As filed with the Securities and Exchange Commission on November 8, 1999
REGISTRATION STATEMENT NO. 333-______
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
_____________
GREENWICH CAPITAL ACCEPTANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1199884
(State of incorporation) (I.R.S. Employer
Identification No.)
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
_____________
John C. Anderson
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
_____________
With a copy to:
Stephen B. Esko, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) FEE
===========================================================================================================================
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates................ $1,000,000,000 100% $1,000,000,000 $278,000
===========================================================================================================================
</TABLE>
(1) $502,399,172 aggregate principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration
Statement No. 333-67327 referred to below and not previously
sold is carried forward in this Registration Statement pursuant
to Rule 429. A registration fee of $139,666.97 in connection
with such unsold amount of Mortgage Pass-Through Certificates
was paid previously under the foregoing Registration Statement.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
PROSPECTUS INCLUDED IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS
AND ALSO RELATES TO REGISTRATION STATEMENT NO. 333-67327 AS PREVIOUSLY FILED
BY THE REGISTRANT ON FORM S-3. SUCH REGISTRATION STATEMENT NO. 333-67327 WAS
DECLARED EFFECTIVE DECEMBER 8, 1998. THIS REGISTRATION STATEMENT, WHICH IS A
NEW REGISTRATION STATEMENT, ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT NO. 333-67327 AND SUCH POST-EFFECTIVE AMENDMENT NO. 1
SHALL HEREAFTER BECOME EFFECTIVE CONCURRENTLY WITH THE EFFECTIVENESS OF THIS
REGISTRATION STATEMENT AND IN ACCORDANCE WITH SECTION 8(C) OF THE SECURITIES
ACT OF 1933, AS AMENDED.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these certificates until the registration statement
filed with the Securities and Exchange commission (SEC) is effective. This
prospectus supplement is not an offer to sell these certificates and it is not
soliciting an offer to buy these certificates in any state where the offer or
sale is not permitted.
SUBJECT TO COMPLETION, DATED __________, ___, 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________, 1999_)
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 14 OF THE PROSPECTUS.
The certificates represent obligations of the trust only and do not represent an
interest in or obligation of Greenwich Capital Acceptance, Inc., [_______] or
any of their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
GREENWICH CAPITAL ACCEPTANCE, INC.
DEPOSITOR
$________ (approximate) Class A, [ ____ %] [Variable Pass-Through Rate]
$________ (approximate) Class M, [ ____ %] [Variable Pass-Through Rate]
$________ (approximate) Class B, [ ____ %] [Variable Pass-Through Rate]
Mortgage Backed Certificates, Series 1999-__
The trust will issue [___] 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 Class A certificates will be senior certificates.
o The Class M certificates will be mezzanine certificates.
o The Class B certificates will be subordinate certificates.
o Each class of certificates will accrue interest at a rate equal to
[one-month LIBOR plus a fixed margin], subject to certain limitations
described in this prospectus supplement.
CREDIT ENHANCEMENT
o Overcollateralization - Certain excess interest received from the
mortgage loans in the trust will be applied as payments of principal
on the offered certificates to establish and maintain a required level
of overcollateralization.
o Subordination - The mezzanine certificates and the subordinate
certificates are subordinate in right of certain payments to the
senior certificates. The Class B Certificates are subordinate to the
mezzanine certificates.
o Allocation of Losses - Certain losses may be allocated among the
mezzanine and subordinate certificates in reverse order of seniority,
which would reduce the principal balances of the certificates
affected. Although the outstanding principal balance of the Class A
Certificates will not be reduced as a result of realized losses, in
some circumstances such losses may reduce the amount of principal
ultimately paid to the holders of the Class A Certificates.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (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 $_____________, before
deducting issuance expenses payable by the depositor, estimated to be
$___________. 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, [Cedel Bank, societe anonyme, and
the Euroclear System,] on or about __________________, 1999_.
-------------------
GREENWICH CAPITAL MARKETS, INC.
____________ __, 1999_
<PAGE>
TABLE OF CONTENTS
SUMMARY OF TERMS............................................................S-3
RISK FACTORS................................................................S-8
THE MORTGAGE POOL..........................................................S-15
GENERAL.................................................................S-15
MORTGAGE LOAN STATISTICS................................................S-15
ADJUSTABLE RATE MORTGAGE LOANS..........................................S-22
THE INDEX...............................................................S-28
UNDERWRITING STANDARDS.....................................................S-28
THE MASTER SERVICER........................................................S-29
THE POOLING AND SERVICING AGREEMENT........................................S-31
GENERAL.................................................................S-31
ASSIGNMENT OF THE MORTGAGE LOANS........................................S-31
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION
ACCOUNT AND DISTRIBUTION ACCOUNT .....................................S-33
ADVANCES................................................................S-34
THE TRUSTEE.............................................................S-35
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES................S-36
VOTING RIGHTS...........................................................S-36
AMENDMENT...............................................................S-36
TERMINATION.............................................................S-37
[OPTIONAL PURCHASE OF DEFAULTED LOANS...................................S-37
EVENTS OF DEFAULT.......................................................S-37
RIGHTS UPON EVENT OF DEFAULT............................................S-38
DESCRIPTION OF THE CERTIFICATES............................................S-38
GENERAL.................................................................S-38
BOOK-ENTRY CERTIFICATES.................................................S-39
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES............................S-44
ALLOCATION OF AVAILABLE FUNDS...........................................S-45
DEFINITIONS.............................................................S-46
PASS-THROUGH RATES......................................................S-52
CALCULATION OF [ONE-MONTH LIBOR]........................................S-52
APPLICATION OF ALLOCABLE LOSS AMOUNTS...................................S-53
[EXCESS RESERVE FUND ACCOUNT............................................S-54
REPORTS TO CERTIFICATEHOLDERS...........................................S-54
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS..............................S-56
OVERCOLLATERALIZATION PROVISIONS........................................S-57
[ADDITIONAL INFORMATION.................................................S-58
WEIGHTED AVERAGE LIVES..................................................S-58
USE OF PROCEEDS............................................................S-60
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES...........................S-60
TAXATION OF REGULAR INTERESTS...........................................S-60
STATUS OF THE OFFERED CERTIFICATES......................................S-61
NON-U.S. PERSONS........................................................S-61
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES.............................S-62
BACKUP WITHHOLDING......................................................S-63
STATE TAXES................................................................S-63
ERISA CONSIDERATIONS.......................................................S-63
LEGAL INVESTMENT CONSIDERATIONS............................................S-66
METHOD OF DISTRIBUTION.....................................................S-67
LEGAL MATTERS..............................................................S-67
RATINGS....................................................................S-67
INDEX OF DEFINED TERMS.....................................................S-69
ANNEX I.....................................................................A-1
<PAGE>
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 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 PREDICT IN OUR FORWARD-LOOKING STATEMENTS.
<PAGE>
OFFERED CERTIFICATES
On the closing date, [_____________Trust] will issue [___] classes of
certificates, three of which are being offered pursuant to this prospectus
supplement and the accompanying prospectus. The assets of the trust that will
support the certificates will consist of a pool of [fixed-rate] mortgage loans
with a principal balance of approximately $ _______________ and
[adjustable-rate] mortgage loans with a principal balance of approximately $
as of ________________ , 199 . [All of the adjustable rate mortgage loans are
indexed to [six-month LIBOR], of which [ ]% have initial fixed rate periods.
The mortgage loans will have original terms to maturity ranging from [ ______
] years to 30 years and will be secured by first liens on one- to four-family
residential properties.
Each class of certificates that is being offered will be book-entry securities
clearing through DTC [(in the United States) or Cedel or Euroclear (in
Europe)] in minimum denominations of $50,000.
OTHER CERTIFICATES
The trust will issue [two] additional classes of certificates. These
certificates will be designated the [Class OC and] Class R Certificates and
are not being offered to the public pursuant to this prospectus supplement and
the prospectus. [The Class OC Certificates will not have an original principal
certificate balance.] The Class R Certificates will have an original
certificate principal balance of [$100].
See "the mortgage pool" and "Description of the Certificates-- General" and
"--Book-Entry certificates" in this prospectus supplement and "the Trust
Fund--the Mortgage Loans--General" in the prospectus.
<PAGE>
CUT-OFF DATE
__________ __, 1999
CLOSING DATE
On or about __________ __, 1999
THE DEPOSITOR
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
SELLER
[--------------------]
MASTER SERVICER
[--------------------]
TRUSTEE
[--------------------]
DESIGNATIONS
Each class of certificates will have different characteristics, some of which
are reflected in the following general designations.
o Offered certificates
Class A, Class M and Class B Certificates
o Senior ertificates
Class A Certificates
o Mezzanine Certificates
Class M Certificates
o Subordinate Certificates
Class B Certificates
o Residual Certificates
Class R Certificates
o Book-Entry Certificates
Class A, Class M and Class B Certificates
o [Excess Reserve Fund Support Certificates
Class OC Certificates]
o Physical Certificates
[Class OC and] Class R Certificates
DISTRIBUTION DATES
The trustee will make distributions on the certificates on the __th day of
each calendar month beginning on ___________ __, 1999 to the holder of record
of the certificates as of the business day preceding such date of
distribution. If the __th day of a month is not a business day, then the
distribution will be made on the next business day.
PAYMENTS ON THE CERTIFICATES
INTEREST PAYMENTS
The pass-through rate for each class of offered certificates will be
calculated at the rates specified below, subject to the limitations described
under "Description of the Certificates -- Pass-Through Rates" in this
prospectus supplement:
Class A [Index] + __ basis points
Class M [Index] + __ basis points
Class B [Index] + __ basis points
Interest payable on the certificates on a distribution date will accrue during
the period commencing on the prior distribution date and ending on the day
before the current distribution date. The first accrual period will begin on
the Closing Date and end on _________ __, 1999. Interest will be calculated on
the basis of the actual number of days included in the interest accrual
period, based on a 360-day year.
See "Description of the Certificates" in this prospectus supplement.
PAYMENT PRIORITIES
On each distribution date, available funds in the trust will be paid in the
following order of priority and subject to the limitations described under
"Description of the Certificates--Allocation of Available Funds" in this
prospectus supplement:
(i) to the Class A Certificates, as current interest and any previously
unpaid interest;
(ii) _____ as current interest sequentially to the Class M and Class B
Certificates;
(iii) as principal of the Class A, Class M and Class B Certificates, in that
order, to the extent such classes are entitled to receive distributions
of principal, up to the aggregate amount received on account of
principal of the mortgage loans;
(iv) as principal of the Class A, Class M and Class B Certificates, in that
order, to the extent such classes are entitled to receive distributions
of principal, up to the amount necessary to achieve the required levels
of overcollateralization;
(v) as unpaid interest and reimbursement of certain previously allocated
losses, if any, to the Class M and Class B Certificates;
[(vi) to the Class OC Certificates for deposit into a reserve account to
cover shortfalls or required reserves, before being released to the
Class OC Certificates;] and
(vi) _____ any remaining amounts to the Class R Certificates.
See "Description of the Certificates" in this prospectus supplement.
ADVANCES
The Master Servicer will make cash advances with respect to delinquent
payments of principal and interest to the extent the Master Servicer
reasonably believes that the cash advances are recoverable from future
payments on the related mortgage loans. Advances are intended to maintain a
regular flow of scheduled interest and principal payments on the certificates
and are not intended to guarantee or insure against losses.
See "The Pooling and Servicing Agreement--Advances" in this prospectus
supplement.
OPTIONAL TERMINATION
The holder of the majority interest in the residual certificates may purchase
all of the remaining assets of the trust after the principal balance of the
mortgage loans and any real estate owned by the trust declines below 10% of
the principal balance of the mortgage loans on [the Cut-off Date].
If the holder of the majority interest in the residual certificates does not
exercise this option, then the Master Servicer will have the right to exercise
this option. [If the option is not exercised, the offered certificates still
outstanding will accrue interest at a higher rate.]
See "The Pooling and Servicing Agreement--Termination" and "Description of
the Certificates -- Pass-through Rates" in this prospectus supplement.
CREDIT ENHANCEMENT
The credit enhancements include overcollateralization, subordination and
allocation of losses. These credit enhancements are designed to increase the
likelihood that certificateholders with a higher payment priority will receive
regular payments of interest and principal.
OVERCOLLATERALIZATION
The mortgage loans owned by the trust pay interest each month that in the
aggregate is expected to exceed the amount needed to pay monthly interest on
the offered certificates and certain fees and expenses of the trust. A portion
of this excess interest applied to pay principal on the offered certificates,
which reduces the principal balance of the certificates at a faster rate than
the principal balance on the mortgage loans is being reduced. As a result, the
aggregate principal balance of the mortgage loans is expected to exceed the
aggregate principal balance of the offered certificates. This feature is
referred to as "overcollateralization." The required level of
overcollateralization may increase or decrease over time. We cannot assure you
that sufficient interest will be generated by the mortgage loans to maintain
the required level of overcollateralization.
See "Description of the Certificates" in this prospectus supplement.
SUBORDINATION AND ALLOCATION OF LOSSES
The Class A Certificates will have a payment priority over the mezzanine
certificates and the subordinate certificates. The Class M Certificates will
have a payment priority over the Class B Certificates.
Subordination is designed to provide the holders of certificates with a higher
payment priority protection against losses up to a certain level that are
realized when the unpaid principal balance on a mortgage loan exceeds the
proceeds recovered upon the liquidation of that mortgage loan. Losses will
first be applied to reduce the overcollateralization amount. Thereafter, loss
protection is accomplished by allocating the realized losses first to the
subordinate certificates, until the principal amount of the subordinate
certificates is reduced to zero. Realized losses would then be allocated to
the next most junior class of certificates, the Class M Certificates, until
the principal amount of the Class M Certificates is reduced to zero. Although
the outstanding principal balance of the Class A Certificates will not be
reduced as a result of realized losses, in some circumstances such losses may
reduce the amount of principal ultimately paid to the holders of the Class A
Certificates.
See "Description of the Certificates" in this prospectus supplement.
RATINGS
It is a condition of the issuance of the offered certificates that they be
assigned the following ratings by _____________ and _____________.
Rating Rating
Agency Agency
Class Rating Rating
----- ------ ------
A
M
B
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
In the opinion of Brown & Wood LLP, for federal income tax purposes the trust
will include [multiple segregated asset pools]. An election will be made to
treat [each] pool as a [separate] "real estate mortgage investment conduit"
("REMIC"). Certain classes of certificates that are designated as the regular
certificates will constitute "regular interests" in the [Master] REMIC. The
Class R Certificates will represent the sole class of "residual interests" in
the [Master] REMIC. [The class of certificates designated as the residual
certificates will represent the sole class of residual interests in each
subsidiary REMIC.]
[The offered certificates will also represent the right to receive payments
from the excess reserve fund account. The excess reserve fund account will be
treated as an "outside reserve fund" and the right to receive payments from
such account will be treated as an interest rate cap agreement for federal
income tax purposes. Beneficial owners of the offered certificates will be
treated for federal income tax purposes as having purchased an undivided
beneficial interest in a regular interest in the [Master] REMIC and as having
acquired rights under an interest rate cap agreement, both to the extent of
the owner's proportionate interest in the offered certificates. A
certificateholder generally will recognize ordinary income equal to such
certificateholder's proportionate share of interest and original issue
discount, if any, accrued on the offered certificates and will take into
account a proportionate share of any payments received under the interest rate
cap agreement. A certificateholder's income derived from payments received
under the interest rate cap agreement generally must be accounted for under
the notional principal contract regulations.]
See "Certain Material Federal Income Tax Consequences" in this prospectus
supplement and "Certain Federal Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
It is expected that the Class A Certificates may be purchased by a pension or
other employee benefit plan subject to the Employee Retirement Income Security
Act of 1974 or section 4975 of the Internal Revenue Code of 1986, so long as
certain conditions are met. A fiduciary of an employee benefit plan must
determine that the purchase of a certificate is consistent with its fiduciary
duties under applicable law and does not result in a non-exempt prohibited
transaction under applicable law.
See "ERISA Considerations" in this prospectus supplement and in the
prospectus.
LEGAL INVESTMENT
The Class A Certificates and Class M 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. The Class
B Certificates will not be rated in one of the two highest rating categories
by a nationally recognized statistical rating organization and, therefore,
will not be "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984.
See "Legal Investment Considerations" in this prospectus supplement and "Legal
Investment" in the prospectus.
<PAGE>
RISK FACTORS
THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER,
IDENTIFIES CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT
IN THE CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS.
UNPREDICTABILITY
OF PREPAYMENTS AND
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 generally will result in a
prepayment on the 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
fixed-rate mortgage loans, those
mortgage loans are more likely to prepay
than if prevailing rates remain above
the interest rates on such mortgage
loans. In addition, if interest rates
decline, adjustable-rate mortgage loan
prepayments may increase due to the
availability of fixed-rate mortgage
loans at lower interest rates.
Conversely, if prevailing interest rates
rise significantly, the prepayments on
fixed-rate and adjustable-rate mortgage
loans are likely to decrease.
o [____% of the principal balance of the
mortgage loans on [the Cut-off Date] are
"balloon loans." Balloon loans generally
provide for scheduled monthly payments
of principal up to the ___th month with
a final lump sum payment in the ___th
month. This lump sum payment is
substantially larger than the previous
scheduled payments. Having balloon loans
in the trust may cause the prepayment
rate to vary more than if there were no
balloon loans, because the borrower
generally must refinance the mortgage
loan or sell the mortgaged property
prior to payment of the lump sum on the
maturity date.]
o [Some of the mortgage loans require the
mortgagor to pay a penalty if the
mortgagor prepays the mortgage loan
during periods ranging from [six months]
to [five years] after the mortgage loan
was originated. A prepayment penalty may
discourage a borrower from prepaying the
mortgage loan during the applicable
period.]
o The Seller may be required to purchase
mortgage loans from the trust due to
certain breaches of representations and
warranties that have not been cured.
These purchases will have the same
effect on the holders of the offered
certificates as a prepayment of the
mortgage loans.
o So long as the overcollateralization
level remains greater than zero,
liquidations of defaulted mortgage loans
will have the same effect on holders of
the Offered Certificates as a prepayment
of the related mortgage loans.
o If the rate of default and the amount of
losses on the mortgage loans is higher
than you expect, then your yield may be
lower than you expect.
See "Yield, Prepayment and Maturity
Considerations" in this prospectus supplement
for a description of factors that may
influence the rate and timing of prepayments
on the mortgage loans.
POTENTIAL INADEQUACY
OF CREDIT ENHANCEMENT..............The certificates are not insured by any
financial guaranty insurance policy. The
overcollateralization, subordination and
allocation of loss features described in the
summary are intended to enhance the
likelihood that holders of the Class A
Certificates will receive regular payments of
interest and principal.
If delinquencies or defaults occur on
the mortgage loans, neither the Master
Servicer nor any other entity will advance
scheduled monthly payments of interest and
principal on delinquent or defaulted mortgage
loans if such advances are not likely to be
recovered. We cannot assure you that the
applicable credit enhancement will adequately
cover any shortfalls in cash available to pay
your certificates as a result of such
delinquencies or defaults.
If substantial losses occur as a result
of defaults and delinquent payments on the
mortgage loans, investors, particularly
investors in the subordinate certificates,
may lose their initial investment.
OVERCOLLATERALIZATION............. Because the weighted average of the interest
rates on the mortgage loans is expected to be
higher than the weighted average of the
interest rates on the certificates, the
mortgage loans are expected to generate more
interest than is needed to pay interest owed
on the certificates as well as certain fees
and expenses of the trust. Any remaining
interest will then be used to compensate for
losses that occur on the mortgage loans.
After these financial obligations of the
trust are covered, the available excess
interest will be used to create and maintain
overcollateralization. We cannot assure you,
however, that enough excess interest will be
generated to maintain the
overcollateralization level required by the
rating agencies. The factors described below
will affect the amount of excess interest
that the mortgage loans will generate.
o Every time a mortgage loan is prepaid,
excess interest may be reduced because
the mortgage loan will no longer be
outstanding and generating interest or,
in the case of a partial prepayment,
will be generating less interest.
o Every time a mortgage loan is liquidated
or written off, excess interest will be
reduced because such mortgage loans will
no longer be outstanding and generating
interest.
o If the rates of delinquencies, defaults
or losses on the mortgage loans turn out
to be higher than expected, excess
interest will be reduced by the amount
necessary to compensate for any
shortfalls in cash available on such
date to pay certificateholders.
o The mortgage loans have rates that are
fixed or that adjust based on an index
that is different from the index used to
determine rates on the certificates. As
a result, interest rates on the
certificates may increase relative to
interest rates on the mortgage loans,
requiring that more of the interest
generated by the mortgage loans be
applied to cover interest on the
certificates.
