar instruments or other agreements.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified portion or percentage (which may be 0%) of future interest payments
and a specified portion or percentage (which may be 0%) of future principal
payments on the Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more classes that are senior in right to payment
to one or more other classes of Certificates of such Series. Certain Series or
classes of Certificates may be covered by insurance policies, surety bonds or
other forms of credit enhancement, in each case as described herein and in the
related Prospectus Supplement. One or more classes of Certificates of a Series
may be entitled to receive distributions of principal, interest or any
combination thereof. Distributions on one or more classes of a Series of
Certificates may be made prior to being made on one or more other classes, after
the occurrence of specified events, in accordance with a schedule or formula, on
the basis of collections from designated portions of the Mortgage Assets in the
related Trust Fund or on a different basis, in each case as specified in the
related Prospectus Supplement. The timing and amounts of such distributions may
vary among classes or over time as specified in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal only
or interest only) on the related Certificates will be made by the Trustee on
each Distribution Date (i.e., monthly, quarterly, semi-annually or at such other
intervals and on the dates as are specified in the Prospectus Supplement) in
proportion to the percentages specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Certificates are
registered at the close of business on the dates specified in the related
Prospectus Supplement (each, a "Record Date"). Distributions will be made by
check or money order mailed to the persons entitled thereto at the address
appearing in the register maintained for holders of Certificates (the
"Certificate Register") or, if specified in the related Prospectus Supplement,
in the case of Certificates that are of a certain minimum denomination, upon
written request by the Certificateholder, by wire transfer or by such other
means as are described therein; 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 or other
person specified in the notice to Certificateholders of such final distribution.
The Certificates will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Certificates of any Series but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law, in the case of a class of Certificates entitled only
to a specified percentage of payments of interest or principal or a notional
amount of either interest or principal on the related Mortgage Loans or a class
of Certificates entitled to receive payments of interest and principal on the
Mortgage Loans only after payments to other classes or after the occurrence of
certain specified events, the purchase and holding of such a class of
Certificates by or on behalf of any employee benefit plan or other retirement
arrangement (including individual retirement accounts and annuities, Keogh plans
and collective investment funds in which such plans, accounts or arrangements
are invested) subject to provisions of ERISA or the Code may result in
"prohibited transactions" within the meaning of ERISA and the Code. See "ERlSA
Considerations". Unless otherwise specified in the related Prospectus
Supplement, transfer of Certificates of such a class will not be registered
unless the transferee (i) represents that it is not, and is not purchasing on
behalf of, any such plan, account or arrangement or (ii) provides an
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opinion of counsel satisfactory to the Trustee and the Depositor that the
purchase of Certificates of such a class by or on behalf of such plan, account
or arrangement is permissible under applicable law and will not subject the
Trustee, the Master Servicer or the Depositor to any obligation or liability in
addition to those undertaken in the Agreement.
As to each Series, an election may be made to treat the related Trust
Fund or designated portions thereof as a "real estate mortgage investment
conduit" ( each, a "REMIC") as defined in the Code. The related Prospectus
Supplement will specify whether a REMIC election is to be made. Alternatively,
the Agreement for a Series may provide that a REMIC election may be made at the
discretion of the Depositor or the Master Servicer and may only be made if
certain conditions are satisfied. As to any such Series, the terms and
provisions applicable to the making of a REMIC election, as well as any material
federal income tax consequences to Certificateholders not otherwise described
herein, will be set forth in the related Prospectus Supplement. If such an
election is made with respect to a Series, one of the classes will be designated
as evidencing the sole class of "residual interests" in the related REMIC, as
defined in the Code. All other classes of Certificates in such a Series will
constitute "regular interests" in the related REMIC, as defined in the Code. As
to each Series with respect to which a REMIC election is to be made, the Master
Servicer or a holder of the related residual certificate will be obligated to
take all actions required in order to comply with applicable laws and
regulations and will be obligated to pay any prohibited transaction taxes. The
Master Servicer, unless otherwise specified in the related Prospectus
Supplement, will be entitled to reimbursement for any such payment from the
assets of the Trust Fund or from any holder of the related residual certificate.
Distributions on Certificates
General. In general, the method of determining the amount of
distributions on a particular Series of Certificates will depend on the type of
credit support, if any, that is used with respect to such Series. See "Credit
Enhancement". Set forth below are descriptions of various methods that may be
used to determine the amount of distributions on the Certificates of a
particular Series. The Prospectus Supplement for each Series of Certificates
will describe the method to be used in determining the amount of distributions
on the Certificates of such Series.
Distributions allocable to principal and interest on the Certificates
will be made by the Trustee out of, and only to the extent of, funds in the
related Certificate Account, including any funds transferred from any reserve
account (a "Reserve Account"). As between Certificates of different classes and
as between distributions of principal (and, if applicable, between distributions
of Principal Prepayments, as defined below, and scheduled payments of principal)
and interest, distributions made on any Distribution Date will be applied as
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, distributions to any class of Certificates
will be made pro rata to all Certificateholders of that class.
Available Funds. All distributions on the Certificates of each Series
on each Distribution Date will be made from the Available Funds described below
in accordance with the terms described in the related Prospectus Supplement and
specified in the Agreement. Unless otherwise provided in the related Prospectus
Supplement, the "Available Funds" for each Distribution Date will equal the sum
of the following amounts:
(i) the aggregate of all previously undistributed payments on account
of principal (including Principal Prepayments, if any, and prepayment penalties,
if so provided in the related Prospectus Supplement) and interest on the
Mortgage Loans in the related Trust Fund (including Liquidation Proceeds and
Insurance Proceeds and amounts drawn under letters of credit or other credit
enhancement instruments as permitted thereunder and as specified in the related
Agreement) received by the Master Servicer after the Cut-off Date and on or
prior to the day of the month of the related Distribution Date specified in the
related Prospectus Supplement (the "Determination Date") except:
(a) all payments which were due on or before the Cut-off Date;
(b) all Liquidation Proceeds and all Insurance Proceeds, all
Principal Prepayments and all other proceeds of any Mortgage Loan purchased by
the Depositor, the Master Servicer, any Sub-Servicer or any Seller pursuant to
the Agreement that were received after the prepayment period specified in the
related Prospectus Supplement and all related payments of interest representing
interest for any period after such prepayment period;
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(c) all scheduled payments of principal and interest due on a
date or dates subsequent to the first day of the month of distribution;
(d) amounts received on particular Mortgage Loans as late
payments of principal or interest or other amounts required to be paid by
Mortgagors, but only to the extent of any unreimbursed advance in respect
thereof made by the Master Servicer (including the related Sub-Servicers,
Support Servicers or the Trustee);
(e) amounts representing reimbursement, to the extent
permitted by the Agreement and as described under "--Advances" below, for
advances made by the Master Servicer, Sub-Servicers, Support Servicers or the
Trustee that were deposited into the Certificate Account, and amounts
representing reimbursement for certain other losses and expenses incurred by the
Master Servicer or the Depositor and described below;
(f) that portion of each collection of interest on a
particular Mortgage Loan in such Trust Fund which represents servicing
compensation payable to the Master Servicer or Retained Interest which is to be
retained from such collection or is permitted to be retained from related
Insurance Proceeds, Liquidation Proceeds or proceeds of Mortgage Loans purchased
pursuant to the Agreement;
(ii) the amount of any advance made by the Master Servicer, any
Sub-Servicer, Support Servicer or the Trustee as described under "--Advances"
below and deposited by it in the Certificate Account;
(iii) if applicable, amounts withdrawn from a Reserve Account; and
(iv) if applicable, the amount of prepayment interest shortfall.
Distributions of Interest. Unless otherwise specified in the related
Prospectus Supplement, interest will accrue on the aggregate principal balance
of each class of Certificates (with respect to each class, the "Certificate
Principal Balance") (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate notional principal balance)
entitled to interest from the date, at the Pass-Through Rate (which may be a
fixed rate or an adjustable rate adjustable as specified in such Prospectus
Supplement) and for the periods specified in such Prospectus Supplement. To the
extent funds are available therefor, interest accrued during each such specified
period on each class of Certificates entitled to interest (other than a class of
Certificates that provides for interest that accrues, but is not currently
payable, referred to hereafter as "Accrual Certificates") will be distributable
on the Distribution Dates specified in the related Prospectus Supplement until
the aggregate Certificate principal balance of the Certificates of such class
has been distributed in full or, in the case of Certificates entitled only to
distributions allocable to interest, until the aggregate notional principal
balance of such Certificates is reduced to zero or for the period of time
designated in the related Prospectus Supplement. The original Certificate
Principal Balance of each Certificate will equal the aggregate distributions
allocable to principal to which such Certificate is entitled. Unless otherwise
specified in the related Prospectus Supplement, 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.
With respect to any class of Accrual Certificates, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid on
any Distribution Date will be added to the aggregate Certificate Principal
Balance of such class of Certificates on such Distribution Date. Unless
otherwise specified in the related Prospectus Supplement, distributions of
interest on each class of Accrual Certificates will commence only after the
occurrence of the events specified in such Prospectus Supplement. Unless
otherwise specified in the related 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.
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Distributions of Principal. Unless otherwise specified in the related
Prospectus Supplement, the aggregate Certificate Principal Balance of any class
of Certificates entitled to distributions of principal will be the aggregate
original Certificate Principal Balance of such class of Certificates specified
in such Prospectus Supplement, reduced by all distributions reported to the
holders of such Certificates as allocable to principal and, (i) in the case of
Accrual Certificates, unless otherwise specified in the related Prospectus
Supplement, increased by all interest accrued but not then distributable on such
Accrual Certificates and (ii) in the case of adjustable rate Certificates,
unless otherwise specified in the related Prospectus Supplement, subject to the
effect of negative amortization. The related Prospectus Supplement will specify
the method by which the amount of principal to be distributed on the
Certificates on each Distribution Date will be calculated and the manner in
which such amount will be allocated among the classes of Certificates entitled
to distributions of principal.
If so provided in the related Prospectus Supplement, one or more
classes of Senior Certificates will be entitled to receive all or a
disproportionate percentage of the payments of principal which are received from
borrowers in advance of their scheduled due dates and are not accompanied by
amounts representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or for
the periods specified in such Prospectus Supplement. Any such allocation of
Principal Prepayments to such class or classes of Certificates will have the
effect of accelerating the amortization of such Senior Certificates while
increasing the interests evidenced by the Subordinated Certificates in the Trust
Fund. Increasing the interests of the Subordinated Certificates relative to that
of the Senior Certificates is intended to preserve the availability of the
subordination provided by the Subordinated Certificates. See "Credit
Enhancement--Subordination" herein.
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Certificates will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
described below and in such Prospectus Supplement. If applicable, the Trustee
will be required to make such unscheduled distributions on the day and in the
amount specified in the related Prospectus Supplement if, due to substantial
payments of principal (including Principal Prepayments) on the Mortgage Assets,
the Trustee or the Master Servicer determines that the funds available or
anticipated to be available from the Certificate Account and, if applicable,
from any Reserve Account may be insufficient to make required distributions on
the Certificates on such Distribution Date. Unless otherwise specified in the
related Prospectus Supplement, the amount of any such unscheduled distribution
that is allocable to principal will not exceed the amount that would otherwise
have been required to be distributed as principal on the Certificates on the
next Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, all unscheduled distributions will include interest at the
applicable Pass-Through Rate (if any) on the amount of the unscheduled
distribution allocable to principal for the period and to the date specified in
such Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all
distributions allocable to principal in any unscheduled distribution will be
made in the same priority and manner as distributions of principal on the
Certificates would have been made on the next Distribution Date, and with
respect to Certificates of the same class, unscheduled distributions of
principal will be made on a pro rata basis. Notice of any unscheduled
distribution will be given by the Trustee prior to the date of such
distribution.
Advances
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be required to advance on or before each Distribution Date
(from its own funds, funds advanced by Sub-Servicers or Support Servicers or
funds held in the Certificate Account for future distributions to the holders of
such Certificates) an amount equal to the aggregate of payments of principal and
interest that were delinquent on the related Determination Date and were not
advanced by any Sub-Servicer, subject to the Master Servicer's determination
that such Advances will be recoverable out of late payments by Mortgagors,
Liquidation Proceeds, Insurance Proceeds or otherwise. In the case of
Cooperative Loans, the Master Servicer also will be required to advance any
unpaid maintenance fees and other charges under the related proprietary leases
as specified in the related Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to holders of the
Certificates rather than to guarantee or insure against losses. If Advances are
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made by the Master Servicer from cash being held for future distribution to
Certificateholders, the Master Servicer will replace such funds on or before any
future Distribution Date to the extent that funds in the applicable Certificate
Account on such Distribution Date would be less than the amount required to be
available for distributions to Certificateholders on such date. Any Master
Servicer funds advanced will be reimbursable to the Master Servicer out of
recoveries on the specific Mortgage Loans with respect to which such Advances
were made (e.g., late payments made by the related Mortgagor, any related
Insurance Proceeds, Liquidation Proceeds or proceeds of any Mortgage Loan
purchased by a Sub-Servicer or a Seller under the circumstances described
hereinabove). Advances by the Master Servicer (and any advances by a
Sub-Servicer or a Support Servicer) also will be reimbursable to the Master
Servicer (or Sub-Servicer or Support Servicer, as applicable) from cash
otherwise distributable to Certificateholders (including the holders of Senior
Certificates) to the extent that the Master Servicer determines that any such
Advances previously made are not ultimately recoverable as described above. The
Master Servicer also will be obligated to make Advances, to the extent
recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise, in
respect of certain taxes and insurance premiums not paid by Mortgagors on a
timely basis. Funds so advanced are reimbursable to the Master Servicer to the
extent permitted by the Agreement. If specified in the related Prospectus
Supplement, the obligations of the Master Servicer to make advances may be
supported by a cash advance reserve fund, a surety bond or other arrangement, in
each case as described in such Prospectus Supplement.
The Master Servicer or Sub-Servicer may enter into an agreement (a
"Support Agreement") with a support servicer (each, a "Support Servicer")
pursuant to which the Support Servicer agrees to provide funds on behalf of the
Master Servicer or Sub-Servicer in connection with the obligation of the Master
Servicer or Sub-Servicer, as the case may be, to make Advances. The Support
Agreement will be delivered to the Trustee and the Trustee will be authorized to
accept a substitute Support Agreement in exchange for an original Support
Agreement, provided that such substitution of the Support Agreement will not
adversely affect the rating or ratings assigned to the Certificates by such
Rating Agency or Agencies.
Unless otherwise provided in the Prospectus Supplement, in the event
the Master Servicer, a Sub-Servicer or a Support Servicer fails to make an
Advance, the Trustee will be obligated to make such Advance in its capacity as
successor servicer. If the Trustee makes such an Advance, it will be entitled to
be reimbursed for such Advance to the same extent and degree as the Master
Servicer, a Sub-Servicer or a Support Servicer is entitled to be reimbursed for
Advances. See "--Distribution on Certificates" above.
Reports to Certificateholders
Prior to or concurrently with each distribution on a Distribution Date
and except as otherwise set forth in an applicable Prospectus Supplement, the
Master Servicer or the Trustee will furnish to each Certificateholder of record
of the related Series a statement setting forth, to the extent applicable to
such Series of Certificates, among other things:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and, if so
specified in the related Prospectus Supplement, prepayment penalties included
therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Certificateholders on such Distribution Date and (b) withdrawn from the Reserve
Fund, if any, that is included in the amounts distributed to the Senior
Certificateholders;
(v) the outstanding Certificate Principal Balance or notional principal
balance of such class after giving effect to the distribution of principal on
such Distribution Date;
(vi) the percentage of principal payments on the Mortgage Loans
(excluding prepayments), if any, which such class will be entitled to receive on
the following Distribution Date;
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(vii) the percentage of Principal Prepayments on the Mortgage Loans, if
any, which such class will be entitled to receive on the following Distribution
Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Certificate Account by the Master Servicer and the amount of
additional servicing compensation received by the Master Servicer attributable
to penalties, fees, excess Liquidation Proceeds and other similar charges and
items;
(ix) the number and aggregate principal balances of Mortgage Loans (A)
delinquent (exclusive of Mortgage Loans in foreclosure) (1) from one to 30 days,
(2) from 31 to 60 days, (3) from 61 to 90 days and (4) 91 days or more and (B)
in foreclosure, as of the close of business on the last day of the calendar
month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure and, if such real estate secured a
Multifamily Loan, such additional information as may be specified in the related
Prospectus Supplement;
(xi) if a class is entitled only to a specified portion of payments of
interest on the Mortgage Loans in the related Mortgage Pool, the Pass-Through
Rate, if adjusted from the date of the last statement, of the Mortgage Loans
expected to be applicable to the next distribution to such class;
(xii) if applicable, the amount remaining in any Reserve Account at the
close of business on the Distribution Date;
(xiii) the Pass-Through Rate as of the day prior to the immediately
preceding Distribution Date; and
(xiv) any amounts remaining under letters of credit, pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single Certificate of the relevant class having the percentage
interest specified in the related Prospectus Supplement. The report to
Certificateholders for any Series of Certificates may include additional or
other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Certificateholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Certificateholder of record
during a portion of such calendar year, for the applicable portion of such year
and (b) such other customary information as may be deemed necessary or desirable
for Certificateholders to prepare their tax returns.
CREDIT ENHANCEMENT
General
Credit enhancement may be provided with respect to one or more classes
of a Series of Certificates or with respect to the Mortgage Assets in the
related Trust Fund. Credit enhancement may be in the form of a limited financial
guaranty policy issued by an entity named in the related Prospectus Supplement,
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 cross-support
feature, use of a mortgage pool insurance policy, bankruptcy bond, special
hazard insurance policy, surety bond, letter of credit, guaranteed investment
contract or another method of credit enhancement described in the related
Prospectus Supplement or any combination of the foregoing. Unless otherwise
specified in the related Prospectus Supplement, any credit enhancement 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 enhancement or which are not
covered by the credit enhancement, Certificateholders will bear their allocable
share of deficiencies.
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Subordination
If so specified in the related Prospectus Supplement, protection
afforded to holders of one or more classes of Certificates of a Series by means
of the subordination feature will be accomplished by the preferential right of
holders of one or more other classes of such Series (the "Senior Certificates")
to distributions in respect of scheduled principal, Principal Prepayments,
interest or any combination thereof that otherwise would have been payable to
holders of one or more other classes of Certificates (the "Subordinated
Certificates") under the circumstances and to the extent specified in the
related Prospectus Supplement. If so specified in the related Prospectus
Supplement, protection may also be afforded to the holders of the Senior
Certificates of a Series by: (i) reducing the ownership interest of the holders
of the related Subordinated Certificates; (ii) a combination of the immediately
preceding sentence and clause (i) above; or (iii) as otherwise described in the
related Prospectus Supplement. If specified in the related 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 such related 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 related 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 an amount specified in the related
Prospectus Supplement, holders of the Senior Certificates would experience
losses on such Certificates.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of the Subordinated Certificates on any Distribution Date may
instead be deposited into one or more Reserve Accounts established with the
Trustee. If so specified in the related Prospectus Supplement, such deposits may
be made 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 the 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 related Prospectus
Supplement. If so specified in the related Prospectus Supplement, amounts on
deposit in the Reserve Account may be released to the holders of the class or
classes of Certificates specified in such Prospectus Supplement at the times and
under the circumstances specified in such Prospectus Supplement.
If specified in the related 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 among classes of Senior Certificates and as among classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
As among classes of Subordinated Certificates, payments to holders of the
related Senior Certificates on account of delinquencies or losses and payments
to any Reserve Account will be allocated as specified in the related Prospectus
Supplement.
Mortgage Pool Insurance Policies
If specified in the related Prospectus Supplement related to a Mortgage
Pool of Single Family Loans, a separate mortgage pool insurance policy (a
"Mortgage Pool Insurance Policy") will be obtained for the Mortgage Pool and
issued by the insurer (the "Pool Insurer") named in such Prospectus Supplement.
Each Mortgage Pool Insurance Policy will, subject to the limitations described
below, cover loss by reason of default in payment on Single Family Loans in the
related Mortgage Pool in an amount equal to a percentage (specified in such
Prospectus Supplement) of the aggregate principal balances of such Mortgage
Loans on the Cut-off Date which are not covered as to their entire outstanding
principal balances by Primary Mortgage Insurance Policies. As more fully
described below, the Master Servicer will present claims thereunder to the Pool
Insurer on behalf of itself, the Trustee and the holders of the Certificates.
The Mortgage Pool Insurance Policies, however, are not blanket policies against
loss,
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since claims thereunder may only be made respecting particular defaulted
Mortgage Loans and only upon satisfaction of certain conditions precedent
described below. Unless otherwise specified in the related Prospectus
Supplement, no Mortgage Pool Insurance Policy will cover losses due to a failure
to pay or denial of a claim under a Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Pool Insurance Policy will provide that no claims may be validly
presented unless (i) any required Primary Mortgage Insurance Policy is in effect
for the defaulted Mortgage Loan and a claim thereunder has been submitted and
settled; (ii) hazard insurance on the related Mortgaged Property has been kept
in force and real estate taxes and other protection and preservation expenses
have been paid; (iii) if there has been physical loss or damage to the Mortgaged
Property, it has been restored to its physical condition (reasonable wear and
tear excepted) at the time of issuance of the policy; and (iv) the insured has
acquired good and merchantable title to the Mortgaged Property free and clear of
liens except certain permitted encumbrances. Upon satisfaction of these
conditions, the Pool Insurer will have the option either (a) to purchase the
property securing the defaulted Mortgage Loan at a price equal to the principal
balance thereof plus accrued and unpaid interest at the Mortgage Rate to the
date of purchase and certain expenses incurred by the Master Servicer on behalf
of the Trustee and Certificateholders or (b) to pay the amount by which the sum
of the principal balance of the defaulted Mortgage Loan plus accrued and unpaid
interest at the Mortgage Rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an approved sale of
the Mortgaged Property, in either case net of certain amounts paid or assumed to
have been paid under the 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 Mortgage Pool Insurance Policy, the
Master Servicer will not be required to expend its own funds to restore the
damaged property unless it determines that (i) such restoration will increase
the proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) such expenses
will be recoverable by it through proceeds of the sale of the property or
proceeds of such related Mortgage Pool Insurance Policy or any related Primary
Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, no
Mortgage Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies do not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the mortgagor, the
originator or persons involved in the origination thereof or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. A
failure of coverage attributable to one of the foregoing events might result in
a breach of the related Seller's representations described above and, in such
event, might give rise to an obligation on the part of such Seller to purchase
the defaulted Mortgage Loan if the breach cannot be cured by such Seller. No
Mortgage Pool Insurance Policy will cover (and many Primary Mortgage Insurance
Policies do not cover) a claim in respect of a defaulted Mortgage Loan occurring
when the servicer of such Mortgage Loan, at the time of default or thereafter,
was not approved by the applicable insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under the Mortgage Pool Insurance Policy will be
reduced over the life of the related 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 Master Servicer as well as accrued
interest on delinquent Mortgage Loans to the date of payment of the claim,
unless otherwise specified in the related Prospectus Supplement. Accordingly, if
aggregate net claims paid under any Mortgage Pool Insurance Policy reach the
original policy limit, coverage under that Mortgage Pool Insurance Policy will
be exhausted and any further losses will be borne by the Certificateholders.
The terms of any pool insurance policy relating to a pool of Contracts
will be described in the related Prospectus Supplement.
FHA Insurance; VA Guarantees
Single Family Loans designated in the related Prospectus Supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1937, as amended. Such Mortgage Loans
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will be insured under various FHA programs including the standard FHA 203(b)
program to finance the acquisition of one- to four-family housing units and the
FHA 245 graduated payment mortgage program. These programs generally limit the
principal amount and interest rates of the mortgage loans insured. Single Family
Loans insured by the FHA generally require a minimum down payment of
approximately 5% of the original principal amount of the loan. No FHA-insured
Single Family Loan relating to a Series may have an interest rate or original
principal amount exceeding the applicable FHA limits at the time of origination
of such loan.
The insurance premiums for Single Family Loans insured by the FHA are
collected by lenders approved by the Department of Housing and Urban Development
("HUD") or by the Master Servicer or any Sub-Servicers and are paid to the FHA.
The regulations governing FHA single-family mortgage insurance programs provide
that insurance benefits are payable either upon foreclosure (or other
acquisition of possession) and conveyance of the mortgaged premises to HUD or
upon assignment of the defaulted Mortgage Loan to HUD. With respect to a
defaulted FHA-insured Single Family Loan, the Master Servicer or any
Sub-Servicer is limited in its ability to initiate foreclosure proceedings. When
it is determined by the Master Servicer or any applicable Sub-Servicer or HUD
that the default was caused by circumstances beyond the mortgagor's control, the
Master Servicer or such Sub-Servicer is expected to make an effort to avoid
foreclosure by entering, if feasible, into one of a number of available forms of
forbearance plans with the mortgagor. Such plans may involve the reduction or
suspension of regular mortgage payments for a specified period, with such
payments to be made up on or before the maturity date of the mortgage, or the
recasting of payments due under the mortgage up to or beyond the maturity date.
