PROSPECTUS SUPPLEMENT
(To Prospectus dated November 13, 2000)
$557,042,100 (Approximate)
Fifth Third Bank Mortgage Loan Trust 2000-FTB1
Mortgage Pass-Through Certificates, Series 2000-FTB1
-----------------
Fifth Third LOGO
-----------------
Class A-1 $339,000,000 Initial Fixed Pass-Through Rate
Class A-2 $218,042,000 Initial Fixed Pass-Through Rate
Class X Notional Balance Variable Pass-Through Rate
Class A-R $100 Weighted Average Pass-Through Rate
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
FIFTH THIRD MORTGAGE COMPANY
Seller
FIFTH THIRD BANK
Servicer
Consider carefully the risk factors beginning on page S-8 in this prospectus
supplement and on page 6 in the prospectus.
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of the depositor, the seller, any servicer, the
trustee or any of their affiliates. This prospectus supplement may be used to
offer and sell the certificates only if accompanied by the prospectus.
The Certificates
o The certificates represent ownership interests in a trust consisting
primarily of adjustable-rate, first lien, residential mortgage loans.
o The Class A-1, Class A-2, Class X and Class A-R Certificates will be
senior certificates. The Class B-1, Class B-2, Class B-3, Class B-4,
Class B-5 and Class B-6 Certificates will be subordinate certificates.
o Only the Class A-1, Class A-2, Class X and Class A-R Certificates are
being offered by this prospectus supplement and the accompanying
prospectus. However, the Class A-R Certificate will not be purchased by
the underwriter and is being transferred to the seller as partial
consideration for the sale of the mortgage loans. The subordinate
certificates are not being offered by this prospectus supplement and the
accompanying prospectus.
o Each class of offered certificates will bear interest at the applicable
interest rate calculated as described in this prospectus supplement.
o The Class X Certificates will have no principal balance and will bear
interest at the rate described in this prospectus supplement calculated
on a notional balance.
Credit Enhancement
o Subordination - The subordinate certificates will be subordinate in right
of certain payments to the senior certificates as described in this
prospectus supplement.
o Allocation of Losses - Losses on the mortgage loans generally will be
allocated to the classes of subordinate certificates in reverse numerical
order until the principal balances of those classes are reduced to zero.
Thereafter, such losses will be allocated to the classes of senior
certificates as described in this prospectus supplement.
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus supplement or the prospectus is
accurate or complete. Any representation to the contrary is a criminal
offense.
The offered certificates (other than the Class A-R Certificate) 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 100.16%, before deducting
issuance expenses payable by the depositor, estimated to be approximately
$625,000. See "Method of Distribution" in this prospectus supplement.
Delivery of the offered certificates (other than the Class A-R
Certificate) will be made in book-entry form through the facilities of The
Depository Trust Company, Clearstream, Luxembourg and the Euroclear System on
or about December 21, 2000.
December 15, 2000
GREENWICH CAPITAL
<PAGE>
TABLE OF CONTENTS
<PAGE>
PROSPECTUS SUPPLEMENT
Page
Summary of Terms..................................S-1
Risk Factors......................................S-8
The Mortgage Loans...............................S-14
The Seller.......................................S-25
The Standby Purchaser and Servicer...............S-26
Servicing of Mortgage Loans......................S-27
The Pooling and Servicing Agreement..............S-30
Description of the Certificates..................S-39
Yield, Prepayment and Maturity Considerations....S-59
Certain Material Federal Income Tax Consequences.S-69
State Taxes......................................S-75
ERISA Considerations.............................S-75
Legal Investment Considerations..................S-78
Method of Distribution...........................S-78
Legal Matters....................................S-79
Ratings..........................................S-79
Index of Defined Terms...........................S-81
PROSPECTUS
Page
Important Notice About Information in This
Prospectus and Each Accompanying
Prospectus Supplement..............................5
Risk Factors........................................6
The Trust Fund.....................................14
Use of Proceeds....................................29
The Depositor......................................29
Mortgage Loan Program..............................29
Description of the Certificates....................32
Credit Enhancement.................................41
Yield and Prepayment Considerations................50
The Pooling and Servicing Agreement................52
Certain Legal Aspects of the Mortgage Loans........68
Certain Material Federal Income Tax Consequences...79
REMIC Certificates.................................92
State Tax Considerations..........................114
ERISA Considerations..............................114
Legal Investment..................................118
Method of Distribution............................119
Legal Matters.....................................120
Financial Information.............................121
Available Information.............................121
Ratings...........................................121
Index of Defined Terms............................122
<PAGE>
2
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 the offering
of the offered certificates, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flow
priorities and other information to aid your understanding and is
qualified by the full description of these calculations, cash flow
priorities and other information in this prospectus supplement and the
accompanying prospectus. Some of the information consists of
forward-looking statements relating to future economic performance or
projections and other financial items. Forward-looking statements are
subject to a variety of risks and uncertainties that could cause actual
results to differ from the projected results. Those risks and
uncertainties include, among others, general economic and business
conditions, regulatory initiatives and compliance with governmental
regulations, and various other matters, all of which are beyond our
control. Accordingly, what actually happens may be very different from
what we predict in our forward-looking statements.
<PAGE>
Offered Certificates
On the closing date, Fifth Third Bank Mortgage Loan Trust 2000-FTB1 will issue
ten classes of certificates. Only the Class A-1, Class A-2, Class X and Class
A-R Certificates are being offered by this prospectus supplement and the
accompanying prospectus. The assets of the trust that will support the
certificates will consist primarily of a pool of adjustable rate, first lien,
residential mortgage loans having the characteristics described in this
prospectus supplement.
The mortgage pool will consist of mortgage loans having an aggregate principal
balance of approximately $586,360,955 as of the cut-off date.
Except for the Class A-R Certificate, the offered certificates will be
book-entry securities clearing through The Depository Trust Company (in the
U.S.) or Clearstream, Luxembourg or Euroclear (in Europe) in minimum
denominations of $25,000. The Class A-R Certificate will be issued in fully
registered certificated form.
Additional Certificates
In addition to the four classes of offered certificates, the trust will issue
six other classes of certificates. These certificates will be designated the
Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6
Certificates and are not being offered by this prospectus supplement and the
prospectus. Information about these classes is being included because these
classes provide credit enhancement for the offered certificates. The Class
B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates
will have the following approximate original aggregate principal balances:
Class B-1.........$11,727,000
Class B-2.........$ 4,397,000
Class B-3.........$ 4,397,000
Class B-4.........$ 4,397,000
Class B-5 ........$ 2,052,000
Class B-6 ........$ 2,348,855
See "Description of the Certificates--General", "--Book-Entry Certificates"
and "The Mortgage Loans", in this prospectus supplement and "The Trust
Fund--The Mortgage Loans--General" in the prospectus for additional
information.
Cut-Off Date
December 1, 2000.
Closing Date
On or about December 21, 2000.
Seller
Fifth Third Mortgage Company.
See "The Seller" in this prospectus supplement for additional information.
Servicer
Fifth Third Bank.
See "Servicing of Mortgage Loans" in this prospectus supplement for additional
information.
The Depositor
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700.
The Trustee
The Chase Manhattan Bank.
See "The Pooling and Servicing Agreement--The Trustee" in this prospectus
supplement for additional information.
Standby Purchaser
Fifth Third Bank.
Designations
Each class of certificates will have different characteristics, some of which
are reflected in the following general designations.
o Offered Certificates or Senior Certificates
Class A-1, Class A-2, Class X and Class A-R Certificates.
o Subordinate Certificates
Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6
Certificates.
o Interest Only Certificates
Class X Certificates.
o Book-Entry Certificates
Class A-1, Class A-2 and Class X Certificates.
o Residual Certificate
Class A-R Certificate.