SUBORDINATION......................When certain classes of certificates provide
credit enhancement for other classes of
certificates, this form of credit enhancement
is referred to as "subordination." For any
particular class, "related junior class"
means the class that is subordinate to such
class. The order of seniority, beginning with
the most senior class, is Class A, Class M
and Class B.
Credit enhancement is provided for the
certificates first by the right of the
holders of certain classes of certificates to
receive certain payments of interest prior to
the related junior classes and certain
payments of principal prior to the related
junior classes. This form of credit
enhancement is provided solely from
collections on the mortgage loans otherwise
payable to the holders of the related junior
classes. Credit enhancement also is provided
by the allocation of realized losses first to
the related junior classes. Accordingly, if
the aggregate principal balance of the
related junior classes were to be reduced to
zero, delinquencies and defaults on the
mortgage loans would reduce the amount of
funds available for monthly payments to
holders of the remaining certificates.
See "Description of the Certificates" in
this prospectus supplement and "Credit
Enhancement -- Subordination" in the
prospectus.
[RISK OF LIMITATIONS
TO ADJUSTMENTS OF
THE LOAN RATES.....................The offered certificates accrue interest at
pass-through rates based on the [one-month
LIBOR] index plus a specified margin, but are
subject to certain caps. The caps on interest
paid on the certificates are based on the
weighted average of the interest rates on the
mortgage loans in the trust net of certain
trust expenses. The trust includes
[fixed-rate] and [adjustable-rate mortgage
loans with rates that are based on the
[six-month LIBOR] index]. The adjustable-rate
mortgage loans have periodic and maximum
limitations on adjustments to the mortgage
loan rate. As a result, the offered
certificates may accrue less interest than
they would accrue if their rates were based
solely on the one-month LIBOR index plus the
specified margin. If this circumstance
occurred, the value of the offered
certificates may be temporarily or
permanently reduced.
A variety of factors could limit the
pass-through rates on the offered
certificates in a rising interest rate
environment. Some of these factors are
described below.
o The trust includes fixed-rate mortgage
loans on which the rate of interest does
not adjust.
o The [one-month LIBOR] index used to
calculate the pass-through rates on the
offered certificates is different from
the index used to calculate the loan
rates on the adjustable-rate mortgage
loans in the trust.
o The pass-through rates adjust monthly
while the loan rates on the
adjustable-rate mortgage loans adjust
less frequently, [and some
adjustable-rate mortgage loans have
initial fixed rate periods of [ _____ ]
to [ _____ ] years following the date of
origination.]
o It is possible that interest rates on
the adjustable-rate mortgage loans may
decline while interest rates on the
certificates are stable or rising. It is
also possible that interest rates on
both the adjustable-rate mortgage loans
and the certificates may decline or
increase during the same period, but
that the interest rates on the
certificates may decline more slowly or
increase more rapidly.
These factors may adversely affect the
yields to maturity on the offered
certificates.]
PREPAYMENT INTEREST
SHORTFALLS.........................When a mortgage loan is prepaid in full, the
borrower is charged interest only up to the
date on which payment is made, rather than
for an entire month. This may result in a
shortfall in interest collections available
for payment on the next distribution date.
[The Master Servicer is required to cover a
portion of the shortfall in interest
collections that are attributable to
prepayments, but only up to the Master
Servicer's servicing fee for the related
one-month accrual period.]
UNDERWRITING STANDARDS AND
DEFAULT RISKS......................The mortgage loans were originated by
[various originators], [none of which is
affiliated with the Depositor]. [Discussion
of originators' underwriting standards.]
RISKS OF EARLY DEFAULT.............Defaults on mortgage loans are generally
expected to occur more frequently in the
early years of the terms of mortgage loans.
[Many of] the mortgage loans in the trust
were originated [within twelve months prior
to ________ __, 1999.]
GEOGRAPHIC CONCENTRATION...........The following chart reflects the [_____]
states with highest concentrations of
mortgage loans in the trust based on the
initial pool principal balance.
[Table]
In addition, the conditions below will
have a disproportionate impact on the
mortgage loans in general.
o Economic conditions in [___________]
(which may or may not affect real
property values) may affect the ability
of borrowers to repay their loans on
time.
o Declines in the [_______, ________, and
_________] residential real estate
markets may reduce the values of
properties located in those states,
which would result in an increase in the
loan-to-value ratios.
o Any increase in the market value of
properties located in [_______,
________, and _________] would reduce
the loan-to-value ratios and could,
therefore, make alternative sources of
financing available to the borrowers at
lower interest rates, which could result
in an increased rate of prepayment of
the mortgage loans.
CERTIFICATES MAY NOT BE
APPROPRIATE FOR CERTAIN
INVESTORS..........................The offered certificates may not be an
appropriate investment for investors who do
not have sufficient resources or expertise to
evaluate the particular characteristics of
the applicable class of offered certificates.
This may be the case because, among other
things:
o The yield to maturity of offered
certificates purchased at a price other
than par will be sensitive to the
uncertain rate and timing of principal
prepayments on the mortgage loans.
o The rate of principal distributions on
and the weighted average lives of the
offered certificates will be sensitive
to the uncertain rate and timing of
principal prepayments on the mortgage
loans and the priority of principal
payments among the classes of
certificates. Therefore, the offered
certificates may be an inappropriate
investment if you are an investor that
requires a payment of a particular
amount of principal on a specific date
or an otherwise predictable stream of
payments.
o You may be unable to reinvest amounts
received as principal on an offered
certificate at a rate comparable to the
pass-through rate applicable to the
certificate. In general, principal
prepayments are expected to be greater
during periods of relatively low
interest rates.
o A market for resale of the offered
certificates may not develop or provide
certificateholders with liquidity of
investment.
You should also carefully consider the
further matters discussed under the heading
"Yield, Prepayment and Maturity
Considerations" in this prospectus supplement
and under the heading "Risk Factors" in the
prospectus.
YEAR 2000 SYSTEMS RISK.............In the event that the computer systems of the
Trustee and the Master Servicer fail to be
year 2000 compliant, the resulting potential
disruptions in the collection or distribution
of funds could adversely affect your
investment.
LIQUIDITY..........................Greenwich Capital Markets, Inc. intends to
make a secondary market in the classes of
certificates actually purchased by it, but it
has no obligation to do so. There is no
assurance that such a secondary market will
develop or, if it develops, that it will
continue. Consequently, you may not be able
to sell your certificates readily or at
prices that will enable you to realize your
desired yield. The market values of the
certificates are likely to fluctuate; these
fluctuations may be significant and could
result in significant losses to you.
The secondary markets for mortgage
backed securities have experienced periods of
illiquidity and can be expected to do so in
the future. Illiquidity can have a severely
adverse effect on the prices of securities
that are especially sensitive to prepayment,
credit, or interest rate risk, or that have
been structured to meet the investment
requirements of limited categories of
investors.
<PAGE>
THE MORTGAGE POOL
GENERAL
[____________] (the "TRUST FUND") will consist of a pool of closed-end,
[fixed-rate and adjustable-rate] mortgage loans (the "MORTGAGE POOL") secured by
conventional, one- to four-family, first lien mortgage loans having original
terms to maturity ranging from [_] to 30 years (the "MORTGAGE LOANS"). All
Mortgage Loan statistics set forth herein are based on principal balances,
interest rates, terms to maturity, mortgage loan counts and similar statistics
as of __________ ___, 1999 (the "CUT-OFF DATE"), unless indicated to the
contrary herein. All weighted averages specified herein are weighted based on
the principal balances of the Mortgage Loans as of the Cut-Off Date (the
"CUT-OFF DATE PRINCIPAL BALANCE"). References to percentages of the Mortgage
Loans mean percentages based on the aggregate of the principal balances of the
Mortgage Loans (the "POOL PRINCIPAL BALANCE") as of the Cut-off Date, unless
otherwise specified.
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties (as defined herein) is based upon the Mortgage Pool as
constituted at the close of business on the Cut-off Date, as adjusted for the
principal payments received on or before such date. Prior to the issuance of the
Certificates by the Trust, Mortgage Loans may be removed from the Mortgage Pool
as a result of incomplete documentation or otherwise, if Financial Asset
Securities Corp. (the "DEPOSITOR") deems such removal necessary or desirable,
and may be prepaid at any time. A limited number of other mortgage loans may be
included in the Mortgage Pool prior to the issuance of the Certificates unless
including such mortgage loans would materially alter the characteristics of the
Mortgage Pool as described herein. The Depositor believes that the information
set forth herein will be representative of the characteristics of the Mortgage
Pool as it will be constituted at the time the Certificates are issued, although
the range of the interest rates on the individual Mortgage Loans (the "MORTGAGE
RATES") and maturities and certain other characteristics of the Mortgage Loans
may vary.
MORTGAGE LOAN STATISTICS
The Mortgage Pool will consist of approximately [________]
conventional, [fixed-rate and adjustable-rate] Mortgage Loans secured by first
liens on residential real property (the "MORTGAGED PROPERTY"). The Mortgage
Loans have original terms to maturity ranging from [___] years to 30 years. The
Mortgage Pool consists of [fixed-rate Mortgage Loans (the "FIXED RATE MORTGAGE
LOANS")], which will consist of approximately [________] Mortgage Loans having
an aggregate principal balance as of the Cut-off Date of approximately
$[__________] and [adjustable-rate Mortgage Loans (the "ADJUSTABLE RATE MORTGAGE
LOANS")], which will consist of approximately [_______] Mortgage Loans having an
aggregate principal balance as of the Cut-off Date of approximately
$[___________], in each case after application of payments of principal due on
or before the Cut-off Date whether or not received, and in each case subject to
a permitted variance of plus or minus [5]%. [Each Adjustable Rate Mortgage Loan
provides for [semi-annual] adjustment to the mortgage rate thereon based on
[six-month London interbank offered rates for United States dollar deposits]
(the "INDEX") and for corresponding adjustments to the monthly payment amount
due thereon, in each case subject to the limitations described under
"--Adjustable Rate Mortgage Loans" herein; provided that in the case of [_____]%
of the Adjustable Rate Mortgage Loans, the first adjustment for such Mortgage
Loan will occur after an initial period of [___] years, by aggregate principal
balance of the Adjustable Rate Mortgage Loans as of the Cut-off Date (each such
Mortgage Loan described in this proviso, a "DELAYED FIRST ADJUSTMENT MORTGAGE
LOAN").]
The Mortgage Loans are secured by first mortgages or deeds of trust or
other similar security instruments (each, a "MORTGAGE") creating first liens on
one- to four-family residential properties consisting of detached or
semi-detached one- to four-family dwelling units and individual condominium
units. [Approximately [______]% of the Mortgage Loans had a Loan-to-Value Ratio
at origination in excess of 80%.] There can be no assurance that the
Loan-to-Value Ratio of any Mortgage Loan determined at any time after
origination is less than or equal to its original Loan-to-Value Ratio. The
Mortgage Loans have scheduled monthly payments due on [the first day of the
month] (with respect to each Mortgage Loan, a "DUE DATE"), [except for
approximately [____]% of the Mortgage Loans which have Due Dates on other dates
during the month.] [Each Mortgage Loan will contain a customary "due-on-sale"
clause.]
[Approximately [_____]% of the Mortgage Loans provide for payment by
the mortgagor of a prepayment charge in limited circumstances on certain
prepayments. Generally, each such Mortgage Loan provides for payment of a
prepayment charge on certain partial prepayments and all prepayments in full
made within [______] from the date of origination of such Mortgage Loan. The
amount of the prepayment charge is provided in the related Mortgage Note and is
generally equal to [______].
[___] Fixed Rate Mortgage Loans comprising approximately [____]% of the
Pool Principal Balance as of the Cut-off Date are balloon payment mortgage loans
(each, a "BALLOON LOAN"). Each Balloon Loan amortizes over [360] months, but the
final payment (the "BALLOON PAYMENT") on each Balloon Loan is due and payable on
the Due Date of the [___]th month. The amount of the Balloon Payment on each
Balloon Loan is substantially in excess of the amount of the scheduled monthly
payment on the Mortgage Loan for the period prior to the Due Date of such
Balloon Payment.
Each Mortgage Loan had a Loan Rate of not less than [___]% per annum
and not more than [_____]% per annum and as of the Cut-off Date the weighted
average Loan Rate was approximately [____]% per annum.
The weighted average remaining term to maturity of the Mortgage Loans
will be approximately [___] months as of the Cut-off Date. [None of the Mortgage
Loans will have a first Due Date prior to __________ __, 19__ or after
___________ __, 1999 or will have a remaining term to maturity of less than
[___] months or greater than 30 years as of the Cut-off Date.] The month of the
latest maturity date of any Mortgage Loan is ___________ 20__].
The average principal balance of the Mortgage Loans at origination was
approximately $[________]. The average principal balance of the Mortgage Loans
as of the Cut-off Date was approximately $[_________].
No Mortgage Loan had a principal balance as of the Cut-off Date of
greater than approximately $[____________] or less than approximately
$[_______]. The Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal the
total indicated due to rounding):
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE(1)
NUMBER OF PRINCIPAL BALANCE % OF AGGREGATE PRINCIPAL
MORTGAGE OUTSTANDING AS OF BALANCE OUTSTANDING AS OF
PRINCIPAL BALANCE ($) LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------------------------------- -------------- --------------------- ---------------------------
<S> <C> <C> <C>
$ %
============== ===================== ===========================
Total............................... $ 100.00%
============== ===================== ===========================
- ----------------------
(1) The average principal balance of the Mortgage Loans as of the Cut-off Date was $[______].
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY OF THE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
ORIGINAL TERM (MONTHS) OF MORTGAGE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total................... $ 100.00%
=================== ======================== =======================
- --------------------
(1) The weighted average original term to maturity of the Mortgage Loans was [___] months.
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPES OF THE MORTGAGE LOANS
% OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PROPERTY TYPE OF MORTGAGE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
2-4 Units.................... $ %
Condominium..................
Manufactured Housing.........
PUD..........................
Single Family Detached.......
Unknown.....................
------------------- ------------------------ -----------------------
Total................... $ 100.00%
=================== ======================== =======================
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY STATUS OF THE MORTGAGE LOANS
% OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
OCCUPANCY STATUS OF MORTGAGE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Investor..................... $ %
Primary......................
Second Home..................
------------------- ------------------------- -----------------------
Total................... $ 100.00%
=================== ========================= =======================
</TABLE>
<TABLE>
<CAPTION>
PURPOSE OF THE MORTGAGE LOANS
% OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PURPOSE OF MORTGAGE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Purchase..................... $ %
Rate/Term Refinance..........
------------------- ------------------------ -----------------------
Total................... $ 100.00%
=================== ======================== =======================
</TABLE>
<TABLE>
<CAPTION>
LOAN RATES OF THE MORTGAGE LOANS (1)
% OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN RATE (%) OF MORTGAGE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total....................... $ 100.00%
=================== ======================== =======================
- ------------------
(1) The weighted average Loan Rate of the Mortgage Loans as of the Cut-off Date was [____]%.
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
ORIGINAL LOAN-TO-VALUE RATIO(%) OF MORTGAGE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
<S> <C> <C> <C>
------------------ ---------------------- --------------------
Total....................... $ 100.00%
================== ====================== ====================
- ------------------
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans was [_____]%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
% OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOCATION OF MORTGAGE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------ ---------------------- --------------------
Total............................. $ 100.00%
================== ====================== ====================
- -------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREPAYMENT CHARGES(1)
% OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MONTHS OF MORTGAGE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------ ---------------------- --------------------
Total.......................... $ 100.00%
================== ====================== ====================
- --------------------
(1) Prepayment charges are assessed on any Mortgage Loans prepaid in full or in part within the specified number of months.
</TABLE>
<TABLE>
<CAPTION>
LOAN RATES OF THE FIXED RATE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE
OF FIXED RATE
NUMBER PRINCIPAL BALANCE MORTGAGE LOANS
OF MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
LOAN RATE (%) LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total.......................... $ 100.00%
=================== ======================== =======================
- --------------------
(1)The weighted average Loan Rate of the Fixed Rate Mortgage Loans as of the Cut-off Date was [_______]% per annum.
</TABLE>
ADJUSTABLE RATE MORTGAGE LOANS
Each Adjustable Rate Mortgage Loan provides for [semi-annual]
adjustment to the Loan Rate thereon and for corresponding adjustments to the
monthly payment amount due thereon, in each case on each adjustment date
applicable thereto (each such date, an "ADJUSTMENT DATE"); provided that the
first adjustment for such Mortgage Loan will occur after an initial period of
[__________] in the case of [____]% of the Adjustable Rate Mortgage Loans, by
aggregate principal balance of the Adjustable Rate Mortgage Loans as of the
Cut-off Date. On each Adjustment Date for each Adjustable Rate Mortgage Loan,
the Loan Rate thereon will be adjusted to equal the sum, [rounded to the nearest
multiple of 0.125%,] of the Index (as described below) and a fixed percentage
amount (the "GROSS MARGIN"); [provided, however, that the Loan Rate on each such
Mortgage Loan generally will not increase or decrease by more than 1.50% per
annum on any related Adjustment Date (the "PERIODIC RATE CAP"), except that each
such Mortgage Loan may increase or decrease by a higher percentage per annum on
the initial Adjustment Date.] Each Loan Rate on each such Mortgage Loan will not
exceed a specified maximum Loan Rate over the life of such Mortgage Loan (the
"MAXIMUM LOAN RATE") or be less than a specified minimum Loan Rate over the life
of such Mortgage Loan (the "MINIMUM LOAN RATE"). The Delayed First Adjustment
Mortgage Loans have a weighted average Periodic Rate Cap of approximately [___]%
per annum. Effective with the first monthly payment due on each Adjustable Rate
Mortgage Loan after each related Adjustment Date, the monthly payment amount
will be adjusted to an amount that will amortize fully the outstanding principal
balance of the related Mortgage Loan over its remaining term, and pay interest
at the Loan Rate as so adjusted. Due to the application of the Periodic Rate
Caps and the Maximum Loan Rates, the Loan Rate on each such Mortgage Loan, as
adjusted on any related Adjustment Date, may be less than the sum of the Index
and the related Gross Margin, rounded as described herein. See "--The Index"
below. None of the Adjustable Rate Mortgage Loans permits the related mortgagor
to convert the adjustable Loan Rate thereon to a fixed Loan Rate.
The Adjustable Rate Mortgage Loans had Loan Rates as of the Cut-off
Date of not less than [______]% per annum and not more than [_____]% per annum
and the weighted average Loan Rate was approximately [_____]% per annum. As of
the Cut-off Date, the Adjustable Rate Mortgage Loans had Gross Margins ranging
from [_______]% to [______]%, Minimum Loan Rates ranging from [_____]% per annum
to [_____]% per annum and Maximum Loan Rates ranging from [_____]% per annum to
[_____]% per annum. As of the Cut-off Date, the weighted average Gross Margin
was approximately [_____]%, the weighted average Minimum Loan Rate was
approximately [_____]% per annum [(exclusive of the Mortgage Loans that do not
have a Minimum Loan Rate)] and the weighted average Maximum Loan Rate was
approximately [_____]% per annum. The latest next Adjustment Date following the
Cut-off Date on any Adjustable Rate Mortgage Loan occurs in [_______ 1999] and
the weighted average next Adjustment Date for all of the Adjustable Rate
Mortgage Loans following the Cut-off Date is [_______ 200_].
<PAGE>
The Adjustable Rate Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal the
total indicated due to rounding) and the percentages set forth in the tables are
percentages of the Adjustable Rate Mortgage Loans as of the Cut-off Date.