In addition, when a default caused by such circumstances is accompanied by
certain other criteria, HUD may provide relief by making payments to the Master
Servicer or such Sub-Servicer in partial or full satisfaction of amounts due
under the Mortgage Loan (which payments are to be repaid by the mortgagor to
HUD) or by accepting assignment of the loan from the Master Servicer or such
Sub-Servicer. With certain exceptions, at least three full monthly installments
must be due and unpaid under the Mortgage Loan, and HUD must have rejected any
request for relief from the mortgagor, before the Master Servicer or such
Sub-Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Currently, claims are being paid in cash and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debentures' interest rate. The Master Servicer or any Sub-Servicer of each
FHA-insured Single Family Loan will be obligated to purchase any such debenture
issued in satisfaction of such Mortgage Loan upon default for an amount equal to
the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to
the entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Master Servicer or Sub-Servicer for certain costs and expenses and
to deduct certain amounts received or retained by the Master Servicer or
Sub-Servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance to HUD, the
Master Servicer or Sub-Servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid prior
to such date generally only to the extent allowed pursuant to the related
forbearance plan approved by HUD. When entitlement to insurance benefits results
from assignment of the Mortgage Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Single Family Loan,
bears interest from the date which is 30 days after the mortgagor's first
uncorrected failure to perform any obligation to make any payment due under the
Mortgage and, upon assignment, from the date of assignment to the date of
payment of the claim, in each case at the same interest rate as the applicable
HUD debenture interest rate described above.
Single Family Loans designated in the related Prospectus Supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended (a "VA Guaranty Policy"),
which permits a veteran (or in certain instances the spouse of a veteran) to
obtain a mortgage loan guaranteed by the VA covering mortgage financing of the
purchase of a one- to four-family dwelling unit at interest rates permitted by
the VA. The program has no mortgage loan limits, requires no down payment from
the purchaser and permits the guarantee of mortgage loans of up to 30 years'
duration. However, no Single Family Loan guaranteed by the VA will have an
original principal amount greater than five times the partial VA guarantee for
such Mortgage Loan.
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The maximum guarantee that may be issued by the VA under a VA
guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 United States Code Section 1803(a), as
amended. As of November 1, 1998 the maximum guarantee that may be issued by the
VA under a VA guaranteed mortgage loan of more than $144,000 is the lesser of
25% of the original principal amount of the mortgage loan and $50,570. The
liability on the guarantee is reduced or increased pro rata with any reduction
or increase in the amount of indebtedness, but in no event will the amount
payable on the guarantee exceed the amount of the original guarantee. The VA
may, at its option and without regard to the guarantee, make full payment to a
mortgage holder of unsatisfied indebtedness on a mortgage upon its assignment to
the VA.
With respect to a defaulted VA guaranteed Single Family Loan, the
Master Servicer or Sub-Servicer is, absent exceptional circumstances, authorized
to announce its intention to foreclose only when the default has continued for
three months. Generally, a claim for the guarantee is submitted after
liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the
VA-insured Single Family Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in the VA
regulations. Payments under the guarantee will be equal to the unpaid principal
amount of the loan, interest accrued on the unpaid balance of the loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been recovered through
liquidation of the Mortgaged Property. The amount payable under the guarantee
may in no event exceed the amount of the original guarantee.
Special Hazard Insurance Policies
If specified in the related Prospectus Supplement, a separate special
hazard insurance policy (a "Special Hazard Insurance Policy") will be obtained
for the Mortgage Pool and will be issued by the insurer (a "Special Hazard
Insurer") named in such Prospectus Supplement. Each Special Hazard Insurance
Policy will, subject to limitations described below, protect holders of the
related Certificates from (i) loss by reason of damage to Mortgaged Properties
caused by certain hazards (including earthquakes and, to a limited extent, tidal
waves and related water damage or as otherwise specified in the related
Prospectus Supplement) not insured against under the standard form of hazard
insurance policy for the respective states in which the Mortgaged Properties are
located or under a flood insurance policy if the Mortgaged Property is located
in a federally designated flood area, and (ii) loss caused by reason of the
application of the coinsurance clause contained in hazard insurance policies.
See "The Pooling and Servicing Agreement--Hazard Insurance". No Special Hazard
Insurance Policy will cover losses occasioned by fraud or conversion by the
Trustee or Master Servicer, war, insurrection, civil war, certain governmental
action, errors in design, faulty workmanship or materials (except under certain
circumstances), nuclear or chemical reaction, flood (if the Mortgaged Property
is located in a federally designated flood area), nuclear or chemical
contamination and certain other risks. The amount of coverage under any Special
Hazard Insurance Policy will be specified in the related Prospectus Supplement.
Each Special Hazard Insurance Policy will provide that no claim may be paid
unless hazard insurance and, if applicable, flood insurance on the related
Mortgaged Property have been kept in force and other protection and preservation
expenses have been paid.
Subject to the foregoing limitations, and unless otherwise specified in
the related Prospectus Supplement, each Special Hazard Insurance Policy will
provide that where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the Master Servicer,
the Special Hazard Insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
Special Hazard Insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure plus accrued interest to the date of claim settlement and certain
expenses incurred by the Master Servicer with respect to such property. If the
unpaid principal balance of a Mortgage Loan plus accrued interest and certain
expenses is paid by the Special Hazard Insurer, the amount of further coverage
under the related Special Hazard Insurance Policy will be reduced by such amount
less any net proceeds from the sale of the property. Any amount paid as the cost
of repairing such property of the property will further reduce coverage by such
amount. So long as a Mortgage Pool Insurance Policy remains in effect, the
payment by the Special Hazard Insurer of the cost of repair or of the unpaid
principal balance of the related Mortgage Loan plus accrued interest and certain
expenses will not affect the total insurance proceeds
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paid to Certificateholders, but will affect the relative amounts of coverage
remaining under the related Special Hazard Insurance Policy and such Mortgage
Pool Insurance Policy.
Since each Special Hazard Insurance Policy will be designed to permit
full recovery under the Mortgage Pool Insurance Policy in circumstances in which
such recoveries would otherwise be unavailable because property has been damaged
by a cause not insured against by a standard hazard policy and thus would not be
restored, each Agreement will provide that, if the related Mortgage Pool
Insurance Policy shall have been terminated or been exhausted through payment of
claims, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will be under no further obligation to maintain such Special
Hazard Insurance Policy.
To the extent specified in an applicable Prospectus Supplement, the
Master Servicer may deposit cash, an irrevocable letter of credit or any other
instrument acceptable to each nationally recognized rating agency rating the
Certificates of the related Series in a special trust account to provide
protection in lieu of or in addition to that provided by a Special Hazard
Insurance Policy. The amount of any Special Hazard Insurance Policy or of the
deposit to the special trust account relating to such Certificates in lieu
thereof may be reduced so long as any such reduction will not result in a
downgrading of the rating of such Certificates by any such rating agency.
The terms of any Special Hazard Insurance Policy relating to a pool of
Contracts will be described in the related Prospectus Supplement.
Bankruptcy Bonds
If specified in the related Prospectus Supplement, a bankruptcy bond
("Bankruptcy Bond") for proceedings under the Bankruptcy Code will be issued by
an insurer named in such Prospectus Supplement. Each Bankruptcy Bond will cover
certain losses resulting from a reduction by a bankruptcy court of scheduled
payments of principal and interest on a Mortgage Loan or a reduction by such
court of the principal amount of a Mortgage Loan and will cover certain unpaid
interest on the amount of such a principal reduction from the date of the filing
of a bankruptcy petition. The required amount of coverage under a Bankruptcy
Bond will be set forth in the related Prospectus Supplement. Coverage under a
Bankruptcy Bond may be cancelled or reduced by the Master Servicer if such
cancellation or reduction would not adversely affect the then current rating or
ratings of the related Certificates. See "Certain Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
To the extent specified in the related Prospectus Supplement, the
Master Servicer may deposit cash, an irrevocable letter of credit or any other
instrument acceptable to each nationally recognized rating agency rating the
Certificates of the related Series in a special trust account to provide
protection in lieu of or in addition to that provided by a Bankruptcy Bond. The
amount of any Bankruptcy Bond or of the deposit to the special trust account
relating to such Certificates in lieu thereof may be reduced so long as any such
reduction would not result in a downgrading of the then current rating or
ratings of such Certificates by any such rating agency.
The terms of any Bankruptcy Bond relating to a pool of Contracts will
be described in the related Prospectus Supplement.
FHA Insurance on Multifamily Loans
There are two primary FHA insurance programs that are available for
Multifamily Loans. Sections 221(d)(3) and (d)(4) of the Housing Act allow HUD to
insure mortgage loans that are secured by newly constructed and substantially
rehabilitated multifamily rental projects. Section 244 of the Housing Act
provides for co-insurance of such mortgage loans made under Sections 221(d)(3)
and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the term of such
a mortgage loan may be up to 40 years and the ratio of loan amount to property
replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for
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substantial rehabilitation work but repairs may be made for up to, in general,
the greater of 15% of the value of the project or a dollar amount per apartment
unit established from time to time by HUD. In general the loan term may not
exceed 35 years and a loan-to-value ratio of no more than 85% is required for
the purchase of a project and 70% for the refinancing of a project.
FHA insurance is generally payable in cash or, at the option of the
mortgagee, in debentures. Such insurance does not cover 100% of the mortgage
loan but is instead subject to certain deductions and certain losses of interest
from the date of the default.
Reserve Accounts
If so specified in the related Prospectus Supplement, credit support
with respect to a Series of Certificates may be provided by the establishment
and maintenance of one or more Reserve Accounts for such Series, in trust, with
the Trustee for such Series of Certificates. The related Prospectus Supplement
will specify whether or not such Reserve Accounts will be included in the Trust
Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit
therein of cash, U.S. Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the related Prospectus Supplement, (ii) by the deposit therein from
time to time of certain amounts, as specified in the related Prospectus
Supplement to which the Subordinate Certificateholders, if any, would otherwise
be entitled or (iii) in such other manner as may be specified in the related
Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
Permitted Investments which, unless otherwise specified in the related
Prospectus Supplement, 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 and certain
repurchase agreements of United States government securities with eligible
commercial banks. If a letter of credit is deposited with the Trustee, such
letter of credit will be irrevocable. Unless otherwise specified in the related
Prospectus Supplement, any instrument deposited therein will name the Trustee,
in its capacity as trustee for the holders of the Certificates, as beneficiary
and will be issued by an entity acceptable to each rating agency that rates the
Certificates. Additional information with respect to such instruments deposited
in the Reserve Account will be set forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will
be available for withdrawal from the Reserve Account for distribution to the
holders of Certificates for the purposes, in the manner and at the times
specified in the related Prospectus Supplement.
Cross Support
If specified in the related 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 requires that
distributions be made with respect to Certificates evidencing a beneficial
ownership interest in other asset groups within the same Trust Fund. The related
Prospectus Supplement for a Series which includes a cross support feature will
describe the manner and conditions for applying such cross support feature.
If specified in the related Prospectus Supplement, the coverage
provided by one or more forms of credit support may apply concurrently to two or
more related Trust Funds. If applicable, the related Prospectus Supplement will
identify the Trust Funds to which such credit support relates and the manner of
determining the amount of the coverage provided thereby and of the application
of such coverage to the identified Trust Funds.
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Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar
Instruments or Agreements
If specified in the related Prospectus Supplement, a Trust Fund may
also include insurance, guaranties, surety bonds, letters of credit or similar
arrangements for the purpose of (i) maintaining timely payments or providing
additional protection against losses on the assets included in such Trust Fund,
(ii) paying administrative expenses or (iii) establishing a minimum reinvestment
rate on the payments made in respect of such assets or principal payment rate on
such assets. Such arrangements may include agreements under which
Certificateholders are entitled to receive amounts deposited in various accounts
held by the Trustee upon the terms specified in such Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates
will be affected primarily by the amount and timing of principal payments
received on or in respect of the Mortgage Assets included in the related Trust
Fund. The original terms to maturity of the Mortgage Loans in a given Mortgage
Pool will vary depending upon the types of Mortgage Loans included therein. Each
Prospectus Supplement will contain information with respect to the types and
maturities of the Mortgage Loans in the related Mortgage Pool. Unless otherwise
specified in the related Prospectus Supplement, Single Family Loans and
Contracts may be prepaid without penalty in full or in part at any time.
Multifamily Loans may prohibit prepayment for a specified period after
origination, may prohibit partial prepayments entirely, and may require the
payment of a prepayment penalty upon prepayment in full or in part. The
prepayment experience on the Mortgage Loans in a Mortgage Pool will affect the
life of the related Series of Certificates.
A number of factors, including homeowner mobility, economic conditions,
the presence and enforceability of due-on-sale clauses, mortgage market interest
rates and the availability of mortgage funds may affect the prepayment
experience of Single Family Loans and Contracts. Some of these factors, as well
as other factors including limitations on prepayment and the relative tax
benefits associated with the ownership of income-producing real property, may
affect the prepayment of Multifamily Loans.
Unless otherwise provided in the related Prospectus Supplement, all
conventional Single Family Loans and Contracts will contain due-on-sale
provisions permitting the mortgagee or holder of the Contract to accelerate the
maturity of the loan or Contract upon sale or certain transfers by the mortgagor
or obligor of the underlying Mortgaged Property. As described in the related
Prospectus Supplement, conventional Multifamily Loans may contain due-on-sale
provisions, due-on-encumbrance provisions or both. Mortgage Loans insured by the
FHA, and Single Family Loans and Contracts partially guaranteed by the VA, are
assumable with the consent of the FHA and the VA, respectively. Thus, the rate
of prepayments of such Mortgage Loans may be lower than that of conventional
Mortgage Loans bearing comparable interest rates. Unless otherwise provided in
the related Prospectus Supplement, the Master Servicer generally will enforce
any due-on-sale or due-on-encumbrance clause, to the extent it has knowledge of
the conveyance or further encumbrance or the proposed conveyance or proposed
further encumbrance of the Mortgaged Property and reasonably believes that it is
entitled to do so under applicable law; provided, however, that the Master
Servicer will not take any enforcement action that would impair or threaten to
impair any recovery under any related insurance policy. See "The Pooling and
Servicing Agreement--Collection Procedures" and "Certain Legal Aspects of the
Mortgage Loans" herein for a description of certain provisions of each Agreement
and certain legal developments that may affect the prepayment experience of the
Mortgage Loans.
The rate of prepayments of conventional mortgage loans has fluctuated
significantly in recent years. In general, if prevailing rates fall
significantly below the Mortgage Rates borne by the Mortgage Loans, such
Mortgage Loans are likely to be subject to higher prepayment rates than if
prevailing interest rates remain at or above such Mortgage Rates. Conversely, if
prevailing interest rates rise appreciably above the Mortgage Rates borne by the
Mortgage Loans, such Mortgage Loans are likely to experience a lower prepayment
rate than if prevailing rates remain at or below such Mortgage Rates. However,
there can be no assurance that such will be the case. The rate of prepayment of
Multifamily Loans may also be affected by other factors including Mortgage Loan
terms (e.g., the existence of lockout periods, due-on-sale and
due-on-encumbrance clauses and prepayment penalties), relative economic
conditions in the area where the Mortgaged Properties are located, the quality
of management of the Mortgaged Properties and possible changes in tax laws.
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When a prepayment in full is made with respect to a Single Family Loan,
the mortgagor is charged interest on the principal amount of the Loan so prepaid
only for the number of days in the month actually elapsed up to the date of the
prepayment rather than for a full month. Unless otherwise specified in the
related Prospectus Supplement, the effect of prepayments in full will be to
reduce the amount of interest passed through in the following month to holders
of Certificates because interest on the principal amount of any Mortgage Loan so
prepaid will be paid only to the date of prepayment. Partial prepayments in a
given month may be applied to the outstanding principal balances of the Mortgage
Loans so prepaid on the first day of the month of receipt or of the month
following receipt. In the latter case, partial prepayments will not reduce the
amount of interest passed through in such month. Unless otherwise specified in
the related Prospectus Supplement, neither prepayments in full nor partial
prepayments will be passed through until the month following receipt. Prepayment
penalties collected with respect to Multifamily Loans will be distributed to the
holders of Certificates, or to other persons entitled thereto, as described in
the related Prospectus Supplement.
If the rate at which interest is passed through to the holders of
Certificates of a Series is calculated on a Mortgage Loan by Mortgage Loan
basis, disproportionate principal prepayments with respect to Mortgage Loans
bearing different Mortgage Rates will affect the yield on such Certificates. In
all cases, the effective yield to Certificateholders will be slightly lower than
the yield otherwise produced by the applicable Pass-Through Rate and purchase
price because, while interest will accrue on each Mortgage Loan from the first
day of the month (unless otherwise provided in the related Prospectus
Supplement), the distribution of such interest will not be made earlier than the
month following the month of accrual.
Under certain circumstances, the Master Servicer or the holders of the
residual interests in a REMIC may have the option to purchase the assets of a
Trust Fund thereby effecting earlier retirement of the related Series of
Certificates. See "The Pooling and Servicing Agreement--Termination; Optional
Termination".
Factors other than those identified herein and in the related
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 Assets at
any time or over the lives of the Certificates.
The Prospectus Supplement relating to a Series of Certificates will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Certificates.
In the event that a receiver, bankruptcy trustee, debtor in possession
or similar entity (each, an "Insolvency Trustee") is appointed with respect to a
Seller due to its insolvency or a Seller becomes a debtor under Title 11 of the
United States Code (the "Bankruptcy Code") or any similar insolvency law, such
Insolvency Trustee may attempt to characterize the transfer of the related
Mortgage Loans from such Seller to the Depositor as a pledge to secure a
financing rather than as a sale. In the event that such attempt were successful,
such Insolvency Trustee might elect, among other remedies, to accelerate payment
of the related Certificates and liquidate such Mortgage Loans, with each related
Certificateholder being entitled to receive its allocable share of the principal
balance thereof, together with such Certificateholder's allocable share of
interest thereon at the applicable Pass-Through Rate or weighted average Strip
Rate (as defined in the related Prospectus Supplement), as the case may be, to
the date of payment. In any such event, the related Certificateholders might
incur reinvestment losses with respect to principal received and investment
losses attendant to the liquidation of the Mortgage Loans (and the resulting
early retirement of the related Certificates). In addition, certain delays in
distributions might be experienced by such Certificateholders in connection with
any such insolvency proceedings.
THE POOLING AND SERVICING AGREEMENT
Set forth below is a summary of certain provisions of each Agreement
which are not described elsewhere in this Prospectus. This summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of such Agreement. Where particular provisions or
terms used in the Agreements are referred to, such provisions or terms are as
specified in the Agreements.
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Assignment of Mortgage Assets
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Depositor will cause the Mortgage Loans comprising
the related Trust Fund to be assigned to the Trustee, together with all
principal and interest received by or on behalf of the Depositor with respect to
such Mortgage Loans after the Cut-off Date, other than principal and interest
due on or before the Cut-off Date and other than any Retained Interest specified
in the related Prospectus Supplement. The Trustee will, concurrently with such
assignment, deliver the Certificates to the Depositor in exchange for the
Mortgage Loans. Each Mortgage Loan will be identified in a schedule appearing as
an exhibit to the related Agreement. Such schedule will include information as
to the outstanding principal balance of each Mortgage Loan after application of
payments due on the Cut-off Date, as well as information regarding the Mortgage
Rate or APR, the current scheduled monthly payment of principal and interest,
the maturity of the loan, the Loan-to-Value Ratio at origination and certain
other information.
In addition, the Depositor will deliver or cause to be delivered to the
Trustee (or to the custodian hereinafter referred to) as to each Mortgage Loan,
among other things, (i) the mortgage note or Contract endorsed without recourse
in blank or to the order of the Trustee, (ii) in the case of Single Family Loans
or Multifamily Loans, the mortgage, deed of trust or similar instrument (each, a
"Mortgage") with evidence of recording indicated thereon (except for any
Mortgage not returned from the public recording office, in which case the
Depositor will deliver or cause to be delivered a copy of such Mortgage together
with a certificate stating that the original of such Mortgage was delivered to
such recording office), (iii) an assignment of the Mortgage or Contract to the
Trustee, which assignment will be in recordable form in the case of a Mortgage
assignment and (iv) such other security documents as may be specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, (i) in the case of Single Family Loans or Multifamily
Loans, the Depositor will promptly cause the assignments of the related loans to
be recorded in the appropriate public office for real property records, except
in states in which, in the opinion of counsel acceptable to the Trustee, such
recording is not required to protect the Trustee's interest in such loans
against the claim of any subsequent transferee or any successor to or creditor
of the Depositor or the originator of such loans, and (ii) in the case of
Contracts, the Depositor will promptly make or cause to be made an appropriate
filing of a UCC-1 financing statement in the appropriate states to give notice
of the Trustee's ownership of the Contracts.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee, the related original
cooperative note endorsed without recourse in blank or to the order of the
Trustee, the original security agreement, the proprietary lease or occupancy
agreement, the recognition agreement, an executed financing agreement and the
relevant stock certificate, related blank stock powers and any other document
specified in the related Prospectus Supplement. The Depositor will cause to be
filed in the appropriate office an assignment and a financing statement
evidencing the Trustee's security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will review such
Mortgage Loan documents within the time period specified in the related
Prospectus Supplement after receipt thereof and the Trustee will hold such
documents in trust for the benefit of the Certificateholders. Unless otherwise
specified in the related Prospectus Supplement, if any such document is found to
be missing or defective in any material respect, the Trustee (or such custodian)
will notify the Master Servicer and the Depositor, and the Master Servicer will
notify the related Seller. If the Seller cannot cure the omission or defect
within 45 days after receipt of such notice, the Seller will be obligated to
purchase the related Mortgage Loan from the Trustee at the Purchase Price. There
can be no assurance that a Seller will fulfill this purchase obligation.
Although the Master Servicer may be obligated to enforce such obligation to the
extent described under "Mortgage Loan Program--Representations by Sellers;
Repurchases" herein, neither the Master Servicer nor the Depositor will be
obligated to purchase such Mortgage Loan if the Seller defaults on its purchase
obligation, unless such breach also constitutes a breach of the representations
or warranties of the Master Servicer or the Depositor, as the case may be.
Unless otherwise specified in the related Prospectus Supplement, this purchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for the omission of, or a material defect in, a constituent
document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Mortgage Loans as agent of the Trustee.
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The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Agreement. Upon a breach of any such representation of
the Master Servicer which materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the Master Servicer will be obligated
either to cure the breach in all material respects or to purchase the Mortgage
Loan at the Purchase Price. Unless otherwise specified in the related Prospectus
Supplement, this obligation to cure or purchase constitutes the sole remedy
available to the Certificateholders or the Trustee for such a breach of
representation by the Master Servicer.
Notwithstanding the foregoing provisions, with respect to a Trust Fund
for which a REMIC election is to be made, unless the related Prospectus
Supplement otherwise provides, no purchase of a Mortgage Loan will be made if
such purchase would result in a prohibited transaction tax under the Code.
Assignment of Agency Securities. The Depositor will cause the Agency
Securities to be registered in the name of the Trustee or its nominee, and the
Trustee concurrently will execute, countersign and deliver the Certificates.
Each Agency Security will be identified in a schedule appearing as an exhibit to
the Agreement, which will specify as to each Agency Security the original
principal amount, the outstanding principal balance as of the Cut-off Date, the
annual pass-through rate (if any) and the maturity date.
Assignment of Private Mortgage-Backed Securities. The Depositor will
cause Private Mortgage-Backed Securities to be registered in the name of the
Trustee. The Trustee (or the custodian) will have possession of any certificated
Private Mortgage-Backed Securities. Unless otherwise specified in the related
Prospectus Supplement, the Trustee will not be in possession of or be assignee
of record of any underlying assets for a Private Mortgage-Backed Security. See
"The Trust Fund--Private Mortgage-Backed Securities". Each Private
Mortgage-Backed Security will be identified in a schedule appearing as an
exhibit to the related Agreement which will specify the original principal
amount, the outstanding principal balance as of the Cut-off Date, the annual
pass-through rate or interest rate, the maturity date and certain other
pertinent information for each Private Mortgage-Backed Security conveyed to the
Trustee.