Mortgage Loans
A pool of conventional first lien, fully amortizing mortgage loans with
interest rates that adjust, every 12 months, 36 months or 60 months after an
initial fixed rate period of either 36 months or 60 months, based on one of
the following indexes:
o the 1-Year CMT index (determined based on the weekly average yield on
United States Treasury securities adjusted to a constant maturity of one
year),
o the 3-Year CMT index (determined based on the weekly average yield on
United States Treasury Securities adjusted to a constant maturity of
three years) or,
o the 5-Year CMT index (determined based on the weekly average yield on
United States Treasury Securities adjusted to a constant maturity of five
years).
Distribution Date
Beginning in January 2001, the trustee will make distributions on the 18th day
of each calendar month or, if the 18th day is not a business day, on the next
business day.
Interest Payments on the Certificates
General
Interest on the offered certificates will accrue on the basis of a 360-day
year composed of twelve 30-day months.
The interest accrual period with respect to the offered certificates will be
the calendar month immediately preceding the month in which such distribution
date occurs.
See "Description of the Certificates--Pass-Through Rates" in this prospectus
supplement.
Class A-1, Class A-2 and Class A-R
Interest on the Class A-1 and Class A-2 Certificates for any specified
distribution date on and prior to the distribution date will be calculated at
the applicable annual rate described below:
o on any distribution date up to and including the distribution date in
September 2002, the lesser of (1) 6.75% in the case of the Class A-1
Certificates and 6.50% in the case of the Class A-2 Certificates and (2)
the weighted average of the interest rates of the mortgage loans less the
sum of the rates at which the trustee fee and the servicing fee are
calculated; and
o on each distribution date thereafter, the weighted average of the
interest rates of the mortgage loans less the sum of the rates at which
the trustee fee and the servicing fee are calculated.
Interest on the Class A-R Certificate for any distribution date will be
calculated at an annual rate equal to the weighted average of the interest
rates of the mortgage loans less the sum of the rates at which the trustee fee
and the servicing fee are calculated.
Class X
Interest on the Class X Certificates will be calculated at an annual rate
equal to:
o the weighted average of the interest rates of the mortgage loans less the
sum of the rates at which the trustee fee and the servicing fee are
calculated
less
o the weighted average of the interest rates of the Class A-1 and Class A-2
Certificates.
The Class X Certificates will not receive any interest after the distribution
date in September 2002.
Principal Payments on the Certificates
Principal will be paid to holders of the offered certificates, other than the
Class X Certificates, on each distribution date in the amounts described in
this prospectus supplement under "Description of the Certificates--
Principal".
Payment Priorities
On each distribution date, the trustee will apply the amounts available for
distribution generally in the following order of priority:
o interest on the senior certificates;
o principal of the Class A-R Certificate;
o principal of the Class A-1 and Class A-2 Certificates, sequentially;
o interest on, and then principal of, each class of subordinated
certificates in the order of their numerical class designations,
beginning with the Class B-1 Certificates; and
o any remaining available amounts to the Class A-R Certificate.
See "Description of the Certificates" in this prospectus supplement for
additional information.
Advances
The servicer is required to make cash advances to cover delinquent payments of
principal and interest in respect of the mortgage loans unless it reasonably
believes that the cash advances are not recoverable from future payments on
the 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. The servicer is also required
to make certain servicing related advances.
See "The Pooling and Servicing Agreement--Advances" in this prospectus
supplement for additional information.
Option to Put the Class A-1 and Class A-2 Certificates
General
Certificateholders of the Class A-1 and Class A-2 Certificates will have a
one-time option to sell their certificates to the standby purchaser. The
option may be exercised in whole or in part with respect to either such class
of certificates during the applicable option period.
Put Option Period
The 5 business day period ending on the distribution date in August 2002.
Purchase Price
The purchase price will be based upon the outstanding principal balance of the
certificates after distributions on the distribution date in September 2002,
plus accrued and unpaid interest at the applicable pass-through rate on the
outstanding principal balance of those certificates immediately prior to that
distribution date.
Optional Call
If the put option is exercised with respect to more than 90% of the aggregate
outstanding principal balance of the Class A-1 and Class A-2 Certificates, the
standby purchaser will have the right to purchase all of the Class A-1 and
Class A-2 Certificates on the same terms.
See "The Pooling and Servicing Agreement--Put Option and Optional Call" in
this prospectus supplement for additional information.
Optional Termination
The servicer may purchase all of the assets in the trust and retire all
outstanding certificates when the outstanding principal balance of the
mortgage loans and any real estate owned by the trust is 10% or less of the
aggregate principal balance of the mortgage loans as of the cut-off date.
See "The Pooling and Servicing Agreement--Termination" in this prospectus
supplement for additional information.
Credit Enhancement
The senior certificates will have a prior right of payment over the
subordinated certificates. Subordination is designed to provide the holders of
certificates with a higher payment priority with protection against most
losses realized when the remaining unpaid principal balance on a mortgage loan
exceeds the amount of proceeds recovered upon the liquidation of that mortgage
loan. In general, this loss protection is accomplished by allocating the
realized losses, first, among the subordinated certificates and, second, to
the classes of senior certificates on a pro rata basis. However, special
hazard losses, bankruptcy losses, and fraud losses realized on the mortgage
loans in excess of the amounts set forth in this prospectus supplement are
allocated simultaneously to the senior certificates and to the subordinated
certificates in the manner specified in this prospectus supplement under
"Description of the Certificates--Allocation of Losses".
In addition, until the distribution date in January 2011, the subordinate
certificates will be locked out from receipt of any principal unless the
senior certificates are paid down to zero or the credit enhancement provided
by the subordinate certificates has, among other things, doubled prior to that
date and certain performance triggers have been satisfied. After that time and
subject to certain performance triggers, the subordinate certificates will
receive their ratable share of scheduled principal and increasing portions of
principal prepayments over time.
See "Description of the Certificates--Principal", "-- Allocation of Losses"
and "--Subordination of the Subordinate Certificates" in this prospectus
supplement.
Ratings
It is a condition to the issuance of the offered certificates that the Class
A-1, Class A-2 and Class X Certificates be rated "AAA" and "Aaa", in each case
by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies
and Moody's Investors Service, Inc., respectively; and that the Class A-R
Certificate be rated "AAA" by Standard & Poor's.
In respect of the put option, Standard & Poor's also will assign a rating of
"A-1+" to the standby purchaser's obligation under the put option with respect
to the Class A-1 and Class A-2 Certificates. In the case of Moody's, the
standby purchaser's ability or obligation to purchase the Class A-1 and Class
A-2 Certificates under the put option is directly linked to their short term
rating, which is currently "P-1", and their long term rating, which is
currently "Aa3".
A rating is not a recommendation to buy, sell or hold securities and it may be
lowered or withdrawn at any time by the rating agencies.
See "Ratings" in this prospectus supplement for additional information.
Tax Status
In the opinion of Brown & Wood LLP, for federal income tax purposes, the trust
will comprise several "real estate mortgage investment conduits" or REMICs
organized in a tiered REMIC structure. The offered certificates, other than
the Class A-R Certificate, will constitute "regular interests" in the upper
tier REMIC. The Class A-R Certificate will represent the sole class of
"residual interests" in each REMIC created under the pooling and servicing
agreement. Holders of the Class A-1 and Class A-2 Certificates will also hold
a separate put option right for federal income tax purposes.