<TABLE>
<CAPTION>
LOAN RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE
OF ADJUSTABLE RATE
NUMBER OF PRINCIPAL BALANCE MORTGAGE LOANS
MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
LOAN RATE (%) LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------ ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ --------------------------
Total..................... $ 100.00%
=================== ======================== ==========================
- -------------------
(1)The weighted average Loan Rate of the Adjustable Rate Mortgage Loans as of the Cut-off Date was [_______]% per annum.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM LOAN RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE
OF ADJUSTABLE RATE
NUMBER OF PRINCIPAL BALANCE MORTGAGE LOANS
MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
MAXIMUM LOAN RATE (%) LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------ ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ --------------------------
$ 100.00%
=================== ======================== ==========================
- ------------------
(1) The weighted average Maximum Loan Rate of the Adjustable Rate Mortgage Loans as of the Cut-off Date was approximately
[____]% per annum.
</TABLE>
<TABLE>
<CAPTION>
MINIMUM LOAN RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE
OF ADJUSTABLE RATE
NUMBER OF PRINCIPAL BALANCE MORTGAGE LOANS
MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
MINIMUM LOAN RATE (%) LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------ ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ --------------------------
Total..................... $ 100.00%
=================== ======================== ==========================
- --------------------
(1) The weighted average Minimum Loan Rate of the Adjustable Rate Mortgage Loans as of the Cut-off Date was approximately
[___]% per annum.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE
OF ADJUSTABLE RATE
NUMBER OF PRINCIPAL BALANCE MORTGAGE LOANS
MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
GROSS MARGINS (%) LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------ ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ --------------------------
Total..................... $ 100.00%
=================== ======================== ==========================
- ------------------
(1)The weighted average Gross Margin of the Adjustable Rate Mortgage Loans as of the Cut-off Date was approximately [_____]%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATE FOR THE ADJUSTABLE RATE MORTGAGE LOANS
% OF AGGREGATE
PRINCIPAL BALANCE
OF ADJUSTABLE RATE
NUMBER OF PRINCIPAL BALANCE MORTGAGE LOANS
MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
NEXT ADJUSTMENT DATE LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------ ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ --------------------------
Total..................... $ 100.00%
=================== ======================== ==========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INITIAL FIXED TERM/SUBSEQUENT ADJUSTABLE RATE TERM OF THE ADJUSTABLE RATE MORTGAGE LOANS
% OF AGGREGATE
PRINCIPAL BALANCE
OF ADJUSTABLE RATE
NUMBER OF PRINCIPAL BALANCE MORTGAGE LOANS
INITIAL FIXED TERM/SUBSEQUENT MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
ADJUSTABLE RATE TERM LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------ ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ --------------------------
Total..................... $ 100.00%
=================== ======================== ==========================
</TABLE>
<TABLE>
<CAPTION>
INITIAL ADJUSTMENT RATE CAPS OF THE ADJUSTABLE RATE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE
OF ADJUSTABLE RATE
NUMBER OF PRINCIPAL BALANCE MORTGAGE LOANS
MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
INITIAL PERIODIC RATE CAP (%) LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------ ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ --------------------------
Total..................... $ 100.00%
=================== ======================== ==========================
- ------------------
(1)Relates solely to initial rate adjustments.
</TABLE>
<TABLE>
<CAPTION>
SUBSEQUENT PERIODIC RATE CAPS OF THE ADJUSTABLE RATE MORTGAGE LOANS(1)
% OF AGGREGATE
PRINCIPAL BALANCE
OF ADJUSTABLE RATE
NUMBER OF PRINCIPAL BALANCE MORTGAGE LOANS
MORTGAGE OUTSTANDING AS OF OUTSTANDING AS OF
PERIODIC RATE CAP (%) LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------------------------ ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ --------------------------
Total..................... $ 100.00%
=================== ======================== ==========================
- ------------------
(1)Relates to all rate adjustments subsequent to initial rate adjustments.
</TABLE>
THE INDEX
As of any Adjustment Date, the Index applicable to the determination of
the Loan Rate on each Adjustable Rate Mortgage Loan will be [________________].
In the event that the Index becomes unavailable or otherwise
unpublished, the Master Servicer will select a comparable alternative index over
which it has no direct control and which is readily verifiable.
UNDERWRITING STANDARDS
All of the Mortgage Loans have been [originated by, or purchased in the
secondary market by], [__________] (the "SELLER") in the ordinary course of its
business. The Mortgage Loans were purchased from [___________], representing
[___]% of the Pool Principal Balance as of the Cut-Off Date. Each entity from
which the Seller purchased the Mortgage Loans has represented and warranted that
each of the Mortgage Loans sold by it was underwritten in accordance with
standards utilized by it or the applicable originator in originating mortgage
loans generally comparable to such Mortgage Loans during the period of
origination. As described herein under "The Pooling and Servicing
Agreement--Assignment of the Mortgage Loans," the Seller, as Seller, will make
certain representations and warranties to the Trustee regarding the Mortgage
Loans. In the event of a breach that materially and adversely affects the
Certificateholders, the Seller will be obligated either to cure such breach or
repurchase or replace each affected Mortgage Loan.
[Underwriting standards are applied by or on behalf of a lender to
evaluate a borrower's credit standing and repayment ability, and the value and
adequacy of the related mortgaged property as collateral. In general, a
prospective borrower applying for a loan is required to fill out a detailed
application designed to provide 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 expense, 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.]
When the Seller [originates or acquires] a mortgage loan, the
borrower's credit report is reviewed. [Generally, each credit report provides a
credit score for the borrower. The credit score is based upon the credit
evaluation methodology developed by _________ ("SCORING COMPANY"), a consulting
firm specializing in creating evaluation predictive models through a high number
of variables components. Scoring Company scores generally range from [__] to
[__] and are available from three major credit bureaus: Experian (formerly TRW),
Equifax and Trans Union. These scores estimate, on a relative basis, which loans
are most likely to default in the future. Lower scores imply higher default risk
relative to a higher score. Scoring Company scores are empirically derived from
historical credit bureau data and represent a numerical weighing of a borrower's
credit characteristics over a two-year period. A Scoring Company score is
generated through the statistical analysis of a number of credit-related
characteristics or variables. Common characteristics include number of credit
lines (trade lines), payment history, past delinquencies, severity of
delinquencies, current levels of indebtedness, types of credit and length of
credit history. Attributes are specific values of each characteristic. A
scorecard (the model) is created with weights or points assigned to each
attribute. An individual loan applicant's credit score is derived by adding
together the attribute weights for the applicant. With respect to the Mortgage
Loans, [_____]% have credit scores for the borrowers and their weighted average
Scoring Company score was [____] at the time of scoring.]
THE MASTER SERVICER
The information set forth in the following paragraphs has been provided
by [_________________]. None of the Depositor, the Trustee, the Underwriter or
any of their respective affiliates has made or will make any representation as
to the accuracy or completeness of such information.
The following table sets forth, for the servicing portfolio serviced by
the Master Servicer as of [December 31, 1997, as of December 31, 1998 and as of
September 30, 1999], certain information relating to the delinquency experience
(including loans in foreclosure included in the Master Servicer's servicing
portfolio (which portfolio does not include mortgage loans that are subserviced
by others)) at the end of the indicated periods. The indicated periods of
delinquency are based on the number of days past due on a contractual basis. No
mortgage loan is considered delinquent for these purposes until it is one month
past due on a contractual basis. The information contained in the monthly
remittance reports which will be sent to investors will be compiled using the
same methodology as that used to compile the information contained in the table
below.
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999
--------------------------------- --------------------------------- ---------------------------------
PERCENT PERCENT PERCENT
BY NO. BY PERCENT BY BY NO. BY PERCENT BY BY NO. BY PERCENT BY
OF DOLLAR BY NO. DOLLAR OF DOLLAR BY NO. DOLLAR OF DOLLAR BY NO. DOLLAR
LOANS AMOUNT OF LOANS AMOUNT LOANS AMOUNT OF LOANS AMOUNT LOANS AMOUNT OF LOANS AMOUNT
----- ------ -------- ------ ----- ------ -------- ------ ----- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio....... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Period of Delinquency:
30-59 Days........
60-89 Days........
90 Days or more...
Total Delinquent
Loans...............
Loans in
Foreclosure(1)......
- ----------
(1) Loans in foreclosure are also included under the heading "Total Delinquent Loans."
</TABLE>
The following tables set forth, [December 31, 1997, as of December 31,
1998 and as of September 30, 1999], certain information relating to the
foreclosure, REO and loan loss experience of mortgage loans included in the
Master Servicer's servicing portfolio [(which portfolio does not include
mortgage loans that are subserviced by others)] at the end of the indicated
periods.
<TABLE>
<CAPTION>
REAL ESTATE OWNED
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------
AS OF AS OF AS OF
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999
-----------------------------------------------------------------------------
BY NO. BY BY NO. BY BY NO. BY
OF DOLLAR OF DOLLAR OF DOLLAR
LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio...........
Foreclosed Loans(1).......
Foreclosed Ratio(2).......
- ----------
(1) For the purposes of these tables, Foreclosed Loans means the principal balance of mortgage loans
secured by mortgaged properties the title to which has been acquired by the Master Servicer.
(2) The Foreclosure Ratio is equal to the aggregate principal balance or number of Foreclosed Loans
divided by the aggregate principal balance, or number, as applicable, or mortgage loans in the
total portfolio at the end of the indicated period.
</TABLE>
<TABLE>
<CAPTION>
LOAN GAIN/(LOSS) EXPERIENCE
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------
AS OF AS OF AS OF
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------------- ----------------------- --------------------
<S> <C> <C> <C>
Total Portfolio (1)....................
Net Gains/(Losses) (2).................
Net Gains/(Losses) as a Percentage of
Total Portfolio.........................
- ----------
(1) "Total Portfolio" on the date stated above is the principal balance of the mortgage loans outstanding on the
last day of the period.
(2) "Net Gains/(Losses)" are actual gains or losses incurred on liquidated properties and shortfall payoffs for
each respective period. Gains or losses on liquidated properties are calculated as net sales proceeds less
book value (exclusive of loan purchase premium or discount). Shortfall payoffs are calculated as the
difference between principal payoff amount and unpaid principal at the time of payoff.
</TABLE>
It is unlikely that the delinquency experience of the Mortgage Loans
comprising the Mortgage Pool will correspond to the delinquency experience of
the Master Servicer's mortgage portfolio set forth in the foregoing tables. The
statistics shown above represent the delinquency experience for the Master
Servicer's mortgage servicing portfolio only for the periods presented, whereas
the aggregate delinquency experience on the Mortgage Loans comprising the
Mortgage Pool will depend on the results obtained over the life of the Mortgage
Pool. There can be no assurance that the Mortgage Loans comprising the Mortgage
Pool will perform consistent with the delinquency or foreclosure experience
described herein. It should be noted that if the residential real estate market
should experience an overall decline in property values, the actual rates of
delinquencies and foreclosures could be higher than those previously experienced
by the Master Servicer. In addition, adverse economic conditions 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 and
foreclosures with respect to the Mortgage Pool.
[The Master Servicer is in the process of completing its compliance
goals in connection with the year 2000 issue. The year 2000 issue is the result
of prior computer programs being written using two digits, rather than four
digits, to define the applicable year. Any of the Master Servicer's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. Any such occurrence could result in
major computer system failure or miscalculations. The Master Servicer is
presently engaged in various procedures to ensure that their computer systems
and software will be year 2000 compliant.
However, in the event that the Master Servicer, or any of its
suppliers, customers, brokers or agents do not successfully and timely achieve
year 2000 compliance, the performance of obligations of the Master Servicer
under the Pooling and Servicing Agreement could be materially adversely
affected.]
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of ____________ __, 1999_ (the "POOLING AND SERVICING
AGREEMENT"), among the Depositor, the Seller, the Master Servicer and the
Trustee. The Trust Fund created under the Pooling and Servicing Agreement will
consist of (i) all of the Depositor's right, title and interest in the Mortgage
Loans, the related mortgage notes, Mortgages and other related documents, (ii)
all payments on or collections in respect of the Mortgage Loans due after the
Cut-off Date, together with any proceeds thereof, (iii) any Mortgaged Properties
acquired on behalf of Certificateholders by foreclosure or by deed in lieu of
foreclosure, and any revenues received thereon, (iv) the rights of the Trustee
under all insurance policies required to be maintained pursuant to the Pooling
and Servicing Agreement and (v) the rights of the Depositor under the Mortgage
Loan Purchase Agreement between the Depositor and the Seller. The Offered
Certificates will be transferable and exchangeable at the corporate trust
offices of the Trustee.
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date the Depositor will transfer to the Trust Fund all
of its right, title and interest in and to each Mortgage Loan, the related
mortgage notes, mortgages and other related documents (collectively, the
"RELATED DOCUMENTS"), including all scheduled payments with respect to each such
Mortgage Loan due after the applicable Cut-off Date. The Trustee, concurrently
with such transfer, will deliver the Certificates to the Depositor. Each
Mortgage Loan transferred to the Trust Fund will be identified on a schedule
(the "MORTGAGE LOAN SCHEDULE") delivered to the Trustee pursuant to the Pooling
and Servicing Agreement. Such schedule will include information such as the
Principal Balance of each Mortgage Loan as of the Cut-off Date, its Loan Rate as
well as other information.
The Pooling and Servicing Agreement will require that, within the time
period specified therein, the Seller will deliver or cause to be delivered to
the Trustee (or a custodian, as the Trustee's agent for such purpose) the
Mortgage Loans endorsed to the Trustee on behalf of the Certificateholders and
the Related Documents. In lieu of delivery of original Mortgages, if such
original is not available, the Seller may deliver or cause to be delivered true
and correct copies thereof, together with a lost note affidavit executed by the
Seller.
Within [___] days of the Closing Date, the Trustee will review the
Mortgage Loans and the Related Documents pursuant to the Pooling and Servicing
Agreement and if any Mortgage Loan or Related Document is found to be defective
in any material respect and such defect is not cured within [___] days following
notification thereof to the Seller by the Trustee, the Seller will be obligated
to either (i) substitute for such Mortgage Loan an Eligible Substitute Mortgage
Loan; however, such substitution is permitted only within two years of the
Closing Date and may not be made unless an opinion of counsel is provided to the
effect that such substitution will not [disqualify the Trust Fund as a REMIC or]
result in a prohibited transaction tax under the Code or (ii) purchase such
Mortgage Loan at a price (the "PURCHASE PRICE") equal to the outstanding
Principal Balance of such Mortgage Loan as of the date of purchase, plus all
accrued and unpaid interest thereon, computed at the Loan Rate (net of the
Servicing Fee Rate and the Trustee Fee) through the end of the calendar month in
which the purchase is effected, plus the amount of any unreimbursed Advances and
Servicing Advances made by the Master Servicer. The Purchase Price will be
deposited in the Collection Account on or prior to the next succeeding
Determination Date after such obligation arises. The obligation of the Seller to
repurchase or substitute for a Defective Mortgage Loan is the sole remedy
regarding any defects in the Mortgage Loans and Related Documents available to
the Trustee or the Certificateholders.
In connection with the substitution of an Eligible Substitute Mortgage
Loan, the Seller will be required to deposit in the Collection Account on or
prior to the next succeeding Determination Date after such obligation arises an
amount (the "SUBSTITUTION ADJUSTMENT") equal to the excess of the Principal
Balance of the related Defective Mortgage Loan over the Principal Balance of
such Eligible Substitute Mortgage Loan.
An "ELIGIBLE SUBSTITUTE MORTGAGE LOAN" is a mortgage loan substituted
by the Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not in excess of, and not more than 5% less than,
the Principal Balance of the Defective Mortgage Loan; (ii) have a Loan Rate,
with respect to a Fixed Rate Mortgage Loan, not less than the Loan Rate of the
Defective Mortgage Loan and not more than 1% in excess of the Loan Rate of such
Defective Mortgage Loan or, with respect to an Adjustable Rate Mortgage Loan,
have a Maximum Loan Rate and Minimum Loan Rate not less than the respective rate
for the Defective Mortgage Loan and have a Gross Margin equal to or greater than
the Defective Mortgage Loan; (iii) have the same Due Date as the Defective
Mortgage Loan; (iv) have a remaining term to maturity not more than one year
earlier and not later than the remaining term to maturity of the Defective
Mortgage Loan; (v) comply with each representation and warranty as to the
Mortgage Loans set forth in the Pooling and Servicing Agreement (deemed to be
made as of the date of substitution); and (vi) satisfy certain other conditions
specified in the Pooling and Servicing Agreement.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (E.G., Cut-off Date Principal Balance
and the Loan Rate). In addition, the Seller will represent and warrant, on the
Closing Date, that, among other things: (i) at the time of transfer to the
Depositor, the Seller has transferred or assigned all of its right, title and
interest in each Mortgage Loan and the Related Documents, free of any lien; and
(ii) each Mortgage Loan complied, at the time of origination, in all material
respects with applicable state and federal laws. Upon discovery of a breach of
any such representation and warranty which materially and adversely affects the
interests of the Certificateholders in the related Mortgage Loan and Related
Documents, the Seller will have a period of [___] days after discovery or notice
of the breach to effect a cure. If the breach cannot be cured within the
[___]-day period, the Seller will be obligated to (i) substitute for such
Defective Mortgage Loan an Eligible Substitute Mortgage Loan or (ii) purchase
such Defective Mortgage Loan from the Trust Fund. The same procedure and
limitations that are set forth above for the substitution or purchase of
Defective Mortgage Loans as a result of deficient documentation relating thereto
will apply to the substitution or purchase of a Defective Mortgage Loan as a
result of a breach of a representation or warranty in the Pooling and Servicing
Agreement that materially and adversely affects the interests of the
Certificateholders.
Mortgage Loans required to be transferred to the Seller as described in
the preceding paragraphs are referred to as "DEFECTIVE MORTGAGE LOANS."
Pursuant to the Pooling and Servicing Agreement, the Master Servicer
will service and administer the Mortgage Loans as more fully set forth herein.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The Master Servicer shall establish and maintain or cause to be
maintained a separate trust account (the "COLLECTION ACCOUNT") for the benefit
of the holders of the Certificates. The Collection Account will be an Eligible
Account (as defined herein). Upon receipt by the Master Servicer of amounts in
respect of the Mortgage Loans (excluding amounts representing the Servicing Fee,
the Trustee Fee, reimbursement for Advances and Servicing Advances and insurance
proceeds to be applied to the restoration or repair of a Mortgaged Property or
similar items), the Master Servicer will deposit such amounts in the Collection
Account. Amounts so deposited may be invested in Eligible Investments (as
described in the Pooling and Servicing Agreement) maturing no later than one
Business Day prior to the date on which the amount on deposit therein is
required to be deposited in the Distribution Account or on such Distribution
Date if approved by the Rating Agencies. The Trustee will establish an account
(the "DISTRIBUTION ACCOUNT") into which will be deposited amounts withdrawn from
the Collection Account for distribution to Certificateholders on a Distribution
Date. The Distribution Account will be an Eligible Account. Amounts on deposit
therein may be invested in Eligible Investments maturing on or before the
Business Day prior to the related Distribution Date unless such Eligible
Investments are invested in investments managed or advised by the Trustee or an
affiliate thereof, in which case such Eligible 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 Eligible 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. Eligible
Investments are specified in the Pooling and Servicing 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.
ADVANCES
Subject to the following limitations, the Master Servicer will be
obligated to advance or cause to be advanced on or before each Distribution Date
its own funds, or funds in the Collection Account that are not included in the
Available Funds for such Distribution Date, in an amount equal to the aggregate
of all payments of principal and interest, net of the Servicing Fee, and the
Trustee Fee, that were due during the related Due Period on the Mortgage Loans,
other than Balloon Payments, and that were delinquent on the related
Determination Date, plus certain amounts representing assumed payments not
covered by any current net income on the Mortgaged Properties acquired by
foreclosure or deed in lieu of foreclosure, and, with respect to Balloon Loans,
with respect to which the Balloon Payment is not made when due, an assumed
monthly payment that would have been due on the related Due Date based on the
original principal amortization schedule for such Balloon Loan (any such
advance, an "ADVANCE").
Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, insurance
proceeds or liquidation proceeds. The purpose of making such Advances is to
maintain a regular cash flow to the Certificateholders, rather than to guarantee
or insure against losses. The Master Servicer will not be required to make any
Advances with respect to reductions in the amount of the monthly payments on the
Mortgage Loans due to bankruptcy proceedings or the application of the Relief
Act.