Payments on Mortgage Loans; Deposits to Certificate Account
Each Sub-Servicer servicing a Mortgage Loan pursuant to a Sub-Servicing
Agreement (as defined under "--Sub-Servicing by Sellers" below) will establish
and maintain an account (the "Sub-Servicing Account") which meets the following
requirements and is otherwise acceptable to the Master Servicer. A Sub-Servicing
Account must be established with a Federal Home Loan Bank or with a depository
institution (including the Sub-Servicer itself) whose accounts are insured by
either the Bank Insurance Fund (the "BIF") of the FDIC or the Savings
Association Insurance Fund ("SAIF") of the FDIC. If a Sub-Servicing Account is
maintained at an institution that is a Federal Home Loan Bank or an FDIC-insured
institution and, in either case, the amount on deposit in the Sub-Servicing
Account exceeds the FDIC insurance coverage amount, then such excess amount must
be remitted to the Master Servicer within one business day after receipt. In
addition, the Sub-Servicer must maintain a separate account for escrow and
impound funds relating to the Mortgage Loans. Each Sub-Servicer is required to
deposit into its Sub-Servicing Account on a daily basis all amounts described
below under "--Sub-Servicing by Sellers" that are received by it in respect of
the Mortgage Loans, less its servicing or other compensation. On or before the
date specified in the Sub-Servicing Agreement, the Sub-Servicer will remit or
cause to be remitted to the Master Servicer or the Trustee all funds held in the
Sub-Servicing Account with respect to the Mortgage Loans that are required to be
so remitted. The Sub-Servicer is also required to advance on the scheduled date
of remittance an amount corresponding to any monthly installment of principal
and interest, less its servicing or other compensation, on any Mortgage Loan for
which payment was not received from the mortgagor. Unless otherwise specified in
the related Prospectus Supplement, this obligation of the Sub-Servicer to
advance continues up to and including the first of the month following the date
on which the related Mortgaged Property is sold at a foreclosure sale or is
acquired on behalf of the Certificateholders by deed in lieu of foreclosure, or
until the related Mortgage Loan is liquidated.
The Master Servicer will establish and maintain or cause to be
established and maintained with respect to the related Trust Fund a separate
account or accounts for the collection of payments on the related Mortgage
Assets in the Trust Fund (collectively, with respect to such Trust Fund, the
"Certificate Account") which, unless otherwise specified in the related
Prospectus Supplement, must be (i) maintained with a depository institution the
debt obligations of which (or in the case of a depository institution that is
the principal subsidiary of a holding company,
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the obligations of which) are rated in one of the two highest rating categories
by the nationally recognized statistical rating organization(s) that rated one
or more classes of the related Series of Certificates (each, a "Rating Agency"),
(ii) an account or accounts the deposits in which are fully insured by either
BIF or SAIF, (iii) an account or accounts the deposits in which are insured by
BIF or SAIF (to the limits established by the FDIC) and the uninsured deposits
in which are otherwise secured such that, as evidenced by an opinion of counsel,
the Certificateholders have a claim with respect to the funds in the Certificate
Account or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the depository institution with which the Certificate
Account is maintained, or (iv) an account or accounts otherwise acceptable to
each Rating Agency. The collateral eligible to secure amounts in the Certificate
Account is limited to United States government securities and other high-quality
investments ("Permitted Investments"). A Certificate Account may be maintained
as an interest bearing account or the funds held therein may be invested pending
each succeeding Distribution Date in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or its
designee will be entitled to receive any such interest or other income earned on
funds in the Certificate Account as additional compensation and will be
obligated to deposit in the Certificate Account the amount of any loss
immediately as realized. The Certificate Account may be maintained with the
Master Servicer or with a depository institution that is an affiliate of the
Master Servicer, provided that the Master Servicer or such affiliate, as
applicable, meets the standards set forth above.
The Master Servicer will deposit or cause to be deposited in the
Certificate Account for each Trust Fund on a daily basis, to the extent
applicable and unless otherwise specified in the related Prospectus Supplement
and provided in the Agreement, the following payments and collections received
or Advances made by or on behalf of it subsequent to the Cut-off Date (other
than payments due on or before the Cut-off Date and exclusive of any amounts
representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement, prepayment
penalties, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ("Insured Expenses") incurred, and
unreimbursed Advances made, by the related Sub-Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies, to the extent
such proceeds are not applied to the restoration of property or released to
mortgagors in accordance with the Master Servicer's normal servicing procedures
(collectively, "Insurance Proceeds") and all other cash amounts (net of
unreimbursed expenses in connection with liquidation or foreclosure
("Liquidation Expenses") incurred, and unreimbursed advances made, by the
related Sub-Servicer, if any) received and retained in connection with the
liquidation of defaulted Mortgage Loans, by foreclosure or otherwise
("Liquidation Proceeds"), together with any net proceeds received on a monthly
basis with respect to any properties acquired on behalf of the
Certificateholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect thereof
purchased by the Master Servicer, the Depositor, any Sub-Servicer or any Seller
as described under "Mortgage Loan Program--Representations by Sellers;
Repurchases" or "--Assignment of Mortgage Assets" above and all proceeds of any
Mortgage Loan repurchased as described under "--Termination; Optional
Termination" below;
(v) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy described
below under "--Hazard Insurance";
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the Master
Servicer of funds held in the Certificate Account; and
(vii) all other amounts required to be deposited in the Certificate
Account pursuant to the Agreement.
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Sub-Servicing by Sellers
Each Seller of a Mortgage Loan or any other servicing entity may act as
the Sub-Servicer for such Mortgage Loan pursuant to an agreement (each, a
"Sub-Servicing Agreement"), which will not contain any terms inconsistent with
the related Agreement. While each Sub-Servicing Agreement will be a contract
solely between the Master Servicer and the related Sub-Servicer, the Agreement
pursuant to which a Series of Certificates is issued will provide that, if for
any reason the Master Servicer for such Series of Certificates is no longer the
Master Servicer of the related Mortgage Loans, the Trustee or any successor
Master Servicer must recognize the Sub-Servicer's rights and obligations under
such Sub-Servicing Agreement.
With the approval of the Master Servicer, a Sub-Servicer may delegate
its servicing obligations to third-party servicers, but such Sub-Servicer will
remain obligated under the related Sub-Servicing Agreement. Each Sub-Servicer
will be required to perform the customary functions of a servicer of mortgage
loans. Such functions generally include collecting payments from mortgagors or
obligors and remitting such collections to the Master Servicer; maintaining
hazard insurance policies as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder, subject in certain cases
to the right of the Master Servicer to approve in advance any such settlement;
maintaining escrow or impoundment accounts of mortgagors or obligors for payment
of taxes, insurance and other items required to be paid by the mortgagor or
obligor pursuant to the related Mortgage Loan; processing assumptions or
substitutions, although, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer is generally required to exercise due-on-sale
clauses to the extent such exercise is permitted by law and would not adversely
affect insurance coverage; attempting to cure delinquencies; supervising
foreclosures; inspecting and managing Mortgaged Properties under certain
circumstances; maintaining accounting records relating to the Mortgage Loans;
and, to the extent specified in the related Prospectus Supplement, maintaining
additional insurance policies or credit support instruments and filing and
settling claims thereunder. A Sub-Servicer will also be obligated to make
advances in respect of delinquent installments of principal and interest on
Mortgage Loans, as described more fully above under "--Payments on Mortgage
Loans; Deposits to Certificate Account", and in respect of certain taxes and
insurance premiums not paid on a timely basis by mortgagors or obligors.
As compensation for its servicing duties, each Sub-Servicer will be
entitled to a monthly servicing fee (to the extent the scheduled payment on the
related Mortgage Loan has been collected) in the amount set forth in the related
Prospectus Supplement. Each Sub-Servicer is also entitled to collect and retain,
as part of its servicing compensation, any prepayment or late charges provided
in the mortgage note or related instruments. Each Sub-Servicer will be
reimbursed by the Master Servicer for certain expenditures which it makes,
generally to the same extent the Master Servicer would be reimbursed under the
Agreement. The Master Servicer may purchase the servicing of Mortgage Loans if
the Sub-Servicer elects to release the servicing of such Mortgage Loans to the
Master Servicer. See "--Servicing and Other Compensation and Payment of
Expenses" below.
Each Sub-Servicer may be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Sub-Servicer in its servicing
capacity. Each Sub-Servicer will be required to maintain a fidelity bond and an
errors and omissions policy with respect to its officers, employees and other
persons acting on its behalf or on behalf of the Master Servicer.
Each Sub-Servicer will be required to service each Mortgage Loan
pursuant to the terms of the Sub-Servicing Agreement for the entire term of such
Mortgage Loan, unless the Sub-Servicing Agreement is earlier terminated by the
Master Servicer or unless servicing is released to the Master Servicer. The
Master Servicer may terminate a Sub-Servicing Agreement without cause, upon
written notice to the Sub-Servicer in the manner specified in such Sub-Servicing
Agreement.
The Master Servicer may agree with a Sub-Servicer to amend a
Sub-Servicing Agreement or, upon termination of the Sub-Servicing Agreement, the
Master Servicer may act as servicer of the related Mortgage Loans or enter into
new Sub-Servicing Agreements with other Sub-Servicers. If the Master Servicer
acts as servicer, it will not assume liability for the representations and
warranties of the Sub-Servicer which it replaces. Each Sub-Servicer must be a
Seller or meet the standards for becoming a Seller or have such servicing
experience as to be otherwise satisfactory to the Master Servicer and the
Depositor. The Master Servicer will make reasonable efforts to have the new
Sub-Servicer assume liability for the representations and warranties of the
terminated Sub-Servicer, but no
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assurance can be given that such an assumption will occur. In the event of such
an assumption, the Master Servicer may in the exercise of its business judgment
release the terminated Sub-Servicer from liability in respect of such
representations and warranties. Any amendments to a Sub-Servicing Agreement or
new Sub-Servicing Agreements may contain provisions different from those which
are in effect in the original Sub-Servicing Agreement. However, each Agreement
will provide that any such amendment or new agreement may not be inconsistent
with or violate such Agreement.
Collection Procedures
The Master Servicer, directly or through one or more Sub-Servicers,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans and will, consistent with each Agreement and any Mortgage Pool
Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty
Policy and Bankruptcy Bond or alternative arrangements, follow such collection
procedures as are customary with respect to mortgage loans that are comparable
to the Mortgage Loans. Consistent with the above, the Master Servicer may, in
its discretion, (i) waive any assumption fee, late payment or other charge in
connection with a Mortgage Loan and (ii) to the extent not inconsistent with the
coverage of such Mortgage Loan by a Mortgage Pool Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guaranty or Bankruptcy Bond or
alternative arrangements, if applicable, arrange with a mortgagor a schedule for
the liquidation of delinquencies running for no more than 125 days after the
applicable due date for each payment. Both the Sub-Servicer and the Master
Servicer remain obligated to make Advances during any period of such an
arrangement.
Unless otherwise specified in the related Prospectus Supplement, in any
case in which property securing a conventional Mortgage Loan has been, or is
about to be, conveyed by the mortgagor or obligor, the Master Servicer will, to
the extent it has knowledge of such conveyance or proposed conveyance, exercise
or cause to be exercised its rights to accelerate the maturity of such Mortgage
Loan under any due-on-sale clause applicable thereto, but only if the exercise
of such rights is permitted by applicable law and will not impair or threaten to
impair any recovery under any related Primary Mortgage Insurance Policy. If
these conditions are not met or if the Master Servicer reasonably believes it is
unable under applicable law to enforce such due-on-sale clause, or if such
Mortgage Loan is insured by the FHA or partially guaranteed by the VA the Master
Servicer will enter into or cause to be entered into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable for repayment
of the Mortgage Loan and, to the extent permitted by applicable law, the
mortgagor remains liable thereon. Any fee collected by or on behalf of the
Master Servicer for entering into an assumption agreement will be retained by or
on behalf of the Master Servicer as additional servicing compensation. In the
case of Multifamily Loans and unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will agree to exercise any right it
may have to accelerate the maturity of a Multifamily Loan to the extent it has
knowledge of any further encumbrance of the related Mortgaged Property effected
in violation of any due-on-encumbrance clause applicable thereto. See "Certain
Legal Aspects of the Mortgage Loans--Due-on-Sale Clauses" herein. In connection
with any such assumption, the terms of the related Mortgage Loan may not be
changed.
With respect to Cooperative Loans, any prospective purchaser will
generally have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Loans" herein. This approval is usually based on the purchaser's income
and net worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the Trust Fund's ability to sell and realize the value of those
shares.
In general, a "tenant-stockholder" (as defined in section 216(b)(2) of
the Internal Revenue Code of 1986, as amended (the "Code")), of a corporation
that qualifies as a "cooperative housing corporation" within the meaning of
section 216(b)(1) of the Code is allowed a deduction for amounts paid or accrued
within his taxable year to the corporation representing his proportionate share
of certain interest expenses and certain real estate taxes allowable as a
deduction under section 216(a) of the Code to the corporation under sections 163
and 164 of the Code. In order for a corporation to qualify under Section
216(b)(1) of the Code for the taxable year in which such items are allowable as
a deduction to the corporation, such Section requires, among other things, that
at least 80% of the gross income of the corporation be derived from its
tenant-stockholders (as defined in section 216(b)(2) of the Code). By virtue of
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this requirement, the status of a corporation for purposes of section 216(b)(1)
of the Code must be determined on a year-to-year basis. Consequently, there can
be no assurance that Cooperatives relating to the Cooperative Loans will qualify
under such section for any particular year. In the event that such a Cooperative
fails to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
Hazard Insurance
The Master Servicer will require the mortgagor or obligor on each
Single Family Loan, Multifamily Loan or Contract to maintain a hazard insurance
policy providing for no less than the coverage of the standard form of fire
insurance policy with extended coverage customary for the type of Mortgaged
Property in the state in which such Mortgaged Property is located. Such coverage
will be in an amount not less than the replacement value of the improvements or
Manufactured Home securing such Mortgage Loan or the principal balance owing on
such Mortgage Loan, whichever is less. All amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the mortgagor or
obligor in accordance with the Master Servicer's normal servicing procedures)
will be deposited in the related Certificate Account. In the event that the
Master Servicer maintains a blanket policy insuring against hazard losses on all
the Mortgage Loans comprising part of a Trust Fund, it will conclusively be
deemed to have satisfied its obligation relating to the maintenance of hazard
insurance. Such blanket policy may contain a deductible clause, in which case
the Master Servicer will be required to deposit from its own funds into the
related Certificate Account the amounts which would have been deposited therein
but for such clause. Any additional insurance coverage for Mortgaged Properties
in a Mortgage Pool of Multifamily Loans will be specified in the related
Prospectus Supplement.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements or Manufactured
Home securing a Mortgage Loan 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 may have been underwritten by different insurers under different
state laws in accordance with different applicable forms and therefore may not
contain identical terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not cover any
physical damage resulting from the following: war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mud flows), nuclear reactions, wet or dry rot,
vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all inclusive. If the Mortgaged Property
securing a Mortgage Loan is located in a federally designated special flood area
at the time of origination, the Master Servicer will require the mortgagor or
obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Mortgage
Loans typically contain a 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 insured 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 larger of (i) the actual cash value (generally defined as replacement
cost at the time and place of loss, less physical depreciation) of the
improvements damaged or destroyed or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements. Since the amount of hazard insurance the
Master Servicer may cause to be maintained on the improvements securing the
Mortgage Loans declines as the principal balances owing thereon decrease, and
since improved real estate generally has appreciated in value over time in the
past, the effect of this requirement in the event of partial loss may be that
hazard insurance proceeds will be insufficient to restore fully the damaged
property. If specified in the related Prospectus Supplement, a special hazard
insurance policy will be obtained to insure against certain of the uninsured
risks described above. See "Credit Enhancement--Special Hazard Insurance
Policies" herein.
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that
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Cooperative do not maintain individual hazard insurance policies. To the extent,
however, that a Cooperative and the related borrower on a Cooperative Loan do
not maintain such insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to such borrower's cooperative dwelling or such Cooperative's building
could significantly reduce the value of the collateral securing such Cooperative
Loan to the extent not covered by other credit support.
Realization upon Defaulted Mortgage Loans
Primary Mortgage Insurance Policies. The Master Servicer will maintain
or cause each Sub-Servicer to maintain, as the case may be, in full force and
effect, to the extent specified in the related Prospectus Supplement, a Primary
Mortgage Insurance Policy with regard to each Single Family Loan for which such
coverage is required. The Master Servicer will not cancel or refuse to renew any
such Primary Mortgage Insurance Policy in effect at the time of the initial
issuance of a Series of Certificates that is required to be kept in force under
the applicable Agreement unless the replacement Primary Mortgage Insurance
Policy for such cancelled or nonrenewed policy is maintained with an insurer
whose claims-paying ability is sufficient to maintain the current rating of the
classes of Certificates of such Series that have been rated.
Although the terms and conditions of primary mortgage insurance vary,
the amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan will consist of the insured percentage of the unpaid
principal amount of the covered Mortgage Loan and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to the Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore the Mortgaged Property and which have not been applied to the payment of
the Mortgage Loan, (iii) amounts expended but not approved by the issuer of the
related Primary Mortgage Insurance Policy (the "Primary Insurer"), (iv) claim
payments previously made by the Primary Insurer and (v) unpaid premiums.
Primary Mortgage Insurance Policies reimburse certain losses sustained
by reason of defaults in payments by borrowers. Primary Mortgage Insurance
Policies will not insure against, and exclude from coverage, a loss sustained by
reason of a default arising from or involving certain matters, including (i)
fraud or negligence in origination or servicing of the Mortgage Loan, including
misrepresentation by the originator, borrower or other persons involved in the
origination of the Mortgage Loan, (ii) failure to construct the Mortgaged
Property subject to the Mortgage Loan in accordance with specified plans, (iii)
physical damage to the Mortgaged Property and (iv) lack of approval by the
Primary Insurer of the related Servicer as a servicer.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a Primary Mortgage
Insurance Policy covering a Mortgage Loan, the insured will be required to (i)
advance or discharge (a) all hazard insurance policy premiums and (b) as
necessary and approved in advance by the Primary Insurer, (1) real estate
property taxes, (2) all expenses required to maintain the related Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
Mortgaged Property sales expenses, (4) any outstanding liens (as defined in such
Primary Mortgage Insurance Policy) on the Mortgaged Property and (5) foreclosure
costs, including court costs and reasonable attorneys' fees; (ii) in the event
of any physical loss or damage to the Mortgaged Property, to have the Mortgaged
Property restored and repaired to at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and tear
excepted; and (iii) tender to the Primary Insurer good and merchantable title to
and possession of the Mortgaged Property.
In those cases in which a Single Family Loan is serviced by a
Sub-Servicer, the Sub-Servicer, on behalf of itself, the Trustee and
Certificateholders, will present claims to the Primary Insurer, and all
collections thereunder will be deposited in the Sub-Servicing Account. In all
other cases, the Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the insurer under each Primary
Mortgage Insurance Policy and will take such reasonable steps as are necessary
to receive payment or to permit recovery thereunder with respect to defaulted
Mortgage Loans. As set forth above, all collections by or on behalf of the
Master Servicer under any Primary Mortgage Insurance Policy and, when the
Mortgaged Property has not been restored, the hazard insurance policy are to be
deposited in the Certificate Account, subject to withdrawal as heretofore
described.
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If the Mortgaged Property securing a defaulted Mortgage Loan is damaged
and proceeds, if any, from the related hazard insurance policy are insufficient
to restore the damaged Mortgaged Property to a condition sufficient to permit
recovery under the related Primary Mortgage Insurance Policy, if any, the Master
Servicer is not required to expend its own funds to restore the damaged
Mortgaged Property unless it determines (i) that such restoration will increase
the proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Mortgage Loan under any related Primary
Mortgage Insurance Policy is not available for the reasons set forth in the
preceding paragraph, or if the defaulted Mortgage Loan is not covered by a
Primary Mortgage Insurance Policy, the Master Servicer will be obligated to
follow or cause to be followed such normal practices and procedures as it deems
necessary or advisable to realize upon the defaulted Mortgage Loan. If the
proceeds of any liquidation of the Mortgaged Property securing the defaulted
Mortgage Loan are less than the principal balance of such Mortgage Loan plus
interest accrued thereon that is payable to Certificateholders, the Trust Fund
will realize a loss in the amount of such difference plus the aggregate of
expenses incurred by the Master Servicer in connection with such proceedings
which are reimbursable under the Agreement. In the unlikely event that any such
proceedings result in a total recovery which is, after reimbursement to the
Master Servicer of its expenses, in excess of the principal balance of such
Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
compensation with respect to such Mortgage Loan and, unless otherwise specified
in the related Prospectus Supplement, amounts representing the balance of such
excess, exclusive of any amount required by law to be forwarded to the related
mortgagor, as additional servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds
which, when added to any related Liquidation Proceeds and after deduction of
certain expenses reimbursable to the Master Servicer, exceed the principal
balance of such Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
compensation with respect to such Mortgage Loan. In the event that the Master
Servicer has expended its own funds to restore the damaged Mortgaged Property
and such funds have not been reimbursed under the related hazard insurance
policy, it will be entitled to withdraw from the Certificate Account out of
related Liquidation Proceeds or Insurance Proceeds an amount equal to such
expenses incurred by it, in which event the Trust Fund may realize a loss up to
the amount so charged. Since Insurance Proceeds cannot exceed deficiency claims
and certain expenses incurred by the Master Servicer, no such payment or
recovery will result in a recovery to the Trust Fund which exceeds the principal
balance of the defaulted Mortgage Loan together with accrued interest thereon.
See "Credit Enhancement" herein.
Servicing and Other Compensation and Payment of Expenses
The Master Servicer's primary servicing compensation with respect to a
Series of Certificates will come from the monthly payment to it, out of each
interest payment on a Mortgage Loan, of an amount equal to the percentage per
annum specified in the related Prospectus Supplement of the outstanding
principal balance thereof. Since the Master Servicer's primary compensation is a
percentage of the outstanding principal balance of each Mortgage Loan, such
amounts will decrease as the Mortgage Loans amortize. In addition to primary
compensation, the Master Servicer or the Sub-Servicers will be entitled to
retain all assumption fees and late payment charges, to the extent collected
from Mortgagors, and, if so provided in the related Prospectus Supplement, any
prepayment penalties and any interest or other income which may be earned on
funds held in the Certificate Account or any Sub-Servicing Account. Unless
otherwise specified in the related Prospectus Supplement, any Sub-Servicer will
receive a portion of the Master Servicer's primary compensation as its
sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, the Master Servicer
will, unless otherwise specified in the related Prospectus Supplement, pay from
its servicing compensation certain expenses incurred in connection with its
servicing of the Mortgage Loans, including, without limitation, payment of any
premium for any insurance policy, guaranty, surety or other form of credit
enhancement as specified in the related Prospectus Supplement, payment of the
fees and disbursements of the Trustee and independent accountants, payment of
expenses incurred in connection with distributions and reports to
Certificateholders and payment of any other expenses described in the related
Prospectus Supplement.
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Evidence as to Compliance
Each Agreement will provide that, on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC, the
servicing by or on behalf of the Master Servicer of mortgage loans, private
mortgage-backed securities or agency securities, under pooling and servicing
agreements substantially similar to each other (including the related
Agreement), was conducted in compliance with such agreements except for any
significant exceptions or errors in records that, in the opinion of the firm,
the Audit Program for Mortgages serviced for FHLMC or the Uniform Single Audit
Program for Mortgage Bankers requires it to report. In rendering its statement
such firm may rely, as to matters relating to the direct servicing of mortgage
loans, private mortgage-backed securities or agency securities by Sub-Servicers,
upon comparable statements for examinations conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage Bankers or the
Audit Program for Mortgages serviced for FHLMC (rendered within one year of such
statement) of firms of independent public accountants with respect to the
Sub-Servicers.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of
officers of the Master Servicer may be obtained by Certificateholders of the
related Series without charge upon written request to the Master Servicer at the
address set forth in the related Prospectus Supplement.
Certain Matters Regarding the Master Servicer and the Depositor
The Master Servicer under each Agreement will be named in the related
Prospectus Supplement. The entity serving as Master Servicer may have normal
business relationships with the Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign
from its obligations and duties under the Agreement except upon a determination
that its duties thereunder are no longer permissible under applicable law. No
such resignation will become effective until the Trustee or a successor servicer
has assumed the Master Servicer's obligations and duties under the Agreement.
Each Agreement will further provide that none of the Master Servicer,
the Depositor or any director, officer, employee or agent of the Master Servicer
or of the Depositor will be under any liability to the related Trust Fund or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that none of the Master Servicer, the Depositor any such
person will be protected against any liability which would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. Each Agreement will further provide that the Master Servicer, the
Depositor and any director, officer, employee or agent of the Master Servicer or
of the Depositor will be entitled to indemnification by the related Trust Fund
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Agreement or the Certificates,
other than any loss, liability or expense related to any specific Mortgage Loan
or the Mortgage Loans (except any such loss, liability or expense otherwise
reimbursable pursuant to the Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the Master Servicer nor the Depositor will be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicer or the Depositor
may, however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Master Servicer or the Depositor, as the case may be, will be entitled
to be reimbursed therefor out of funds otherwise distributable to
Certificateholders.