The offered certificates (other than the Class A-R Certificate) generally will
be treated as newly originated debt instruments for federal income tax
purposes. Beneficial owners of the offered certificates (other than the Class
A-R Certificate) will be required to report income on the offered certificates
in accordance with the accrual method of accounting.
See "Certain Material Federal Income Tax Consequences" in this prospectus
supplement and "Certain Material Federal Income Tax Consequences" in the
prospectus for additional information.
ERISA Considerations
Subject to satisfaction of certain conditions, ERISA Plans may purchase the
offered certificates other than the Class A-R Certificate.
See "ERISA Considerations" in this prospectus supplement and in the
prospectus.
Legal Investment Considerations
The offered certificates will be "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, or SMMEA, as long as
they are rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization.
See "Legal Investment Considerations" in this prospectus supplement and "Legal
Investment" in the prospectus.
<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 offered certificates.
o If you purchase your certificates
at a discount and principal is
repaid slower than you anticipate,
then your yield may be lower than
you anticipate.
o If you purchase your certificates
at a premium and principal is
repaid faster than you anticipate,
then your yield may be lower than
you anticipate.
o If you purchase the Class X
Certificates and principal of the
mortgage loans is repaid at an
extremely rapid rate, you may not
recover your initial investment.
o The rate of prepayments on the
mortgage loans will be sensitive
to prevailing interest rates.
Generally, if prevailing interest
rates decline significantly below
the interest rates on the mortgage
loans, those mortgage loans are
more likely to prepay than if
prevailing rates remain above the
interest rates on the mortgage
loans. Conversely, if prevailing
interest rates rise significantly,
prepayments on the mortgage loans
are likely to decrease.
o The pass-through rate of your
certificates is directly related
to the interest rates on the
mortgage loans. Prepayments of
mortgage loans with relatively
higher interest rates will reduce
the pass-through rate of your
certificates.
o The seller is required to purchase
from the trust any mortgage loan
in the event certain breaches of
representations and warranties
occur and are not cured. In
addition, the seller is required
to purchase from the trust any
mortgage loan as to which the
borrower elects to convert the
adjustable interest rate to a
fixed interest rate. In addition,
the servicer has the option to
purchase mortgage loans that
become 90 days or more delinquent,
subject to certain limitations and
conditions described in this
prospectus supplement. These
purchases will have the same
effect on the holders of the
offered certificates as a
prepayment of the mortgage loans.
o If the rate of default and the
amount of losses on the mortgage
loans are higher than you expect,
then your yield may be lower than
you expect.
o The priorities governing payments
of principal will have the effect
of accelerating the rate of
principal payments to holders of
the classes of senior certificates
relative to the classes of
subordinate certificates.
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 for
the Offered Certificates............ Credit enhancement will be provided
for the offered certificates, first,
by the right of the holders of
certificates to receive payments
before the classes subordinated to
them and, second, by the allocation of
realized losses on the mortgage loans
to subordinated classes in the reverse
order of their numerical class
designations. This first form of
credit enhancement uses collections on
the mortgage loans otherwise payable
to holders of subordinated classes to
pay interest or principal due on more
senior classes. Collections otherwise
payable to subordinated classes
represent the sole source of funds
from which this type of credit
enhancement is provided.
Except as described below, realized
losses are allocated, first, to the
subordinate certificates and, second,
to the senior certificates on a pro
rata basis until the principal amount
of each class has been reduced to
zero. Accordingly, if the aggregate
principal balance of the classes of
subordinate certificates were to be
reduced to zero, delinquencies and
defaults on the mortgage loans would
reduce the amount of funds available
for monthly distributions to holders
of the senior certificates.
Furthermore, the subordinate
certificates will provide only limited
protection against certain categories
of losses such as special hazard
losses, bankruptcy losses and fraud
losses as specified in this prospectus
supplement. Once the specified loss
amounts have been exceeded, holders of
the senior certificates will bear
their proportionate share of any
losses realized on the mortgage loans.
See "Description of the
Certificates--Allocation of Losses"
and "--Subordination of the
Subordinate Certificates" in this
prospectus supplement for additional
information.
Interest Payments May
Be Insufficient..................... When a mortgage loan is prepaid in
full, the borrower is charged interest
only up to the date on which such
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 servicer is
required to cover the shortfall in
interest collections that is
attributable to prepayments on the
loans but only to the extent of its
servicing fee. In addition, certain
shortfalls in interest collections
arising from the application of the
Soldiers' and Sailors' Civil Relief
Act of 1940 will not be covered by the
servicer.
Any uncovered interest shortfall may
adversely affect the yield on your
investment.
Adjustable Rate
Mortgage Loans May
Convert to Fixed Rates
Which May Reduce the
Yield on the Certificates........... Although all of the mortgage loans are
adjustable rate loans, the borrower on
approximately 77.58% of the mortgage
loans by pool balance can convert from
an adjustable rate to a fixed rate
during certain periods as long as the
borrower is current in payment on the
borrower's mortgage loan. If the
borrower converts a mortgage loan from
an adjustable rate to a fixed rate,
the seller will be obligated to
repurchase the converted mortgage loan
from the trust. The fixed rate on a
converted loan may be lower than the
pass-through rate on one or more
classes of offered certificates. Since
the pass-through rates on the
certificates may not exceed the
weighted average of the net mortgage
loan rates, any conversion to a fixed
rate of a mortgage loan that has not
been purchased by the seller may
increase the likelihood that the
pass-through rates on the offered
certificates will be lower than if
such conversion had not occurred.
Delay in Receipt of
Liquidation Proceeds;
Liquidation Proceeds
May Be Less than
Mortgage Loan Balance............... Substantial delays could be
encountered in connection with the
liquidation of delinquent mortgage
loans. Further, liquidation expenses
such as legal fees, real estate taxes
and maintenance and preservation
expenses may reduce the portion of
liquidation proceeds payable to you.
If a mortgaged property fails to
provide adequate security for the
related mortgage loan, you will incur
a loss on your investment if the
credit enhancement is insufficient to
cover that loss.
Certificates May Not Be
Appropriate for Some
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
offered certificates. This may be the
case due to the reasons specified
below.
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 distributions among the
classes of certificates.
Accordingly, the offered
certificates may be an
inappropriate investment if you
require a distribution of a
particular amount of principal on
a specific date or an otherwise
predictable stream of
distributions.
o You may not be able to reinvest
distributions on an offered
certificate (which, in general,
are expected to be greater during
periods of relatively low interest
rates) at a rate at least as high
as the pass-through rate
applicable to your certificate.
o Your investment in the offered
certificates may be ended before
you desire if the optional call or
optional termination is exercised.
o A secondary market for the offered
certificates may not develop or
provide you with liquidity of
investment.
Risk of Non-Performance
By the Standby Purchaser............ The put options are the obligations
solely of the standby purchaser and do
not represent obligations of, or an
interest in, the seller, the
depositor, the underwriter or their
respective affiliates, other than the
standby purchaser. The obligations of
the standby purchaser under the put
options are not insured or guaranteed
by any person or entity. As a result,
if the standby purchaser should be
unable to pay the purchase price or
default on its obligation to buy the
certificates upon the exercise of a
put option, you may not be able to
sell your certificate to the standby
purchaser.
Geographic Concentration
of the Mortgage Loans............... The following chart lists the states
and related percentage with
concentrations of mortgage loans in
excess of 5% of the aggregate
principal balance as of the cut-off
date.
Ohio 56.10% Arizona 11.25% Kentucky
10.71% Indiana 7.24% Florida 6.88% In
addition, the conditions below will
have a disproportionate impact on the
mortgage loans in general:
o Economic conditions in states
listed above 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 residential real
estate markets in the states
listed above 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 the
states listed above 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.