All Advances will be reimbursable to the Master Servicer from late
collections, insurance proceeds and liquidation proceeds from the Mortgage Loan
as to which such unreimbursed Advance was made. In addition, any Advances
previously made in respect of any Mortgage Loan that are deemed by the Master
Servicer to be nonrecoverable from related late collections, insurance proceeds
or liquidation proceeds may be reimbursed to the Master Servicer out of any
funds in the Collection Account prior to the distributions on the Certificates.
In the event the Master Servicer fails in its obligation to make any such
advance, the Trustee, in its capacity as successor Master Servicer, will be
obligated to make any such advance, to the extent required in the Pooling and
Servicing Agreement.
In the course of performing its servicing obligations, the Master
Servicer will pay all reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of (i) the preservation, restoration and protection
of the Mortgaged Properties, (ii) any enforcement or judicial proceedings,
including foreclosures, and (iii) the management and liquidation of Mortgaged
Properties acquired in satisfaction of the related mortgage. Each such
expenditure will constitute a "SERVICING ADVANCE."
The Master Servicer's right to reimbursement for Servicing Advances is
limited to late collections on the related Mortgage Loan, including liquidation
proceeds, released mortgaged property proceeds, insurance proceeds and such
other amounts as may be collected by the Master Servicer from the related
Mortgagor or otherwise relating to the Mortgage Loan in respect of which such
unreimbursed amounts are owed, unless such amounts are deemed to be
nonrecoverable by the Master Servicer, in which event reimbursement will be made
to the Master Servicer from general funds in the Collection Account.
THE TRUSTEE
[__________], a [________], will be named trustee (the "TRUSTEE")
pursuant to the Pooling and Servicing Agreement. The Trustee will initially
serve as custodian of the Mortgage Loans.
The principal compensation (the "TRUSTEE FEE") to be paid to the
Trustee in respect of its obligations under the Pooling and Servicing Agreement
will be equal to [____________]. The Pooling and Servicing Agreement will
provide that the Trustee and any director, officer, employee or agent of the
Trustee will be indemnified by the Trust Fund and will be held harmless against
any loss, liability or expense (not including expenses, disbursements and
advances incurred or made by the Trustee, including the compensation and the
expenses and disbursements of its agents and counsel, in the ordinary course of
the Trustee's performance in accordance with the provisions of the Pooling and
Servicing Agreement) incurred by the Trustee arising out of or in connection
with the acceptance or administration of its obligations and duties under the
Pooling and Servicing Agreement, other than any loss, liability or expense (i)
that constitutes a specific liability of the Trustee under the Pooling and
Servicing Agreement or (ii) incurred by reason of willful misfeasance, bad faith
or negligence in the performance of the Trustee's duties under the Pooling and
Servicing Agreement or as a result of a breach, or by reason of reckless
disregard, of the Trustee's obligations and duties under the Pooling and
Servicing Agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation (the "SERVICING FEE") to be paid to the
Master Servicer in respect of its servicing activities for the Certificates will
be at the "SERVICING FEE RATE" of up to [___]% per annum on the Principal
Balance of each Mortgage Loan. The amount resulting from the difference, if any,
between the Servicing Fee Rate for any Mortgage Loan and [____]% per annum (the
"EXCESS SERVICING FEE") will be [retained by the Seller]. As additional
servicing compensation, the Master Servicer is entitled to retain all
service-related fees (other than prepayment penalties), including assumption
fees, modification fees, extension fees and late payment charges, to the extent
collected from mortgagors, together with any interest or other income earned on
funds held in the Collection Account and any escrow accounts. [The Master
Servicer is obligated to offset any Prepayment Interest Shortfall on any
Distribution Date (payments made by the Master Servicer in satisfaction of such
obligation, "COMPENSATING INTEREST") by an amount not in excess of its Servicing
Fee for such Distribution Date.] The Master Servicer is obligated to pay certain
insurance premiums and certain ongoing expenses associated with the Mortgage
Pool and incurred by the Master Servicer in connection with its responsibilities
under the Pooling and Servicing Agreement and is entitled to reimbursement
therefor as provided in the Pooling and Servicing Agreement.
The "DETERMINATION DATE" with respect to any Distribution Date will be
the [__]th day of the calendar month in which such Distribution Date occurs or,
if such [___]th day is not a Business Day, the Business Day immediately
following such [___]th day. [With respect to any Determination Date and each
Mortgage Loan as to which a principal prepayment in full or in part was applied
during the related Due Period, the "PREPAYMENT INTEREST SHORTFALL" is an amount
equal to the interest at the applicable Loan Rate (net of the Servicing Fee) on
the amount of such principal prepayment for the number of days commencing on the
date on which the principal prepayment is applied and ending on the last day of
the related Due Period.]
VOTING RIGHTS
With respect to any date of determination, the percentage of all the
voting rights ("VOTING RIGHTS") allocated among holders of the Offered
Certificates shall be the fraction, expressed as a percentage, the numerator of
which is the aggregate Certificate Principal Balance of all the Certificates of
such Class then outstanding and the denominator of which is the aggregate
Certificate Principal Balance of all the Certificates then outstanding. The
Voting Rights allocated to each Class of Offered Certificates shall be allocated
among all holders of each such Class in proportion to the outstanding
Certificate Principal Balance of such Certificates.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Seller, the
Depositor, the Master Servicer and the Trustee, without the consent of the
holders of the Certificates, for any of the purposes set forth under "The
Pooling and Servicing Agreement--Amendment" in the Prospectus. In addition, the
Pooling and Servicing Agreement may be amended by the Seller, the Depositor, the
Master Servicer and the Trustee and the holders of a majority in interest of any
Class of Offered Certificates affected thereby for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of Offered Certificates; provided, however, that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of,
distributions required to be made on any Offered Certificate without the consent
of the holder of such Certificate; (ii) adversely affect in any material respect
the interests of the holders of any Class of the Offered Certificates in a
manner other than as described in clause (i) above, without the consent of the
holders of Offered Certificates of such Class evidencing percentage interests
aggregating at least 66%; or (iii) reduce the aforesaid percentage of aggregate
outstanding principal amounts of Offered Certificates, the holders of which are
required to consent to any such amendment, without the consent of the holders of
all such Certificates.
TERMINATION
The holder of the majority interest in the Residual Certificate (or if
such holder does not exercise such option, the Master Servicer) will have the
right to repurchase all remaining Mortgage Loans and REO Properties and thereby
effect the early retirement of the Certificates, on any Distribution Date
following the Due Period during which the aggregate principal balance of the
Mortgage Loans and any real estate owned by the Trust is less than or equal to
10% of the Pool Principal Balance as of the Cut-off Date. In the event that the
option is exercised, the repurchase will be made at a price generally equal to
par plus accrued interest for each Mortgage Loan at the related Loan Rate to but
not including the first day of the month in which such repurchase price is
distributed plus the amount of any unreimbursed Advances and Servicing Advances
made by the Master Servicer. Proceeds from such repurchase will be included in
Available Funds and will be distributed to the holders of the Certificates in
accordance with the Pooling and Servicing Agreement. Any such repurchase of the
Mortgage Loans and REO Properties will result in the early retirement of the
Certificates.
[OPTIONAL PURCHASE OF DEFAULTED LOANS
As to any Mortgage Loan which is delinquent in payment by [__] days or
more, the Master Servicer may, at its option, purchase such Mortgage Loan from
the Trust Fund at the Purchase Price for such Mortgage Loan.]
EVENTS OF DEFAULT
Events of Default will consist, among other things, of: (i) (a) any
failure by the Master Servicer to make an Advance and (b) any other failure by
the Master Servicer to deposit in the Collection Account or Distribution Account
the required amounts or remit to the Trustee any payment which continues
unremedied for one Business Day following written notice to the Master Servicer;
(ii) any failure of the Master Servicer to make any Advance or to cover any
Prepayment Interest Shortfalls, as described herein, which failure continues
unremedied for one Business Day; (iii) any failure by the Master Servicer to
observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement, which continues unremedied
for 30 days after the first date on which (x) the Master Servicer has knowledge
of such failure or (y) written notice of such failure is given to the Master
Servicer; (iv) insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, and certain actions by or on behalf of the
Master Servicer indicating its insolvency or inability to pay its obligations or
(v) cumulative Realized Losses as of any Distribution Date exceed the amount
specified in the Pooling and Servicing Agreement.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under the Pooling and Servicing
Agreement remains unremedied, the Trustee at the direction of the holders of
Offered Certificates evidencing not less than 51% of the Voting Rights may
terminate all of the rights and obligations of the Master Servicer in its
capacity as servicer with respect to the Mortgage Loans, as provided in the
Pooling and Servicing Agreement, whereupon the Trustee will succeed to all of
the responsibilities and duties of the Master Servicer under the Pooling and
Servicing Agreement, including the obligation to make Advances. No assurance can
be given that termination of the rights and obligations of the Master Servicer
under the Pooling and Servicing Agreement would not adversely affect the
servicing of the related Mortgage Loans, including the delinquency experience of
such Mortgage Loans.
No holder of an Offered Certificate, solely by virtue of such holder's
status as a holder of an Offered Certificate, will have any right under the
Pooling and Servicing Agreement to institute any proceeding with respect
thereto, unless such holder previously has given to the Trustee written notice
of default and unless the holders of Offered Certificates having not less than
51% of the Voting Rights evidenced by the Offered Certificates so agree and have
offered reasonable indemnity to the Trustee.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Offered Certificates will be issued pursuant to a Pooling and
Servicing Agreement. Set forth below are summaries of the specific terms and
provisions pursuant to which the Offered 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 Pooling and
Servicing Agreement. When particular provisions or terms used in the Pooling and
Servicing Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference.
[_______________________] will issue the Class A Certificates (the
"SENIOR CERTIFICATES"), (ii) the Class M Certificates (the "MEZZANINE
CERTIFICATES"), (iii) the Class B Certificates (the "SUBORDINATE Certificates")
and (iv) the Class R Certificates (the "RESIDUAL CERTIFICATES"). The Senior
Certificates, the Mezzanine Certificates and the Subordinate Certificates
(collectively, the "OFFERED CERTIFICATES") and the Residual Certificates are
collectively referred to herein as the "CERTIFICATES." Only the Offered
Certificates are offered hereby.
The Class A, the Class M and the Class B Certificates will have the
respective Original Certificate Principal Balances specified on the cover
hereof. The aggregate of the Original Certificate Principal Balances of the
Offered Certificates is approximately $[_____________].
The Class R Certificates will have an Original Certificate Principal
Balance of $[___] and will [not] bear interest.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar denominations
of $[______] and integral multiples of $[_______] in excess thereof (except that
one Certificate of each Class may be issued in a denomination which is not an
integral multiple thereof). The assumed final maturity date for each Class of
Offered Certificates is the Distribution Date occurring in [___________ 20__].
Distributions on the Offered Certificates will be made by the Trustee
on the [__]th day of each month, or if such day is not a Business Day, on the
first Business Day thereafter, commencing on _________ __, 1999 (each, a
"DISTRIBUTION DATE"), to the persons in whose names such Certificates are
registered at the close of business on the Business Day immediately preceding
such Distribution Date (each, a "RECORD DATE").
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (the
"BOOK-ENTRY CERTIFICATES"). Persons acquiring beneficial ownership interests in
the Offered Certificates ("CERTIFICATE OWNERS") will hold their Offered
Certificates through The Depository Trust Company ("DTC") [in the United States,
or Cedel Bank, societe anonyme ("CEDEL"), or Euroclear (in Europe)] if they are
participants of such system[s], or indirectly through organizations which are
participants in such system[s]. The Book-Entry Certificates will be issued in
one or more certificates which equal the aggregate principal balance of the
Offered Certificates and will initially be registered in the name of Cede & Co.,
("CEDE"), the nominee of DTC. [Cedel and Euroclear will hold omnibus positions
on behalf of their participants through customers' securities accounts in
Cedel's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Cedel and The Chase Manhattan Bank will act as depositary for Euroclear (in such
capacities, individually the "RELEVANT DEPOSITARY" and collectively the
"EUROPEAN DEPOSITARIES").] Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations of $50,000. Except as described
below, no person acquiring a Book-Entry Certificate (each, a "beneficial owner)
will be entitled to receive a physical certificate representing such Certificate
(a "DEFINITIVE CERTIFICATE"). Unless and until Definitive Certificates are
issued, it is anticipated that the only "CERTIFICATEHOLDER" of the Offered
Certificates will be Cede, as nominee of DTC. Certificate Owners will not be
Certificateholders as that term is used in the Pooling and Servicing Agreement.
Certificate Owners are only permitted to exercise their rights indirectly
through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "FINANCIAL INTERMEDIARY") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC if
the beneficial owner's Financial Intermediary is not a DTC participant [and on
the records of Cedel or Euroclear, as appropriate]).
Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "RULES"), DTC is required to
make book-entry transfers among participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and indirect participants with which Certificate Owners have
accounts with respect to Offered Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates representing their respective interests in the
Offered Certificates, the Rules provide a mechanism by which Certificate Owners
will receive distributions and will be able to transfer their interest.
Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Certificateholders which are not DTC
participants may transfer ownership of Offered Certificates only through
participants and indirect participants by instructing such participants and
indirect participants to transfer Offered Certificates, by book-entry transfer,
through DTC for the account of the purchasers of such Offered Certificates,
which account is maintained with their respective participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Offered Certificates will be executed through DTC and the accounts of the
respective participants at DTC will be debited and credited. Similarly, the
participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing
Certificateholders.
[Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a DTC participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlement in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Certain Federal
Income Tax Consequences--REMIC Certificates --Regular Certificates--Non-U.S.
Persons" and "--Information Reporting and Backup Withholding" in the Prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures--Certain U.S.
Federal Income Tax Documentation Requirements" in Annex I hereto.]
Transfers between DTC participants will occur in accordance with the
Rules. [Transfers between Cedel Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.]
[Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with the 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. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.]
DTC which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the Rules, as in effect from time to time.
[Cedel Bank, societe anonyme, 67 Bd Grande-Duchesse Charlotte, L-1331
Luxembourg, was incorporated in 1970 as a limited company under Luxembourg law.
Cedel is owned by banks, securities dealers and financial institutions, and
currently has about 100 shareholders, including U.S. financial institutions or
their subsidiaries. No single entity may own more than five percent of Cedel's
stock.]
[Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institut Monetaire Luxembourgeois (I.E., the Luxembourg
Monetary Authority), which supervises Luxembourg banks.]
[Cedel holds securities for its customers ("CEDEL PARTICIPANTS") and
facilitates the clearance and settlement of securities transactions by
electronic book-entry transfers between their accounts. Cedel provides various
services, including safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
also deals with domestic securities markets in several countries through
established depository and custodial relationships. Cedel has established an
electronic bridge with Morgan Guaranty Trust as the Euroclear Operator in
Brussels to facilitate settlement of trades between systems. Cedel currently
accepts over 70,000 securities issues on its books.]
[Cedel's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Cedel's United States customers are limited to securities
brokers and dealers and banks. Currently, Cedel has approximately 3,000
customers located in over 60 countries, including all major European countries,
Canada, and the United States. Indirect access to Cedel is available to other
institutions which clear through or maintain a custodial relationship with an
account holder of Cedel.]
[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 in any of 29 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "EUROCLEAR OPERATOR"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"COOPERATIVE"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.]
[The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.]
[Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.]
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC participants in
accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the beneficial owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. [Distributions with respect
to Certificates held through Cedel or Euroclear will be credited to the cash
accounts of Cedel Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. See "Certain Federal
Income Tax Consequences--REMIC Certificates--Regular Certificates--Non-U.S.
Persons" and "--Information Reporting and Backup Withholding" in the
Prospectus.] Because DTC can only act on behalf of Financial Intermediaries, the
ability of a beneficial owner to pledge Book-Entry Certificates to persons or
entities that do not participate in DTC, or otherwise take actions in respect of
such Book-Entry Certificates, may be limited due to the lack of physical
certificates for such Book-Entry Certificates. In addition, issuance of the
Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Monthly and annual reports on the Trust will be provided to Cede, as
nominee of DTC, and may be made available by Cede to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such beneficial owners 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 the
holders of the Book-Entry Certificates under the Agreement only at the direction
of one or more Financial Intermediaries to whose DTC accounts the Book-Entry
Certificates are credited, to the extent that such actions are taken on behalf
of Financial Intermediaries whose holdings include such Book-Entry Certificates.
[Cedel or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Certificateholder under the Agreement on behalf of a
Cedel Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to the ability of the Relevant Depositary to
effect such actions on its behalf through DTC.] DTC may take actions, at the
direction of the related participants, with respect to some Offered Certificates
which conflict with actions taken with respect to other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or [______________] advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as nominee
and depository with respect to the Book-Entry Certificates and
[________________] or the Trustee is unable to locate a qualified successor, (b)
[_________________], at its sole option, with the consent of the Trustee, elects
to terminate a book-entry system through DTC or (c) after the occurrence of an
Event of Default, beneficial owners having Percentage Interests aggregating not
less than 51% of the Book-Entry Certificates advise the Trustee and DTC through
the Financial Intermediaries and the DTC participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement.
Although DTC [, Cedel and Euroclear] have agreed to the foregoing
procedures in order to facilitate transfers of Offered Certificates among
participants of DTC, [Cedel and Euroclear,] they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
None of [_________], the Master Servicer or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions on the Certificates will
be made on each Distribution Date from Available Funds and will be made to the
Classes of Certificates (subject to the prior payment of principal distributions
to the Class R Certificates on the first Distribution Date as described herein)
in the following order of priority: (i) to interest on each Class of Offered
Certificates in the priority and subject to the limitations described under
"--Allocations of Available Funds" below; (ii) to current principal of the
Classes of Certificates then entitled to receive distributions of principal, in
the order and subject to the priorities set forth herein under "--Allocation of
Available Funds"; (iii) to principal of the Classes of Certificates then
entitled to receive distributions of principal in order to maintain the
Overcollateralization Target Amount; (iv) to unpaid interest and the Loss
Reimbursement Entitlement in the order and subject to the priorities described
herein under "--Allocation of Available Funds"; (v) to the Class OC Certificates
for deposit into the Excess Reserve Fund Account first to cover any Basis Risk
Shortfall Amount and then to cover any Required Reserve Amount, and then to be
released to the Class OC Certificates, in each case subject to certain
limitations set forth herein under "--Allocation of Available Funds"; and (vi)
any remaining amounts to the holders of the Class R Certificates.
ALLOCATION OF AVAILABLE FUNDS
Distributions to holders of each Class of Offered Certificates will be
made on each Distribution Date from Available Funds. "AVAILABLE FUNDS" for any
Distribution Date is equal to the sum, net of amounts reimbursable therefrom to
the Master Servicer, of (i) the aggregate amount of monthly payments on the
related Mortgage Loans due on the related Due Date and received by the Trustee
on or prior to the related Determination Date, after deduction of the Servicing
Fee, the Excess Servicing Fee and the Trustee Fee, (ii) certain unscheduled
payments in respect of the Mortgage Loans, including prepayments, insurance
proceeds, Net Liquidation Proceeds and proceeds from repurchases of and
substitutions for such Mortgage Loans occurring during the related Prepayment
Period [,excluding prepayment penalties] and (iii) all Advances with respect to
the related Mortgage Loans received by the Trustee for such Distribution Date.
The "PREPAYMENT PERIOD" with respect to any Distribution Date is the
period commencing on the Determination Date in the month preceding the month in
which such Distribution Date occurs (or, in the case of the first Distribution
Date, the day following the Cut-off Date) and ending on the Determination Date
relating to such Distribution Date.