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Any person into which the Master Servicer may be merged or
consolidated, or any person resulting from any merger or consolidation to which
the Master Servicer is a party, or any person succeeding to the business of the
Master Servicer, will be the successor of the Master Servicer under each
Agreement, provided that such person is qualified to sell mortgage loans to, and
service mortgage loans on behalf of, FNMA or FHLMC and further provided that
such merger, consolidation or succession does not adversely affect the then
current rating or ratings of the class or classes of Certificates of such Series
that have been rated.
Events of Default
Unless otherwise specified in the related Prospectus Supplement, Events
of Default (each, an "Event of Default") under each Agreement will consist of
(i) any failure by the Master Servicer to distribute or cause to be distributed
to Certificateholders of any class any required payment (other than an Advance)
which continues unremedied for five business days after the giving of written
notice of such failure to the Master Servicer by the Trustee or the Depositor,
or to the Master Servicer, the Depositor and the Trustee by the holders of
Certificates of such class evidencing not less than 25% of the aggregate
percentage interests evidenced by such class; (ii) any failure by the Master
Servicer to make an Advance as required under the Agreement, unless cured as
specified therein; (iii) any failure by the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements in the
Agreement which continues unremedied for 30 days after the giving of written
notice of such failure to the Master Servicer by the Trustee or the Depositor,
or to the Master Servicer, the Depositor and the Trustee by the holders of
Certificates of any class evidencing not less than 25% of the aggregate
percentage interests constituting such class; and (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceeding and certain actions by or on behalf of the Master Servicer
indicating its insolvency, reorganization or inability to pay its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Mortgage Assets and the other assets of the Trust
Fund in the event that payments in respect thereto are insufficient to make
payments required in the Agreement. The assets of the Trust Fund will be sold
only under the circumstances and in the manner specified in the related
Prospectus Supplement.
Rights upon Event of Default
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and, at the direction of holders of
Certificates of any class evidencing not less than 51% of the aggregate
percentage interests constituting such class and under such other circumstances
as may be specified in such Agreement, the Trustee shall, terminate all of the
rights and obligations of the Master Servicer under the Agreement relating to
such Trust Fund and in and to the Mortgage Loans, whereupon the Trustee will
succeed to all of the responsibilities, duties and liabilities of the Master
Servicer under the Agreement, including, if specified in the related Prospectus
Supplement, the obligation to make advances, and will be entitled to similar
compensation arrangements. 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 mortgage loan servicing institution with a net worth of at
least $10,000,000 to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and any such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the Master Servicer under the Agreement.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless (i) such holder previously has
given to the Trustee written notice of default, (ii) the holders of Certificates
of any class of such Series evidencing not less than 25% of the aggregate
percentage interests constituting such class have made written request upon the
Trustee to institute such proceeding in its own name as Trustee thereunder and
have offered to the Trustee reasonable indemnity, and (iii) the Trustee for 60
days has neglected or refused to institute any such proceeding.
Amendment
Unless otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the Trustee,
without the consent of any of the Certificateholders, (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein which may be defective or
inconsistent with any other
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provision therein or (iii) to make any other revisions with respect to matters
or questions arising under the Agreement which are not inconsistent with the
provisions thereof; provided, however, that such action will not adversely
affect in any material respect the interests of any Certificateholder. In
addition, to the extent provided in the related Agreement, an Agreement may be
amended without the consent of any of the Certificateholders to change the
manner in which the Certificate Account is maintained, provided, however, that
any such change does not adversely affect the then current rating on the class
or classes of Certificates of such Series that have been rated. In addition, if
a REMIC election is made with respect to a Trust Fund, the related Agreement may
be amended to modify, eliminate or add to any of its provisions to such extent
as may be necessary to maintain the qualification of the related Trust Fund as a
REMIC, provided, however, that the Trustee has received an opinion of counsel to
the effect that such action is necessary or helpful to maintain such
qualification. Unless otherwise specified in the related Prospectus Supplement,
each Agreement may also be amended by the Depositor, the Master Servicer and the
Trustee with consent of holders of Certificates of such Series evidencing not
less than 66% of the aggregate percentage interests of each class affected
thereby for the purpose of adding any provisions to, or changing in any manner
or eliminating any of the provisions of the Agreement or of modifying in any
manner the rights of the holders of the related Certificates; provided, however,
that no such amendment may (i) reduce in any manner the amount of, or delay the
timing of, payments received on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate or (ii) reduce the aforesaid percentage of Certificates of any 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 covered by such
Agreement then outstanding. If a REMIC election is made with respect to a Trust
Fund, the Trustee will not be entitled to consent to an amendment to the related
Agreement without having first received an opinion of counsel to the effect that
such amendment will not cause such Trust Fund to fail to qualify as a REMIC.
Termination; Optional Termination
Unless otherwise specified in the related Agreement, the obligations
created by each Agreement for each Series of Certificates will terminate upon
the payment to the related Certificateholders of all amounts held in the
Certificate Account or by the Master Servicer and required to be paid to them
pursuant to such Agreement following the later of (i) the final payment or other
liquidation of the last of the Mortgage Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Mortgage
Assets remaining in the Trust Fund and (ii) the purchase from the related Trust
Fund by the Master Servicer or, if REMIC treatment has been elected and if
specified in the related Prospectus Supplement, by the holder of the residual
interest in the REMIC (see "Certain Federal Income Tax Consequences"), of all of
the remaining Mortgage Assets and all property acquired in respect of such
Mortgage Assets.
Unless otherwise specified in the related Prospectus Supplement, any
such purchase of Mortgage Assets and property acquired in respect of Mortgage
Assets evidenced by a Series of Certificates will be made at the option of the
Master Servicer or, if applicable, such holder of the REMIC residual interest,
at a price, and in accordance with the procedures, specified in the related
Prospectus Supplement. The exercise of such right will effect early retirement
of the Certificates of that Series, but the right of the Master Servicer or, if
applicable, such holder of the REMIC residual interest, to so purchase is
subject to the aggregate principal balance of the related Mortgage Assets as of
such date being less than the percentage specified in the related Prospectus
Supplement of the aggregate principal balances of the Mortgage Assets as of the
Cut-off Date for the Series; provided, however, that, if a REMIC election is
made with respect to a Trust Fund, any repurchase pursuant to clause (ii) above
will be made only in connection with a "qualified liquidation" of the REMIC
within the meaning of Section 860F(g)(4) of the Code.
The Trustee
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as Trustee
may have normal banking relationships with the Depositor, the Master Servicer
and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Mortgage Loans. Because such
legal aspects are governed primarily by applicable state law (which laws may
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differ substantially), the summaries do not purport to be complete or to reflect
the laws of any particular state or to encompass the laws of all states in which
security for the Mortgage Loans may be situated. The summaries are qualified in
their entirety by reference to the appropriate laws of the states in which
Mortgage Loans may be originated.
General
Single Family Loans and Multifamily Loans. The Single Family Loans and
Multifamily Loans will be secured by deeds of trust, mortgages, security deeds
or deeds to secure debt, depending upon the prevailing practice in the state in
which the property subject to the loan is located. A mortgage creates a lien
upon the real property encumbered by the mortgage, which lien is generally not
prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of recording with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is the borrower and owner of the mortgaged property, and the mortgagee, who is
the lender. Under the mortgage instrument, the mortgagor delivers to the
mortgagee a note or bond and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust formally has three parties: the borrower-property
owner 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, generally with a power of sale, to the trustee to secure
payment of the obligation. A security deed and a deed to secure debt are special
types of deeds which indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys to the grantee title to, as opposed to merely creating a lien
upon, the subject property until such time as the underlying debt is repaid. The
trustee's authority under a deed of trust, the mortgagee's authority under a
mortgage and the grantee's authority under a security deed or deed to secure
debt are governed by law and, with respect to some deeds of trust, the
directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans.
The Cooperative owns all the real property that comprises the related project,
including the land, separate dwelling units and all common areas. The
Cooperative is directly responsible for project management and, in most cases,
payment of real estate taxes and hazard and liability insurance. If, as is
generally the case, there is a blanket mortgage on the Cooperative and/or
underlying land, the Cooperative, as project mortgagor, is also responsible for
meeting these mortgage obligations. A blanket mortgage is ordinarily incurred by
the Cooperative in connection with the construction or purchase of the
Cooperative's apartment building. The interest of the occupant under proprietary
leases or occupancy agreements to which the Cooperative is a party are generally
subordinate to the interest of the holder of the blanket mortgage in that
building. If the Cooperative is unable to meet the payment obligations arising
under its blanket mortgage, the mortgagee holding the blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements. In addition, the blanket mortgage on a Cooperative may
provide financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the Cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of a Trust Fund
including Cooperative Loans, the collateral securing the Cooperative Loans.
A Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and the accompanying rights are financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral
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or against the tenant-stockholder as an individual as provided in the security
agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of Cooperative shares.
Contracts. Each Contract evidences both (a) the obligation of the
obligor to repay the loan evidenced thereby and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. The
Contracts generally are "chattel paper" as defined in the Uniform Commercial
Code (the "UCC") in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the rules governing the sale of
chattel paper are similar to those governing the perfection of a security
interest in chattel paper. Under the Agreement, the Depositor will transfer or
cause the transfer of physical possession of the Contracts to the Trustee or its
custodian. In addition the Depositor will make or cause to be made an
appropriate filing of UCC-1 financing statements in the appropriate states to
give notice of the Trustee's ownership of the Contracts. Under the laws of most
states, manufactured housing constitutes personal property and is subject to the
motor vehicle registration laws of the state or other jurisdiction in which the
unit is located. In a few states, where certificates of title are not required
for Manufactured Homes, security interests are perfected by the filing of a
financing statement under Article 9 of the UCC which has been adopted by all
states except Louisiana. Such financing statements are effective for five years
and must be renewed at the end of each five years. The certificate of title laws
adopted by the majority of states provide that ownership of motor vehicles and
manufactured housing shall be evidenced by a certificate of title issued by the
motor vehicles department (or a similar entity) of such state. In the states
which have enacted certificate of title laws, a security interest in a unit of
manufactured housing, so long as it is not attached to land in so permanent a
fashion as to become a fixture, is generally perfected by the recording of such
interest on the certificate of title to the unit in the appropriate motor
vehicle registration office or by delivery of the required documents and payment
of a fee to such office, depending on state law.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will be required to effect such notation or delivery of the
required documents and fees and to obtain possession of the certificate of
title, as appropriate under the laws of the state in which any Manufactured Home
is registered. If the Master Servicer fails to effect such notation or delivery,
due to clerical errors or otherwise, or files the security interest under the
wrong law (for example, under a motor vehicle title statute rather than under
the UCC, in a few states), the Trustee may not have a first priority security
interest in the Manufactured Home securing the affected Contract. As
Manufactured Homes have become larger and have often been attached to their
sites without any apparent intention to move them, courts in many states have
held that Manufactured Homes may, under certain circumstances, become subject to
real estate title and recording laws. As a result, a security interest in a
Manufactured Home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a Manufactured Home under real estate
laws, the holder of the security interest must file either a "fixture filing"
under the provisions of the UCC or a real estate mortgage under the real estate
laws of the state where the Manufactured Home is located. These filings must be
made in the real estate records office of the county where the Manufactured Home
is located. Generally, Contracts will contain provisions prohibiting the obligor
from permanently attaching the Manufactured Home to its site. So long as the
obligor does not violate this agreement, a security interest in the Manufactured
Home will be governed by the certificate of title laws or the UCC, and the
notation of the security interest on the certificate of title or the filing of a
UCC financing statement will be effective to maintain the priority of the
security interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in the
Manufactured Home which is prior to the security interest originally retained by
the Seller and transferred to the Depositor.
The Depositor will assign or cause to be assigned to the Trustee, on
behalf of the Certificateholders, a security interest in the Manufactured Homes.
Unless otherwise specified in the related Prospectus Supplement, none of the
Depositor, the Master Servicer or the Trustee will amend the certificates of
title to identify the Trustee, on behalf of the Certificateholders, as the new
secured party and, accordingly, the Depositor or the Seller will continue to be
named as the secured party on the certificates of title relating to the
Manufactured Homes. In most states, such assignment is an effective conveyance
of such security interest without amendment of any lien noted on the related
certificate of title and the new secured party succeeds to the Depositor's
rights as the secured party. However, in some states there exists a risk that,
in the absence of an amendment to the certificate of title, such assignment of
the security interest might not be held effective against creditors of the
Depositor or Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the
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Trustee on the certificate of title or delivery of the required documents and
fees will be sufficient to protect the Trustee against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. In the case of any Manufactured Home as to
which the security interest assigned to the Depositor and the Trustee is not
perfected, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Home and holders of perfected
security interests therein. There also exists a risk that, in not identifying
the Trustee, on behalf of the Certificateholders, as the new secured party on
the certificate of title, the security interest of the Trustee could be released
through fraud or negligence.
If the owner of a Manufactured Home moves it to a state other than the
state in which such Manufactured Home initially is registered, under the laws of
most states the perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter until the owner
re-registers the Manufactured Home in such state. If the owner were to relocate
a Manufactured Home to another state and re-register the Manufactured Home in
such state, and if steps are not taken to re-perfect the Trustee's security
interest in such state, the security interest in the Manufactured Home would
cease to be perfected. A majority of states generally require surrender of a
certificate of title to re-register a Manufactured Home; accordingly, the
Trustee must surrender possession if it holds the certificate of title to such
Manufactured Home or, in the case of Manufactured Homes registered in states
which provide for notation of lien, the Master Servicer would receive notice of
surrender if the security interest in the Manufactured Home is noted on the
certificate of title. Accordingly, the Trustee would have the opportunity to
re-perfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection.
Similarly, when an obligor under Contract sells a Manufactured Home, the obligee
must surrender possession of the certificate of title or it will receive notice
as a result of its lien noted thereon and accordingly will have an opportunity
to require satisfaction of the related Contract before release of the lien. The
Master Servicer will be obligated to take such steps, at the Master Servicer's
expense, as are necessary to maintain perfection of security interests in the
Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will obtain the representation of the Seller that it has no knowledge
of any such liens with respect to any Manufactured Home securing a Contract.
However, such liens could arise at any time during the term of a Contract. No
notice will be given to the Trustee or Certificateholders in the event such a
lien arises.
Foreclosure/Repossession
Single Family Loans and Multifamily Loans. Foreclosure of a deed of
trust is generally accomplished by a non-judicial sale under a specific
provision in the deed of trust which authorizes the trustee to sell the property
at public auction upon any default by the borrower under the terms of the note
or deed of trust. In some states, such as California, the trustee must record a
notice of default and send a copy to the borrower-trustor, to any person who has
recorded a request for a copy of any notice of default and notice of sale, to
any successor in interest to the borrower-trustor, to the beneficiary of any
junior deed of trust and to certain other persons. Before such non-judicial sale
takes place, typically a notice of sale must be posted in a public place and
published during a specific period of time in one or more newspapers, posted on
the property and sent to parties having an interest of record in the property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Delays in completion of the foreclosure
may occasionally result from difficulties in locating necessary parties.
Judicial foreclosure proceedings are often not contested by any of the parties.
When the mortgagee's right to foreclosure is contested, the legal proceedings
necessary to resolve the issue can be time consuming. After the completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
foreclosure and appoints a referee or other court officer to conduct the sale of
the property. In general, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated 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. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the deed
of trust is not reinstated, a notice of sale must be posted in a public place
and, in most
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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.
Although foreclosure sales are typically public sales, frequently no
third-party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan plus accrued and unpaid interest and the expenses of foreclosure.
Thereafter, the lender will assume the burden of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property.
Courts have imposed general equitable principles upon foreclosure,
which are generally designed to mitigate the legal consequences to the borrower
of the borrower's defaults under the loan documents. Some courts have been faced
with the issue of whether federal or state constitutional provisions reflecting
due process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. 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 does not involve sufficient state
action to afford constitutional protection to the borrower.
Cooperative Loans. The Cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the Cooperative's articles of
incorporation and by-laws, as well as in the proprietary lease or occupancy
agreement, and may be cancelled by the Cooperative if the tenant-stockholder
fails to pay rent or other obligations or charges owed, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides, that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that, in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, lenders are
not limited in any rights they may have to dispossess tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a foreclosure
sale has been conducted in a "commercially reasonable" manner will depend on the
facts in each case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time, place and terms of
the foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
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Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See "--Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building but who did not purchase shares in
the Cooperative when the building was so converted.
Contracts. The Master Servicer, on behalf of the Trustee, to the extent
required by the related agreement, may take action to enforce the Trustee's
security interest with respect to Contracts in default by repossession and
resale of the Manufactured Homes securing such Contracts in default. So long as
a Manufactured Home has not become subject to the real estate law, a creditor
can repossess the Manufactured Home securing a Contract by voluntary surrender,
by "self-help" repossession that is "peaceful" (i.e., without breach of the
peace) or, in the absence of voluntary surrender and the ability to repossess
without breach of the peace, by judicial process. The holder of a Contract must
give the debtor a number of days' notice, which varies from ten to 30 days
depending on the state, prior to commencement of any repossession. The UCC and
consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit so that
the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the Manufactured Home securing such a debtor's loan.
However, some states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Environmental Risks
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the payment of
the costs of clean-up. In several states such a lien has priority over the lien
of an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency ("EPA") may impose
a lien on property where EPA has incurred clean-up costs. However, a CERCLA lien
is subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, there is a possibility
that a lender may be held liable as an "owner" or "operator" for costs of
addressing releases or threatened releases of hazardous substances at a
property, regardless of whether or not the environmental damage or threat was
caused by a current or prior owner or operator. CERCLA imposes liability for
such costs on any and all "responsible parties," including owners or operators.
However, CERCLA excludes from the definition of "owner or operator" a secured
creditor who holds indicia of ownership primarily to protect its security
interest but does not "participate in the management" of the property (the
"secured creditor exclusion"). Thus, if a lender's activities begin to encroach
on the actual management of a contaminated facility or property, the lender may
incur liability as an "owner or operator" under CERCLA. Similarly, if a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property
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as an investment (including leasing the facility or property to a third party),
or fails to market the property in a timely fashion.
Whether actions taken by a lender would constitute such participation
in the management of a property, so that the lender would lose the protection of
the secured creditor exclusion, has been a matter of judicial interpretation of
the statutory language, and court decisions have historically been inconsistent.
In 1990, the United States Court of Appeals for the Eleventh Circuit suggested,
in United States v. Fleet Factors Corp., that the mere capacity of the lender to
influence a borrower's decisions regarding disposal of hazardous substances was
sufficient participation in the management of the borrower's business to deny
the protection of the secured creditor exclusion to the lender, regardless of
whether the lender actually exercised such influence. Other judicial decisions
did not interpret the secured creditor exclusion as narrowly as did the Eleventh
Circuit.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liabiltiy and Deposit Insurance Protection Act of
1996 (the "Asset Conservation Act"), which took effect on September 30, 1996.
The Asset Conservation Act provides that in order to be deemed to have
participated in the management of a secured property, a lender must actually
participate in the operational affairs of the property or of the borrower. The
Asset Conservation Act also provides that participation in the management of the
property does not include "merely having the capacity to influence, or
unexercised right to control" operations. Rather, a lender will lose the
protection of the secured creditor exclusion 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 secured property.
If a lender is or becomes liable, it can bring an action for
contribution against any other "responsible parties," including a previous owner
or operator, who crated the environmental hazard, but those persons or entities
may be bankrupt or otherwise judgment proof. The costs associated with
environmental cleanup may be substantial. It is conceivable that such costs
arising from the circumstances set forth above would result in a loss to
Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. Moreover, under the Asset Conservation Act, the protections accorded
to lenders under CERCLA are also accorded to holders of security interests in
underground petroleum storage tanks. It should be noted, however, that liability
for cleanup of petroleum contamination may be governed by state law, which may
not provide for any specific protection for secured creditors.
Except as otherwise specified in the applicable Prospectus Supplement,
at the time the Mortgage Loans were originated, no environmental assessment or a
very limited environment assessment of the Mortgage Properties was conducted.
The Agreement will provide that the Master Servicer, acting on behalf
of the Trust Fund, may not acquire title to a multifamily residential property
or mixed residential/commercial property underlying a Mortgage Loan or take over
its operation unless the Master Servicer has previously determined, based upon a
report prepared by a person who regularly conducts environmental audits, that
the Mortgaged Property is in compliance with applicable environmental laws and
regulations or that such acquisition would not be more detrimental than
beneficial to the value of the Mortgaged Properties and the interests therein of
the Certificateholders.
Rights of Redemption
Single Family Loans and Multifamily Loans. In some states, after sale
pursuant to a deed of trust or foreclosure of a mortgage, the borrower and
foreclosed junior lienors are given a statutory period in which to redeem the
property from the foreclosure sale. In some states, redemption may occur only
upon payment of the entire principal balance of the loan plus accrued interest
and expenses of foreclosure. In other states, redemption may be
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authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right 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.
Contracts. While state laws do not usually require notice to be given
debtors prior to repossession, many states do require delivery of a notice of
default and of the debtor's right to cure defaults before repossession. The law
in most states also requires that the debtor be given notice of sale prior to
the resale of a Manufacture Home so that the owner may redeem at or before
resale. In addition, the sale must comply with the requirements of the UCC.
Manufactured Homes are most often resold through private sale.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states, including California, have adopted statutory
prohibitions restricting the right of the beneficiary or mortgagee to obtain a
deficiency judgment against borrowers financing the purchase of their residence
or following sale under a deed of trust or certain other foreclosure
proceedings. A deficiency judgment is a personal judgment against the borrower
equal in most cases to the difference between the amount due to the lender and
the fair market value of the real property sold at the foreclosure sale. As a
result of these prohibitions, it is anticipated that in many instances the
Master Servicer will not seek deficiency judgments against defaulting
mortgagors. Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment for any deficiency following possession and resale
of a Manufactured Home. However, some states impose prohibitions or limitations
on deficiency judgments in such cases.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the Bankruptcy Code, the
federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws affording
relief to debtors, may interfere with or affect the ability of the secured
mortgage lender to realize upon its security. For example, in a proceeding under
the Bankruptcy Code, a lender may not foreclose on the Mortgaged Property
without the permission of the bankruptcy court. If the Mortgaged Property is not
the debtor's principal residence and the bankruptcy court determines that the
value of the Mortgaged Property is less than the principal balance of the
mortgage loan, the rehabilitation plan proposed by the debtor may reduce the
secured indebtedness to the value of the Mortgaged Property as of the date of
the commencement of the bankruptcy (rendering the lender a general unsecured
creditor for the difference), reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan repayment
schedule. The effect of any such proceedings under the Bankruptcy Code,
including but not limited to any automatic stay, could result in delays in
receiving payments on the Mortgage Loans underlying a Series of Certificates and
possible reductions in the aggregate amount of such payments.
The federal tax laws provide priority to certain tax liens over the
lien of a mortgage or secured party. Numerous federal and state consumer
protection laws impose substantive requirements upon mortgage lenders and
manufactured housing lenders in connection with the origination, servicing and
enforcement of Single Family Loans and Contracts. These laws include the federal
Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and related
statutes and regulations. These federal and state laws impose specific statutory
liabilities upon lenders who fail to comply with the provisions of the law. In
some cases, this liability may affect assignees of the loans or contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the Contract, and the
holder of the Contract may also be unable to collect amounts still due
thereunder.
Most of the Contracts in a Mortgage Pool will be subject to the
requirements of the FTC Rule. Accordingly, the Trustee, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related Manufactured Home may assert against the seller of the Manufactured
Home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract. If an obligor is successful in asserting any such claim or
defense, and if the Seller had or should have had knowledge of such claim or
defense, the Master Servicer
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will have the right to require the Seller to repurchase the Contract because of
a breach of its representation and warranty that no claims or defenses exist
which would affect the obligor's obligation to make the required payments under
the Contract.
Generally, Article 9 of the UCC governs foreclosure on Cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted Section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case of
a Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
Due-on-Sale Clauses
Unless otherwise provided in the related Prospectus Supplement, each
conventional Mortgage Loan will contain a due-on-sale clause which will
generally provide that, if the mortgagor or obligor sells, transfers or conveys
the Mortgaged Property, the loan or contract may be accelerated by the mortgagee
or secured party. The Garn-St Germain Depository Institutions Act of 1982 (the
"Garn-St Germain Act"), subject to certain exceptions, pre-empts state
constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. With respect to loans secured by an owner-occupied
residence (which would include a Manufactured Home), the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Act may
not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Mortgaged Property to
an uncreditworthy person, which could increase the likelihood of default or may
result in a mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
Mortgage Loans and the number of Mortgage Loans which may extend to maturity.