Lack of Liquidity................... There is currently no secondary market
for the offered certificates and there
can be no assurance that a secondary
market for the offered certificates
will develop. 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. Any of these
fluctuations may be significant and
could result in significant losses to
you.
The secondary markets for asset-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.
Servicer Alternatives
to Foreclosure...................... The servicer may foreclose on any
delinquent mortgage loan or, subject
to certain limitations set forth in
the pooling and servicing agreement,
work out an agreement with the related
borrower, which may involve waiving or
modifying any term of the mortgage
loan. The servicer may also sell any
mortgage loan if such mortgage loan is
at least 90 days delinquent.
Bankruptcy Or Insolvency May
Affect the Timing and Amount
of Distributions on the
Certificates........................ The transfer of the mortgage loans by
the seller to the depositor will be
characterized in the mortgage loan
purchase agreement as a sale
transaction. Nevertheless, in the
event of a bankruptcy of the seller,
the trustee in such bankruptcy could
attempt to recharacterize the sale of
the mortgage loans to the depositor as
a borrowing secured by a pledge of the
mortgage loans.
If such an attempt to recharacterize
the transfer of the mortgage loans
were successful, a trustee in
bankruptcy could elect to accelerate
payment of the certificates and
liquidate the mortgage loans, with the
holders of the certificates entitled
to no more than the outstanding class
principal balances, if any, of the
classes of certificates, together with
interest thereon at the applicable
pass-through rate to the date of
payment. In the event of an
acceleration of the certificates, the
holders of the certificates would lose
the right to future payments of
interest, might suffer reinvestment
losses in a lower interest rate
environment and may fail to recover
their initial investment. Regardless
of whether an acceleration takes
place, delays in payments on the
certificates and possible reductions
in the amount of such payments could
occur. The depositor will warrant in
the pooling and servicing agreement
that the transfer of the mortgage
loans to the trust fund is a valid
transfer and sale of all of the
depositor's right, title and interest
in the mortgage loans to the trust
fund.
The Mortgage Loans
The information set forth in the following paragraphs has been
provided by the Seller. None of the Depositor or any of its other affiliates
or the Trustee or any of its affiliates has made or will make any
representation as to the accuracy or completeness of the information that
appears under this heading.
General
The assets held by Fifth Third Bank Mortgage Loan Trust 2000-FTB1
(the "Trust") will consist principally of adjustable rate, first lien,
residential mortgage loans (each, a "Mortgage Loan"). The Mortgage Loans have
interest rates that adjust based on the related Index every 12 months, 36
months or 60 months after an initial fixed rate period of either 36 months or
60 months, in each case as indicated in the related mortgage note. The Trust
will contain 1,566 Mortgage Loans with an aggregate Principal Balance (the
"Pool Balance") of approximately $586,360,955 as of December 1, 2000 (the
"Cut-Off Date") after application of payments of principal due on or before
the Cut-Off Date whether or not received and also subject to a permitted
variance of plus or minus 10%. All weighted averages specified in this
prospectus supplement are based on the Principal Balances of the Mortgage
Loans as of the Cut-Off Date (the "Cut-Off Date Pool Balance"), unless
otherwise specified. The "Principal Balance" of a Mortgage Loan as of any date
is equal to the unpaid principal balance of that Mortgage Loan at its
origination, less the sum of scheduled and unscheduled payments in respect of
principal made on that Mortgage Loan since its origination. References in this
prospectus supplement to percentages of the Mortgage Loans mean percentages
based on the aggregate of the Principal Balances of the Mortgage Loans as of
the Cut-Off Date, unless otherwise specified.
The numerical and statistical information with respect to the
Mortgage Loans and the Certificates are approximate and are subject to change
up to a permitted variance of plus or minus 10%. A detailed description of the
Mortgage Loans actually included in the Trust at the Closing Date will be
available to purchasers of the Offered Certificates at or before, and will be
filed on Form 8-K with the Securities and Exchange Commission within, fifteen
days after delivery of the Offered Certificates.
Pursuant to a purchase agreement between the Seller and the Depositor
(the "Mortgage Loan Purchase Agreement"), the Depositor will purchase the
Mortgage Loans from the Seller, and pursuant to the Pooling and Servicing
Agreement, the Depositor will cause the Mortgage Loans to be assigned to the
Trustee for the benefit of the Certificateholders. See "The Pooling and
Servicing Agreement" in this prospectus supplement.
Each of the Mortgage Loans was originated by the Seller or its
affiliates or purchased by the Seller in the secondary market in the ordinary
course of business.
Under the Mortgage Loan Purchase Agreement, the Seller will make
certain representations and warranties which will be assigned by the Depositor
to the Trustee. The representations and warranties relate to, among other
things, certain characteristics of the Mortgage Loans and, subject to certain
limitations, the Seller will be obligated to repurchase or substitute a
similar mortgage loan for any such Mortgage Loan as to which there exists
deficient documentation or an uncured breach of any such representation or
warranty, if the breach of the representation or warranty materially and
adversely affects the Certificateholders' interests in the Mortgage Loan. The
Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute
Mortgage Loans with deficient documentation or that are otherwise defective.
The Seller is selling the Mortgage Loans without recourse and will have no
obligation with respect to the Certificates in its capacity as Seller other
than the repurchase or substitution obligations described above and in the
following paragraph.
The Loan Rates on Mortgage Loans representing approximately 77.58% of
the Cut-Off Date Pool Balance can be converted to fixed rates at the request
of the related borrowers during the period beginning three months and ending
fifty-eight months after their dates of origination, so long as the requesting
borrowers are not delinquent in payment on the related Mortgage Loans. The
converted fixed rate will be The Federal Home Loan Mortgage Corporation's net
yield for fixed interest rate mortgages having maturities comparable to the
converted Mortgage Loan and covered by 60-day mandatory delivery commitments
(as made available by The Federal Home Loan Mortgage Corporation), plus a
margin. The Seller is obligated to repurchase any Mortgage Loan so converted
as of the date of conversion in an amount equal to the Purchase Price for the
converted Mortgage Loan on the date of conversion plus accrued and unpaid
interest thereon. Any amount received in respect of the repurchase will be
deposited into the Collection Account for distribution on the Distribution
Date in the month following the repurchase.
Mortgage Loan Statistics
The following statistical information, unless otherwise specified, is
based upon the Cut-Off Date Pool Balance.
The Mortgage Loans are secured by 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 (each, a "Mortgaged Property"). Approximately 11.90% of the Mortgage
Loans had Loan-to-Value Ratios at origination in excess of 80.00%. With
respect to Mortgage Loans having Loan-to-Value Ratios in excess of 80.00% as
of the Cut-Off Date, approximately 81.28% are covered by primary mortgage
insurance. With respect to each Mortgage Loan and any date of determination,
the "Loan-to-Value Ratio" is calculated as a fraction, expressed as a
percentage, the numerator of which is the Principal Balance of the Mortgage
Loan at such date of determination and the denominator of which is the lesser
of the sale price and the appraised value of the Mortgaged Property.
All of the Mortgage Loans have scheduled monthly payments due on the
first day of the month (with respect to each Mortgage Loan, a "Due Date") and
are current as of the Cut-Off Date.
Substantially all of the Mortgage Loans have original terms to stated
maturity ranging from 180 months to 360 months. The weighted average remaining
term to stated maturity of the Mortgage Loans was approximately 336 months as
of the Cut-Off Date. None of the Mortgage Loans had a first Due Date prior to
April 1992 or after September 2000 or had a remaining term to stated maturity
of less than 49 months or greater than 356 months as of the Cut-Off Date. The
latest stated maturity date of any Mortgage Loan is August 2030.