On each Distribution Date, the Trustee will withdraw from the
Distribution Account all Available Funds then on deposit therein and will
distribute the same in the following order of priority (provided, however, on
the first Distribution Date, the Trustee will first distribute all principal due
to the Class R Certificates):
(i) on account of interest to the holders of each Class of Offered
Certificates in the following order of priority:
(a) to the Class A Certificates, the Interest Distributable Amount for
such Class for such Distribution Date; and
(b) sequentially, to the Class M and Class B Certificates, in that
order, the related Monthly Interest Distributable Amount for such
Distribution Date;
(ii) from the Principal Distribution Amount (giving effect first to the
component of the Principal Distribution Amount equal to the Basic Principal
Distribution Amount and then to the component of the Principal Distribution
Amount equal to the Extra Principal Distribution Amount pursuant to clause
(iii)(a) below):
(a) on each Distribution Date (1) before the Stepdown Date or (2)
with respect to which a Trigger Event is in effect, sequentially
to the holders of the Class A, Class M and Class B Certificates,
in that order, the respective Class Principal Distribution
Amount; or
(b) on each Distribution Date (1) on or after the Stepdown Date and
(2) as long as a Trigger Event is not in effect, to the holders
of the Class or Classes of Offered Certificates then entitled to
distribution of principal, in an amount equal to in the
aggregate the Principal Distribution Amount in the following
amounts and order of priority:
(1) the lesser of (x) the Principal Distribution Amount and
(y) the Class A Principal Distribution Amount to the Class A
Certificateholders, until the Certificate Principal Balance
thereof is reduced to zero;
(2) the lesser of (x) the excess of (i) the Principal
Distribution Amount over (ii) the amount distributed to the
Class A Certificateholders in clause (ii)(b)(1) above and (y)
the Class M Principal Distribution Amount, to the Class M
Certificateholders, until the Certificate Principal Balance
thereof is reduced to zero;
(3) the lesser of (x) the excess of (i) the Principal
Distribution Amount over (ii) the sum of the amounts distributed
to the Class A Certificateholders in clause (ii)(b)(1) above and
the amount distributed to the Class M Certificateholders in
clause (ii)(b)(2) above and (y) the Class B Principal
Distribution Amount, to the Class B Certificateholders, until
the Certificate Principal Balance thereof is reduced to zero;
(iii) any amounts remaining after the distributions in clauses (i)
through (ii) above shall be distributed in the following order of priority:
(a) to fund the Extra Principal Distribution Amount for such
Distribution Date to be paid as a component of the Principal Distribution
Amount in the same order of priority described in clause (ii) above;
(b) to the Class M Certificateholders, the related Unpaid Interest
Shortfall Amount for such Distribution Date and then the related Loss
Reimbursement Entitlement, if any, for such Distribution Date;
(c) to the Class B Certificateholders, the related Unpaid Interest
Shortfall Amount for such Distribution Date and then the related Loss
Reimbursement Entitlement, if any, for such Distribution Date; and
(d) to the holders of the Class OC Certificates for deposit into the
Excess Reserve Fund Account first to cover any Basis Risk Shortfall Amount
and then to cover any Required Reserve Amount, and then to be released to
the holders of the Class OC Certificates, such amounts, if any, as
described in the Pooling and Servicing Agreement; and
(iv) to the holders of the Class R Certificates, the remaining amount.
On each Distribution Date, all amounts representing prepayment
penalties received during the related Due Period will be distributed to the
holders of the Class OC Certificates.
DEFINITIONS
The "ACCRUAL PERIOD" for the Offered Certificates for a given
Distribution Date will be the actual number of days (based on a 360-day year)
included in the period commencing on the immediately preceding Distribution Date
and ending on the day immediately preceding the current Distribution Date;
provided, however, that the initial Accrual Period for the Offered Certificates
will be the actual number of days included in the period commencing on the
Closing Date and ending on ________ __, 1999_.
The "ALLOCABLE LOSS AMOUNT" with respect to each Distribution Date
means the excess, if any, of (a) the aggregate of the Certificate Principal
Balances of all Classes of Offered Certificates (after giving effect to all
distributions on such Distribution Date) over (b) the Pool Principal Balance as
of the end of the preceding Due Period.
The "BASIC PRINCIPAL DISTRIBUTION AMOUNT" means with respect to any
Distribution Date the excess of (i) the Principal Remittance Amount for such
Distribution Date over (ii) the Overcollateralization Release Amount, if any,
for such Distribution Date.
The "CALL OPTION DATE" is the first Distribution Date on which the Pool
Principal Balance is less than or equal to 10% of the Pool Principal Balance as
of the Cut-off Date.
The "CERTIFICATE PRINCIPAL BALANCE" of any Class of Offered
Certificates, as of any Distribution Date, will be equal to the Certificate
Principal Balance thereof on the Closing Date (the "ORIGINAL CERTIFICATE
PRINCIPAL BALANCE") reduced by the sum of (i) all amounts actually distributed
in respect of principal of such Class on all prior Distribution Dates and (ii)
with respect to any Mezzanine Certificates and the Class B Certificates, all
related Allocable Loss Amounts applied in reduction of principal of such
Certificates on all prior Distribution Dates.
"CLASS A PRINCIPAL DISTRIBUTION AMOUNT" means as of any Distribution
Date (a) prior to the Stepdown Date or with respect to which a Trigger Event is
in effect, the lesser of (i) 100% of the Principal Distribution Amount and (ii)
the aggregate Certificate Principal Balance of the Class A Certificates and (b)
on or after the Stepdown Date and as long as a Trigger Event is not in effect,
the positive difference, if any, of the excess of (x) the aggregate Certificate
Principal Balance of the Class A Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) approximately
[____]% and (ii) the aggregate Principal Balance of the Mortgage Loans as of the
last day of the related Due Period and (B) the aggregate Principal Balance of
the Mortgage Loans as of the last day of the related Due Period MINUS
approximately
$[--------].
"CLASS M PRINCIPAL DISTRIBUTION AMOUNT" means as of any Distribution
Date (a) prior to the Stepdown Date or with respect to which a Trigger Event is
in effect, the lesser of (i) 100% of the Principal Distribution Amount and (ii)
the aggregate Certificate Principal Balance of the Class M Certificates and (b)
on or after the Stepdown Date and as long as a Trigger Event is not in effect,
the positive difference, if any, of the excess of (x) the sum of (i) the
aggregate Certificate Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A Principal Distribution Amount on
such Distribution Date) and (ii) the Certificate Principal Balance of the Class
M Certificates immediately prior to such Distribution Date over (y) the lesser
of (A) the product of (i) approximately [____]% and (ii) the aggregate Principal
Balance of the Mortgage Loans as of the last day of the related Due Period and
(B) the aggregate Principal Balance of the Mortgage Loans as of the last day of
the related Due Period MINUS approximately $[__________].
"CLASS B PRINCIPAL DISTRIBUTION AMOUNT" means as of any Distribution
Date (a) prior to the Stepdown Date or with respect to which a Trigger Event is
in effect, the lesser of (i) 100% of the Principal Distribution Amount and (ii)
the aggregate Certificate Principal Balance of the Class B Certificates and (b)
on or after the Stepdown Date and as long as a Trigger Event is not in effect,
the positive difference, if any, of the excess of (x) the sum of (i) the
aggregate Certificate Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A Principal Distribution Amount on
such Distribution Date), (ii) the Certificate Principal Balance of the Class M
Certificates (after taking into account the payment of the Class M Principal
Distribution Amount on such Distribution Date) and (iii) the Certificate
Principal Balance of the Class B Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) approximately
[_____]% and (ii) the aggregate Principal Balance of the Mortgage Loans as of
the last day of the related Due Period and (B) the aggregate Principal Balance
of the Mortgage Loans as of the last day of the related Due Period MINUS
approximately $[________].
The "DELINQUENCY PERCENTAGE," with respect to any Distribution Date and
the related Due Period, is the fraction, expressed as a percentage, the
numerator of which is the aggregate of the Principal Balances of all Mortgage
Loans that are 60 or more days Delinquent, in foreclosure or relating to REO
Properties as of the close of business on the last day of the related Due Period
and the denominator of which is the Pool Principal Balance as of the close of
business on the last day of such Due Period.
A Mortgage Loan is "DELINQUENT" if any monthly payment due thereon is
not made by the close of business on the day such monthly payment is scheduled
to be due. A Mortgage Loan is "30 days Delinquent" if such monthly payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such monthly payment was due or, if
there was no such corresponding day (E.G., as when a 30-day month follows a
31-day month in which a payment was due on the 31st day of such month), then on
the last day of such immediately succeeding month; and similarly for "60 days
Delinquent", etc.
A "DUE PERIOD" with respect to the any Distribution Date is the period
commencing on the [second] day of the month preceding the month in which such
Distribution Date occurs and ending on the [first] day of the month in which
such Distribution Date occurs.
The "EXTRA PRINCIPAL DISTRIBUTION AMOUNT" for any Distribution Date, is
the lesser of (x) the General Excess Available Amount for such Distribution Date
and (y) Overcollateralization Deficiency Amount for such Distribution Date.
The "GENERAL EXCESS AVAILABLE AMOUNT" means with respect to each
Distribution Date is the amount, if any, by which the Available Funds for such
Distribution Date exceeds the aggregate amount distributed on such Distribution
Date pursuant to clauses (i) and (ii) under "--Allocation of Available Funds"
above (other than the Extra Principal Distribution Amount).
The "INTEREST DISTRIBUTABLE AMOUNT" for any Distribution Date and each
Class of Offered Certificates equals the sum of (i) the Monthly Interest
Distributable Amount for such Class for such Distribution Date and (ii) the
Unpaid Interest Shortfall Amount for such Class for such Distribution Date.
"LOSS REIMBURSEMENT ENTITLEMENT" means, with respect to any
Distribution Date and the Class M Certificates or Class B Certificates, the
amount of Allocable Loss Amounts applied to the reduction of the Certificate
Principal Balance of such Class and not reimbursed pursuant to "--Allocation of
Available Funds" above as of such Distribution Date.
The "MONTHLY INTEREST DISTRIBUTABLE AMOUNT" for any Distribution Date
and each Class of Offered Certificates equals the amount of interest accrued
during the related Accrual Period at the related Pass-Through Rate on the
Certificate Principal Balance of such Class immediately prior to such
Distribution Date (or, in the case of the first Distribution Date, from the
Closing Date).
An "OVERCOLLATERALIZATION DEFICIENCY AMOUNT" with respect to any
Distribution Date equals the amount, if any, by which the Overcollateralization
Target Amount exceeds the related Overcollateralized Amount on such Distribution
Date (after giving effect to distributions in respect of the Basic Principal
Distribution Amount but without giving effect to any Allocable Loss Amounts on
such Distribution Date).
"OVERCOLLATERALIZATION RELEASE AMOUNT" means, with respect to any
Distribution Date on or after the Stepdown Date on which an
Overcollateralization Stepdown Trigger Event is not in effect, the lesser of (x)
the Principal Remittance Amount for such Distribution Date and (y) the excess,
if any, of (i) the Overcollateralized Amount for such Distribution Date,
assuming that 100% of the Principal Remittance Amount is applied to as a
principal payment on the Offered Certificates on such Distribution Date over
(ii) the Overcollateralization Target Amount for such Distribution Date.
The "OVERCOLLATERALIZATION TARGET AMOUNT" means with respect to (a) any
Distribution Date occurring prior to the Stepdown Date, an amount equal to
[____]% of the Pool Principal Balance as of the Cut-off Date; and (b) with
respect to any Distribution Date on or after the Stepdown Date and (A) as long
as an Overcollateralization Stepdown Trigger Event is not in effect, an amount
equal to the greater of (x) [____]% of the Pool Principal Balance as of the end
of the related Due Period and (y) approximately $[_________] or (B) for so long
as an Overcollateralization Stepdown Trigger Event is in effect, the
Overcollateralization Target Amount for the preceding Distribution Date.
The "OVERCOLLATERALIZED AMOUNT" for any Distribution Date is the
amount, if any, by which (i) the Pool Principal Balance on the last day of the
immediately preceding Due Period exceeds (ii) the aggregate Certificate
Principal Balance of the Offered Certificates as of such Distribution Date after
giving effect to distributions to be made on such Certificates on such
Distribution Date.
The "PRINCIPAL DISTRIBUTION AMOUNT" for any Distribution Date will
equal the sum of (i) the Basic Principal Distribution Amount and (ii) the Extra
Principal Distribution Amount for such Distribution Date.
A "PRINCIPAL PREPAYMENT" with respect to any Distribution Date is any
mortgagor payment or other recovery of principal on a Mortgage Loan that is
received in advance of its scheduled Due Date and is not accompanied by an
amount representing scheduled interest due on any date or dates in any month or
months subsequent to the month of prepayment.
The "PRINCIPAL REMITTANCE AMOUNT" means with respect to any
Distribution Date, the sum of (i) each scheduled payment of principal collected
on the Mortgage Loans by the Master Servicer in the related Due Period, (ii) the
principal portion of all partial and full principal prepayments of such Mortgage
Loans applied by the Master Servicer during such Due Period, (iii) the principal
portion of all Net Liquidation Proceeds and Insurance Proceeds received during
such Due Period, (iv) that portion of the Purchase Price, representing principal
of any repurchased Mortgage Loan, required to be deposited to the Collection
Account during such Due Period, (v) the principal portion of any Substitution
Adjustments required to be deposited in the Collection Account during such Due
Period, and (vi) on the Distribution Date on which the Trust Fund is to be
terminated in accordance with the Pooling and Servicing Agreement, that portion
of the Termination Price, in respect of principal.
A "REALIZED LOSS" with respect to any defaulted Mortgage Loan that is
finally liquidated (a "LIQUIDATED MORTGAGE LOAN") is (i) the amount of loss
realized equal to the portion of the Principal Balance remaining unpaid after
application of all liquidation proceeds net of amounts reimbursable to the
Master Servicer for related Advances, Servicing Advances and Servicing Fees
(such amount, the "NET LIQUIDATION PROCEEDS") in respect of such Mortgage Loan
and (ii) with respect to certain Mortgage Loans the principal balances or the
scheduled payments of principal and interest of which have been reduced in
connection with bankruptcy proceedings, (a) in the case of a reduction of the
principal balance of a Mortgage Loan, the amount of such principal reduction,
and (b) in the case of a reduction in the scheduled payments of principal and
interest of a Mortgage Loan, the net present value (using as the discount rate
the higher of the Loan Rate on such Mortgage Loan or the rate of interest, if
any, specified by the court in such order) of the scheduled payments as so
modified or restructured.
The "ROLLING DELINQUENCY PERCENTAGE" means, with respect to any
Distribution Date, the average of the Delinquency Percentages with respect to
the last day of each of the three immediately preceding Due Periods.
The "SENIOR CREDIT ENHANCEMENT PERCENTAGE," with respect to any
Distribution Date, is the percentage obtained by dividing (i) the sum of (a) the
aggregate of the Certificate Principal Balances of the Mezzanine Certificates
and the Class B Certificates and (b) the Overcollateralized Amount, in each case
after giving effect to the distributions of principal on such Distribution Date,
by (ii) the Pool Principal Balance as of the end of the related Due Period.
The "SENIOR SPECIFIED ENHANCEMENT PERCENTAGE" on any date of
determination thereof means [_____]%.
The "STEPDOWN DATE" means the earlier of (A) the Distribution Date on
which the Certificate Principal Balance of the Senior Certificates equals zero
and (B) the later to occur of (x) the Distribution Date in ______________ 200_
and (y) the first Distribution Date on which the Senior Credit Enhancement
Percentage (calculated for this purpose only using the Pool Principal Balance as
of the end of the related Due Period but prior to any application of Principal
Distribution Amount to the Certificates) is greater than or equal to the Senior
Specified Enhancement Percentage.
A "TRIGGER EVENT" has occurred on any Distribution Date, if the Rolling
Delinquency Percentage exceeds [__]% of the Senior Credit Enhancement Percentage
for such Distribution Date.
An "OVERCOLLATERALIZATION STEPDOWN TRIGGER EVENT" means the occurrence
on any Distribution Date of either of the following: (i) the Cumulative Loss
Trigger has occurred or (ii) the Trigger Event has occurred.
The "CUMULATIVE LOSS TRIGGER" has occurred on a Distribution Date if
cumulative Realized Losses as of such Distribution Date exceed the percentages
of the Pool Principal Balance as of the Cut-off Date set forth below with
respect to such Distribution Date.
PERCENTAGE OF
THE POOL PRINCIPAL
BALANCE AS OF THE
DISTRIBUTION DATE CUT-OFF DATE
- ----------------- ------------
The "UNPAID INTEREST SHORTFALL AMOUNT" means (i) for each Class of
Offered Certificates and the first Distribution Date, zero, and (ii) with
respect to each Class of Offered Certificates and any Distribution Date after
the first Distribution Date, the amount, if any, by which (a) the sum of (1) the
Monthly Interest Distributable Amount for such Class for the immediately
preceding Distribution Date and (2) the outstanding Unpaid Interest Shortfall
Amount, if any, for such Class for such preceding Distribution Date exceeds (b)
the aggregate amount distributed on such Class in respect of interest pursuant
to clause (a) of this definition on such preceding Distribution Date, plus
interest on the amount of interest due but not paid on the Certificates of such
Class on such preceding Distribution Date, to the extent permitted by law, at
the Pass-Through Rate for such Class for the related Accrual Period.
PASS-THROUGH RATES
The Pass-Through Rate for the Class A, the Class M and the Class B
Certificates for a particular Distribution Date is a per annum rate equal to
[the lesser of (a) the sum of (i) One-Month LIBOR on the related LIBOR
Determination Date (as defined herein) and (ii) the related Pass-Through Margin
and (b) the Available Funds Cap]. The Pass-Through Margins for the Class A, the
Class M-1 and Class B Certificates will be equal to [___]% ([__] basis points),
[___]% ([__] basis points) and [___]% ([___] basis points), respectively, until
the first Distribution Date following the Call Option Date, and [____]% ([___]
basis points), [___]% ([___] basis points) and [___]% ([___] basis points),
respectively, on and after such Distribution Date]. [As to any Distribution
Date, the "Available Funds Cap" is a rate per annum equal to the weighted
average of the Loan Rates on the Mortgage Loans outstanding as of the first day
of the related Due Period, net of [___]% in fees.]
[If on any Distribution Date, the Pass-Through Rate for any Class of
Offered Certificates is based upon the Available Funds Cap, the excess of (i)
the amount of interest such Class of Certificates would have been entitled to
receive on such Distribution Date had such Pass-Through Rate not been subject to
the Available Funds Cap, up to the Maximum Cap, over (ii) the amount of interest
such Class of Offered Certificates received on such Distribution Date based on
the Available Funds Cap, together with the unpaid portion of any such excess
from prior Distribution Dates (and interest accrued thereon at the then
applicable Pass-Through Rate on such Class of Offered Certificates, without
giving effect to the Available Funds Cap) is the "BASIS RISK SHORTFALL AMOUNT"
for such Class of Offered Certificates. Any Basis Risk Shortfall Amount on any
Class of Offered Certificates will be paid on future Distribution Dates from and
to the extent of funds available therefor in the Excess Reserve Fund Account (as
described herein). The ratings on the Offered Certificates do not address the
likelihood of the payment of any Basis Risk Shortfall Amount.]
The "MAXIMUM CAP" for any Distribution Date is [___]% per annum.
CALCULATION OF [ONE-MONTH LIBOR]
[On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period following the initial Accrual Period (each
such date, a "LIBOR DETERMINATION DATE"), the Trustee (except for the first
Accrual Period) will determine the London interbank offered rate for one-month
United States dollar deposits ("ONE-MONTH LIBOR") for such Accrual Period for
the Offered Certificates on the basis of the offered rates of the Reference
Banks for one-month United States dollar deposits, as such rates appear on the
Telerate Page 3750, as of 11:00 a.m. (London time) on such LIBOR Determination
Date. As used in this section, "LIBOR BUSINESS DAY" means a day on which banks
are open for dealing in foreign currency and exchange in London and New York
City; "TELERATE PAGE 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices); and
"REFERENCE BANKS" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market (i)
with an established place of business in London, (ii) whose quotations appear on
the Telerate Page 3750 on the LIBOR Determination Date in question, (iii) which
have been designated as such by the Trustee and (iv) not controlling, controlled
by or under common control with, the Depositor, the Master Servicer or any
successor Master Servicer.
On each LIBOR Determination Date, One-Month LIBOR for the related
Accrual Period for the Offered Certificates will be established by the Trustee
as follows:
(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period will be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of 0.0625%).