Prepayment Charges
Under certain state laws, prepayment charges with respect to
prepayments on loans secured by liens encumbering owner-occupied residential
properties may not be imposed after a certain period of time following the
origination of Single Family Loans or Contracts. Since many of the Mortgaged
Properties will be owner-occupied, it is anticipated that prepayment charges may
not be imposed with respect to many of the Single Family Loans and Contracts.
The absence of such a restraint on prepayment, particularly with respect to
fixed rate Single Family Loans or Contracts having higher Mortgage Rates or
APRs, may increase the likelihood of refinancing or other early retirement of
such Loans or Contracts. Legal restrictions, if any, on prepayment of
Multifamily Loans will be described in the related Prospectus Supplement.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 ("Title V") provides that state usury limitations shall not
apply to certain types of residential first mortgage loans originated by certain
lenders after March 31, 1980. The Office of Thrift Supervision, 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 limitations on interest rates and finance
charges by adopting before April 1, 1983 a law or constitutional provision which
expressly rejects application of the federal law. Fifteen states adopted such a
law prior to the April 1, 1983 deadline. In addition, even where Title V was not
so rejected, any state is authorized to adopt a provision limiting discount
points or other charges on loans covered by Title V. No Contract secured by a
Manufactured Home located in any state in which application of Title V was
expressly rejected or a provision limiting discount points or other charges has
been adopted will be included in any Trust File if such Contract imposes finance
charges or provides for discount points or charges in excess of permitted
levels.
Title V also provides that, subject to the following conditions, state
usury limitations will not apply to any loan which is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions governing, among other things, the terms of any
prepayment, balloon payment, late charges and deferral fees and requiring a
30-day notice period prior to instituting any action leading to repossession of
or foreclosure with respect to the related unit.
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Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's Mortgage Loan (including a
borrower who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active duty)
may not be charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon application
of the lender. It is possible that such interest rate limitation could have an
effect, for an indeterminate period of time, on the ability of the Master
Servicer to collect full amounts of interest on affected Mortgage Loans. Unless
otherwise provided in the related Prospectus Supplement, any shortfall in
interest collections resulting from the application of the Relief Act could
result in losses to the holders of the Certificates. In addition, the Relief Act
imposes limitations which would impair the ability of the Master Servicer to
foreclose on an affected Mortgage Loan during the borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned by the lender's inability to realize
upon the mortgaged property in a timely fashion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Certificates is based
on the advice of Brown & Wood LLP, counsel to the Depositor. This summary is
based on laws, regulations, including the REMIC regulations promulgated by the
Treasury Department on December 23, 1992 and generally effective for REMICs with
start-up dates on or after November 12, 1991 (the "REMIC Regulations"), rulings
and decisions now in effect or (with respect to regulations) proposed, all of
which are subject to change either prospectively or retroactively. This summary
does not address the federal income tax consequences of an investment in
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Certificates.
General
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC election
will be made. In the discussion that follows, all references to a "Section" or
"Sections" shall be understood to refer, unless otherwise specifically
indicated, to a Section or Sections of the Code.
NON-REMIC CERTIFICATES
If a REMIC election is not made, Brown & Wood LLP will deliver its
opinion that the Trust Fund will not be classified as an association taxable as
a corporation and that each such Trust Fund will be classified as a grantor
trust under subpart E, part I of subchapter J of the Code. In this case, owners
of Certificates will be treated for federal income tax purposes as owners of a
portion of the Trust Fund's assets as described below.
Single Class of Senior Certificates
Characterization. The Trust Fund may be created with one class of
Senior Certificates and one class of Subordinated Certificates. In this case,
each Senior Certificateholder will be treated as the owner of a pro rata
undivided interest in the interest and principal portions of the Trust Fund
represented by that Senior Certificate and will be considered the equitable
owner of a pro rata undivided interest in each of the Mortgage Loans in the
Pool. Any amounts received by a Senior Certificateholder in lieu of amounts due
with respect to any Mortgage Loan because of a default or delinquency in payment
will be treated for federal income tax purposes as having the same character as
the payments they replace.
Each holder of a Senior Certificate will be required to report on its
federal income tax return its pro rata share of the entire income from the
Mortgage Loans in the Trust Fund represented by that Senior Certificate,
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including interest, original issue discount, if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment charges received
by the Master Servicer in accordance with such Senior Certificateholder's method
of accounting. Under section 162 or 212 of the Code, each Senior
Certificateholder will be entitled to deduct its pro rata share of servicing
fees, prepayment fees, assumption fees, any loss recognized upon an assumption
and late payment charges retained by the Master Servicer, provided that such
amounts are reasonable compensation for services rendered to the Trust Fund. A
Senior Certificateholder that is an individual, estate or trust will be entitled
to deduct its share of expenses only to the extent such expenses, plus all other
section 212 expenses, exceed 2% of such Senior Certificateholder's adjusted
gross income. A Senior Certificateholder using the cash method of accounting
must take into account its pro rata share of income and deductions as and when
collected by or paid to the Master Servicer. A Senior Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Master Servicer, whichever
is earlier. If the servicing fees paid to the Master Servicer were deemed to
exceed reasonable servicing compensation, the amount of such excess could be
considered as a retained ownership interest by the Master Servicer (or any
person to whom the Master Servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the Mortgage Loans. The
Mortgage Loans might then be subject to the "coupon stripping" rules of the Code
discussed below.
Unless otherwise specified in the related Prospectus Supplement, Brown
& Wood LLP will have advised the Depositor with respect to each Series of
Certificates that:
(i) a Senior Certificate owned by a "domestic building and loan
association" within the meaning of section 7701(a)(19) of the Code representing
principal and interest payments on Mortgage Loans will be considered to
represent "loans . . . secured by an interest in real property which is . . .
residential property" within the meaning of section 7701(a)(19)(C)(v) of the
Code to the extent that the Mortgage Loans represented by that Senior
Certificate are of a type described in such section;
(ii) a Senior Certificate owned by a real estate investment trust
representing an interest in Mortgage Loans will be considered to represent "real
estate assets" within the meaning of section 856(c)(4)(A) of the Code and
interest income on the Mortgage Loans will be considered "interest on
obligations secured by mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code to the extent that the Mortgage Loans represented by
that Senior Certificate are of a type described in such section; and
(iii) a Senior Certificate owned by a REMIC will be an "obligation . .
. which is principally secured by an interest in real property" within the
meaning of section 860G(a)(3)(A) of the Code.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
section 593(d) of the Code to any taxable year beginning after December 31,
1995.
The assets constituting certain Trust Funds may include "buydown"
Mortgage Loans. The characterization of any investment in "buydown" Mortgage
Loans will depend upon the precise terms of the related buydown agreement, but
to the extent that such "buydown" Mortgage Loans are secured in part by a bank
account or other personal property, they may not be treated in their entirety as
assets described in the foregoing sections of the Code. There are no directly
applicable precedents with respect to the federal income tax treatment or the
characterization of investments in "buydown" Mortgage Loans. Accordingly,
holders of Senior Certificates should consult their own tax advisors with
respect to characterization of investments in Senior Certificates representing
an interest in a Trust Fund that includes "buydown" Mortgage Loans.
Premium. The price paid for a Senior Certificate by a holder will be
allocated to such holder's undivided interest in each Mortgage Loan based on
each Mortgage Loan's relative fair market value, so that such holder's undivided
interest in each Mortgage Loan will have its own tax basis. A Senior
Certificateholder that acquires an interest in Mortgage Loans at a premium may
elect to amortize such premium under a constant interest method, provided that
such Mortgage Loan was originated after September 27, 1985. Premium allocable to
a Mortgage Loan originated on or before September 27, 1985 should be allocated
among the principal payments on the Mortgage Loan and allowed as an ordinary
deduction as principal payments are made. Amortizable bond premium will be
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treated as an offset to interest income on such Senior Certificate. The basis
for such Senior Certificate will be reduced to the extent that amortizable
premium is applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under section 171 of the
Code. A Certificateholder that makes this election for a Certificate that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder acquires during the year of the election or
thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Senior Certificate acquired at a premium
should recognize a loss, if a Mortgage Loan prepays in full, equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Senior Certificate and the portion of the adjusted
basis of the Senior Certificate that is allocable to the Mortgage Loan. If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is not
clear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
On December 30, 1997, the Internal Revenue Service (the "IRS") issued
final regulations (the "Amortizable Bond Premium Regulations") dealing with
amortizable bond premium. These regulations, which generally are effective for
bonds issued or acquired on or after March 2, 1998 (or, for holders making an
election for the taxable year that included March 2, 1998 or any subsequent
taxable year, shall apply to bonds held on or after the first day of the taxable
year of the election). The Amortizable Bond Premium Regulations specifically do
not apply to prepayable debt instruments or any pool of debt instruments, such
as the Trust Fund, the yield on which may be affected by prepayments which are
subject to section 1272(a)(6) of the Code. Absent further guidance from the IRS
and unless otherwise specified in the related Prospectus Supplement, the Trustee
will account for amortizable bond premium in the manner described above.
Prospective purchasers should consult their tax advisors regarding amortizable
bond premium and the Amortizable Bond Premium Regulations.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to "original issue discount" (currently sections 1271 through 1273
and section 1275) will be applicable to a Senior Certificateholder's interest in
those Mortgage Loans meeting the conditions necessary for these sections to
apply. Accordingly, the following discussion is based in part on Treasury
regulations issued on February 2, 1994 under sections 1271 through 1273 and
section 1275 of the Code (the "OID Regulations"). Certificateholders should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Certificates. Rules
regarding periodic inclusion of original issue discount income are applicable to
mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Such original issue
discount could arise by the financing of points or other charges by the
originator of the mortgages in an amount greater than a statutory de minimis
exception to the extent that the points are not currently deductible under
applicable provisions of the Code or are not for services provided by the
lender. Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method. See "--Multiple Classes
of Senior Certificates--B. Senior Certificates Representing Interests in Loans
Other than ARM Loans--Accrual of Original Issue Discount" below.
Market Discount. A Senior Certificateholder that acquires an undivided
interest in Mortgage Loans may be subject to the market discount rules of
sections 1276 through 1278 to the extent an undivided interest in a Mortgage
Loan is considered to have been purchased at a "market discount". Generally, the
excess of the portion of the principal amount of such Mortgage Loan allocable to
such holder's undivided interest over such holder's tax basis in such interest.
Market discount with respect to a Senior Certificate will be considered to be
zero if the amount allocable to the Senior Certificate is less than 0.25% of the
Senior Certificate's stated redemption price at maturity multiplied by the
weighted average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under sections 1276 through 1278 of the Code.
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The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants to the Department of the Treasury (the "Treasury")
authority to issue regulations providing for the computation of accrued market
discount on debt instruments, the principal of which is payable in more than one
installment. Although the Treasury has not yet issued regulations, rules
described in the relevant legislative history will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount either on
the basis of a constant interest rate or according to one of the following
methods. If a Senior Certificate is issued with original issue discount, the
amount of market discount that accrues during any accrual period is equal to the
product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the original issue discount accruing during the period and
the denominator of which is the total remaining original issue discount at the
beginning of the accrual period. For Senior Certificates issued without original
issue discount, the amount of market discount that accrues during a period is
equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Senior Certificates) which provide for payments
which may be accelerated by reason of prepayments of other obligations securing
such instruments, the same prepayment assumption applicable to calculating the
accrual of original issue discount will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Senior Certificate purchased at
a discount or premium in the secondary market.
A holder who acquires a Senior Certificate at a market discount also
may be required to defer, until the maturity date of such Senior Certificate or
its earlier disposition in a taxable transaction, the deduction of a portion of
the amount of interest that the holder paid or accrued during the taxable year
on indebtedness incurred or maintained to purchase or carry the Senior
Certificate in excess of the aggregate amount of interest (including original
issue discount) includible in such holder's gross income for the taxable year
with respect to such Senior Certificate. The amount of such net interest expense
deferred in a taxable year may not exceed the amount of market discount accrued
on the Senior Certificate for the days during the taxable year on which the
holder held the Senior Certificate and, in general, would be deductible when
such market discount is includible in income. The amount of any remaining
deferred deduction is to be taken into account in the taxable year in which the
Senior Certificate matures or is disposed of in a taxable transaction. In the
case of a disposition in which gain or loss is not recognized in whole or in
part, any remaining deferred deduction will be allowed to the extent of gain
recognized on the disposition. This deferral rule does not apply if the Senior
Certificateholder elects to include such market discount in income currently as
it accrues on all market discount obligations acquired by such Senior
Certificateholder in that taxable year or thereafter.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method for Certificates acquired on or
after April 4, 1994. If such an election is made with respect to a Mortgage Loan
with market discount, the Certificateholder will be deemed to have made an
election to include in income currently market discount with respect to all
other debt instruments having market discount that such Certificateholder
acquires during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Regular Certificates--Original Issue
Discount and Premium" below. The election to accrue interest, discount and
premium on a constant yield method with respect to a Certificate is irrevocable.
Anti-abuse Rule. The IRS is permitted apply or depart from the rules
contained in the OID Regulations as necessary or appropriate to achieve a
reasonable result where a principal purpose in structuring a Mortgage Asset,
Mortgage Loan or Senior Certificate, or the effect of applying the otherwise
applicable rules, is to achieve a result
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that is unreasonable in light of the purposes of the applicable statutes (which
generally are intended to achieve the clear reflection of income for both
issuers and holders of debt instruments).
Multiple Classes of Senior Certificates
A. Stripped Bonds and Stripped Coupons
Pursuant to section 1286 of the Code, the separation of ownership of
the right to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments results
in the creation of "stripped bonds" with respect to principal payments and
"stripped coupons" with respect to interest payments. For purposes of sections
1271 through 1288 of the Code, section 1286 treats a stripped bond or a stripped
coupon as an obligation issued on the date that such stripped interest is
created. If a Trust Fund is created with two classes of Senior Certificates, one
class of Senior Certificates will represent the right to principal and interest,
or principal only, on all or a portion of the Mortgage Loans (the "Stripped Bond
Certificates"), while the second class of Senior Certificates will represent the
right to some or all of the interest on such portion (the "Stripped Coupon
Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Loan principal balance) or the Certificates are initially sold with a de minimis
discount (assuming no prepayment assumption is required), any non-de minimis
discount arising from a subsequent transfer of the Certificates should be
treated as market discount. The IRS appears to require that reasonable servicing
fees be calculated on a Mortgage Loan by Mortgage Loan basis, which could result
in some Mortgage Loans being treated as having more than 100 basis points of
interest stripped off.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Generally, if the
discount on a Stripped Bond Certificate is larger than a de minimis amount (as
calculated for purposes of the original issue discount rules), a purchaser of
such a certificate will be required to accrue the discount under the original
issue discount rules of the Code. See "--Single Class of Senior
Certificates--Original Issue Discount" above. However, a purchaser of a Stripped
Bond Certificate will be required to account for any discount on the certificate
as market discount rather than original issue discount if either (i) the amount
of original issue discount with respect to the certificate was treated as zero
under the original issue discount de minimis rule when the certificate was
stripped or (ii) no more than 100 basis points (including any amount of
servicing in excess of reasonable servicing) are stripped off the Trust Fund's
Mortgage Loans. Pursuant to Revenue Procedure 91-49 issued on August 8, 1991,
purchasers of Stripped Bond Certificates using an inconsistent method of
accounting must change their method of accounting and request the consent of the
IRS to the change in their accounting method on a statement attached to their
first timely tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that
original issue discount computations be made on a Mortgage Loan by Mortgagee
Loan basis. However, based on recent IRS guidance, it appears that a Stripped
Coupon Certificate should be treated as a single installment obligation subject
to the original issue discount rules of the Code. As a result, all payments on a
Stripped Coupon Certificate would be included in the certificate's stated
redemption price at maturity for purposes of calculating income on such
certificate under the original issue discount rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Loans will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to such Senior Certificate, it appears that no loss
may be available as a result of any particular prepayment unless prepayments
occur at a rate faster than the assumed prepayment rate. However, if such
Certificate is treated as an interest in discrete Mortgage Loans or if no
prepayment assumption is used, then, when a Mortgage Loan is prepaid, the holder
of such Certificate should be able to recognize a loss equal to the portion of
the adjusted issue price of such Certificate that is allocable to such Mortgage
Loan.
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Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper treatment
of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several sections of the Code provide
beneficial treatment to certain taxpayers that invest in mortgage loans of the
type that make up the Trust Fund. With respect to these sections, no specific
legal authority exists regarding whether the character of the Senior
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Loans. While section 1286 treats a stripped obligation as a
separate obligation for purposes of the provisions of the Code addressing
original issue discount, it is not clear whether such characterization would
apply with regard to these other sections. Although the issue is not free from
doubt, based on policy considerations, each class of Senior Certificates should
be considered to represent "real estate assets" within the meaning of section
856(c)(4)(A) of the Code and "loans . . . secured by, an interest in real
property which is . . . residential real property" within the meaning of section
7701(a)(19)(C)(v) of the Code, and interest income attributable to Senior
Certificates should be considered to represent "interest on obligations secured
by mortgages on real property" within the meaning of section 856(c)(3)(B) of the
Code, provided that in each case the underlying Mortgage Loans and interest on
such Mortgage Loans qualify for such treatment. Prospective purchasers to which
such characterization of an investment in Senior Certificates is material should
consult their own tax advisors regarding the characterization of the Senior
Certificates and the income therefrom. Senior Certificates will be "obligations
(including any participation or certificate of beneficial ownership therein)
which are principally secured by an interest in real property" within the
meaning of section 860G(a)(3)(A) of the Code.
B. Senior Certificates Representing Interests in Loans Other than ARM Loans
The original issue discount rules of sections 1271 through 1275 of the
Code will be applicable to a Senior Certificateholder's interest in those
Mortgage Loans as to which the conditions for the application of those sections
are met. Rules regarding periodic inclusion of original issue discount in income
are applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984. Under
the OID Regulations, such original issue discount could arise by the charging of
points by the originator of the mortgage in an amount greater than the statutory
de minimis exception, including a payment of points that is currently deductible
by the borrower under applicable provisions of the Code, or, under certain
circumstances, by the presence of "teaser" rates on the Mortgage Loans. Original
issue discount on each Senior Certificate must be included in the owner's
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash attributable to such income. The
amount of original issue discount required to be included in an owner's income
in any taxable year with respect to a Senior Certificate representing an
interest in Mortgage Loans other than Mortgage Loans with interest rates that
adjust periodically ("ARM Loans") likely will be computed as described under
"--Accrual of Original Issue Discount" below. The following discussion is based
in part on the OID Regulations and in part on the provisions of the Tax Reform
Act of 1986, as amended (the "1986 Act"). The OID Regulations generally are
effective for debt instruments issued on or after April 4, 1994, but may be
relied upon as authority with respect to debt instruments such as the Senior
Certificates issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the Mortgage Loans should be used or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Senior Certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Loans underlying each Senior Certificate
will be treated as having been issued on the date they were originated with an
amount of original issue discount equal to the excess of such Mortgage Loan's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Loan is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Loan is the sum of all payments to be
made on such Mortgage Loan other than payments that are treated as qualified
stated interest payments. The accrual of this original issue discount, as
described under "--Accrual of Original Issue Discount" below, will, unless
otherwise specified in the related Prospectus Supplement, utilize the original
yield to maturity of the Senior Certificate calculated based on a reasonable
assumed prepayment rate for the Mortgage Loans underlying the Senior
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Certificates (the "Prepayment Assumption") and will take into account events
that occur during the calculation period. The Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. The legislative history of the 1986 Act (the "Legislative History")
provides, however, that the regulations will require that the Prepayment
Assumption be the prepayment assumption that is used in determining the offering
price of such Certificate. No representation is made that any Certificate will
prepay at the Prepayment Assumption or at any other rate. The prepayment
assumption contained in the Code literally only applies to debt instruments
collateralized by other debt instruments that are subject to prepayment rather
than direct ownership interests in such debt instruments, such as the
Certificates represent. However, no other legal authority provides guidance with
regard to the proper method for accruing original issue discount on obligations
that are subject to prepayment, and, until further guidance is issued, the
Master Servicer intends to calculate and report original issue discount under
the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Senior
Certificate must include in gross income the sum of the "daily portions", as
defined below, of the original issue discount on such Senior Certificate for
each day on which it owns a Senior Certificate, including the date of purchase
but excluding the date of disposition. In the case of an original owner, the
daily portions of original issue discount with respect to each component
generally will be determined as follows under the Amendments. A calculation will
be made by the Master Servicer or such other entity specified in the related
Prospectus Supplement of the portion of original issue discount that accrues
during each successive monthly accrual period (or shorter period from the date
of original issue) that ends on the day in the calendar year corresponding to
each of the Distribution Dates on the Senior Certificate (or the day prior to
each such date). This will be done, in the case of each full month accrual
period, by adding (i) the present value at the end of the accrual period
(determined by using as a discount factor the original yield to maturity of the
respective component, under the Prepayment Assumption) of all remaining payments
to be received under the Prepayment Assumption on the respective component, and
(ii) any payments received during such accrual period (other than a payment of
qualified stated interest), and subtracting from that total the "adjusted issue
price" of the respective component at the beginning of such accrual period. The
"adjusted issue price" of a Senior Certificate at the beginning of the first
accrual period is its issue price; the "adjusted issue price" of a Senior
Certificate at the beginning of a subsequent accrual period is the "adjusted
issue price" at the beginning of the immediately preceding accrual period plus
the amount of original issue discount allocable to that accrual period reduced
by the amount of any payment (other than a payment of qualified stated interest)
made at the end of or during that accrual period. The original issue discount
accruing during such accrual period will then be divided by the number of days
in the period to determine the daily portion of original issue discount for each
day in the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of original issue discount must be
determined according to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if such Mortgage Loans acquired by a Certificateholder are purchased at a price
equal to the then unpaid principal amount of such Mortgage Loan, no original
issue discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Loan (i.e., points) will be
includible by such holder. Other original issue discount on the Mortgage Loans
(e.g., that arising from a "teaser" rate) would still need to be accrued.
C. Senior Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such
as the Senior Certificates (if the related Trust Fund includes ARM Loans), which
represent interests in ARM Loans. Additionally, the IRS has not issued guidance
under the coupon stripping rules of the Code with respect to such instruments.
In the absence of any authority, the Master Servicer will report original issue
discount on Senior Certificates attributable to ARM Loans ("Stripped ARM
Obligations") to holders in a manner it believes to be consistent with the rules
described under the heading "--B. Senior Certificates Representing Interests in
Loans Other than ARM Loans" above and with the OID Regulations. In general,
application of these rules may require inclusion of income on a Stripped ARM
Obligation in advance of the receipt of cash attributable to such income.
Further, the addition of interest deferred by reason of negative amortization
("Deferred Interest") to the principal balance of an ARM Loan may require the
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inclusion of such amount in the income of the Senior Certificateholder when such
amount accrues. Furthermore, the addition of Deferred Interest to the Senior
Certificate's principal balance will result in additional income (including
possibly original issue discount income) to the Senior Certificateholder over
the remaining life of such Senior Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
Possible Application of Contingent Payment Regulations to Certain Non-REMIC
Certificates
Final regulations issued on June 11, 1996 with respect to original
issue discount under section 1275 include rules for obligations that provide for
one or more contingent payments (the "Contingent Payment Regulations"). Rights
to interest payments on a mortgage loan might be considered to be contingent
within the meaning of the Contingent Payment Regulations if such interest would
not be paid if the borrower exercised its right to prepay the mortgage loan.
However, in the case of an investor having a right to shares of the interest and
principal payments on such a mortgage loan when the share of interest is not
substantially greater than the share of principal, the possibility of prepayment
should not be considered to characterize otherwise noncontingent interest
payments as contingent payments. The absence of interest payments following a
prepayment would be the normal consequence of the return of such investor's
capital in the form of a principal payment. On the other hand, a right to
interest on such a mortgage loan is more likely to be regarded as contingent if
held by an investor that does not also hold a right to the related principal.
Such an investor would not recover its capital through receipt of a principal
payment at the time of the prepayment of the mortgage loan.
Applying these principles to the Senior Certificates, because the
Mortgage Loans are subject to prepayment at any time, payments on a class of
Senior Certificates representing a right to interest on the Mortgage Loans could
be considered to be contingent within the meaning of the Contingent Payment
Regulations, at least if such Senior Certificate was issued at a premium. The
likelihood that such payments will be considered contingent increases the
greater the amount of such premium.