The average Principal Balance of the Mortgage Loans at origination
was approximately $388,310. The average Principal Balance of the Mortgage
Loans as of the Cut-Off Date was approximately $374,432.
No Mortgage Loan had a Principal Balance of greater than $2,290,586
or less than $2,300 as of the Cut-Off Date.
Subject to the limitation on loan rate adjustments described in the
next paragraph, each Mortgage Loan provides for adjustment, after an initial
fixed rate period, on either a 1-year, 3-year or 5-year basis, to the rate at
which interest accrues thereon (each, a "Loan Rate") 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"). The
first Adjustment Date for (i) 497 Mortgage Loans (representing approximately
33.04% of the Cut-Off Date Pool Balance) will occur 36 months after the date
of origination and (ii) 1,069 Mortgage Loans (representing 66.96% of the
Cut-Off Date Pool Balance) will occur 60 months after the date of origination.
On each Adjustment Date for a Mortgage Loan, the Loan Rate thereon
will be adjusted to equal the sum, generally rounded to the nearest multiple
of 0.125%, of the related index (each, an "Index" and together, the "Indices")
as discussed under "--The Indices" in this prospectus supplement and a fixed
percentage amount (the "Gross Margin"). On the first Adjustment Date, the Loan
Rates on the Mortgage Loans cannot increase or decrease (such initial cap, the
"First Rate Cap") by more than 2.00% per annum. On any subsequent Adjustment
Date, the Loan Rates on the Mortgage Loans cannot increase or decrease (any
such cap, a "Periodic Rate Cap") by more than 2.00% per annum. The Loan Rate
on each Mortgage Loan will not exceed a specified maximum Loan Rate over the
life of such Mortgage Loan (the "Maximum Loan Rate") or be lower than a
specified minimum Loan Rate over the life of such Mortgage Loan (the "Minimum
Loan Rate"). Effective with the first monthly payment due on each 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 First Rate Cap,
the Periodic Rate Caps, the Maximum Loan Rates and the Minimum 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 in this prospectus supplement. See "--The Indices".
The Mortgage Loans had Loan Rates as of the Cut-Off Date of not less
than 5.500% per annum and not more than 9.875% per annum and the weighted
average Loan Rate was approximately 7.210% per annum. As of the Cut-Off Date,
the Mortgage Loans had Gross Margins ranging from 0.350% per annum to 4.125%
per annum, Maximum Loan Rates ranging from 10.375% per annum to 14.875% per
annum and Minimum Loan Rates ranging from 0.350% per annum to 4.125% per
annum. As of the Cut-Off Date, the weighted average Gross Margin was
approximately 2.801% per annum, the weighted average Maximum Loan Rate was
approximately 12.382% per annum and the weighted average Minimum Loan Rate was
approximately 2.801% per annum. As of the Cut-Off Date, the weighted average
Loan Rate adjustment frequency was 21 months, the latest next Adjustment Date
following the Cut-Off Date on any Mortgage Loan occurs in October 2005 and the
weighted average next Adjustment Date for all of the Mortgage Loans following
the Cut-Off Date occurs in October 2003.
The Mortgage Loans primarily were underwritten under full
documentation program guidelines.
The Mortgage Loans had the following characteristics as of the
Cut-Off Date (the sum in any column may not equal the total indicated due to
rounding):
<PAGE>
<TABLE>
<CAPTION>
ARM Product Types of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
ARM Product Type Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
5/1 ARM...................................... 855 $313,341,381.93 53.44
3/1 ARM...................................... 365 141,566,424.49 24.14
5/5 ARM...................................... 214 79,265,909.81 13.52
3/3 ARM...................................... 132 52,187,239.18 8.90
------------ ----------------- --------------
Total............... 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
<TABLE>
<CAPTION>
Principal Balances of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Principal Balance ($) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
4,629 - 50,000..................... 3 $54,110.03 0.01
50,001 - 100,000..................... 6 479,866.63 0.08
100,001 - 150,000..................... 2 210,020.82 0.04
150,001 - 200,000..................... 9 1,650,786.59 0.28
200,001 - 250,000..................... 42 10,104,166.72 1.72
250,001 - 300,000..................... 556 153,106,898.72 26.11
300,001 - 350,000..................... 330 107,100,200.91 18.27
350,001 - 400,000..................... 202 75,993,122.62 12.96
400,001 - 450,000..................... 102 43,400,592.64 7.40
450,001 - 500,000..................... 88 42,001,236.60 7.16
500,001 - 550,000..................... 60 31,380,292.92 5.35
550,001 - 600,000..................... 47 27,147,076.74 4.63
600,001 - 650,000..................... 51 32,342,827.05 5.52
650,001 - 750,000..................... 26 18,354,190.90 3.13
750,001 -1,000,000..................... 27 23,596,301.23 4.02
1,000,001 -1,500,000..................... 13 15,186,949.32 2.59
1,500,001 -2,000,000..................... 1 1,961,729.55 0.33
2,000,001 -2,290,585..................... 1 2,290,585.42 0.39
------------ ----------------- --------------
Total............. 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
The average Principal Balance of the Mortgage Loans as of the Cut-Off
Date was approximately $374,432.
<PAGE>
<TABLE>
<CAPTION>
Remaining Terms to Stated Maturity of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Remaining Term (months) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
49 - 60.................................... 1 $359,887.35 0.06
73 - 84.................................... 1 153,182.72 0.03
121 - 132.................................... 4 1,163,624.00 0.20
133 - 144.................................... 6 1,482,184.59 0.25
145 - 156.................................... 1 340,209.90 0.06
157 - 168.................................... 32 10,985,200.47 1.87
169 - 180.................................... 10 3,997,585.72 0.68
253 - 264.................................... 2 517,680.50 0.09
265 - 276.................................... 8 2,133,408.30 0.36
277 - 288.................................... 5 1,748,427.40 0.30
289 - 300.................................... 11 3,589,891.45 0.61
301 - 312.................................... 29 9,813,137.88 1.67
313 - 324.................................... 131 44,427,350.60 7.58
325 - 336.................................... 172 63,031,136.56 10.75
337 - 348.................................... 754 284,724,482.52 48.56
349 - 356.................................... 399 157,893,565.45 26.93
----------- ----------------- --------------
Total................................. 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
The weighted average remaining term to stated maturity of the
Mortgage Loans as of the Cut-Off Date was approximately 336 months.
<TABLE>
<CAPTION>
Original Terms to Maturity of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Original Term (months) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
72.............................................. 1 $359,887.35 0.06
180............................................. 54 18,121,987.40 3.09
300............................................. 1 319,826.41 0.05
360............................................. 1,510 567,559,254.25 96.79
------------ ----------------- --------------
Total................................. 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
The weighted average original term to maturity of the Mortgage Loans
as of the Cut-Off Date was approximately 354 months.
<PAGE>
<TABLE>
<CAPTION>
Property Types of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Property Type Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
Single Family............................. 1,519 $566,151,018.26 96.55
Condominium............................... 46 19,919,951.43 3.40
Two-Four Family........................... 1 289,985.72 0.05
------------ ----------------- --------------
Total............. 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
<TABLE>
<CAPTION>
Stated Occupancy Status of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Stated Occupancy Status (1) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
Primary................................... 1,468 $542,535,754.88 92.53
Second Home............................... 98 43,825,200.53 7.47
------------ ----------------- --------------
Total............ 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
(1) Occupancy as represented by the Mortgagor at the time of origination.