(b) If on such LIBOR Determination Date fewer than two Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period will be the higher of (x) One-Month LIBOR as determined on the
previous LIBOR Determination Date and (y) the Reserve Interest Rate. The
"RESERVE INTEREST RATE" will be the rate per annum that the Trustee
determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 0.0625%) of the one-month United
States dollar lending rates which New York City banks selected by the
Trustee are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market or
(ii) in the event that the Trustee can determine no such arithmetic mean,
the lowest one-month United States dollar lending rate which New York City
banks selected by the Trustee are quoting on such LIBOR Determination Date
to leading European banks.
The establishment of One-Month LIBOR on each LIBOR Determination Date
by the Trustee and the Trustee's calculation of the rate of interest applicable
to the Offered Certificates for the related Accrual Period will (in the absence
of manifest error) be final and binding.]
APPLICATION OF ALLOCABLE LOSS AMOUNTS
Following any reduction of the Overcollateralized Amount to zero, any
Allocable Loss Amounts will be applied, sequentially, in reduction of the
Certificate Principal Balances of the Class B Certificates and the Class M
Certificates, in that order, until their respective Certificate Principal
Balances have been reduced to zero. The Certificate Principal Balance of the
Class A Certificates will not be reduced by any application of Allocable Loss
Amounts. However, if the Subordinate and Mezzanine Certificates are reduced to
zero, such losses may ultimately reduce the amount of principal ultimately paid
to the holders of the Class A Certificates. The reduction of the Certificate
Principal Balance of any applicable Class of Offered Certificates by the
application of Allocable Loss Amounts entitles such Class to reimbursement in an
amount equal to the Loss Reimbursement Entitlement. Each such Class of Offered
Certificates will be entitled to receive its Loss Reimbursement Entitlement, or
any portion thereof, in accordance with the payment priorities specified herein.
Payment in respect of Loss Reimbursement Entitlements will not reduce the
Certificate Principal Balance of the related Class or Classes.
[EXCESS RESERVE FUND ACCOUNT
The Pooling and Servicing Agreement establishes an account (the "EXCESS
RESERVE FUND ACCOUNT"), which is held in trust, as part of the Trust Fund, by
the Trustee on behalf of the Offered Certificateholders. The Excess Reserve Fund
Account will not be an asset of any REMIC. Certificateholders of each Class of
Offered Certificates in the order of their priority of payment will be entitled
to receive payments from the Excess Reserve Fund Account to the extent of
amounts on deposit therein in an amount equal to any Basis Risk Shortfall Amount
for such Class of Certificates. On the Closing Date, $[_____] will be deposited
into the Excess Reserve Fund Account. Thereafter, if the Available Funds Cap
does not exceed One-Month LIBOR by at least [___]%, the amount to be held in the
Excess Reserve Fund Account (the "REQUIRED RESERVE AMOUNT") on any Distribution
Date thereafter will equal the greater of (i) [___]% of the outstanding Class
Certificate Balance of the Offered Certificates as of such Distribution Date and
(ii) $[_____] and will be funded from amounts otherwise to be paid to the Class
OC Certificates. If the Available Funds Cap does exceed One-Month LIBOR by
[___]% or more, the Required Reserve Amount will be $[_____]. Any distribution
by the Trustee from amounts in the Excess Reserve Fund Account shall be made on
the applicable Distribution Date.
Amounts on deposit in the Excess Reserve Fund Account in excess of
$[_____] will be released therefrom and distributed to the holders of the Class
OC Certificates on any Distribution Date on which the Available Funds Cap
exceeds One-Month LIBOR by [____]% or more.]
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will forward to each holder of a
Certificate and the Rating Agency a statement generally setting forth:
(i) the amount of the distributions, separately identified, with
respect to each Class of the Offered Certificates;
(ii) the amount of such distributions set forth in clause (i)
allocable to principal, separately identifying the aggregate amount of
any Principal Prepayments or other unscheduled recoveries of principal
included therein;
(iii) the amount of such distributions set forth in clause (i)
allocable to interest and the calculation thereof;
(iv) the amount of any Unpaid Interest Shortfall Amount with
respect to each Class of Certificates, separately identified;
(v) the Overcollateralization Target Amount and
Overcollateralized Amount as of such Distribution Date;
(vi) the Certificate Principal Balance of each Class of Offered
Certificates after giving effect to the distribution of principal on
such Distribution Date;
(vii) the Pool Principal Balance at the end of the related Due
Period;
(viii) the amount of the Servicing Fee paid to or retained by the
Master Servicer;
(ix) the amount of the Trustee Fee paid to the Trustee;
(x) the amount of Advances for the related Due Period;
(xi) the number and aggregate Principal Balance of Mortgage Loans
that were (A) delinquent (exclusive of Mortgage Loans in foreclosure)
(1) 30 to 59 days, (2) 60 to 89 days and (3) 90 or more days, (B) in
foreclosure and delinquent (1) 30 to 59 days, (2) 60 to 89 days and (3)
90 or more days and (C) in bankruptcy as of the close of business on
the last day of the calendar month preceding such Distribution Date;
(xii) with respect to any Mortgage Loan that became an REO
Property during the preceding calendar month, the loan number, the
Principal Balance of such Mortgage Loan as of the close of business on
the last day of the related Due Period and the date of acquisition
thereof;
(xiii) the total number and principal balance of any REO
Properties as of the close of business on the last day of the preceding
Due Period;
(xiv) the aggregate amount of Realized Losses incurred during the
preceding calendar month;
(xv) the cumulative amount of Realized Losses;
(xvi) any Overcollateralization Deficiency Amount after giving
effect to the distribution of principal on such Distribution Date;
(xvii) the Allocable Loss Amounts, if any, allocated to the
Mezzanine and Subordinate Certificates and the Loss Reimbursement
Entitlement owing to the Mezzanine and Subordinate Certificates
outstanding after giving effect to distributions thereof on such
Distribution Date;
(xviii) whether a Trigger Event or Overcollateralization Stepdown
Trigger Event has occurred and is continuing;
(xix) the amount of the Extra Principal Distribution Amount;
(xx) the Pass-Through Rate for the Class A, the Class M and Class
B Certificates for such Distribution Date; and
(xxi) the amount on deposit in the Excess Reserve Fund Account on
such Distribution Date and the Basis Risk Shortfall Amount owing to
each Class of Offered Certificates after giving effect to distributions
thereof on such Distribution Date.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each holder of a
Certificate of record during the previous calendar year a statement containing
information necessary to enable holders of the Certificates to prepare their tax
returns. Such statements will not have been examined and reported upon by an
independent public accountant.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The yield to maturity of the Offered Certificates, and particularly the
Subordinate Certificates, will be sensitive to defaults on the Mortgage Loans.
If a purchaser of an Offered Certificate calculates its anticipated yield based
on an assumed rate of default and amount of losses that is lower than the
default rate and amount of losses actually incurred, its actual yield to
maturity will be lower than that so calculated. Certificateholders of the
Offered Certificates may not receive reimbursement for Realized Losses in the
month following the occurrence of such losses. In general, the earlier a loss
occurs, the greater is the effect on an investor's yield to maturity. There can
be no assurance as to the delinquency, foreclosure or loss experience with
respect to the Mortgage Loans. Because the Mortgage Loans were underwritten in
accordance with standards less stringent than those generally acceptable to FNMA
and FHLMC with regard to a borrower's credit standing and repayment ability, the
risk of delinquencies with respect to, and losses on, the Mortgage Loans will be
greater than that of mortgage loans underwritten in accordance with FNMA and
FHLMC standards.
The rate of principal payments on the Offered Certificates, the
aggregate amount of distributions on the Offered Certificates and the yields to
maturity of the Offered Certificates will be related to the rate and timing of
payments of principal on the Mortgage Loans. The rate of principal payments on
the Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans and by the rate of principal prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the Mortgage
Loans due to defaults, casualties or condemnations and repurchases by the Seller
or Master Servicer). [Because certain of the Mortgage Loans contain prepayment
penalties, the rate of principal payments may be less than the rate of principal
payments for mortgage loans which did not have prepayment penalties.] The
Mortgage Loans are subject to the "due-on-sale" provisions included therein. See
"The Mortgage Pool" herein.
Prepayments, liquidations and purchases of the Mortgage Loans
(including any optional purchase) will result in distributions on the Offered
Certificates of principal amounts which would otherwise be distributed over the
remaining terms of the Mortgage Loans. Since the rate of payment of principal on
the Mortgage Loans will depend on future events and a variety of other factors,
no assurance can be given as to such rate or the rate of principal prepayments.
The extent to which the yield to maturity of a Class of Offered Certificates may
vary from the anticipated yield will depend upon the degree to which such
Offered Certificate is purchased at a discount or premium, and the degree to
which the timing of payments thereon is sensitive to prepayments, liquidations
and purchases of the Mortgage Loans. Further, an investor should consider the
risk that, in the case of any Offered Certificate purchased at a discount, a
slower than anticipated rate of principal payments (including prepayments) on
the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield and, in the case of any Offered Certificate
purchased at a premium, a faster than anticipated rate of principal payments on
the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes in
borrowers' housing needs, job transfers, unemployment, mortgagors' net equity in
the mortgaged properties and servicing decisions. In general, if prevailing
interest rates were to fall significantly below the Loan Rates on the Fixed Rate
Mortgage Loans, such Mortgage Loans could be subject to higher prepayment rates
than if prevailing interest rates were to remain at or above the Loan Rates on
such Mortgage Loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on such Mortgage Loans would generally be
expected to decrease. As is the case with the Fixed Rate Mortgage Loans, the
Adjustable Rate Mortgage Loans may be subject to a greater rate of principal
prepayments in a low interest rate environment. For example, if prevailing
interest rates were to fall, borrowers with Adjustable Rate Mortgage Loans may
be inclined to refinance their Adjustable Rate Mortgage Loans with a fixed rate
loan to "lock in" a lower interest rate. The existence of the applicable
Periodic Rate Cap and Maximum Rate also may affect the likelihood of prepayments
resulting from refinancings. No assurances can be given as to the rate of
prepayments on the Mortgage Loans in stable or changing interest rate
environments. In addition, the delinquency and loss experience of the Adjustable
Rate Mortgage Loans may differ from that on the Fixed Rate Mortgage Loans
because the amount of the monthly payments on the Adjustable Rate Mortgage Loans
are subject to adjustment on each Adjustment Date. [In addition, many of the
Adjustable Rate Mortgage Loans will not have their initial Adjustment Date for
[__________] after the origination thereof. The prepayment experience of the
Delayed First Adjustment Mortgage Loans may differ from that of the other
Adjustable Rate Mortgage Loans. The Delayed First Adjustment Mortgage Loans may
be subject to greater rates of prepayments as they approach their initial
Adjustment Dates even if market interest rates are only slightly higher or lower
than the Loan Rates on the Delayed First Adjustment Mortgage Loans as borrowers
seek to avoid changes in their monthly payments.]
OVERCOLLATERALIZATION PROVISIONS
The operation of the overcollateralization provisions of the Pooling
and Servicing Agreement will affect the weighted average lives of the Offered
Certificates and consequently the yields to maturity of such Certificates.
Unless and until the Overcollateralized Amount equals the Overcollateralization
Target Amount, the General Excess Available Spread will be applied as
distributions of principal of the Class or Classes of Certificates then entitled
to distributions of principal, thereby reducing the weighted average lives
thereof. The actual Overcollateralized Amount may change from Distribution Date
to Distribution Date producing uneven distributions of the General Excess
Available Spread. There can be no assurance as to when or whether the
Overcollateralized Amount will equal the Overcollateralization Target Amount.
The General Excess Available Spread generally is equal to the excess of
(x) interest collected or advanced on the Mortgage Loans over (y) the sum of
required interest on the Offered Certificates plus the Trustee Fee, the
Servicing Fee Rate and, if applicable, the Excess Servicing Fee. Mortgage Loans
with higher Loan Rates will contribute more interest to the General Excess
Available Spread. Mortgage Loans with higher Loan Rates may prepay faster than
Mortgage Loans with relatively lower Loan Rates in response to a given change in
market interest rates. Any such disproportionate prepayments of Mortgage Loans
with higher Loan Rates may adversely affect the amount of the General Excess
Available Spread available to make accelerated payments of principal of the
Offered Certificates.
As a result of the interaction of the foregoing factors, the effect of
the overcollateralization provisions on the weighted average lives of the
Offered Certificates may vary significantly over time and from Class to Class.
[ADDITIONAL INFORMATION
The Depositor has filed certain yield tables and other computational
materials with respect to certain Classes of the Offered Certificates with the
Commission in a report on Form 8-K and may file certain additional yield tables
and other computational materials with respect to one or more Classes of Offered
Certificates with the Commission in a report on Form 8-K. Such tables and
materials were prepared by the Underwriter at the request of certain prospective
investors, based on assumptions provided by, and satisfying the special
requirements of, such prospective investors. Such tables and assumptions may be
based on assumptions that differ from the Structuring Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for
investors other than those specifically requesting them.]
WEIGHTED AVERAGE LIVES
The timing of changes in the rate of Principal Prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of Principal Prepayments is consistent with such
investor's expectation. In general, the earlier a Principal Prepayment on the
Mortgage Loans occurs, the greater the effect of such Principal Prepayment on an
investor's yield to maturity. The effect on an investor's yield of Principal
Prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the Offered
Certificates may not be offset by a subsequent like decrease (or increase) in
the rate of Principal Prepayments.
The projected weighted average life of any Class of Offered
Certificates is the average amount of time that will elapse from __________ __,
1999 (the "CLOSING DATE") until each dollar of principal is scheduled to be
repaid to the investors in such Class of Offered Certificates. Because it is
expected that there will be prepayments and defaults on the Mortgage Loans, the
actual weighted average lives of the Classes of Offered Certificates are
expected to vary substantially from the weighted average remaining terms to
stated maturity of the Mortgage Pool as set forth herein under "The Mortgage
Pool--Mortgage Loan Statistics".
The "ASSUMED FINAL MATURITY DATE" for each Class of Offered
Certificates is as set forth herein under "Description of the
Certificates--General". The Assumed Final Maturity Date for each Class of
Offered Certificates is the __th Distribution Date following the Due Period in
which the Principal Balances of all the Mortgage Loans have been reduced to
zero, assuming that the Mortgage Loans pay in accordance with their terms. The
weighted average life of each Class of Offered Certificates is likely to be
shorter than would be the case if payments actually made on the Mortgage Loans
conformed to the foregoing assumptions, and the final Distribution Date with
respect to the Offered Certificates could occur significantly earlier than the
related Assumed Final Maturity Date because (i) prepayments are likely to occur,
(ii) excess cashflow, if any, will be applied as principal of the Offered
Certificates as described herein, (iii) the Overcollateralization Target Amount
is as defined herein and (iv) the Majority Residual Interestholder or the Master
Servicer may cause a termination of the Trust Fund as provided herein.
The model used in this Prospectus Supplement (the "PREPAYMENT
ASSUMPTION") 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 Prepayment Assumption 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.
Each of the Prepayment Scenarios in the table on page S-[ ] assumes the
respective percentages of the applicable Prepayment Assumption described
thereunder.
The tables on pages S-[ ] through S-[ ] were prepared on the basis of
the assumptions in the following paragraph and the tables set forth below. There
are certain differences between the loan characteristics included in such
assumptions and the characteristics of the actual Mortgage Loans. Any such
discrepancy may have an effect upon the percentages of Original Certificate
Principal Balances outstanding and weighted average lives of the Offered
Certificates set forth in the tables on pages S-[ ] through S-[ ]. In addition,
since the actual Mortgage Loans in the Trust Fund will have characteristics that
differ from those assumed in preparing the tables set forth below, the
distributions of principal of the Offered Certificates may be made earlier or
later than indicated in the tables.
The percentages and weighted average lives in the tables on pages S-[ ]
through S-[ ] were determined on the basis of the following structuring
assumptions (the "STRUCTURING ASSUMPTIONS"):
[list of structuring assumptions]
Nothing contained in the foregoing assumptions should be construed as a
representation that the Mortgage Loans will not experience delinquencies or
losses.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each Class of Offered Certificates, and set
forth the percentages of the Original Certificate Principal Balance of each such
Class that would be outstanding after each of the dates shown, at various
Prepayment Scenarios.
[TABULAR INFORMATION]
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates against the purchase price of the Mortgage Loans transferred to the
Trust Fund.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Pooling and Servicing Agreement provides that the Trust Fund[,
exclusive of the assets held in the Excess Reserve Fund Account, ]will comprise
[several Subsidiary REMICs and] a [Master] REMIC organized in a [tiered] "real
estate mortgage investment conduit" ("REMIC") structure. [Each Subsidiary REMIC
will issue uncertificated regular interests and those interests will be held
entirely by the REMIC immediately above it in the tiered structure. Each of the
Subsidiary REMICs and] the [Master] REMIC will designate a single class of
interests as the residual interest in that REMIC. The Class R Certificates will
represent ownership of the residual interests in [each of] the REMIC[s].
Election[s] will be made to treat [each Subsidiary REMIC and] the [Master] REMIC
as a REMIC for federal income tax purposes.
Each Class of Offered Certificates will represent beneficial ownership
of regular interests issued by the [Master] REMIC. [In addition, each of the
Offered Certificates will represent a beneficial interest in the right to
receive payments from the Excess Reserve Fund Account.]
Upon the issuance of the Offered Certificates, Brown & Wood LLP ("TAX
COUNSEL"), will deliver its opinion concluding, assuming compliance with the
Pooling and Servicing Agreement, that for federal income tax purposes [each
Subsidiary REMIC and] the [Master] REMIC will qualify as a REMIC within the
meaning of section 860D of the Internal Revenue Code of 1986, as amended (the
"CODE"). [In addition, Tax Counsel will deliver an opinion concluding that the
Excess Reserve Fund Account is an "outside reserve fund" that is beneficially
owned by the Certificateholders of the Class [__] Certificates]. [Moreover, Tax
Counsel will deliver an opinion concluding that the rights of the
Certificateholders of the Offered Certificates to receive payments from the
Excess Reserve Fund Account represent, for federal income tax purposes,
interests in an interest rate cap contract.]
TAXATION OF REGULAR INTERESTS
A Certificateholder of a Class of Offered Certificates will be treated
for federal income tax purposes as owning an interest in regular interests in
the [Master] REMIC
Upon the sale, exchange, or other disposition of an Offered
Certificate, assuming that an Offered Certificate is held as a "capital asset"
within the meaning of section 1221 of the Code, gain or loss on the disposition
of an Offered Certificate should, subject to the limitation described below, be
capital gain or loss. However, gain attributable to an Offered Certificate will
be treated as ordinary income to the extent such gain does not exceed the
excess, if any, of (i) the amount that would have been includible in the
Certificateholder's gross income with respect to the regular interest component
had income thereon accrued at a rate equal to 110% of the applicable federal
rate as defined in section 1274(d) of the Code determined as of the date of
purchase of the Offered Certificate over (ii) the amount actually included in
such Certificateholder's income.
Interest on a REMIC regular interest must be included in income by a
Certificateholder under the accrual method of accounting, regardless of the
Certificateholder's regular method of accounting. In addition, a regular
interest could be considered to have been issued with original issue discount
("OID"). See "Certain Federal Income Tax Considerations --REMIC
Certificates--Regular Certificates--Original Issue Discount and Premium" in the
Prospectus. The prepayment assumption that will be used to in determining the
accrual of any OID, market discount, or bond premium, if any, will equal the
rate described above under "Yield, Prepayment and Maturity
Considerations--Weighted Average Lives" for Scenario [___]. No representation is
made that the Mortgage Loans will prepay at such a rate or at any other rate.
OID must be included in income as it accrues on a constant yield method,
regardless of whether the Certificateholder receives currently the cash
attributable to such OID.
STATUS OF THE OFFERED CERTIFICATES
The regular interest component of the Offered Certificates will be
treated as assets described in section 7701(a)(19)(C) of the Code, and as "real
estate assets" under section 856(c)(5)(B) of the Code, generally, in the same
proportion that the assets of the Trust Fund[, exclusive of the Excess Reserve
Fund Account,] would be so treated. In addition, to the extent a regular
interest represents real estate assets under section 856(c)(5)(B) of the Code,
the interest derived from that component would be interest on obligations
secured by interests in real property for purposes of section 856(c)(3) of the
Code.