In the event that payments on a Senior Certificate in respect of
interest on the Mortgage Loans are considered contingent, then the holder would
generally report income or loss as described above under the heading
"--A.Stripped Bonds and Stripped Coupons"; provided, however, that the yield
that would be used in calculating interest income would not be the actual yield
but would instead equal the "applicable Federal rate" (the "AFR", generally, an
average of current yields of Treasury securities computed and published monthly
by the IRS), in effect at the time of purchase of such Senior Certificate by
such holder. In addition, once such Holder's adjusted basis in such Senior
Certificate has been reduced (by prior distributions or losses) to an amount
equal to the aggregate amount of the remaining noncontingent payments of the
Mortgage Loans that are allocable to such Senior Certificate (or to zero if such
Senior Certificate does not share in principal payments), then such holder would
recognize income in each subsequent month equal to the full amount of interest
on the Mortgage Loans that accrues in that month and is allocable to such Senior
Certificate. It is uncertain whether, under the Contingent Payment regulations,
any other adjustments would be made to take account of prepayments of the
Mortgage Loans.
Sale or Exchange of a Senior Certificate
Sale or exchange of a Senior Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the seller's adjusted basis in the Senior Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Senior
Certificate, increased by the original issue discount included in the seller's
gross income with respect to the Senior Certificate, and reduced by principal
payments on the Senior Certificate previously received by the seller. Such gain
or loss will be capital gain or loss to a seller for which a Senior Certificate
is a "capital asset" within the meaning of section 1221 of the Code, and will be
long-term or short-term depending on whether the Senior Certificate has been
owned for the long-term capital gain holding period (currently more than one
year).
Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
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subject to certain limitations. Prospective investors should consult their own
tax advisors concerning these tax law provisions.
It is possible that capital gain realized by holders of the Senior
Certificates could be considered gain realized upon the disposition of property
that was part of a "conversion transaction". A sale of a Senior Certificate will
be part of a conversion transaction if substantially all of the holder's
expected return is attributable to the time value of the holder's net
investment, and (i) the holder entered the contract to sell the Senior
Certificate substantially contemporaneously with acquiring the Senior
Certificate, (ii) the Senior Certificate is part of a straddle, (iii) the Senior
Certificate is marketed or sold as producing capital gain or (iv) other
transactions to be specified in Treasury regulations that have not yet been
issued. If the sale or other disposition of a Senior Certificate is part of a
conversion transaction, all or any portion of the gain realized upon the sale or
other disposition would be treated as ordinary income instead of capital gain.
Senior Certificates will be "evidences of indebtedness" within the
meaning of section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a Senior Certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
Non-U.S. Persons
Generally, to the extent that a Senior Certificate evidences ownership
in Mortgage Loans that are issued on or before July 18, 1984, interest or
original issue discount paid by the person required to withhold tax under
section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Senior Certificateholder holding on behalf of an owner that is
not a U.S. Person, will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty. Accrued original issue discount recognized by the
owner on the sale or exchange of such a Senior Certificate also will be subject
to federal income tax at the same rate. Generally, such payments would not be
subject to withholding to the extent that a Senior Certificate evidences
ownership in Mortgage Loans issued after July 18, 1984, if (i) such Senior
Certificateholder does not actually or constructively own 10% or more of the
combined voting power of all classes of equity in the issuer (which for purposes
of this discussion may be defined as the Trust Fund (the "issuer")); (ii) such
Senior Certificateholder is not a controlled foreign corporation (within the
meaning of section 957 of the Code) related to the issuer; and (iii) such Senior
Certificateholder complies with certain identification requirements (including
delivery of a statement, signed by the Senior Certificateholder under penalties
of perjury, certifying that such Senior Certificateholder is not a U.S. Person
and providing the name and address of such Senior Certificateholder).
For purposes of this discussion, a "U.S. Person" means a citizen or
resident of the United States, a corporation or a partnership (including an
entity treated as a corporation or partnership for U.S. federal income tax
purposes) organized in or under the laws of the United States, or any State
thereof or the District of Columbia (unless in the case of a partnership
Treasury regulations are adopted that provide otherwise) or an estate whose
income from sources outside the United States is includible in gross income for
federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States, or 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 U.S. Persons have the authority to control all
substantial decisions of the trust. In addition, certain trusts that would not
qualify as U.S. Persons under the foregoing definition but that are eligible to
and make an election to be treated as U.S. Persons will also be treated as U.S.
Persons.
Information Reporting and Backup Withholding
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each Certificateholder at any time
during such year, such information as may be deemed necessary or desirable to
assist Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to owners or other financial
intermediaries of holders that hold such Certificates as nominees. If a holder,
owner or other recipient of a payment on behalf of an owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31% backup withholding
may be required
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with respect to any payments. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
New Withholding Regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
REMIC CERTIFICATES
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however, "--Prohibited Transactions and Other Taxes") below, if a
Trust Fund with respect to which a REMIC election is made fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year (including the implementation of restrictions on the purchase and
transfer of the residual interest in a REMIC as described under "--Residual
Certificates" below), the Code provides that a Trust Fund will not be treated as
a REMIC for such year and thereafter. In that event, such entity may be taxable
as a separate corporation, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. While the Code
authorizes the Treasury to issue regulations providing relief in the event of an
inadvertent termination of status as a REMIC, no such regulations have been
issued. Moreover, any such relief may be accompanied by sanctions such as the
imposition of a corporate tax on all or a portion of the REMIC's income for the
period in which the requirements for such status are not satisfied. With respect
to each such Trust Fund that elects REMIC status, Brown & Wood LLP will deliver
its opinion generally to the effect that, under then existing law and assuming
compliance with all provisions of the related Agreement, such Trust Fund will
qualify as a REMIC and the related Certificates will be considered to be regular
interests ("Regular Certificates") or residual interests ("Residual
Certificates") in the REMIC. The related Prospectus Supplement for each Series
of Certificates will indicate whether the Trust Fund will make a REMIC election
and whether a class of Certificates will be treated as a regular or residual
interest in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
section 7701(a)(19)(C) of the Code; (ii) Certificates held by a real estate
investment trust will constitute "real estate assets" within the meaning of
section 856(c)(4)(A) of the Code; and (iii) interest on Certificates held by a
real estate investment trust will be considered "interest on obligations secured
by mortgages on real property" within the meaning of section 856(c)(3)(B) of the
Code. If less than 95% of the REMIC's assets are assets qualifying under any of
the foregoing sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Loans held pending distribution on the REMIC Certificates will be
considered to be qualifying assets under the foregoing sections.
In some instances, the Mortgage Loans may not be treated entirely as
assets described in the foregoing sections. See, in this regard, the discussion
of "buydown" Mortgage Loans contained in "--NON-REMIC CERTIFICATES--Single Class
of Senior Certificates" above. REMIC Certificates held by a real estate
investment trust will not constitute "Government Securities" within the meaning
of section 856(c)(5)(A) of the Code and REMIC Certificates held by a regulated
investment company will not constitute "Government Securities" within the
meaning of section 851(b)(4)(A)(ii) of the Code. REMIC Certificates held by
certain financial institutions will constitute "evidences of indebtedness"
within the meaning of section 582(c)(1) of the Code.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally secured
by an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC. The REMIC Regulations provide that manufactured housing or mobile homes
(not including recreational vehicles, campers or similar vehicles) which are
"single family residences" under section 25(e)(10) of the Code will qualify as
real property without regard to state law classifications. Under section
25(e)(10), a single family residence includes any
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manufactured home which has a minimum of 400 square feet of living space and a
minimum width in excess of 102 inches and which is of a kind customarily used at
a fixed location.
Tiered REMIC Structures
For certain Series of Certificates, two separate elections may be made
to treat designated portions of the related Trust Fund as REMICs (respectively,
the "Subsidiary REMIC" and the "Master REMIC") for federal income tax purposes.
Upon the issuance of any such Series of Certificates, Brown & Wood LLP, counsel
to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the related Agreement, the Master
REMIC as well as any Subsidiary REMIC will each qualify as a REMIC and the REMIC
Certificates issued by the Master REMIC and the Subsidiary REMIC, respectively,
will be considered to evidence ownership of Regular Certificates or Residual
Certificates in the related REMIC within the meaning of the REMIC provisions.
Only REMIC Certificates issued by the Master REMIC will be offered
hereunder. The Subsidiary REMIC and the Master REMIC will be treated as one
REMIC solely for purposes of determining (a) whether the REMIC Certificates will
be (i) "real estate assets" within the meaning of section 856(c)(4)(A) of the
Code or (ii) "loans secured by an interest in real property" under section
7701(a)(19)(C) of the Code; and (b) whether the income on such Certificates is
interest described in section 856(c)(3)(B) of the Code.
Regular Certificates
General. Except as otherwise stated in this discussion, Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of Regular Certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to
Regular Certificates under an accrual method.
Original Issue Discount and Premium. The Regular Certificates may be
issued with "original issue discount" within the meaning of section 1273(a) of
the Code. Generally, such original issue discount, if any, will equal the
difference between the "stated redemption price at maturity" of a Regular
Certificate and its "issue price". Holders of any class of Certificates issued
with original issue discount will be required to include such original issue
discount in gross income for federal income tax purposes as it accrues, in
accordance with a constant interest method based on the compounding of interest,
in advance of receipt of the cash attributable to such income. The following
discussion is based in part on the OID Regulations and in part on the provisions
of the 1986 Act. Holders of Regular Certificates (the "Regular
Certificateholders") should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities such as the
Regular Certificates.
Rules governing original issue discount are set forth in sections 1271
through 1273 and section 1275 of the Code. These rules require that the amount
and rate of accrual of original issue discount be calculated based on a
Prepayment Assumption and prescribe a method for adjusting the amount and rate
of accrual of such discount where the actual prepayment rate differs from the
Prepayment Assumption. Under the Code, the Prepayment Assumption must be
determined in the manner prescribed by regulations which have not yet been
issued. The Legislative History provides, however, that Congress intended the
regulations to require that the Prepayment Assumption be the prepayment
assumption that is used in determining the initial offering price of such
Regular Certificates. The Prospectus Supplement for each Series of Regular
Certificates will specify the Prepayment Assumption to be used for the purpose
of determining the amount and rate of accrual of original issue discount. No
representation is made that the Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each Regular Certificate will be treated as a single
installment obligation issued with an amount of original issue discount equal to
the excess of its "stated redemption price at maturity" over its "issue price".
The issue price of a Regular Certificate is the first price at which a
substantial amount of Regular Certificates of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Regular Certificates is sold for
cash on or prior to the date of their initial issuance (the "Closing Date"), the
issue price for such class will be treated as the fair market value of such
class on the Closing Date. The issue price of a Regular Certificate also
includes the amount paid by an initial Regular Certificateholder for accrued
interest that relates to a period prior to the issue date of the Regular
Certificate. The
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stated redemption price at maturity of a Regular Certificate includes the
original principal amount of the Regular Certificate, but generally will not
include distributions of interest if such distributions constitute "qualified
stated interest". Qualified stated interest generally means interest payable at
a single fixed rate or qualified variable rate (as described below) provided
that such interest payments are unconditionally payable at intervals of one year
or less during the entire term of the Regular Certificate. Interest is payable
at a single fixed rate only if the rate appropriately takes into account the
length of the interval between payments. Distributions of interest on Regular
Certificates with respect to which deferred interest will accrue will not
constitute qualified stated interest payments, in which case the stated
redemption price at maturity of such Regular Certificates includes all
distributions of interest as well as principal thereon.
Where the interval between the issue date and the first Distribution
Date on a Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount (disregarding the
rate in the first period) and any interest foregone during the first period is
treated as the amount by which the stated redemption price at maturity of the
Certificate exceeds its issue price for purposes of the de minimis rule
described below. The OID Regulations suggest that all interest on a long first
period Regular Certificate that is issued with non-de minimis original issue
discount, as determined under the foregoing rule, will be treated as original
issue discount. Where the interval between the issue date and the first
Distribution Date on a Regular Certificate is shorter than the interval between
subsequent Distribution Dates, interest due on the first Distribution Date in
excess of the amount that accrued during the first period would be added to the
Certificates stated redemption price at maturity. Regular Certificateholders
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Regular Certificate.
Under the de minimis rule, original issue discount on a Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate. For this purpose, the weighted average maturity of the Regular
Certificate is computed as the sum of the amounts determined by multiplying the
number of full years (i.e., rounding down partial years) from the issue date
until each distribution in reduction of stated redemption price at maturity is
scheduled to be made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of the Regular
Certificate and the denominator of which is the stated redemption price at
maturity of the Regular Certificate. Although currently unclear, it appears that
the schedule of such distributions should be determined in accordance with the
assumed rate of prepayment of the Mortgage Loans and the anticipated
reinvestment rate, if any, relating to the Regular Certificates (the "Prepayment
Assumption"). The Prepayment Assumption with respect to a Series of Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report de minimis original issue discount pro rata as principal
payments are received and such income will be capital gain if the Regular
Certificate is held as a capital asset. However, accrual method holders may
elect to accrue all de minimis original issue discount as well as market
discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain Regular Certificates to be issued at prices significantly exceeding
their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such Regular Certificates is the sum of all payments to be made on
such Regular Certificates determined under the Prepayment Assumption, with the
result that such Regular Certificates would be issued with original issue
discount. The calculation of income in this manner could result in negative
original issue discount (which delays future accruals of original issue discount
rather than being immediately deductible) when prepayments on the Mortgage Loans
exceed those estimated under the Prepayment Assumption. The IRS might contend,
however, that the Contingent Payment Regulations should apply to such
Certificates.
Although the Contingent Payment Regulations are not applicable to
instruments governed by section 1272(a)(6) of the Code, they represent the only
guidance regarding the current view of the IRS with respect to contingent
payment instruments. In the alternative, the IRS could assert that the stated
redemption price at maturity of such Regular Certificates should be limited to
their principal amount (subject to the discussion under "--Accrued Interest
Certificates" below), so that such Regular Certificates would be considered for
U.S. federal income tax purposes to be issued at a premium. If such position
were to prevail, the rules described under "--Premium" below would apply. It is
unclear when a loss may be claimed for any unrecovered basis for a Super-Premium
Certificate.
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It is possible that a holder of a Super-Premium Certificate may only claim a
loss when its remaining basis exceeds the maximum amount of future payments,
assuming no further prepayments, or when the final payment is received with
respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a Regular
Certificate (other than Regular Certificate based on a notional amount) does not
exceed 125% of its actual principal amount, the interest rate is not considered
disproportionately high. Accordingly, such Regular Certificate generally should
not be treated as a Super-Premium Certificate and the rules described below
under "--Premium" below should apply. However, it is possible that holders of
Regular Certificates issued at a premium, even if the premium is less than 25%
of such Certificate's actual principal balance, will be required to amortize the
premium under an original issue discount method or contingent interest method
even though no election under section 171 of the Code is made to amortize such
premium.
Generally, a Regular Certificateholder must include in gross income the
"daily portions," as determined below, of the original issue discount that
accrues on a Regular Certificate for each day the Regular Certificateholder
holds the Regular Certificate, including the purchase date but excluding the
disposition date. In the case of an original holder of a Regular Certificate, a
calculation will be made of the portion of the original issue discount that
accrues during each successive period ("an accrual period") that ends on the day
in the calendar year corresponding to a Distribution Date (or if Distribution
Dates are on the first day or first business day of the immediately preceding
month, interest may be treated as payable on the last day of the immediately
preceding month) and begins on the day after the end of the immediately
preceding accrual period (or on the issue date in the case of the first accrual
period). This will be done, in the case of each full accrual period, by (i)
adding (a) the present value at the end of the accrual period (determined by
using as a discount factor the original yield to maturity of the Regular
Certificates as calculated under the Prepayment Assumption) of all remaining
payments to be received on the Regular Certificate under the Prepayment
Assumption, and (b) any payments included in the stated redemption price at
maturity received during such accrual period, and (ii) subtracting from that
total the "adjusted issue price" of the Regular Certificates at the beginning of
such accrual period. The "adjusted issue price" of a Regular Certificate at the
beginning of the first accrual period is its issue price; the "adjusted issue
price" of a Regular Certificate at the beginning of a subsequent accrual period
is the "adjusted issue price" at the beginning of the immediately preceding
accrual period plus the amount of original issue discount allocable to that
accrual period and reduced by the accrual period. The original issue discount
accrued during an accrual period will then be divided by the number of days in
the period to determine the daily portion of original issue discount for each
day in the accrual period. The calculation of original issue discount under the
method described above will cause the accrual of original issue discount to
either increase or decrease (but never below zero) in a given accrual period to
reflect the fact that prepayments are occurring faster or slower than under the
Prepayment Assumption. With respect to an initial accrual period shorter than a
full accrual period, the daily portions of original issue discount may be
determined according to an appropriate allocation under any reasonable method.
A subsequent purchaser of a Regular Certificate issued with original
issue discount who purchases the Regular Certificate at a cost less than the
remaining stated redemption price at maturity will also be required to include
in gross income the sum of the daily portions of original issue discount on that
Regular Certificate. In computing the daily portions of original issue discount
for such a purchaser (as well as an initial purchaser that purchases at a price
higher than the adjusted issue price but less than the stated redemption price
at maturity), however, the daily portion is reduced by the amount that would be
the daily portion for such day (computed in accordance with the rules set forth
above) multiplied by a fraction, the numerator of which is the amount, if any,
by which the price paid by such holder for that Regular Certificate exceeds the
following amount: (a) the sum of the issue price plus the aggregate amount of
original issue discount that would have been includible in the gross income of
an original Regular Certificateholder (who purchased the Regular Certificate at
its issue price), less (b) any prior payments included in the stated redemption
price at maturity, and the denominator of which is the sum of the daily portions
for that Regular Certificate for all days beginning on the date after the
purchase date and ending on the maturity date computed under the Prepayment
Assumption. A holder who pays an acquisition premium instead may elect to accrue
original issue discount by treating the purchase as original issue.
Variable Rate Regular Certificate. Regular Certificates may provide for
interest based on a variable rate. Interest based on a variable rate will
constitute qualified stated interest and not contingent interest if, generally,
(i) such interest is unconditionally payable at least annually, (ii) the issue
price of the debt instrument does not exceed
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the total noncontingent principal payments and (iii) interest is based on a
"qualified floating rate", an "objective rate", a combination of a single fixed
rate and one or more "qualified floating rates", one "qualified inverse floating
rate", or a combination of "qualified floating rates" that do not operate in a
manner that significantly accelerates or defers interest payments on such
Regular Certificate.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described under "--Original Issue Discount and Premium" above by assuming
generally that the index used for the variable rate will remain fixed throughout
the term of the Certificate.
Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on
a Regular Certificate that is a weighted average of the net interest rates on
Mortgage Loans as qualified stated interest. In such case, the weighted average
rate used to compute the initial pass-through rate on the Regular Certificates
will be deemed to be the index in effect through the life of the Regular
Certificates. It is possible, however, that the IRS may treat some or all of the
interest on Regular Certificates with a weighted average rate as taxable under
the rules relating to obligations providing for contingent payments. Such
treatment may effect the timing of income accruals on such Regular Certificates.
Market Discount. A purchaser of a Regular Certificate may be subject to
the market discount provisions of sections 1276 through 1278 of the Code. Under
these provisions and the OID Regulations, "market discount" equals the excess,
if any, of (i) the Regular Certificate's stated principal amount or, in the case
of a Regular Certificate with original issue discount, the adjusted issue price
(determined for this purpose as if the purchaser had purchased such Regular
Certificate from an original holder) over (ii) the price for such Regular
Certificate paid by the purchaser. A Certificateholder that purchases a Regular
Certificate at a market discount will recognize income upon receipt of each
distribution representing stated redemption price. In particular, under section
1276 of the Code such a holder generally will be required to allocate each such
principal distribution first to accrued market discount not previously included
in income and to recognize ordinary income to that extent. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If made,
such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to which
such election applies. In addition, the OID Regulations permit a
Certificateholder using the accrual method of accounting to elect to accrue all
interest, discount (including de minimis market or original issue discount) and
premium in income as interest, based on a constant yield method. If such an
election is made with respect to a Regular Certificate with market discount, the
Certificateholder will be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--Original Issues Discount and Premium" above. The election to accrue interest,
discount and premium on a constant yield method with respect to a Certificate is
irrevocable.
Market discount with respect to a Regular Certificate will be
considered to be zero if the amount allocable to the Regular Certificate is less
than 0.25% of the Regular Certificate's stated redemption price at maturity
multiplied by the Regular Certificate's weighted average maturity remaining
after the date of purchase. If market discount on a Regular Certificate is
considered to be zero under this rule, the actual amount of market discount must
be allocated to the remaining principal payments on the Regular Certificate and
gain equal to such allocated amount will be recognized when the corresponding
principal payment is made. Treasury regulations implementing the market discount
rules have not yet been issued; therefore, investors should consult their own
tax advisors regarding the application of these rules and the advisability of
making any of the elections allowed under Code sections 1276 through 1278 of the
Code.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
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The Code also grants authority to the Treasury to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Until such time
as regulations are issued by the Treasury, rules described in the Legislative
History will apply. Under those rules, the holder of a market discount bond may
elect to accrue market discount either on the basis of a constant interest rate
or according to one of the following methods. For Regular Certificates issued
with original issue discount, the amount of market discount that accrues during
a period is equal to the product of (i) the total remaining market discount,
multiplied by (ii) a fraction, the numerator of which is the original issue
discount accruing during the period and the denominator of which is the total
remaining original issue discount at the beginning of the period. For Regular
Certificates issued without original issue discount, the amount of market
discount that accrues during a period is equal to the product of (a) the total
remaining market discount and (b) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the period. For purposes of calculating market discount under any
of the above methods in the case of instruments (such as the Regular
Certificates) which provide for payments which may be accelerated by reason of
prepayments of other obligations securing such instruments, the same Prepayment
Assumption applicable to calculating the accrual of original issue discount will
apply.
A holder of a Regular Certificate that acquires such Regular
Certificate at a market discount also may be required to defer, until the
maturity date of such Regular Certificate or its earlier disposition in a
taxable transaction, the deduction of a portion of the amount of interest that
the holder paid or accrued during the taxable year on indebtedness incurred or
maintained to purchase or carry the Regular Certificate in excess of the
aggregate amount of interest (including original issue discount) includible in
such holder's gross income for the taxable year with respect to such Regular
Certificate. The amount of such net interest expense deferred in a taxable year
may not exceed the amount of market discount accrued on the Regular Certificate
for the days during the taxable year on which the holder held the Regular
Certificate and, in general, would be deductible when such market discount is
includible in income. The amount of any remaining deferred deduction is to be
taken into account in the taxable year in which the Regular Certificate matures
or is disposed of in a taxable transaction. In the case of a disposition in
which gain or loss is not recognized in whole or in part, any remaining deferred
deduction will be allowed to the extent of gain recognized on the disposition.
This deferral rule does not apply if the Regular Certificateholder elects to
include such market discount in income currently as it accrues on all market
discount obligations acquired by such Regular Certificateholder in that taxable
year or thereafter.
Premium. A purchaser of a Regular Certificate that purchases the
Regular Certificate at a cost (not including accrued qualified stated interest)
greater than its remaining stated redemption price at maturity will be
considered to have purchased the Regular Certificate at a premium and may elect
to amortize such premium under a constant yield method. A Certificateholder that
makes this election for a Certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such Certificateholder
acquires during the year of the election or thereafter. It is not clear whether
the Prepayment Assumption would be taken into account in determining the life of
the Regular Certificate for this purpose. However, the Legislative History
states that the same rules that apply to accrual of market discount (which rules
require use of a Prepayment Assumption in accruing market discount with respect
to Regular Certificates without regard to whether such Certificates have
original issue discount) will also apply in amortizing bond premium under
section 171 of the Code. The Code provides that amortizable bond premium will be
allocated among the interest payments on such Regular Certificates and will be
applied as an offset against such interest payment.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations on the amortization of bond premium. The foregoing discussion is
based in part on such proposed regulations. On December 30, 1997, the IRS issued
the Amortizable Bond Premium Regulations which generally are effective for bonds
acquired on or after March 2, 1998 or, for holders making an election to
amortize bond premium as described above, the taxable year that includes March
2, 1998 or any subsequent taxable year, will apply to bonds held on or after the
first day of taxable year in which such election is made. Neither the proposed
regulations nor the final regulations, by their express terms, apply to
prepayable securities described in section 1272(a)(6) of the Code such as the
Regular Certificates. Holders of Regular Certificates should consult their tax
advisors regarding the possibility of making an election to amortize any such
bond premium.