<TABLE>
<CAPTION>
Loan Purposes of the Mortgage Loan
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Purpose Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C>
Purchase.................................. 968 $342,213,088.53 58.36
Cash Out Refinance........................ 314 133,353,921.98 22.74
Rate/Term Refinance....................... 284 110,793,944.90 18.90
------------ ----------------- --------------
Total............ 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
<TABLE>
<CAPTION>
Documentation Types of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Documentation Type Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
Full Documentation........................ 1,472 $551,074,037.91 93.98
Stated Documentation...................... 54 20,728,389.42 3.54
Alternative Documentation................. 20 7,681,985.22 1.31
No Income/Asset Verification.............. 19 6,543,324.66 1.12
No Documentation.......................... 1 333,218.20 0.06
------------ ----------------- --------------
Total............ 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Original Loan-to-Value Ratio (%) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
18.80 - 20.00............................... 2 $589,727.95 0.10
20.01 - 25.00............................... 2 936,922.19 0.16
25.01 - 30.00............................... 4 1,636,007.82 0.28
30.01 - 35.00............................... 4 2,125,707.05 0.36
35.01 - 40.00............................... 12 4,134,323.97 0.71
40.01 - 45.00............................... 17 6,127,672.38 1.05
45.01 - 50.00............................... 28 11,866,074.16 2.02
50.01 - 55.00............................... 27 10,199,850.51 1.74
55.01 - 60.00............................... 70 29,917,656.14 5.10
60.01 - 65.00............................... 88 39,237,596.96 6.69
65.01 - 70.00............................... 126 55,324,733.50 9.44
70.01 - 75.00............................... 267 101,564,254.12 17.32
75.01 - 80.00............................... 691 252,933,676.14 43.14
80.01 - 85.00............................... 35 11,597,301.98 1.98
85.01 - 90.00............................... 127 38,515,928.15 6.57
90.01 - 95.00............................... 66 19,653,522.39 3.35
------------ ----------------- --------------
Total............... 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
The weighted average original Loan-to-Value Ratio of the Mortgage
Loans as of the Cut-Off Date was approximately 74.22%.
<TABLE>
<CAPTION>
Geographic Distribution of the Mortgaged Properties
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
State Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
Arizona...................................... 170 $65,946,171.13 11.25
Colorado..................................... 1 287,427.91 0.05
Connecticut.................................. 1 791,585.87 0.13
Florida...................................... 92 40,352,472.63 6.88
Georgia...................................... 2 2,572,030.46 0.44
Idaho........................................ 1 321,698.94 0.05
Illinois..................................... 2 608,338.08 0.10
Indiana...................................... 122 42,443,987.06 7.24
Kentucky..................................... 174 62,796,121.21 10.71
Michigan..................................... 8 3,690,158.62 0.63
Minnesota.................................... 1 274,837.09 0.05
North Carolina............................... 22 7,030,231.44 1.20
Ohio......................................... 884 328,957,452.43 56.10
South Carolina............................... 6 2,247,775.96 0.38
Tennessee.................................... 51 19,158,655.89 3.27
Texas........................................ 25 7,432,309.41 1.27
Virginia..................................... 3 936,292.50 0.16
Wisconsin.................................... 1 513,408.78 0.09
------------ ----------------- --------------
Total............... 1,566 $586,360,955.41 100.00
============ ================= ==============
</TABLE>
The greatest five-digit ZIP Code geographic concentration of the
Mortgaged Properties, by Principal Balance as of the Cut-Off Date, was
approximately 4.80% in the 45243 ZIP Code.
<TABLE>
<CAPTION>
Loan Rates of the Mortgage Loans as of the Cut-Off Date
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Loan Rate (%) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
5.500 - 6.000............................... 33 $12,355,018.94 2.11
6.001 - 7.000............................... 784 287,144,790.81 48.97
7.001 - 8.000............................... 545 206,549,128.78 35.23
8.001 - 9.000............................... 181 70,987,446.03 12.11
9.001 - 9.875............................... 23 9,324,570.85 1.59
------------ ----------------- --------------
Total................ 1,566 $586,360,955.41 100.00
============ ================= ==============
The weighted average Loan Rate of the Mortgage Loans as of the
Cut-Off Date was approximately 7.210%.
Maximum Loan Rates of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Maximum Loan Rate (%) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
10.375 - 11.000.......................... 42 $14,434,022.75 2.46
11.001 - 12.000.......................... 602 219,142,790.32 37.37
12.001 - 13.000.......................... 644 239,613,144.39 40.86
13.001 - 14.000.......................... 239 97,003,968.25 16.54
14.001 - 14.875.......................... 39 16,167,029.70 2.76
------------ ----------------- --------------
Total............ 1,566 $586,360,955.41 100.00
============ ================= ==============
The weighted average Maximum Loan Rate of the Mortgage Loans as of
the Cut-Off Date was approximately 12.382%.
Minimum Loan Rates of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Minimum Loan Rate (%) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
0.350 - 1.000.............................. 1 $289,009.63 0.05
1.001 - 2.000.............................. 1 350,034.19 0.06
2.001 - 3.000.............................. 1,497 556,633,695.83 94.93
3.001 - 4.000.............................. 65 28,407,992.99 4.84
4.001 - 4.125.............................. 2 680,222.77 0.12
------------ ----------------- --------------
Total.............. 1,566 $586,360,955.41 100.00
============ ================= ==============
The weighted average Minimum Loan Rate of the Mortgage Loans as of
the Cut-Off Date was approximately 2.801%.
Gross Margins of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Gross Margin (%) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
0.350 - 1.000.............................. 1 $289,009.63 0.05
1.001 - 2.000.............................. 1 350,034.19 0.06
2.001 - 3.000.............................. 1,497 556,633,695.83 94.93
3.001 - 4.000.............................. 65 28,407,992.99 4.84
4.001 - 4.125.............................. 2 680,222.77 0.12
------------ ----------------- --------------
Total.............. 1,566 $586,360,955.41 100.00
============ ================= ==============
The weighted average Gross Margin of the Mortgage Loans as of the
Cut-Off Date was approximately 2.801%.