NON-U.S. PERSONS
Interest paid to or accrued by a Certificateholder who is a Non-U.S.
Person will be considered "portfolio interest", and will not be subject to U.S.
federal income tax and withholding tax, if the interest is not effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Person and the Non-U.S. Person (i) is not actually or
constructively a "10 percent shareholder" of the Trust Fund or a "controlled
foreign corporation" with respect to which the Trust Fund is a "related person"
within the meaning of the Code and (ii) provides the Trust Fund or other person
who is otherwise required to withhold U.S. tax with respect to the Offered
Certificates with an appropriate statement (on Form W-8 or a similar form),
signed under penalties of perjury, certifying that the beneficial owner of the
Offered Certificate is a Non-U.S. Person and providing the Non-U.S. Person's
name and address. If an Offered Certificate is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide the relevant signed statement to the withholding
agent; in that case, however, the signed statement must be accompanied by a Form
W-8 or substitute form provided by the Non-U.S. Person that owns the
Certificate.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of an Offered Certificate by a Non-U.S. Person will be
exempt from United States federal income and withholding tax, provided that (i)
such gain is not effectively connected with the conduct of a trade or business
in the United States by the Non-U.S. Person and (ii) in the case of an
individual, the individual is not present in the United States for 183 days or
more in the taxable year.
For purposes of the foregoing discussion, the term "NON-U.S. PERSON"
means any person other than (i) a citizen or resident of the United States; (ii)
a corporation (or entity treated as a corporation for tax purposes) created or
organized in the United States or under the laws of the United States or of any
state thereof, including, for this purpose, the District of Columbia; (iii) a
partnership (or entity treated as a partnership for tax purposes) organized in
the United States or under the laws of the United States or of any state
thereof, including, for this purpose, the District of Columbia (unless provided
otherwise by future Treasury regulations); (iv) an estate whose income is
includible in gross income for United States income tax purposes regardless of
its source; or (v) a trust, if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. Persons have authority to control all substantial decisions of the
trust. Notwithstanding the last clause of the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as U.S. Persons prior to such date, may elect to continue to
be U.S. Persons.
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "PROHIBITED TRANSACTIONS TAX"). In
general, subject to certain specified exceptions, a prohibited transaction means
the disposition of a Mortgage Loan, the receipt of income from a source other
than a Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund will
engage in any prohibited transactions in which it would recognize a material
amount of net income.
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which such trust fund issues all of its
interests could result in the imposition of a tax on the trust fund equal to
100% of the value of the contributed property (the "CONTRIBUTIONS TAX"). The
Trust Fund will not accept contributions that would subject it to such tax.
In addition, a trust fund that elects to be treated as a REMIC may also
be subject to federal income tax at the highest corporate rate on "net income
from foreclosure property," determined by reference to the rules applicable to
real estate investment trusts. "Net income from foreclosure property" generally
means gain from the sale of a foreclosure property other than qualifying rents
and other qualifying income for a real estate investment trust. It is not
anticipated that the Trust Fund will recognize net income from foreclosure
property subject to federal income tax.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Offered Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other "reportable
payments" (as defined in the Code) properly, or, under certain circumstances,
fail to provide the Trustee or their broker with a certified statement, under
penalty of perjury, that they are not subject to backup withholding.
The Trustee will be required to report annually to the Internal Revenue
Service (the "IRS"), and to each Certificateholder of record, the amount of
interest paid (and OID accrued, if any) on the Offered Certificates (and the
amount of interest withheld for federal income taxes, if any) for each calendar
year, except as to exempt holders (generally, holders that are corporations,
certain tax-exempt organizations or nonresident aliens who provide certification
as to their status as nonresidents). As long as the only holder of record of a
Class of Offered Certificates is Cede, as nominee of DTC, the IRS and
Certificate Owners of such Class will receive tax and other information,
including the amount of interest paid on such Certificates owned, from
Participants and Financial Intermediaries rather than from the Trustee. (The
Trustee, however, will respond to requests for necessary information to enable
Participants, Financial Intermediaries and certain other persons to complete
their reports.) Each non-exempt Certificate Owner will be required to provide,
under penalty of perjury, a certificate on IRS form W-9 containing his or her
name, address, correct federal taxpayer identification number and a statement
that he or she is not subject to backup withholding. Should a nonexempt
Certificate Owner fail to provide the required certification, the Participants
or Financial Intermediaries (or the Paying Agent) will be required to withhold
31% of the interest (and principal) otherwise payable to the holder, and remit
the withheld amount to the IRS as a credit against the holder's federal income
tax liability.
Such amounts will be deemed distributed to the affected Certificate
Owner for all purposes of the related Certificates and the Pooling and Servicing
Agreement.
STATE TAXES
The Depositor makes no representations regarding the tax consequences
of purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits "parties in interest" with respect to an employee
benefit plan subject to ERISA and/or a plan or other arrangement subject to the
excise tax provisions set forth under section 4975 of the Code (each of the
foregoing, a "PLAN") from engaging in certain transactions involving such Plan
and its assets unless a statutory, regulatory or administrative exemption
applies to the transaction. section 4975 of the Code imposes certain excise
taxes on prohibited transactions involving plans described under that section;
ERISA authorizes the imposition of civil penalties for prohibited transactions
involving plans not covered under section 4975 of the Code. Any Plan fiduciary
which proposes to cause a Plan to acquire any of the Offered Certificates should
consult with its counsel with respect to the potential consequences under ERISA
and the Code of the Plan's acquisition and ownership of such Certificates. See
"ERISA Considerations" in the Prospectus.
Certain employee benefit plans, including governmental plans and
certain church plans, are not subject to ERISA's requirements. Accordingly,
assets of such plans may be invested in the Offered Certificates without regard
to the ERISA considerations described herein and in the Prospectus, subject to
the provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment prudence
and diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor (the "DOL") has granted to Greenwich
Capital Markets, Inc. an administrative exemption (Prohibited Transaction
Exemption 90-59; Exemption Application No. D-8374) (the "EXEMPTION") from
certain of the prohibited transaction rules of ERISA and the related excise tax
provisions of Section 4975 of the Code with respect to the initial purchase, the
holding and the subsequent resale by Plans of certificates in pass-through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of the Exemption. The Exemption applies to
mortgage loans such as the Mortgage Loans in the Trust Fund.
Among the conditions that must be satisfied for the Exemption to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated party;
(2) the rights and interest evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"), Moody's Investors Service, Inc. ("MOODY'S"), Duff & Phelps Credit
Rating Co. ("DCR") or Fitch IBCA, Inc. ("FITCH" and, together with S&P, Moody's
and DCR, the "EXEMPTION RATING AGENCIES");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not more than
reasonable compensation for underwriting the certificates; the sum of all
payments made to and retained by the seller pursuant to the assignment of the
loans to the trust fund represents not more than the fair market value of such
loans; the sum of all payments made to and retained by the servicer and any
other servicer represents not more than reasonable compensation for such
person's services under the agreement pursuant to which the loans are pooled and
reimbursements of such person's reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest generic rating categories by an Exception
Rating Agency for at least one year prior to the Plan's acquisition of
certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust as to which
the fiduciary (or its affiliate) is an obligor on the receivables held in the
trust provided that, among other requirements, (i) in the case of an acquisition
in connection with the initial issuance of certificates, at least fifty percent
(50%) of each class of certificates in which Plans have invested is acquired by
persons independent of the Restricted Group; (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) or less of the fair
market value of the obligations contained in the trust; (iii) the Plan's
investment in certificates of any class does not exceed twenty-five percent
(25%) of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of any Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Underwriter, the Trustee, the
Master Servicer, any obligor with respect to Mortgage Loans included in the
Trust Fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Trust Fund, or any affiliate of such
parties (the "RESTRICTED GROUP").
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the Senior Certificates and that all conditions of the
Exemption other than those within the control of the investors will be met.
BECAUSE THE CHARACTERISTICS OF THE CLASS M AND THE CLASS B CERTIFICATES
MAY NOT MEET THE REQUIREMENTS OF PTCE 83-1, THE EXEMPTION OR ANY OTHER ISSUED
EXEMPTION UNDER ERISA, THE PURCHASE AND HOLDING OF CLASS M AND CLASS B
CERTIFICATES BY A PLAN OR BY INDIVIDUAL RETIREMENT ACCOUNTS OR OTHER PLANS
SUBJECT TO SECTION 4975 OF THE CODE MAY RESULT IN PROHIBITED TRANSACTIONS OR THE
IMPOSITION OF EXCISE TAXES OR CIVIL PENALTIES. CONSEQUENTLY, INITIAL
ACQUISITIONS AND TRANSFERS OF THE CLASS M AND CLASS B CERTIFICATES WILL NOT BE
REGISTERED BY THE TRUSTEE UNLESS THE TRUSTEE RECEIVES: (I) A REPRESENTATION FROM
THE ACQUIROR OR TRANSFEREE OF SUCH CERTIFICATE, TO THE EFFECT THAT SUCH
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO SECTION 406 OF ERISA OR A
PLAN OR ARRANGEMENT SUBJECT TO SECTION 4975 OF THE CODE, NOR A PERSON ACTING ON
BEHALF OF ANY SUCH PLAN OR ARRANGEMENT NOR USING THE ASSETS OF ANY SUCH PLAN OR
ARRANGEMENT TO EFFECT SUCH TRANSFER OR (II) IF THE PURCHASER IS AN INSURANCE
COMPANY, A REPRESENTATION THAT THE PURCHASER IS AN INSURANCE COMPANY WHICH IS
PURCHASING SUCH CERTIFICATES WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY
GENERAL ACCOUNT" (AS SUCH TERM IS DEFINED IN SECTION V(E) OF PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60 ("PTCE 95-60")) AND THAT THE PURCHASE AND
HOLDING OF SUCH CERTIFICATES ARE COVERED UNDER PTCE 95-60. SUCH REPRESENTATION
AS DESCRIBED ABOVE SHALL BE DEEMED TO HAVE BEEN MADE TO THE TRUSTEE BY THE
ACQUIROR OR TRANSFEREE'S ACCEPTANCE OF A CLASS M OR CLASS B CERTIFICATE. IN THE
EVENT THAT SUCH REPRESENTATION IS VIOLATED, SUCH ATTEMPTED TRANSFER OR
ACQUISITION SHALL BE VOID AND OF NO EFFECT.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences in
their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Offered Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates and the Class M 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. The Class B Certificates will not constitute
"mortgage related securities" under SMMEA. Accordingly, many institutions with
legal authority to invest in "mortgage related securities" may not be legally
authorized to invest in the Class B Certificates.
There may be restrictions on the ability of certain investors,
including depository institutions, either to purchase the 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. 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 the Underwriter (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
"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 Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Offered
Certificates will be passed upon for the Depositor and for the Underwriter by
Brown & Wood LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that (i)
the Class A Certificates be rated "___" by __________ and ______ (each, a
"RATING AGENCY"" and, together, the "RATING AGENCIES"), (ii) the M Certificates
be rated "__" by ___ and "___" by _______, and the Class B Certificates be rated
"___" by ___ .
The ratings assigned by the Rating Agencies to mortgage pass-through
certificates address the likelihood of the receipt of all distributions on the
mortgage loans by the related certificateholders under the agreements pursuant
to which such certificates are issued. The Rating Agencies' ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on the mortgage pool is
adequate to make the payments required by such certificates. The Rating
Agencies' ratings on such certificates do not, however, constitute a statement
regarding frequency of prepayments of the mortgage loans.
The ratings on the Offered Certificates address the likelihood of the
receipt by the holders of the Offered Certificates of all distributions on the
Mortgage Loans to which they are entitled. The ratings on the Offered
Certificates also address the structural, legal and issuer-related aspects of
the Offered Certificates, including the nature of the Mortgage Loans. In
general, the ratings on the Offered Certificates address credit risk and not
prepayment risk. The ratings on the Offered Certificates do not represent any
assessment of the likelihood that principal prepayments of the Mortgage Loans
will be made by borrowers or the degree to which the rate of such prepayments
might differ from that originally anticipated. [The ratings on the Offered
Certificates do not address the likelihood of the payment of any Basis Risk
Shortfall Amount.] As a result, the initial ratings assigned to the Offered
Certificates do not address the possibility that holders of the Offered
Certificates might suffer a lower than anticipated yield in the event of
principal payments on the Offered Certificates resulting from rapid prepayments
of the Mortgage Loans or the application of the General Excess Available Amount
as described herein, or in the event that the Trust Fund is terminated prior to
the Assumed Final Maturity Date of the Classes of Offered Certificates.
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 Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Offered
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.
<PAGE>
INDEX OF DEFINED TERMS
Accrual Period............................................................46
Act.......................................................................67
Adjustable Rate Mortgage Loans............................................15
Adjustment Date...........................................................22
Advance...................................................................34
Allocable Loss Amount.....................................................47
Assumed Final Maturity Date...............................................58
Available Funds...........................................................45
Available Funds Cap.......................................................52
Balloon Loan..............................................................16
Balloon Payment...........................................................16
Basic Principal Distribution Amount.......................................47
Basis Risk Shortfall Amount...............................................52
Beneficial Owner..........................................................39
Book-Entry Certificates...................................................39
Call Option Date..........................................................47
Cede......................................................................39
Cedel.....................................................................39
Cedel Participants........................................................41
Certificate Owners........................................................39
Certificate Principal Balance.............................................47
Certificateholder.........................................................39
Certificates..............................................................38
Class A Principal Distribution Amount.....................................47
Class B Principal Distribution Amount.....................................48
Class M Principal Distribution Amount.....................................47
Closing Date..............................................................58
Code......................................................................60
Collection Account........................................................33
Compensating Interest.....................................................36
Contributions Tax.........................................................62
Cooperative...............................................................42
Cumulative Loss Trigger...................................................51
Cut-off Date..............................................................15
Cut-off Date Principal Balance............................................15
DCR.......................................................................64
Defective Mortgage Loans..................................................33
Definitive Certificate....................................................39
Delayed First Adjustment Mortgage Loan....................................16
Delinquency Percentage....................................................48
Delinquent................................................................48
Depositor.................................................................15
Determination Date........................................................36
Distribution Account......................................................33
Distribution Date.........................................................39
DOL.......................................................................64
DTC....................................................................39, 1
Due Date..................................................................16
Due Period................................................................48
Eligible Account..........................................................34
Eligible Substitute Mortgage Loan.........................................32
ERISA.....................................................................63
Euroclear Operator........................................................42
Euroclear Participants....................................................42
European Depositaries.....................................................39
Excess Reserve Fund Account...............................................54
Excess Servicing Fee......................................................36
Exemption.................................................................64
Exemption Rating Agencies.................................................65
Extra Principal Distribution Amount.......................................48
Financial Intermediary....................................................40
Fitch.....................................................................65
Fixed Rate Mortgage Loans.................................................15
Foreclosure Ratio.........................................................30
General Excess Available Amount...........................................48
Gross Margin..............................................................22
Index.....................................................................16
Interest Distributable Amount.............................................49
IRS.......................................................................63
LIBOR Business Day........................................................52
LIBOR Determination Date..................................................52
Liquidated Mortgage Loan..................................................50
Loss Reimbursement Entitlement............................................49
Maximum Cap...............................................................52
Maximum Loan Rate.........................................................22
Mezzanine Certificates....................................................38
Minimum Loan Rate.........................................................22
Monthly Interest Distributable Amount.....................................49
Moody's...................................................................64
Mortgage..................................................................16
Mortgage Loan Schedule....................................................31
Mortgage Loans............................................................15
Mortgage Pool.............................................................15
Mortgage Rates............................................................15
Mortgaged Property........................................................15
Net Gains/(Losses)........................................................30
Net income from foreclosure property......................................62
Net Liquidation Proceeds..................................................50
Non-U.S. Person...........................................................62
Offered Certificates......................................................38
OID.......................................................................61
One-Month LIBOR...........................................................52
Original Certificate Principal Balance....................................47
Overcollateralization Deficiency Amount...................................49
Overcollateralization Release Amount......................................49
Overcollateralization Stepdown Trigger Event..............................51
Overcollateralization Target Amount.......................................49
Overcollateralized Amount.................................................49
Pass-Through Margin.......................................................52
Pass-Through Rate.........................................................52
Periodic Rate Cap.........................................................22
Plan......................................................................64
Pooling and Servicing Agreement...........................................31
Prepayment Assumption.....................................................59
Prepayment Interest Shortfall.............................................36
Prepayment Period.........................................................45
Principal Distribution Amount.............................................50
Principal Prepayment......................................................50
Principal Remittance Amount...............................................50
Prohibited Transactions Tax...............................................62
PTCE 95-60................................................................66
Purchase Price............................................................32
Rating Agencies...........................................................67
Rating Agency.............................................................67
Realized Loss.............................................................50
Record Date...............................................................39
Reference Banks...........................................................53
Related Documents.........................................................31
Relevant Depositary.......................................................39
Relief Act................................................................34
REMIC.....................................................................60
Required Reserve Amount...................................................54
Reserve Interest Rate.....................................................53
Residual Certificates.....................................................38
Restricted Group..........................................................66
Rolling Delinquency Percentage............................................50
Rules.....................................................................40
S&P.......................................................................64
Scoring Company...........................................................28
Seller....................................................................28
Senior Certificates.......................................................38
Senior Credit Enhancement Percentage......................................50
Senior Specified Enhancement Percentage...................................51
Servicing Advance.........................................................35
Servicing Fee.............................................................36
Servicing Fee Rate........................................................36
SMMEA.....................................................................66
Stepdown Date.............................................................51
Structuring Assumptions...................................................59
Subordinate Certificates..................................................38
Substitution Adjustment...................................................32
Tax Counsel...............................................................60
Telerate Page 3750........................................................52
Terms and Conditions......................................................42
Total Portfolio...........................................................30
Trigger Event.............................................................51
Trust Fund................................................................15
Trustee...................................................................35
Trustee Fee...............................................................35
U.S. Person................................................................4
Unpaid Interest Shortfall Amount..........................................51
Voting Rights.............................................................36
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION ROCEDURES
Except in certain limited circumstances, the globally offered
[____________________] Certificates (the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through [any] of The Depository Trust Company ("DTC"), [Cedel or
Euroclear]. The Global Securities will be tradable 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 Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.]
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. [As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.]
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
[Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no `lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.]
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset backed certificates issues in same-day funds.
[Trading between CEDEL and/or Euroclear participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, 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 respective Depositary of the DTC Participant's account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be system and by the clearing system, in accordance with
its usual procedures, to the Cedel Participant's or Euroclear Participant's
account. The securities credit will appear the next day (European time) and the
cash debt will be back-valued to, and the interest on the Global Securities will
accrue from, the value date (which would be the preceding day when settlement
occurred in New York). If settlement is not completed on the intended value date
(i.e., the trade fails), the Cedel or Euroclear cash debt will be valued instead
as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of 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 DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale to
the Cedel Participant or Euroclear Participant.]
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities [through
Cedel or Euroclear] (or through DTC if the holder has an address outside the
U.S.[)] will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form w-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for Non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owners or his agent.
Exemption for U.S. Persons (Form w-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax reporting procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a corporation
or partnership for United States federal income tax purposes organized in or
under the laws of the United States or any state thereof or the District of
Columbia or (iii) an estate the income of which is includible in gross income
for United States tax purposes, regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust. This summary does not deal
with all aspects of U.S. Federal income tax withholding that may be relevant to
foreign holders of the Global Securities. Investors are advised to consult their
own tax advisors for specific tax advice concerning their holding and disposing
of the Global Securities.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
===================================================================================================================================
You should rely only 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 (Approximate)
different information. We are not offering the certificates in
any state where the offer is not permitted.
MORTGAGE BACKED CERTIFICATES
Dealers will deliver a prospectus supplement and prospectus when SERIES 199__-__
acting as underwriters of the certificates and with respect to
their unsold allotments or subscriptions. In addition, all
dealers selling the certificates will be required to deliver a $_____ CLASS A
prospectus supplement and prospectus until [ , 199 . [VARIABLE PASS-THROUGH RATE]
-------------------------
[$_____ CLASS M
TABLE OF CONTENTS [VARIABLE PASS-THROUGH RATE]
PAGE
[$_____ CLASS B
PROSPECTUS SUPPLEMENT [VARIABLE PASS-THROUGH RATE]
Table of Contents...........................................S-2
Summary of Terms............................................S-3
Risk Factors................................................S-8
The Mortgage Pool...........................................S-15 GREENWICH CAPITAL ACCEPTANCE, INC.