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Deferred Interest. Certain classes of Regular Certificates will provide
for the accrual of interest when one or more ARM Loans are adding interest to
their principal balance by reason of negative amortization ("Deferred
Interest"). Any Deferred Interest that accrues with respect to a class of
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all or
a portion of the interest payable on the Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as
original issue discount (which could accelerate such inclusion). Interest on
Regular Certificates must in any event be accounted for under an accrual method
by the holders of such Certificates. Applying the latter analysis therefore may
result only in a slight difference in the timing of the inclusion in income of
interest on such Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates
may contain one or more classes of Subordinate Certificates and, in the event
there are defaults or delinquencies on the Mortgage Loans, amounts that would
otherwise be distributed on the Subordinate Certificates may instead be
distributed on the Senior Certificates. Holders of Subordinate Certificates
nevertheless will be required to report income with respect to such Certificates
under an accrual method without giving effect to delays and reductions in
distributions on such Subordinate Certificates attributable to defaults and
delinquencies on the Mortgage Loans, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a holder of a Subordinate Certificate in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinate Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Loans. However, the timing and character of
such losses or reductions in income are uncertain. Accordingly, holders of
Subordinate Certificates should consult their own tax advisors on this point.
Sale, Exchange or Redemption. If a Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the Regular Certificate. Such
adjusted basis generally will equal the cost of the Regular Certificate to the
seller, increased by any original issue discount and market discount included in
the seller's gross income with respect to the Regular Certificate, and reduced
(but not below zero) by payments included in the stated redemption price at
maturity previously received by the seller and by any amortized premium.
Similarly, a holder who receives a payment which is part of the stated
redemption price at maturity of a Regular Certificate will recognize gain equal
to the excess, if any, of the amount of the payment over the holder's adjusted
basis in the Regular Certificate. A holder of a Regular Certificate that
receives a final payment which is less than the holder's adjusted basis in the
Regular Certificate will generally recognize a loss. Except as provided in the
following paragraph and as provided under "--Market Discount" above, any such
gain or loss will be capital gain or loss, provided that the Regular Certificate
is held as a "capital asset" (generally, property held for investment) within
the meaning of section 1221 of the Code.
Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors should consult their own
tax advisors concerning these tax law provisions.
Gain from the sale or other disposition of a Regular Certificate that
might otherwise be capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that would
have been includible in such holder's income with respect to the Regular
Certificate had income accrued thereon at a rate equal to 110% of the AFR as
defined in section 1274(d) of the Code determined as of the date of purchase of
such Regular Certificate, over (ii) the amount actually includible in such
holder's income.
Gain from the sale or other disposition of a Regular Certificate that
might otherwise be capital gain will be treated as ordinary income, (i) if the
Regular Certificate is held as part of a "conversion transaction" as defined in
section 1258(c) of the Code, up to the amount of interest that would have
accrued at the applicable federal rate under section 1274(d) of the Code in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as part of such transaction, or (ii) if the Regular
Certificate is held as part of a straddle. Potential investors should consult
their tax
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advisors with respect to the tax consequences of ownership and disposition of an
investment in Regular Certificates in their particular circumstances.
Regular Certificates will be "evidences of indebtedness" within the
meaning of section 582(c)(1) of the Code so that gain or loss recognized from
the sale of a Regular Certificate by a bank or a thrift institution to which
such section applies will be ordinary income or loss.
The Regular Certificate information reports will include a statement of
the adjusted issue price of the Regular Certificate at the beginning of each
accrual period. In addition, the reports will include information necessary to
compute the accrual of any market discount that may arise upon secondary trading
of Regular Certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
holder's purchase price which the REMIC may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that ends
prior to each such Distribution Date. The period between the Closing Date for
Payment Lag Certificates and their first Distribution Date may or may not exceed
such interval. Purchasers of Payment Lag Certificates for which the period
between the Closing Date and the first Distribution Date does not exceed such
interval could pay upon purchase of the Regular Certificates accrued interest in
excess of the accrued interest that would be paid if the interest paid on the
Distribution Date were interest accrued from Distribution Date to Distribution
Date. If a portion of the initial purchase price of a Regular Certificate is
allocable to interest that has accrued prior to the issue date ("pre-issuance
accrued interest"), and the Regular Certificate provides for a payment of stated
interest on the first payment date (and the first payment date, is within one
year of the issue date) that equals or exceeds the amount of the pre-issuance
accrued interest, then the Regular Certificate's issue price may be computed by
subtracting from the issue price the amount of pre-issuance accrued interest,
rather than as an amount payable on the Regular Certificate. However, it is
unclear under this method how the Proposed OID Regulations treat interest on
Payment Lag Certificates as described above. Therefore, in the case of a Payment
Lag Certificate, the REMIC intends to include accrued interest in the issue
price and report interest payments made on the first Distribution Date as
interest only to the extent such payments represent interest for the number of
days that the Certificateholder has held such Payment Lag Certificate during the
first accrual period.
Investors should consult their own tax advisors concerning the
treatment for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC", a portion
of the REMIC's servicing, administrative and other noninterest expenses will be
allocated as a separate item to those Regular Certificateholders that are
"pass-through interest holders". Generally, a single-class REMIC is defined as
(i) a REMIC that would be treated as a fixed investment trust under Treasury
regulations but for its qualification as a REMIC or (ii) a REMIC that is
substantially similar to an investment trust but is structured with the
principal purpose of avoiding this allocation requirement imposed by the
temporary regulations. Such a pass-through interest holder would be required to
add its allocable share, if any, of such expenses to its gross income and to
treat the same amount as an item of investment expense. An individual generally
would be allowed a deduction for such expenses only as a miscellaneous itemized
deduction subject to the limitations under section 67 of the Code. That section
allows such deductions only to the extent that in the aggregate such expenses
exceed 2% of the holder's adjusted gross income. In addition, section 68 of the
Code provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a certain amount (the "Applicable
Amount") will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over the Applicable Amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income recognized by Residual Certificateholders
who are subject to the limitations of either section 67 or section 68 may be
substantial. The REMIC is required to report to each pass-through interest
holder and to the IRS such holder's allocable share, if any, of the REMIC's
non-interest expenses. The term "pass-through interest holder" generally refers
to individuals, entities taxed as individuals and certain pass-through entities
including regulated investment companies, but does not include real estate
investment
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trusts. Certificateholders that are "pass-through interest holders" should
consult their own tax advisors about the impact of these rules on an investment
in the Regular Certificates.
Treatment of Realized Losses. Although not entirely clear, it appears
that holders of REMIC Regular Certificates that are corporations should in
general be allowed to deduct as an ordinary loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly or partially
worthless and that, in general, holders of Certificates that are not
corporations should be allowed to deduct as a short-term capital loss any loss
sustained during the taxable year on account of any such Certificates becoming
wholly worthless. Although the matter is not entirely clear, non-corporate
holders of Certificates may be allowed a bad debt deduction at such time that
the principal balance of any such Certificate is reduced to reflect realized
losses resulting from any liquidated Mortgage Loans. The IRS, however, could
take the position that non-corporate holders will be allowed a bad debt
deduction to reflect realized losses only after all Mortgage Loans remaining in
the related Trust Fund have been liquidated or the Certificates of the related
Series have been otherwise retired. Prospective investors in and holders of the
Certificates are urged to consult their own tax advisors regarding the
appropriate timing, amount and character of any loss sustained with respect to
such Certificates, including any loss resulting from the failure to recover
previously accrued interest or discount income. Special loss rules are
applicable to banks and thrift institutions, including rules regarding reserves
for bad debts. Such taxpayers are advised to consult their tax advisors
regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any
payment with respect to accrued original issue discount) on the Regular
Certificates to a Regular Certificateholder who is a non-U.S. Person not engaged
in a trade or business within the United States will not be subject to federal
withholding tax if (i) such Regular Certificateholder does not actually or
constructively own 10% or more of the combined voting power of all classes of
equity in the issuer (which for purposes of this discussion may be defined as
the Trust Fund or the beneficial owners of the related Residual Certificates
(the "issuer")); (ii) such Regular Certificateholder is not a controlled foreign
corporation (within the meaning of section 957 of the Code) related to the
issuer; and (iii) such Regular Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Regular Certificateholder under penalties of perjury, certifying that such
Regular Certificateholder is a foreign person and providing the name and address
of such Regular Certificateholder). If a Regular Certificateholder is not exempt
from withholding, distributions of interest, including distributions in respect
of accrued original issue discount, such holder may be subject to a 30%
withholding tax, subject to reduction under any applicable tax treaty.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a nonresident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning this
question.
Regular Certificateholders who are non-U.S. Persons and persons related
to such holders should not acquire any Residual Certificates, and Residual
Certificateholders and persons related to Residual Certificateholders should not
acquire any Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each Regular Certificateholder at any time during such year,
such information as may be deemed necessary or desirable to assist Regular
Certificateholders in preparing their federal income tax returns or to enable
holders to make such information available to owners or other financial
intermediaries of holders that hold such Regular Certificates. If a holder,
owner or other recipient of a payment on behalf of an owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31 % backup withholding
may be required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
New Withholding Regulations. On October 6, 1997, the Treasury
Department issued the New Regulations which make certain modifications to the
backup withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations
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will generally be effective for payments made after December 31, 1999, subject
to certain transition rules. Prospective investors are urged to consult their
own tax advisors regarding the New Regulations.
Residual Certificates
Allocation of the Income of the REMIC to the Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See "--Prohibited
Transactions and Other Taxes" below. Instead, each original holder of a Residual
Certificate will report on its federal income tax return, as ordinary income,
its share of the taxable income of the REMIC for each day during the taxable
year on which such holder owns any Residual Certificates. The taxable income of
the REMIC for each day will be determined by allocating the taxable income of
the REMIC for each calendar quarter ratably to each day in the quarter. Such
holder's share of the taxable income of the REMIC for each day will be based on
the portion of the outstanding Residual Certificates that such holder owns on
that day. The taxable income of the REMIC will be determined under an accrual
method and will be taxable to the Residual Certificateholders without regard to
the timing or amounts of cash distributions by the REMIC. Ordinary income
derived from Residual Certificates will be "portfolio income" for purposes of
the taxation of taxpayers subject to the limitations on the deductibility of
"passive losses". As residual interests, the Residual Certificates will be
subject to tax rules, described below, that differ from those that would apply
if the Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Certificates or as debt instruments issued by
the REMIC.
A Residual Certificateholder may be required to include taxable income
from the Residual Certificate in excess of the cash distributed. For example, a
structure where principal distributions are made serially on regular interests
(i.e., a fast-pay, slow-pay structure) may generate such a mismatching of income
and cash distributions (i.e., "phantom income"). This mismatching may be caused
by the use of certain required tax accounting methods by the REMIC, variations
in the prepayment rate of the underlying Mortgage Loans and certain other
factors. Depending upon the structure of a particular transaction, the
aforementioned factors may significantly reduce the after-tax yield of a
Residual Certificate to a Residual Certificateholder. Investors should consult
their own tax advisors concerning the federal income tax treatment of a Residual
Certificate and the impact of such tax treatment on the after-tax yield of a
Residual Certificate.
A subsequent Residual Certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the REMIC for each day that such Residual Certificateholder owns such Residual
Certificate. Those daily amounts generally would equal the amounts that would
have been reported for the same days by an original Residual Certificateholder,
as described above. The Legislative History indicates that certain adjustments
may be appropriate to reduce (or increase) the income of a subsequent holder of
a Residual Certificate that purchased such Residual Certificate at a price
greater than (or less than) the adjusted basis such Residual Certificate would
have in the hands of an original Residual Certificateholder. See "--Sale or
Exchange of Residual Certificates" below. It is not clear, however, whether such
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Loans and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and original issue discount on the Regular Certificates
and, except as described under "--Non-Interest Expenses of the REMIC" below,
other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the Regular and Residual Certificates (or, if a class of Certificates is not
sold initially, their fair market values). Such aggregate basis will be
allocated among the Mortgage Loans and other assets of the REMIC in proportion
to their respective fair market values. A Mortgage Loan will be deemed to have
been acquired with discount or premium to the extent that the REMIC's basis
therein is less or greater, respectively than its principal balance. Any such
discount (whether market discount or original issue discount) will be includible
in the income of the REMIC as it accrues, in advance of receipt of the cash
attributable to such income, under a method similar to the method described
above for accruing original issue discount on the Regular Certificates. The
REMIC expects to elect under section 171 of the Code to amortize any premium on
the Mortgage Loans. Premium on any Mortgage Loan to which such election applies
would be amortized under a constant yield method. It is likely
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that the yield of a Mortgage Loan would be calculated for this purpose taking
account of the Prepayment Assumption. However, such an election would not apply
to any Mortgage Loan originated on or before September 27, 1985. Instead,
premium on such a Mortgage Loan would be allocated among the principal payments
thereon and would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and original issue
discount on the Regular Certificates. The amount and method of accrual of
original issue discount will be calculated for this purpose in the same manner
as described above with respect to Regular Certificates except that the 0.25%
per annum de minimis rule and adjustments for subsequent holders described
therein will not apply.
A Residual Certificateholder will not be permitted to amortize the cost
of the Residual Certificate as an offset to its share of the REMIC's taxable
income. However, such taxable income will not include cash received by the REMIC
that represents a recovery of the REMIC's basis in its assets, and, as described
above, the issue price of the Residual Certificates will be added to the issue
price of the Regular Certificates in determining the REMIC's initial basis in
its assets. See "--Sale or Exchange of Residual Certificates" below. For a
discussion of possible adjustments to income of a subsequent holder of a
Residual Certificate to reflect any difference between the actual cost of such
Residual Certificate to such holder and the adjusted basis such Residual
Certificate would have in the hands of an original Residual Certificateholder,
see "--Allocation of the Income of the REMIC to the Residual Certificates"
above.
Additional Taxable Income of Residual Interests. Any payment received
by a holder of a Residual Certificate in connection with the acquisition of such
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that any
such payment would be includible in income immediately upon its receipt or
accrual as ordinary income, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of Residual Certificates should consult their tax
advisors concerning the treatment of such payments for income tax purposes.
Net Losses of the REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. Such net loss
would be allocated among the Residual Certificateholders in the same manner as
the REMIC's taxable income. The net loss allocable to any Residual Certificate
will not be deductible by the holder to the extent that such net loss exceeds
such holder's adjusted basis in such Residual Certificate. Any net loss that is
not currently deductible by reason of this limitation may only be used by such
Residual Certificateholder to offset its share of the REMIC's taxable income in
future periods (but not otherwise). The ability of Residual Certificateholders
that are individuals or closely held corporations to deduct net losses may be
subject to additional limitations under the Code.
Mark-to-Market Regulations. Prospective purchasers of a Residual
Certificate should be aware that the IRS finalized regulations (the
"Mark-to-Market Regulations") which provide that a Residual Certificate acquired
after January 3, 1995 cannot be marked to market. The Mark-to-Market Regulations
replaced the temporary regulations which allowed a Residual Certificate to be
marked to market provided that it was not a "negative value" residual interest.
Non-Interest Expenses of the REMIC. The REMIC's taxable income will be
determined in the same manner as if the REMIC were an individual. However, all
or a portion of the REMIC's servicing, administrative and other non-interest
expenses will be allocated as a separate item to Residual Certificateholders
that are "pass-through interest holders". Such a holder would be required to add
an amount equal to its allocable share, if any, of such expenses to its gross
income and to treat the same amount as an item of investment expense.
Individuals are generally allowed a deduction for such an investment expense
only as a miscellaneous itemized deduction subject to the limitations under
section 67 of the Code which allows such deduction only to the extent that, in
the aggregate, all such expenses exceed 2% of an individual's adjusted gross
income. In addition, the personal exemptions and itemized deductions of
individuals with adjusted gross incomes above particular levels are subject to
certain limitations which reduce or eliminate the benefit of such items. The
REMIC is required to report to each pass-through interest holder and to the IRS
such holder's allocable share, if any, of the REMIC's non-interest expenses. The
term "pass-through interest holder" generally refers to individuals, entities
taxed as individuals and certain pass-through entities, but does not include
real estate investment trusts. Residual Certificateholders that are
"pass-through
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interest holders" should consult their own tax advisors about the impact of
these rules on an investment in the Residual Certificates. See "--Regular
Certificates--Non-Interest Expenses of the REMIC" above.
Excess Inclusions. A portion of the income on a Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
will, with an exception discussed below for certain thrift institutions, be
subject to federal income tax in all events. Thus, for example, an excess
inclusion (i) may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a Residual Certificateholder; (ii) will
be treated as "unrelated business taxable income" within the meaning of section
512 of the Code if the Residual Certificateholder is a pension fund or any other
organization that is subject to tax only on its unrelated business taxable
income (see "Tax-Exempt Investors" below); and (iii) is not eligible for any
reduction in the rate of withholding tax in the case of a Residual
Certificateholder that is a foreign investor. See "--Non-U.S. Persons" below.
The exception for thrift institutions is available only to the institution
holding the Residual Certificate and not to any affiliate of the institution,
unless the affiliate is a subsidiary all the stock of which, and substantially
all the indebtedness of which, is held by the institution, and which is
organized and operated exclusively in connection with the organization and
operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to any
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such Residual Certificateholder for
that calendar quarter from its Residual Certificate over (ii) the sum of the
"daily accruals" (as defined below) for all days during the calendar quarter on
which the Residual Certificateholder holds such Residual Certificate. For this
purpose, the daily accruals with respect to a Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable portion
of the product of the "adjusted issue price" (as defined below) of the Residual
Certificate at the beginning of the calendar quarter and 120% of the "Federal
long-term rate" in effect at the time the Residual Certificate is issued. For
this purpose, the "adjusted issue price" of a Residual Certificate at the
beginning of any calendar quarter equals the issue price of the Residual
Certificate, increased by the amount of daily accruals for all prior quarters,
and decreased (but not below zero) by the aggregate amount of payments made on
the Residual Certificate before the beginning of such quarter. The "Federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
In the case of any Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such Residual
Certificates, reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of section 857(b)(2) of the Code, excluding
any net capital gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from such trust, and
any amount so allocated will be treated as an excess inclusion with respect to a
Residual Certificate as if held directly by such shareholder. Regulated
investment companies, common trust funds and certain cooperatives are subject to
similar rules.
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995 except with respect to residual certificates
continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect of excess inclusions on the alternative
minimum taxable income of a Residual Certificateholder. First, the alternative
minimum taxable income for such Residual Certificateholder is determined without
regard to the special rule that taxable income cannot be less than excess
inclusion. Second, the amount of any alternative minimum tax net operating loss
deductions must be computed without regard to any excess inclusions. Third, the
Residual Certificateholder's alternative minimum taxable income for a tax year
cannot be less than excess inclusions for the year. The effect of this last
statutory amendment is to prevent the use of nonrefundable tax credits to reduce
a taxpayer's income tax below its tentative minimum tax computed only on excess
inclusions. These rules are effective for tax years beginning after December 31,
1996, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
Payments. Any distribution made on a Residual Certificate to a Residual
Certificateholder will be treated as a non-taxable return of capital to the
extent it does not exceed the Residual Certificateholder's adjusted basis in
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such Residual Certificate. To the extent a distribution exceeds such adjusted
basis, it will be treated as gain from the sale of the Residual Certificate.
Pass-Through of Miscellaneous Itemized Deductions . As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders of
the Residual Interests. In the case of a "single class REMIC", however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the holders of the Regular Certificates
and the holders of the Residual Certificates on a daily basis in proportion to
the relative amounts of income accruing to each Certificateholder on that day.
In the case of individuals (or trusts, estates or other persons who compute
their income in the same manner as individuals) who own an interest in a Regular
Certificate directly or through a pass-through entity which is required to pass
miscellaneous itemized deductions through to its owners or beneficiaries (e.g.,
a partnership, an S corporation or a grantor trust), such expenses will be
deductible only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. The reduction or disallowance of this deduction coupled with the
allocation of additional income may have a significant impact on the yield of
the Regular Certificate to such a holder. Further, holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. In general terms, a single class REMIC is one that
either (i) would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC (treating all interests as ownership interests,
even if they would be classified as debt for federal income tax purposes) or
(ii) is similar to such a trust and is structured with the principal purpose of
avoiding the single class REMIC rules. Unless otherwise stated in the applicable
Prospectus Supplement, the expenses of the REMIC will be allocated to holders of
the related Residual Certificates in their entirety and not to holders of the
related Regular Certificates.
Sale or Exchange of Residual Certificates. If a Residual Certificate is
sold or exchanged, the seller will generally recognize gain or loss equal to the
difference between the amount realized on the sale or exchange and its adjusted
basis in the Residual Certificate (except that the recognition of loss may be
limited under the "wash sale" rules described below). A holder's adjusted basis
in a Residual Certificate generally equals the cost of such Residual Certificate
to such Residual Certificateholder, increased by the taxable income of the REMIC
that was included in the income of such Residual Certificateholder with respect
to such Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such Residual Certificateholder
with respect to such Residual Certificate and by the distributions received
thereon by such Residual Certificateholder. In general, any such gain or loss
will be capital gain or loss provided the Residual Certificate is held as a
capital asset. However, Residual Certificates will be "evidences of
indebtedness" within the meaning of section 582(c)(1) of the Code, so that gain
or loss recognized from sale of a Residual Certificate by a bank or thrift
institution to which such section applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the
seller of a Residual Certificate reacquires such Residual Certificate or
acquires any other Residual Certificate, any residual interest in another REMIC
or similar interest in a "taxable mortgage pool" (as defined in section 7701(i))
of the Code during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of section 1091 of the Code. In that event, any loss realized by the Residual
Certificateholder on the sale will not be deductible, but instead will increase
such Residual Certificateholder's adjusted basis in the newly acquired asset.
The 1997 Tax Act reduces the maximum rates on long-term capital gains
recognized on capital assets held by individuals taxpayers for more than 18
months as of the date of disposition (and would further reduce the maximum rates
on such gains in the year 2001 and thereafter for certain individual taxpayers
who meet specified conditions). The capital gains rate for capital assets held
by individual taxpayers for more than 12 months but less than 18 months was not
changed by the 1997 Tax Act. The 1997 Tax Act does not change the capital gain
rates for corporations. Prospective investors should consult their own tax
advisors concerning these tax law changes.
Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors should consult their own
tax advisors concerning these tax law provisions.
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Prohibited Transactions and Other Taxes
The REMIC is subject to a tax at a rate equal to 100% of the net income
derived from "prohibited transactions". In general, a prohibited transaction
means the disposition of a Mortgage Loan other than pursuant to certain
specified exceptions, the receipt of investment income from a source other than
a Mortgage Loan or certain other permitted investments or the disposition of an
asset representing a temporary investment of payments on the Mortgage Loans
pending payment on the Residual Certificates or Regular Certificates. In
addition, the assumption of a Mortgage Loan by a subsequent purchaser could
cause the REMIC to recognize gain which would also be subject to the 100% tax on
prohibited transactions.
In addition, certain contributions to a REMIC made after the Closing
Date could result in the imposition of a tax on the REMIC equal to 100% of the
value of the contributed property.
It is not anticipated that the REMIC will engage in any prohibited
transactions or receive any contributions subject to the contributions tax.
However, in the event that the REMIC is subject to any such tax, unless
otherwise disclosed in the related Prospectus Supplement, such tax would be
borne first by the Residual Certificateholders, to the extent of amounts
distributable to them, and then by the Master Servicer.
Liquidation and Termination
If the REMIC adopts a plan of complete liquidation, within the meaning
of section 860F(a)(4)(A)(i) of the Code, which may be accomplished by
designating in the REMIC's final tax return a date on which such adoption is
deemed to occur, and sells all of its assets (other than cash) within a 90-day
period beginning on such date, the REMIC will not be subject to any prohibited
transaction tax, provided that the REMIC credits or distributes in liquidation
all of the sale proceeds plus its cash (other than the amounts retained to meet
claims) to holders of Regular and Residual Certificates within the 90-day
period.
The REMIC will terminate shortly following the retirement of the
Regular Certificates. If a Residual Certificateholder's adjusted basis in the
Residual Certificate exceeds the amount of cash distributed to such Residual
Certificateholder in final liquidation of its interest, it would appear that the
Residual Certificateholder would be entitled to a loss equal to the amount of
such excess. It is unclear whether such a loss, if allowed, will be a capital
loss or an ordinary loss.
Administrative Matters
Solely for the purpose of the administrative provisions of the Code,
the REMIC will be treated as a partnership and the Residual Certificateholders
will be treated as the partners. Under Temporary Regulations, however, if there
is at no time during the taxable year more than one Residual Certificateholder,
a REMIC shall not be subject to the rules of subchapter C of chapter 63 of the
Code relating to the treatment of partnership items for a taxable year.
Accordingly, the REMIC will file an annual tax return on Form 1066, U.S. Real
Estate Mortgage Investment Conduit Income Tax Return. In addition, certain other
information will be furnished quarterly to each Residual Certificateholder who
held such Residual Certificate on any day in the previous calendar quarter.
Each Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to section 6111 of the Code because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a Residual Certificate as
a nominee for another person may be required to furnish the REMIC, in a manner
to be provided in Treasury regulations, with the name and address of such person
and other information.