Next Adjustment Dates of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Next Adjustment Date Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
01/01/01...................................... 6 $2,047,973.28 0.35
02/01/01...................................... 5 1,833,839.26 0.31
03/01/01...................................... 8 2,245,666.55 0.38
04/01/01...................................... 16 5,406,272.56 0.92
05/01/01...................................... 18 6,480,141.53 1.11
06/01/01...................................... 17 5,768,022.15 0.98
07/01/01...................................... 11 3,886,114.26 0.66
08/01/01...................................... 18 7,030,047.82 1.20
09/01/01...................................... 14 4,450,094.74 0.76
10/01/01...................................... 10 3,796,950.56 0.65
11/01/01...................................... 9 3,449,587.80 0.59
12/01/01...................................... 11 4,052,459.15 0.69
01/01/02...................................... 9 3,243,253.17 0.55
02/01/02...................................... 13 6,310,736.83 1.08
03/01/02...................................... 14 4,384,739.90 0.75
04/01/02...................................... 20 7,720,770.28 1.32
05/01/02...................................... 18 6,117,864.37 1.04
06/01/02...................................... 16 6,035,099.56 1.03
07/01/02...................................... 34 12,131,081.64 2.07
08/01/02...................................... 36 14,159,003.43 2.41
09/01/02...................................... 38 14,438,226.91 2.46
10/01/02...................................... 45 14,260,161.79 2.43
11/01/02...................................... 46 16,537,445.04 2.82
12/01/02...................................... 33 13,250,547.82 2.26
01/01/03...................................... 26 9,516,881.58 1.62
02/01/03...................................... 18 6,528,067.45 1.11
03/01/03...................................... 35 13,735,429.10 2.34
04/01/03...................................... 27 11,388,605.79 1.94
05/01/03...................................... 19 9,653,594.56 1.65
06/01/03...................................... 40 18,244,226.27 3.11
07/01/03...................................... 40 14,194,676.19 2.42
08/01/03...................................... 22 7,736,347.29 1.32
09/01/03...................................... 17 6,591,151.00 1.12
10/01/03...................................... 10 3,039,909.08 0.52
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
Next Adjustment Date (continued) Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
11/01/03...................................... 8 2,493,118.63 0.43
12/01/03...................................... 9 3,391,912.38 0.58
01/01/04...................................... 24 10,036,445.33 1.71
02/01/04...................................... 14 6,408,510.92 1.09
03/01/04...................................... 28 10,266,722.77 1.75
04/01/04...................................... 39 14,787,613.33 2.52
05/01/04...................................... 38 15,600,207.14 2.66
06/01/04...................................... 45 16,175,058.13 2.76
07/01/04...................................... 51 $17,784,694.26 3.03
08/01/04...................................... 74 24,531,711.75 4.18
09/01/04...................................... 95 34,717,954.57 5.92
10/01/04...................................... 76 27,847,563.94 4.75
11/01/04...................................... 52 18,973,444.77 3.24
12/01/04...................................... 48 18,387,173.20 3.14
01/01/05...................................... 33 12,666,598.44 2.16
02/01/05...................................... 28 9,532,776.30 1.63
03/01/05...................................... 23 8,504,136.97 1.45
04/01/05...................................... 44 17,310,438.51 2.95
05/01/05...................................... 42 16,215,511.19 2.77
06/01/05...................................... 33 13,557,308.53 2.31
07/01/05...................................... 28 11,696,869.02 1.99
08/01/05...................................... 13 5,002,810.64 0.85
10/01/05...................................... 2 807,385.98 0.14
------------ ----------------- --------------
Total................ 1,566 $586,360,955.41 100.00
============ ================= ==============
Primary Borrower FICO Scores of the Mortgage Loans
Number of Principal % of
Balance
Mortgage Outstanding as Cut-Off Date
of
FICO Score Loans the Cut-Off Date Pool Balance
------------------------------------------ ------------ ----------------- --------------
N/A.......................................... 121 $42,334,652.60 7.22
401 - 450.................................... 1 300,834.71 0.05
451 - 500.................................... 1 283,929.20 0.05
501 - 550.................................... 8 2,915,215.46 0.50
551 - 600.................................... 25 10,934,062.60 1.86
601 - 650.................................... 113 44,324,680.60 7.56
651 - 700.................................... 325 123,205,135.47 21.01
701 - 750.................................... 503 185,613,141.94 31.66
751 - 800.................................... 451 169,825,602.37 28.96
Greater than 800............................. 18 6,623,700.46 1.13
------------ ----------------- --------------
Total............... 1,566 $586,360,955.41 100.00
============ ================= ==============
The weighted average FICO score of the primary borrower of the
Mortgage Loans as of the Cut-Off Date was approximately 718.
</TABLE>
<PAGE>
The Indices
The Index for 1,220 of the Mortgage Loans representing approximately
77.58% of the Cut-Off Date Pool Balance is the weekly average yield on United
States Treasury securities adjusted to a constant maturity of one year as
published by the Federal Reserve Board in Statistical Release H.15(519) and
most recently available as of a day specified in the related note ("1-Year
CMT").
The Index for 132 of the Mortgage Loans representing approximately
8.90% of the Cut-Off Date Pool Balance is the weekly average yield on United
States Treasury Securities adjusted to a constant maturity of three years as
published by the Federal Reserve Board in Statistical Release H.15(519) as
most recently available as of a day specified in the related note ("3-Year
CMT").
The Index for 214 of the Mortgage Loans representing approximately
13.52% of the Cut-Off Date Pool Balance is the weekly average yield on United
States Treasury Securities adjusted to a constant maturity of five years as
published by the Federal Reserve Board in Statistical Release H.15(519) as
most recently available as of a day specified in the related note ("5-Year
CMT").
The Seller
The Seller
All of the Mortgage Loans have been originated by Fifth Third
Mortgage Company (the "Seller") or its affiliates or purchased by the Seller
in the secondary market in the ordinary course of business. The Seller is a
direct, wholly-owned subsidiary of Fifth Third Bank ("Fifth Third").
Underwriting Standards
The Mortgage Loans will be acquired by the Depositor from the Seller
on the Closing Date. All of the Mortgage Loans were originated by the Seller
or its affiliates, generally in accordance with Fifth Third's underwriting
standards. The following is a brief description of Fifth Third's underwriting
standards for full documentation loan programs. Initially, a prospective
borrower is required to fill out a detailed application providing pertinent
credit information. As part of the application, the borrower is required to
provide a current balance sheet describing 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 merchants
and lenders and any record of bankruptcy. In addition, an employment
verification is obtained which reports the borrower's current salary and may
contain the length of employment and an indication as to 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
accounts.
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 condition
and that construction, if new, has been completed. The appraisal is based on
various factors, including the market value of comparable homes and the cost
of improvements. Certain of the appraisals may not meet the requirements of
the Federal Home Loan Mortgage Corporation or Federal National Mortgage
Association.
Once all applicable employment, credit and property information is
received, a determination is made as to whether the prospective borrower has
sufficient monthly income available to meet the borrower's monthly obligations
on the proposed mortgage loan and other expenses related to the home (such as
property taxes and hazard insurance) and other financial obligations and
monthly living expenses.
Fifth Third's underwriting standards may be varied in appropriate
cases, specifically in "reduced documentation" mortgage loan programs. Certain
reduced loan documentation programs, for example, do not require income,
employment or asset verifications. Generally, in order to be eligible for a
reduced loan documentation program, the mortgaged property must have a
Loan-to-Value Ratio which supports the amount of the mortgage loan and the
borrower must have a good credit history. In addition, Fifth Third has
developed an underwriting guideline program (the "Flex 53 Program") that
examines individual risk factors of borrowers and/or properties that might not
satisfy standard underwriting guidelines. Fifth Third utilizes risk-based
pricing to address positive and negative underwriting factors. The Flex 53
Program is offered for the purchase or refinance of a single family primary
home, vacation home or investment property and enables potential homeowners
with non-traditional income, higher debt-to-income ratios or other factors to
qualify for a mortgage loan. Of the Mortgage Loans, 22.42% were underwritten
pursuant to the Flex 53 Program.
The Mortgaged Properties may be located in states where, in general,
a lender providing credit on a single-family property may not seek a
deficiency judgment against the borrower but rather must look solely to the
property for repayment in the event of foreclosure. Fifth Third's underwriting
standards applicable to all states require that the value of the property
being financed, as indicated by the appraisal, currently supports and is
anticipated to support in the future the outstanding loan balance, although
there can be no assurance that the value will support the loan balance in the
future.
The Standby Purchaser and Servicer
Fifth Third Bank is an Ohio chartered banking corporation with its
principal office in Cincinnati, Ohio. Fifth Third Bank is headquartered in
Cincinnati, Ohio, and, together with its affiliate banks, conducts an
extensive range of consumer, corporate, and trust banking activities through
approximately 639 offices throughout the States of Ohio, Kentucky, Michigan,
Illinois, Indiana, Florida and Arizona. Fifth Third is the result of mergers
and acquisitions over the years involving thirty financial institutions, the
oldest of which was founded June 17, 1858, and is the principal subsidiary of
Fifth Third Bancorp, an Ohio corporation organized in 1974 and registered in
1975 as a bank holding company under the Bank Holding Company Act of 1956.