Underwriting Standards......................................S-28 (DEPOSITOR)
The Master Servicer.........................................S-29
The Pooling and Servicing Agreement.........................S-31 [__________________________]
Description of the Certificates.............................S-55 SELLER AND MASTER SERVICER
Yield, Prepayment and Maturity Considerations...............S-58
Use of Proceeds.............................................S-59
Certain Material Federal Income Tax Consequences............S-62
State Taxes.................................................S-62
ERISA Considerations........................................S-65 GREENWICH CAPITAL
Legal Investment Considerations.............................S-65 MARKETS, INC.
Method of Distribution......................................S-66
Legal Matters...............................................S-66
Ratings.....................................................S-66
Index of Defined Terms......................................S-68
Annex I.....................................................A-1
PROSPECTUS SUPPLEMENT
PROSPECTUS [ , 1999]
Table of Contents............................................2
Important Notice about Information in this Prospectus
and Each Accompanying Prospectus Supplement................4
Risk Factors.................................................5
The Trust Fund..............................................12
Use of Proceeds.............................................22
The Depositor...............................................22
Mortgage Loan Program.......................................23
Description of the Certificates.............................25
Credit Enhancement..........................................31
Yield and Prepayment Considerations.........................38
Pooling and Servicing Agreement.............................39
Certain Legal Aspects of the Loans..........................50
Certain Federal Income Tax Consequences.....................86
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
===================================================================================================================================
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
GREENWICH CAPITAL ACCEPTANCE, INC.
DEPOSITOR
- ----------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON
PAGE 5 OF THIS PROSPECTUS.
The certificates represent obligations of the
trust only and do not represent an interest in or
obligation of the depositor, the seller, the
master servicer or any of their affiliates.
This prospectus may be used to offer and sell the
securities only if accompanied by a prospectus
supplement.
- ----------------------------------------------------
THE CERTIFICATES
Greenwich Capital Acceptance, Inc., as depositor, will sell the certificates.
Each issue of certificates will have its own series designation and will
evidence the ownership of certain trust assets.
Each series of certificates will consist of one or more classes. Each 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.
_______________, 199_
<PAGE>
TABLE OF CONTENTS
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH
ACCOMPANYING PROSPECTUS SUPPLEMENT ..........................................4
RISK FACTORS.................................................................5
THE TRUST FUND .............................................................12
The Mortgage Loans--General............................................12
Single Family Loans....................................................15
Multifamily Loans......................................................15
Contracts..............................................................16
Agency Securities......................................................16
Private Mortgage-Backed Securities.....................................21
USE OF PROCEEDS.............................................................23
THE DEPOSITOR...............................................................23
MORTGAGE LOAN PROGRAM.......................................................23
Underwriting Standards.................................................23
Qualifications of Sellers..............................................24
Representations by Sellers; Repurchases................................24
DESCRIPTION OF THE CERTIFICATES.............................................25
General................................................................26
Distributions on Certificates..........................................27
Advances...............................................................30
Reports to Certificateholders..........................................31
CREDIT ENHANCEMENT..........................................................32
General................................................................32
Subordination..........................................................32
Mortgage Pool Insurance Policies.......................................33
FHA Insurance; VA Guarantees...........................................34
Special Hazard Insurance Policies......................................36
Bankruptcy Bonds.......................................................37
FHA Insurance on Multifamily Loans.....................................37
Reserve Accounts.......................................................37
Cross Support..........................................................38
Other Insurance, Surety Bonds, Guaranties, Letters of
Credit and Similar Instruments or Agreements ..........................38
YIELD AND PREPAYMENT CONSIDERATIONS.........................................38
THE POOLING AND SERVICING AGREEMENT.........................................40
Assignment of Mortgage Assets..........................................40
Payments on Mortgage Loans; Deposits to Certificate Account............42
Sub-Servicing by Sellers...............................................43
Collection Procedures..................................................44
Hazard Insurance.......................................................45
Realization upon Defaulted Mortgage Loans..............................46
Servicing and Other Compensation and Payment of Expenses...............48
Evidence as to Compliance..............................................48
Certain Matters Regarding the Master Servicer and the Depositor........49
Events of Default......................................................49
Rights upon Event of Default...........................................50
Amendment..............................................................50
Termination; Optional Termination......................................51
The Trustee............................................................51
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS.................................51
General................................................................51
Foreclosure/Repossession...............................................54
Environmental Risks....................................................56
Rights of Redemption...................................................57
Anti-Deficiency Legislation and Other Limitations on Lenders...........58
Due-on-Sale Clauses....................................................59
Prepayment Charges.....................................................59
Applicability of Usury Laws............................................59
Soldiers' and Sailors' Civil Relief Act................................59
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................60
General................................................................60
Non-REMIC Certificates.................................................60
Single Class of Senior Certificates....................................60
Multiple Classes of Senior Certificates................................63
Possible Application of Contingent Payment Regulations to
Certain Non-REMIC Certificates ........................................67
Sale or Exchange of a Senior Certificate...............................67
Non-U.S. Persons.......................................................68
Information Reporting and Backup Withholding...........................68
New Withholding Regulations............................................69
REMIC CERTIFICATES..........................................................69
Tiered REMIC Structures................................................70
Regular Certificates...................................................70
Residual Certificates..................................................78
Prohibited Transactions and Other Taxes................................82
Liquidation and Termination............................................82
Administrative Matters.................................................82
Tax-Exempt Investors...................................................83
Non-U.S. Persons.......................................................83
Tax-Related Restrictions on Transfers of Residual Certificates.........83
STATE TAX CONSIDERATIONS....................................................85
ERISA CONSIDERATIONS........................................................85
LEGAL INVESTMENT............................................................88
METHOD OF DISTRIBUTION......................................................89
LEGAL MATTERS...............................................................89
FINANCIAL INFORMATION.......................................................90
AVAILABLE INFORMATION.......................................................90
RATINGS.....................................................................90
INDEX OF DEFINED TERMS......................................................91
<PAGE>
IMPORTANT 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.
--------------------
<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 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.
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. 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 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 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 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.
<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.
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* 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.
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 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:
- ----------
* 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.
(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 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.
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, 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 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 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.
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.
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.
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 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 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 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 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 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 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;
(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.
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
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;
(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.
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, 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 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.
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 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 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.
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.
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.
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.
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, 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.
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 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
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 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.
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.
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.
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 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
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 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 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 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.
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 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 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 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.
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,
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
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.
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 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.
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
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
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
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 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 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 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. 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 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.
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.
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 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 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 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 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 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
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.
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.
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
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 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 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
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.
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."
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.
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.
<PAGE>
INDEX OF DEFINED TERMS
PAGE
----
1986 Act...................................................................65
Accrual Certificates.......................................................29
AFR........................................................................67
Agency Securities..........................................................12
Agreement..................................................................15
Amortizable Bond Premium Regulations.......................................62
Applicable Amount..........................................................76
APR........................................................................16
ARM Loans..................................................................65
Asset Conservation Act.....................................................57
Available Funds............................................................28
Bankruptcy Bond............................................................37
Bankruptcy Code............................................................40
BIF........................................................................42
CERCLA.....................................................................56
Certificate Account........................................................42
Certificate Principal Balance..............................................28
Certificate Register.......................................................27
Certificates...............................................................12
Charter Act................................................................19
Closing Date...............................................................70
Code.......................................................................45
Collateral Value...........................................................14
Contingent Payment Regulations.............................................67
Contracts..................................................................12
Cooperative Loans..........................................................15
Cooperatives...............................................................15
Deferred Interest......................................................66, 75
Detailed Description.......................................................12
Determination Date.........................................................28
DOL........................................................................86
EPA........................................................................56
ERISA......................................................................85
Events of Default..........................................................49
FDIC.......................................................................24
FHA........................................................................15
FHA Loans..................................................................16
FHLMC......................................................................12
FHLMC Act..................................................................18
FHLMC Certificate Group....................................................18
FNMA.......................................................................12
FTC Rule...................................................................58
Garn-St Germain Act........................................................59
GCA........................................................................22
GCM........................................................................89
GNMA.......................................................................12
GNMA Certificate...........................................................17
GNMA I Certificates........................................................17
GNMA II Certificates.......................................................17
GNMA Issuer................................................................17
Guaranty Agreement.........................................................17
Housing Act................................................................16
HUD........................................................................34
Incorporation of Certain Information by Reference..........................22
Insolvency Trustee.........................................................40
Insurance Proceeds.........................................................43
Insured Expenses...........................................................43
IRS........................................................................62
Legislative History........................................................65
Liquidation Expenses.......................................................43
Liquidation Proceeds.......................................................43
Loan-to-Value Ratio........................................................14
Manufactured Homes.........................................................16
Manufacturer Invoice Price.................................................14
Mark-to-Market Regulations.................................................79
Master REMIC...............................................................70
Mortgage...................................................................40
Mortgage Assets............................................................12
Mortgage Loans.............................................................12
Mortgage Pool..............................................................12
Mortgage Pool Insurance Policy.............................................33
Mortgage Rate..............................................................13
Mortgaged Properties.......................................................12
Multifamily Loans..........................................................12
NCUA.......................................................................88
New Regulations............................................................69
Non-economic Residual Certificate..........................................84
OID Regulations............................................................62
Parties in Interest........................................................86
Payment Lag Certificates...................................................76
Permitted Investments......................................................42
Plans......................................................................85
PMBS Agreement.............................................................21
PMBS Issuer................................................................21
PMBS Servicer..............................................................21
PMBS Trustee...............................................................21
Policy Statement...........................................................88
Pool Insurer...............................................................33
Prepayment Assumption..................................................65, 71
Primary Insurer............................................................47
Primary Mortgage Insurance Policy..........................................13
Principal Prepayments......................................................29
PTE 83-1...................................................................86
Purchase Price.............................................................25
Rating Agency..............................................................42
RCRA.......................................................................57
Record Date................................................................26
Refinance Loans............................................................14
Regular Certificateholders.................................................70
Regular Certificates.......................................................69
Relief Act.................................................................59
REMIC......................................................................27
REMIC Regulations..........................................................60
Reserve Account............................................................27
Residual Certificates......................................................69
Retained Interest..........................................................26
SAIF.......................................................................42
SEC........................................................................22
Sellers....................................................................12
Senior Certificates........................................................32
Series.....................................................................12
Single Family Certificates.................................................86
Single Family Loans........................................................12
SMMEA......................................................................88
Special Hazard Insurance Policy............................................36
Special Hazard Insurer.....................................................36
Stripped ARM Obligations...................................................66
Stripped Bond Certificates.................................................64
Stripped Coupon Certificates...............................................64
Subordinated Certificates..................................................32
Sub-Servicer...............................................................15
Sub-Servicing Account......................................................42
Sub-Servicing Agreement....................................................43
Subsidiary REMIC...........................................................70
Super-Premium Certificates.................................................71
Support Agreement..........................................................30
Support Servicer...........................................................30
Title V....................................................................59
Treasury...................................................................63
Trust Fund.................................................................12
U.S. Person................................................................68
UCC........................................................................52
Underwriter Exemption......................................................87
VA ........................................................................15
VA Guaranty Policy.........................................................35
VA Loans...................................................................16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the estimated expenses to be incurred in
connection with the offering of the Certificates, other than underwriting
discounts and commissions:
SEC Registration Fee....................................... $ 278,000**
Trustee's Fees and Expenses................................ 51,000
Printing and Engraving..................................... 135,000
Legal Fees and Expenses.................................... 390,000
Blue Sky Fees.............................................. 63,000
Accounting Fees and Expenses............................... 135,000
Rating Agency Fees......................................... 330,000
Miscellaneous.............................................. 66,000
-------------
Total...................................................... $1,448,000
=============
______________
* All amounts, except the SEC Registration Fee, are estimates of
aggregate expenses incurred or to be incurred in connection with the issuance
and distribution of Certificates in an aggregate principal amount assumed for
these purposes to be equal to $1,502,399,172 of Certificates registered hereby.
** This amount relates to the $1,000,000,000 of additional Mortgage
Pass-Through Certificates registered hereby. The remaining $502,399,172 of
Mortgage Pass-Through Certificates relates to registration statement No.
333-67327, and the registration fee with respect thereto has been previously
paid.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 8(b) of the proposed form of Underwriting Agreement, the
Underwriters are obligated under certain circumstances to indemnify certain
controlling persons of the Depositor against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act").
The Depositor's By-laws provide for indemnification of directors and
officers of the Depositor to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are
or were such directors, officers, employees or agents, against expenses
incurred in any such action, suit or proceeding.
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Depositor is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad
faith, gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements will provide
further that, with the exceptions stated above, a director, officer, employee
or agent of the Depositor is entitled to be indemnified against any loss,
liability or expenses incurred in connection with legal actions relating to
such Pooling and Servicing Agreements and the related Certificates, other than
such expenses relating to particular Mortgage Loans.
ITEM 16. EXHIBITS.
(a) FINANCIAL STATEMENTS:
None.
(b) EXHIBITS:
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of Depositor*
3.2 By-laws of Depositor*
4.1(a) Form of Pooling and Servicing Agreement with respect to
fixed-rate Mortgage Loans, including forms of
Certificates*
4.1(b) Form of Pooling and Servicing Agreement with respect to
adjustable-rate Mortgage Loans, including forms of
Certificates**
5.1 Opinion of Brown & Wood LLP as to legality of the
Certificates
8.1 Opinion of Brown & Wood LLP as to certain tax matters
(included in Exhibit 5.1)
10.1 Form of Mortgage Sale Agreement between Seller and
Purchaser**
23.1 Consent of Brown & Wood LLP (included in Exhibits 5.1
and 8.1 hereto)
24.1 Powers of Attorney (included on Page II-4)
24.2 Statement of Eligibility and Qualification of
Trustee.***
_______________
* Filed as an exhibit to Registration Statement No. 33-42443 on Form
S-11 and incorporated herein by reference.
** Filed as an exhibit to Registration Statement No. 33-52720 on Form
S-11 and incorporated herein by reference.
*** To be filed on Form 8-K.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934, as amended), that is
incorporated by reference in the registration statement shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933, as
amended, and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Greenwich, Connecticut, on the 8th day of
November, 1999.
GREENWICH CAPITAL ACCEPTANCE, INC.
By: /s/ Robert J. McGinnis
-------------------------------
Robert J. McGinnis
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Robert J. McGinnis, John C. Anderson,
Jay N. Levine, Charles A. Forbes, John P. Graham, or any of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Robert J. McGinnis President (Principal Executive Officer) November 8, 1999
- ------------------------------------
Robert J. McGinnis
/s/ John M. Ryan Senior Vice President and Controller November 8, 1999
- ------------------------------------ (Principal Financial Officer and
John M. Ryan Principal Accounting Officer)
/s/ John C. Anderson Senior Vice President, Secretary and November 8, 1999
- ------------------------------------ Director
John C. Anderson
/s/ Jay N. Levine Director November 8, 1999
- ------------------------------------
Jay N. Levine
</TABLE>
EXHIBIT 5.1
November 8, 1999
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Re: Greenwich Capital Acceptance, Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Greenwich Capital Acceptance, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of the
registration statement on Form S-3 (the "Registration Statement") relating to
the Certificates (defined below) and with the authorization and issuance from
time to time in one or more series (each, a "Series") of up to $1,000,000,000
aggregate principal amount of mortgage pass-through certificates (the
"Certificates"). As set forth in the Registration Statement, each Series of
Certificates will be issued under and pursuant to the terms of a separate
pooling and servicing agreement, master pooling and servicing agreement, pooling
agreement or trust agreement (each, an "Agreement") among the Company, a trustee
(the "Trustee") and, where appropriate, a servicer (the "Servicer"), each to be
identified in the prospectus supplement for such Series of Certificates.
We have examined copies of the Company's Restated Certificate of
Incorporation, the Company's By-laws and forms of each Agreement, as filed or
incorporated by reference as exhibits to the Registration Statement, and the
forms of Certificates included in any Agreement so filed or incorporated by
reference in the Registration Statement and such other records, documents and
statutes as we have deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. When any Agreement relating to a Series of Certificates has been
duly and validly authorized by all necessary action on the part of the Company
and has been duly executed and delivered by the Company, the Servicer, if any,
the Trustee and any other party thereto, such Agreement will constitute a legal,
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting creditors' rights
generally or by general equity principles.
2. When a Series of Certificates has been duly authorized by all
necessary action on the part of the Company (subject to the terms thereof being
otherwise in compliance with applicable law at such time), duly executed and
authenticated by the Trustee for such Series in accordance with the terms of the
related Agreement and issued and delivered against payment therefor as described
in the Registration Statement, such Series of Certificates will be legally and
validly issued, fully paid and nonassessable, and the holders thereof will be
entitled to the benefits of the related Agreement.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York (excluding
choice of law principles therein) and the federal laws of the United States of
America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in each Prospectus forming a part of the Registration Statement,
without admitting that we are "experts" within the meaning of the Securities Act
of 1933, as amended, or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
/s/ Brown & Wood LLP
EXHIBIT 8.1
November 8, 1999
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Re: Greenwich Capital Acceptance, Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel for Greenwich Capital Acceptance,
Inc., a Delaware corporation (the "Company"), in connection with the preparation
of the registration statement on Form S-3 (the "Registration Statement")
relating to the Certificates (defined below) and with the authorization and
issuance from time to time in one or more series (each, a "Series") of up to
$1,000,000,000 aggregate principal amount of mortgage pass-through certificates
(the "Certificates"). The Registration Statement is being filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
As set forth in the Registration Statement, each Series of Certificates will be
issued under and pursuant to the terms of a separate pooling and servicing
agreement, master pooling and servicing agreement, pooling agreement or trust
agreement (each an "Agreement") among the Company, a trustee (the "Trustee")
and, where appropriate, a servicer (the "Servicer"), each to be identified in
the prospectus supplement for such Series of Certificates.
We have examined the prospectus and forms of prospectus supplement
related thereto contained in the Registration Statement (each, a "Prospectus")
and such other documents, records and instruments as we have deemed necessary
for the purposes of this opinion.
In arriving at the opinion expressed below, we have assumed that each
Agreement will be duly authorized by all necessary corporate action on the part
of the Company, the Trustee, the Servicer (where applicable) and any other party
thereto for such Series of Certificates and will be duly executed and delivered
by the Company, the Trustee, the Servicer and any other party thereto
substantially in the applicable form filed or incorporated by reference as an
exhibit to the Registration Statement, that each Series of Certificates will be
duly executed and delivered in substantially the forms set forth in the related
Agreement filed or incorporated by reference as an exhibit to the Registration
Statement, and that Certificates will be sold as described in the Registration
Statement.
As special tax counsel to the Company, we have advised the Company with
respect to certain material federal income tax aspects of the proposed issuance
of each Series of Certificates pursuant to the related Agreement. Such advice
has formed the basis for the description of selected federal income tax
consequences for holders of such Certificates that appear under the headings
"Certain Federal Income Tax Consequences" in each Prospectus forming a part of
the Registration Statement. Such description does not purport to discuss all
possible federal income tax ramifications of the proposed issuance of the
Certificates, but with respect to those federal income tax consequences
described therein, such description is accurate in all material respects.
This opinion is based on the facts and circumstances set forth in the
Registration Statement and in the other documents reviewed by us. Our opinion as
to the matters set forth herein could change with respect to a particular Series
of Certificates as a result of changes in facts or circumstances, changes in the
terms of the documents reviewed by us, or changes in the law subsequent to the
date hereof. Because the Prospectuses contemplate Series of Certificates with
numerous different characteristics, you should be aware that the particular
characteristics of each Series of Certificates must be considered in determining
the applicability of this opinion to a particular Series of Certificates.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Certain Federal Income Tax Consequences" in each Prospectus forming a part of
the Registration Statement, without admitting that we are "experts" within the
meaning of the 1933 Act or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours
Brown & Wood LLP