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Tax-Exempt Investors
Any Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of section 512 of the Code will be subject to
such tax on that portion of the distributions received on a Residual Certificate
that is considered an "excess inclusion." See "--Residual Certificates--Excess
Inclusions" above.
Non-U.S. Persons
Amounts paid to Residual Certificateholders who are not U.S. Persons
(see "--Regular Certificates--Non-U.S. Persons" above) are treated as interest
for purposes of the 30% (or lower treaty rate) United States withholding tax.
Amounts distributed to Residual Certificateholders should qualify as "portfolio
interest", subject to the conditions described in "--Regular Certificates"
above, but only to the extent that the Mortgage Loans were originated after July
18, 1984. Furthermore, the rate of withholding on any income on a Residual
Certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. See "--Residual Certificates--Excess
Inclusions" above. If the portfolio interest exemption is unavailable, such
amount will be subject to United States withholding tax when paid or otherwise
distributed (or when the Residual Certificate is disposed of) under rules
similar to those for withholding upon disposition of debt instruments that have
original issue discount. The Code, however, grants the Treasury authority to
issue regulations requiring that those amounts be taken into account earlier
than otherwise provided where necessary to prevent avoidance of tax (e.g., where
the Residual Certificates do not have significant value). See "--Residual
Certificates--Excess Inclusions" above. If the amounts paid to Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding tax will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U. S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of Residual
Certificates, see "--Tax-Related Restrictions on Transfers of Residual
Certificates" below.
For this purpose, a "U.S. Person" includes a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
under the laws of the United States or any State thereof or the District of
Columbia (unless in the case of a partnership Treasury regulations are adopted
that provide otherwise) or an estate whose income from sources without the
United States is includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or business in
the United States, or 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. In addition, certain trusts that would not qualify as U.S. Persons
under the foregoing definition but that are eligible to and make an election to
be treated as U.S. Persons will also be treated as U.S. Persons.
Regular Certificateholders and persons related to such holders should
not acquire any Residual Certificates, and Residual Certificateholders and
persons related to Residual Certificateholders should not acquire any Regular
Certificates without consulting their tax advisors as to the possible adverse
tax consequences of such acquisition.
Tax-Related Restrictions on Transfers of Residual Certificates
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization". The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (B) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middlemen) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "disqualified
organization" means (A) the United States, any state, possession, or political
subdivision thereof, any foreign government, any international organization, or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
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and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding
a residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a "pass-through entity" means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a
pass-through entity as a nominee for another will, with respect to such
interest, be treated as a pass-through entity. The tax on pass-through entities
is generally effective for periods after March 31, 1988, except that in the case
of regulated investment companies, real estate investment trusts, common trust
funds and publicly-traded partnerships the tax shall apply only to taxable years
of such entities beginning after December 31, 1988. Under proposed legislation,
large partnerships (generally with 250 or more partners) will be taxable on
excess inclusion income as if all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a Residual Certificate may be,
directly or indirectly, purchased, transferred or sold without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the Residual Certificate as a
nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the Residual
Certificate.
Non-economic Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Non-economic Residual
Certificate to a "U.S. Person", as defined in the following section of this
discussion, unless no significant purpose of the transfer is to enable the
transferor to impede the assessment or collection of tax. A "Non-economic
Residual Certificate" is any Residual Certificate (including a Residual
Certificate with a positive value at issuance) unless at the time of transfer,
taking into account the Prepayment Assumption and any required or permitted
clean up calls or required liquidation provided for in the REMIC's
organizational documents, (i) the present value of the expected future
distributions on the Residual Certificate at least equals the product of the
present value of the anticipated excess inclusions and the highest corporate
income tax rate in effect for the year in which the transfer occurs and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. A
significant purpose to impede the assessment or collection of tax 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 not to have such knowledge
if (i) the transferor conducted a reasonable investigation of the transferee and
(ii) the transferee acknowledges to the transferor that the residual interest
may generate tax liabilities in excess of the cash flow and the transferee
represents that it intends to pay such taxes associated with the residual
interest as they become due. If a transfer of a Non-economic Residual
Certificate is disregarded, the transferor would continue to be treated as the
owner of the Residual Certificate and would continue to be subject to tax on its
allocable portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has a "tax avoidance potential" to a "foreign person"
will be disregarded for federal income tax purposes. This rule appears to apply
to a transferee who is not a "U.S. Person", as defined below, unless such
transferee's income in respect of the Residual Certificate is effectively
connected with the conduct of a United States trade or business. A Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee amounts that will equal at least 30% of each
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excess inclusion and that such amounts will be distributed at or after the time
the excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the Residual
Certificate to a U.S. Person, the transfer will be disregarded and the foreign
transferor will continue to be treated as the owner, if the transfer has the
effect of allowing the transferor to avoid tax on accrued excess inclusions. The
provisions in the REMIC Regulations regarding transfers to foreign persons of
Residual Certificates that have tax avoidance potential are effective for all
transfers after June 30, 1992. The Agreement will provide that no record or
beneficial ownership interest in a Residual Certificate may be, directly or
indirectly, transferred to a non-U.S. Person unless such person provides the
Trustee with a duly completed IRS Form 4224 and the Trustee consents to such
transfer in writing.
For purposes of this discussion, a "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership (including an entity
treated as a corporation or partnership for U.S. federal income tax purposes) or
other entity created or organized in or under the laws of the United States or
any State thereof or the District of Columbia (unless in the case of a
partnership Treasury regulations are adopted that provide otherwise) or an
estate whose income from sources outside the United States is includable in
gross income for federal income tax purposes regardless of its connection with
the conduct of a trade or business within the United States, or 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 U.S. Persons have the authority to
control all substantial decisions of the trust. In addition, certain trusts that
would not qualify as U.S. Persons under the foregoing definition but that are
eligible to and make an election to be treated as U.S. Persons will also be
treated as U.S. Persons.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the Residual Certificates
and, in addition, passthrough entities are advised to consult their own tax
advisors with respect to any tax which may be imposed on a pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Considerations", potential investors should consider
the state and local income tax consequences of the acquisition, ownership, and
disposition of the Certificates. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Certificates.
ERISA CONSIDERATIONS
The following describes certain considerations under The Employment
Retirement Security Act of 1974, as amended ("ERISA"), and the Code, which apply
only to Certificates of a Series that are not divided into subclasses. If
Certificates are divided into subclasses the related Prospectus Supplement will
contain information concerning considerations relating to ERISA and the Code
that are applicable to such Certificates.
ERISA and the Code impose requirements on certain employee benefit
plans (and on certain other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds and separate accounts in which such plans, accounts or
arrangements are invested) (collectively, "Plans") and on persons who are
fiduciaries with respect to such Plans. Generally, ERISA applies to investments
made by Plans. Among other things, ERISA requires that the assets of Plans 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
Plans. ERISA also imposes certain duties on persons who are fiduciaries of
Plans. Under ERISA, any person who exercises any authority or control respecting
the management or disposition of the assets of a Plan is considered to be a
fiduciary of such Plan (subject to certain exceptions not here relevant).
Certain employee benefit plans, such as governmental plans (as defined in
section 3(32) of ERISA) and, if no election has been made under section 410(d)
of the Code, church plans (as defined in section 3(33) of ERISA), are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in Certificates without regard to the ERISA considerations described above and
below, subject to the provisions of applicable state law. Any such plan which is
qualified and
84
<PAGE>
exempt from taxation under sections 401(a) and 501(a) of the Code, however, is
subject to the prohibited transaction rules set forth in section 503 of the
Code.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor 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 to be assets of the investing Plan in certain circumstances.
However, the regulation provides that, generally, the assets of a corporation or
partnership in which a Plan invests will not be deemed for purposes of ERISA to
be assets of such Plan if the equity interest acquired by the investing Plan is
a publicly-offered security. A publicly-offered security, as defined in Labor
Reg. Section 2510.3-101, is a security that is widely held, freely transferable
and registered under the Exchange Act.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA and the Code prohibit a broad
range of transactions involving Plan assets and persons ("Parties in Interest")
having certain specified relationships to a Plan and imposes additional
prohibitions where Parties in Interest are fiduciaries with respect to such
Plan. Because the Mortgage Loans may be deemed Plan assets of each Plan that
purchases Certificates, an investment in the Certificates by a Plan might be, or
give rise to, a prohibited transaction under sections 406 and 407 of ERISA and
subject to an excise tax under section 4975 of the Code unless a statutory,
regulatory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale 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 related to the origination, maintenance and termination of mortgage
pools consisting of mortgage loans secured by 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. If the general conditions (discussed below) of PTE
83-1 are satisfied, investments by a Plan in Certificates that represent
interests in a Mortgage Pool consisting of Single Family Loans ("Single Family
Certificates") will be exempt from the prohibitions of sections 406(a) and 407
of ERISA (relating generally to transactions with Parties in Interest who are
not fiduciaries) if the Plan purchases the Single Family Certificates at no more
than fair market value and will be exempt from the prohibitions of sections
406(b)(1) and (2) of ERISA (relating generally to transactions with fiduciaries)
if, in addition, the purchase is approved by an independent fiduciary, no sales
commission is paid to the pool sponsor, the Plan does not purchase more than 25%
of all Single Family Certificates, and at least 50% of all Single Family
Certificates are purchased by persons independent of the pool sponsor or pool
trustee. PTE 83-1 does not provide an exemption for transactions involving
Subordinate Certificates or for Certificates representing an interest in a
Mortgage Pool containing Multifamily Loans or Contracts or Cooperative Loans.
Accordingly, unless the related Prospectus Supplement indicates that an
exemption other than PTE 83-1 is available, no transfer of a Subordinate
Certificate or a Certificate which is not a Single Family Certificate may be
made to a Plan.
The discussion in this and the next succeeding paragraph applies only
to Single Family Certificates. The Depositor believes that, for purposes of PTE
83-1, the term "mortgage pass-through certificate" would include: (i)
Certificates issued in a Series consisting of only a single class of
Certificates; and (ii) Senior Certificates issued in a Series in which there is
only one class of Senior Certificates; provided that the Certificates in the
case of clause (i), or the Senior Certificates in the case of clause (ii),
evidence the beneficial ownership of both a specified percentage (greater than
0%) of future interest payments and a specified percentage (greater than 0%) of
future principal payments on the Mortgage Loans. It is not clear whether a class
of Certificates that evidences the beneficial ownership in a Trust Fund divided
into Mortgage Loan Groups, beneficial ownership of a specified percentage of
interest payments only or principal payments only, or a notional amount of
either principal or interest payments, or a class of Certificates entitled to
receive payments of interest and principal on the Mortgage Loans only after
payments to other classes or after the occurrence of certain specified events
would be a "mortgage pass-through certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied
for any transaction to be eligible for exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
<PAGE>
property securing such loans, and for indemnifying Certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of the aggregate
principal balance of all covered pooled mortgage loans or the principal balance
of the largest covered pooled mortgage loan; (ii) the existence of a pool
trustee who is not an affiliate of the pool sponsor; and (iii) a limitation on
the amount of the payment 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. The Depositor believes that the first
general condition referred to above will be satisfied with respect to the
Certificates in a Series issued without a subordination feature, or the Senior
Certificates only in a Series issued with a subordination feature, provided that
the subordination and Reserve Fund, subordination by shifting of interests, the
pool insurance or other form of credit enhancement described herein (such
subordination, pool insurance or other form of credit enhancement being the
system of insurance or other protection referred to above) with respect to a
Series of Certificates is maintained in an amount not less than the greater of
one percent of the aggregate principal balance of the Mortgage Loans or the
principal balance of the largest Mortgage Loan. See "Description of the
Certificates". In the absence of a ruling that the system of insurance or other
protection with respect to a Series of Certificates satisfies the first general
condition referred to above, there can be no assurance that these features will
be so viewed by the DOL. The Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Single Family
Certificates must make its own determination as to whether the first and third
general conditions, and the specific conditions described briefly in the
preceding paragraph, 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.
On September 6, 1990 the DOL issued to Greenwich Capital Markets, Inc.
an individual exemption (Prohibited Transaction Exemption 90-59, as amended;
Exemption Application No. D-8374, 55 Fed. Reg. 36724 (1990)) (the "Underwriter
Exemption") which applies to certain sales and servicing of "certificates" that
are obligations of a "trust" with respect to which Greenwich Capital Markets,
Inc. is the underwriter, manager or co-manager of an underwriting syndicate. The
Underwriter Exemption provides relief which is generally similar to that
provided by PTE 83-1, but is broader in several respects.
The Underwriter Exemption contains several requirements, some of which
differ from those in PTE 83-1. The Underwriter Exemption contains an expanded
definition of "certificate" which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments. The
Underwriter Exemption contains an expanded definition of "trust" which permits
the trust corpus to consist of secured consumer receivables, including
obligations secured by shares issued by a cooperative housing association. The
definition of "trust," however, does not include any investment pool unless,
inter alia, (i) the investment pool consists only of assets of a type which have
been included in other investment pools, (ii) certificates evidencing interests
in such other investment pools have been purchased by investors other than Plans
for at least one year prior to the Plan's acquisition of certificates pursuant
to the Underwriter Exemption, and (iii) certificates in such other investment
pools have been rated in one of the three highest generic rating categories of
the four credit rating agencies noted below. Generally, the Underwriter
Exemption holds that the acquisition of the certificates by a Plan must be 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. The Underwriter Exemption requires that the rights and interests
evidenced by the certificates not be "subordinated" to the rights and interests
evidenced by other certificates of the same trust. The Underwriter Exemption
requires that certificates acquired by a Plan have received a rating at the time
of their acquisition that is in one of the three highest generic rating
categories of Standard & Poor's Ratings Services, Moody's Investors Service,
Inc., Duff & Phelps Inc. or Fitch IBCA, Inc. The Underwriter Exemption specifies
that the pool trustee must not be an affiliate of the pool sponsor, nor an
affiliate of the Underwriter, the pool servicer, any obligor with respect to
mortgage loans included in the trust constituting more than five percent of the
aggregate unamortized principal balance of the assets in the trust, or any
affiliate of such entities. Finally, the Underwriter Exemption stipulates that
any Plan investing in the certificates must be 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, as amended.
86
<PAGE>
Any Plan fiduciary which proposes to cause a Plan to purchase
Certificates should consult with their counsel concerning the impact of ERISA
and the Code, the applicability of PTE 83-1 and the Underwriter Exemption, and
the potential consequences in their specific circumstances, prior to making such
investment. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment procedure 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.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Certificates will specify
which, if any, of the Classes of Certificates offered thereby constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). Classes of Certificates that
qualify as "mortgage related securities" will be legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation to the same extent
as, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any such entities. Under SMMEA, if a state
enacts legislation prior to October 4, 1991 specifically limiting the legal
investment authority of any such entities with respect to "mortgage related
securities," Certificates will constitute legal investments for entities subject
to such legislation only to the extent provided therein. Approximately
twenty-one states adopted such legislation prior to the October 4, 1991
deadline. SMMEA provides, however, that in no event will the enactment of any
such legislation affect the validity of any contractual commitment to purchase,
hold or invest in Certificates, or require the sale or other disposition of
Certificates, so long as such contractual commitment was made or such
Certificates were acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal in
Certificates without limitations as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase Certificates for their own account
without regard to the limitations generally applicable to investment securities
set forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal authority may prescribe. In this connection, federal
credit unions should review the National Credit Union Administration ("NCUA")
Letter to Credit Unions No. 96, as modified by Letter to Credit Unions No. 108,
which includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities, and the NCUA's regulation "Investment
and Deposit Activities" (12 C.F.R. Part 703), which sets forth certain
restrictions on investment by federal credit unions in mortgage related
securities.
All depository institutions considering an investment in the
Certificates (whether or not the Class of Certificates under consideration for
purchase constitutes a "mortgage related security") should review the Federal
Financial Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators)
(the "Policy Statement"), setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including "mortgage related securities", which are
"high-risk mortgage securities" as defined in the Policy Statement. According to
the Policy Statement, such "high-risk mortgage securities" include securities
such as Certificates not entitled to distributions allocated to principal or
interest, or Subordinated Certificates. Under the Policy Statement, it is the
responsibility of each depository institution to determine, prior to purchase
(and at stated intervals thereafter), whether a particular mortgage derivative
product is a "high-risk mortgage security", and whether the purchase (or
retention) of such a product would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
87
<PAGE>
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplement will
be offered in Series. The distribution of the Certificates may be effected from
time to time in one or more transactions, including negotiated transactions, at
a fixed public offering price or at varying prices to be determined at the time
of sale or at the time of commitment therefor. If so specified in the related
Prospectus Supplement and subject to the receipt of any required approvals from
the Board of Governors of the Federal Reserve System, the Certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Greenwich Capital Markets, Inc.
("GCM") acting as underwriter with other underwriters, if any, named therein. In
such event, the related Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Certificates agreed to be
purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of the Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Certificates
in the form of discounts, concessions or commissions. The related Prospectus
Supplement will describe any such compensation paid by the Depositor.
Alternatively, the related Prospectus Supplement may specify that the
Certificates will be distributed by GCM acting as agent or in some cases as
principal with respect to Certificates that it has previously purchased or
agreed to purchase. If GCM acts as agent in the sale of Certificates, GCM will
receive a selling commission with respect to each Series of Certificates,
depending on market conditions, expressed as a percentage of the aggregate
principal balance of the related Mortgage Assets as of the Cut-off Date. The
exact percentage for each Series of Certificates will be disclosed in the
related Prospectus Supplement. To the extent that GCM elects to purchase
Certificates as principal, GCM may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any Series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of
Certificates of such Series.
The Depositor will indemnify GCM and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended, or will contribute to payments GCM and any underwriters may be required
to make in respect thereof.
In the ordinary course of business, GCM and the Depositor may engage in
various securities and financing transactions, including repurchase agreements
to provide interim financing of the Depositor's mortgage loans pending the sale
of such mortgage loans or interests therein, including the Certificates.
The Depositor anticipates that the Certificates will be sold primarily
to institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended, in
connection with reoffers and sales of Certificates by them. Holders of
Certificates should consult with their legal advisors in this regard prior to
any such reoffer or sale.
LEGAL MATTERS
The legality of the Certificates of each Series, including certain
federal income tax consequences with respect thereto, will be passed upon for
the Depositor by Brown & Wood LLP, One World Trade Center, New York, New York
10048.
88
<PAGE>
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
AVAILABLE INFORMATION
The Depositor has filed with the SEC (the ("SEC") 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,
and the Prospectus Supplement relating to each Series of Certificates contain
summaries of the material terms of the documents referred to herein and therein,
but do not contain all of the information set forth in the Registration
Statement pursuant to the Rules and Regulations of the SEC. For further
information, reference is made to such Registration Statement and the exhibits
thereto. Such Registration Statement and exhibits can be inspected and copied at
prescribed rates at the public reference facilities maintained by the SEC at its
Public Reference Section, 450 Fifth Street, N. W., Washington, D.C. 20549, and
at its Regional Offices located as follows: Midwest Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and New York Regional
Office, 7 World Trade Center, New York, New York 10048. In addition, the SEC
maintains a website at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Depositor, that file electronically with the SEC.
RATINGS
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement that they shall have been rated
in one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related Prospectus
Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the credit enhancer or guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped pass-through certificates in certain cases might
fail to recoup their underlying investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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<PAGE>
INDEX OF DEFINED TERMS
Page
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1986 Act.....................................................................64
Accrual Certificates.........................................................28
AFR..........................................................................66
Agency Securities............................................................12
Agreement....................................................................14
Amortizable Bond Premium Regulations.........................................61
Applicable Amount............................................................75
APR..........................................................................16
ARM Loans....................................................................64
Asset Conservation Act.......................................................56
Available Funds..............................................................27
Bankruptcy Bond..............................................................36
Bankruptcy Code..............................................................39
BIF..........................................................................41
CERCLA.......................................................................55
Certificate Account..........................................................41
Certificate Principal Balance................................................28
Certificate Register.........................................................26
Certificates.................................................................12
Charter Act..................................................................19
Closing Date.................................................................69
Code.........................................................................44
Collateral Value
Collateral Value.............................................................14
Contingent Payment Regulations...............................................66
Contracts....................................................................12
Cooperative Loans............................................................15
Cooperatives.................................................................15
Deferred Interest........................................................65, 74
Detailed Description.........................................................12
Determination Date...........................................................27
DOL..........................................................................85
EPA..........................................................................55
ERISA........................................................................84
Events of Default............................................................49
FDIC.........................................................................24
FHA..........................................................................15
FHA Loans....................................................................16
FHLMC........................................................................12
FHLMC Act....................................................................18
FHLMC Certificate Group......................................................18
FNMA.........................................................................12
FTC Rule.....................................................................57
Garn-St Germain Act..........................................................58
GCA..........................................................................22
GCM..........................................................................88
GNMA.........................................................................12
GNMA Certificate.............................................................16
GNMA I Certificates..........................................................16
GNMA II Certificates.........................................................16
GNMA Issuer..................................................................16
Guaranty Agreement...........................................................16
90
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Housing Act..................................................................16
HUD..........................................................................34
Incorporation of Certain Information by Reference............................22
Insolvency Trustee...........................................................39
Insurance Proceeds...........................................................42
Insured Expenses.............................................................42
IRS..........................................................................61
Legislative History..........................................................65
Liquidation Expenses.........................................................42
Liquidation Proceeds.........................................................42
Loan-to-Value Ratio..........................................................14
Manufactured Homes...........................................................16
Manufacturer Invoice Price...................................................14
Mark-to-Market Regulations...................................................78
Master REMIC.................................................................69
Mortgage.....................................................................40
Mortgage Assets..............................................................12
Mortgage Loans...............................................................12
Mortgage Pool................................................................12
Mortgage Pool Insurance Policy...............................................32
Mortgage Rate................................................................13
Mortgaged Properties.........................................................12
Multifamily Loans............................................................12
NCUA.........................................................................87
New Regulations..............................................................68
Non-economic Residual Certificate............................................83
OID Regulations..............................................................61
Parties in Interest..........................................................85
Payment Lag Certificates.....................................................75
Permitted Investments........................................................42
Plans........................................................................84
PMBS Agreement...............................................................21
PMBS Issuer..................................................................21
PMBS Servicer................................................................21
PMBS Trustee.................................................................21
Policy Statement.............................................................87
Pool Insurer.................................................................32
Prepayment Assumption....................................................65, 70
Primary Insurer..............................................................46
Primary Mortgage Insurance Policy............................................12
Principal Prepayments........................................................29
PTE 83-1.....................................................................85
Purchase Price...............................................................25
Rating Agency................................................................41
RCRA.........................................................................56
Record Date..................................................................26
Refinance Loans..............................................................14
Regular Certificateholders...................................................69
Regular Certificates.........................................................68
Relief Act...................................................................59
REMIC........................................................................26
REMIC Regulations............................................................59
Reserve Account..............................................................27
Residual Certificates........................................................68
Retained Interest............................................................25
SAIF.........................................................................41
91
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SEC..........................................................................22
Sellers......................................................................12
Senior Certificates..........................................................31
Series.......................................................................12
Single Family Certificates...................................................85
Single Family Loans..........................................................12
SMMEA........................................................................87
Special Hazard Insurance Policy..............................................35
Special Hazard Insurer.......................................................35
Stripped ARM Obligations.....................................................65
Stripped Bond Certificates...................................................63
Stripped Coupon Certificates.................................................63
Subordinated Certificates....................................................32
Sub-Servicer.................................................................14
Sub-Servicing Account........................................................41
Sub-Servicing Agreement......................................................42
Subsidiary REMIC.............................................................69
Super-Premium Certificates...................................................70
Support Agreement............................................................30
Support Servicer.............................................................30
Title V......................................................................58
Treasury.....................................................................62
Trust Fund...................................................................12
U.S. Person..................................................................67
UCC..........................................................................52
Underwriter Exemption........................................................86
VA 15
VA Guaranty Policy...........................................................34
VA Loans.....................................................................16
92
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$35,545,080 (APPROXIMATE)
RESECURITIZATION MORTGAGE TRUST, SERIES 1998-C
$20,027,000 CLASS A-1 6.50% CERTIFICATES
$15,518,000 CLASS A-2 6.50% CERTIFICATES
$80 CLASS R 6.50% CERTIFICATES
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
-------------------------
PROSPECTUS SUPPLEMENT
-------------------------
GREENWICH CAPITAL
- ----------------------
- --------------------------------------------------------------------------------
You should rely on the information contained or incorporated by reference in
this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Certificates in any state where the offer is not
permitted.
Until the expiration of 90 days after the date of this prospectus supplement,
all dealers selling the Certificates, whether or not participating in this
distribution, will deliver a prospectus supplement and the prospectus to which
it relates. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus supplement and prospectus when acting as
underwriters and with respect to their unsold allotment or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