The Fifth Third Bancorp's banking subsidiaries engage in retail
financial services, commercial banking, trust and investment management
services, residential real estate loan financing, mutual fund activities,
equipment leasing, insurance products, and various securities-related
activities. As of September 30, 2000, Fifth Third was the 20th largest
commercial bank in the United States based on assets of approximately $44.4
billion. Total deposits were approximately $25.5 billion. Fifth Third's
principal office is located at 38 Fountain Square Plaza, Cincinnati, Ohio
45263 and its telephone number is (513) 579-5300.
Fifth Third is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
material is also available on the Commission's Internet site on the World Wide
Web located at http://www.sec.gov. In addition, such reports, proxy statements
and other information concerning the Corporation can be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
Servicing of Mortgage Loans
General
Under the Pooling and Servicing Agreement, Fifth Third Bank will act
as servicer (in such capacity, the "Servicer"). The Servicer will be
responsible for servicing the Mortgage Loans under the terms of the Pooling
and Servicing Agreement, employing that degree of skill and care which it
employs in servicing mortgage loans comparable to those Mortgage Loans
serviced by it for itself or others.
The Servicer will make reasonable efforts to collect or cause to be
collected all payments called for under the terms and provisions of the
Mortgage Loans and, to the extent those procedures are consistent with the
Pooling and Servicing Agreement, will follow collection procedures as are
followed for mortgage loans comparable to the Mortgage Loans in the trust in
the local areas where each mortgaged property is located.
Under the Pooling and Servicing Agreement, the Servicer may contract
with subservicers to perform some or all of its servicing duties. Regardless
of its subservicing arrangement, the Servicer will remain liable for its
servicing duties and obligations under the Pooling and Servicing Agreement as
if it alone were servicing the Mortgage Loans.
Residential Mortgage Loan Servicing Activities of Fifth Third. The
residential and certain commercial mortgage loans originated by Fifth Third
and its affiliates, or by other originators (such mortgage loans obtained by
Fifth Third through acquisitions of other financial institutions), including
the Mortgage Loans, are serviced currently at its servicing facility located
in Cincinnati, Ohio (the "Cincinnati Center"). On September 30, 2000, Fifth
Third was servicing 208,381 mortgage loans at the Cincinnati Center, with an
aggregate principal balance of approximately $16.914 billion.
The Cincinnati Center is responsible for receiving loan payments,
reporting to investors, maintaining hazard insurance or a single interest
policy, monitoring payment of taxes, assessments and (when applicable) private
mortgage insurance, and for all mortgage accounting and record keeping. The
Servicer will initially serve as custodian on behalf of the Trustee for the
mortgage files related to the Mortgage Loans as provided in the Pooling and
Servicing Agreement. The Cincinnati Center also maintains a department
responsible for collection efforts on delinquent residential and commercial
mortgage loans, a department to process all foreclosures thereon and a
department to manage and dispose of other real estate owned.
Because of the Cincinnati Center's role in servicing loans for
governmental and quasi-governmental agencies of the U.S. Government, the
servicing department is examined regularly by Fifth Third's internal auditors
and periodically by Fannie Mae, Freddie Mac, the Federal Reserve Bank of
Cleveland and the Ohio Division of Banks. Certain financial records of Fifth
Third relating to its mortgage servicing activities are reviewed annually by
Fifth Third Bancorp's independent public accountants.
Residential Mortgage Loan Portfolio of Fifth Third. Fifth Third's
residential mortgage loan portfolio consists predominately of long-term
conventional loans made to owner-occupants and secured by first liens on
residential one-to four-family real property. Conventional loans are loans
which are not insured by the Federal Housing Administration or partially
guaranteed by the Veterans Administration. On September 30, 2000, the
residential mortgage loan portfolio held by Fifth Third for its own account
and serviced at the Cincinnati Center was approximately $5.318 billion.
In recent years, Fifth Third has sold a portion of the mortgage loans
it has originated to participants in the secondary mortgage markets, including
quasi-governmental agencies such as Fannie Mae and Freddie Mac. Fifth Third
has retained servicing obligations in substantially all sales transactions.
However, from time to time, it may sell individual or pools of mortgage loans
on a servicing-released basis. On September 30, 2000, Fifth Third was
servicing approximately $11.596 billion of mortgage loans it had originated
and sold in the secondary mortgage markets.
Servicer's Delinquency and Foreclosure Experience
The information set forth in this section has been provided by the
Servicer and none of the Seller, the Depositor or the Underwriter makes any
representations or warranties as to the accuracy or completeness of such
information.
Delinquency and Foreclosure Experience. The following table sets
forth the delinquency and foreclosure experience of the total portfolio of
residential mortgage loans serviced by the Servicer, as of the dates
indicated. The Servicer's total portfolio of mortgage loans serviced by it may
differ significantly from the Mortgage Loans in the Trust in terms of interest
rates, principal balances, geographic distribution, Loan-to-Value Ratios and
other possibly relevant characteristics. There can be no assurance, and no
representation is made, that the delinquency and foreclosure experience with
respect to the Mortgage Loans will be similar to that reflected in the table
below, nor is any representation made as to the rate at which losses may be
experienced on liquidation of defaulted Mortgage Loans. The actual loss and
delinquency experience on the Mortgage Loans will depend upon, among other
things, the value of the real estate securing those Mortgage Loans and the
ability of borrowers to make required payments.
Delinquency and Foreclosure Experience
There can be no assurance that the information set forth in the
following table will be representative of future delinquency experience.
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1998 At September 30, 1999
-------------------- -------------------- ---------------------
By By By
Period of By No. Dollar Amount By No. Dollar Amount By No. Dollar Amount
Delinquency of Loans of Loans of Loans of Loans of Loans of Loans
--------------- -------- --------------------- -------- ------------------------ -------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30-89 days....... 2,757 $128,696,368 2.10% 5,877 $414,977,196 2.84% 5,273 $365,734,949 2.33%
90 + days........ 1,595 76,782,822 1.25% 1,451 101,297,011 0.69% 1,530 106,822,160 0.68%
Non-Accrual...... 114 3,241,822 0.05% 201 11,038,123 0.08% 198 10,703,034 0.07%
-------- -------------- ----- ----- --------------- ----- ----- --------------- -----
Total ........... 4,466 $208,721,012 3.40% 7,529 $527,312,330 3.61% 7,001 $483,260,143 3.08%
======== ============== ===== ===== =============== ===== ===== =============== =====
Total Loans...... $6,131,463,129 $14,602,127,933 $15,673,418,888
</TABLE>
<TABLE>
<CAPTION>
At September 30 At September 30
1999 2000
------------------------------------ ------------------------------------
By Dollar Amount By Dollar Amount
Bank's Portfolio By No. of Loans of Loans By No. of Loans of Loans
----------------------- --------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Total Portfolio 43,582 $4,823,047,184 54,407 $5,318,394,035
Period of Delinquency
30-59 days 1,671 117,340,341 2,971 198,534,556
60-89 days 302 23,270,527 591 36,510,412
90+ days 462 50,553,644 873 51,224,633
---------------- ---------------- --------------- -----------------
Total Delinquencies(1) 2,435 $191,164,512 4,435 $286,269,602
================ ================ =============== =================
</TABLE>
----------------
(1) Includes foreclosures, bankruptcies and real estate owned.
<TABLE>
<CAPTION>
At September 30 At September 30
1999 2000
------------------------------------ ------------------------------------
By Dollar Amount By Dollar Amount
Serviced for Others Portfolio By No. of Loans of Loans By No. of Loans of Loans
----------------------------- --------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Total Portfolio 144,922 $10,850,371,706 153,974 $11,596,351,001
Period of Delinquency
30-59 days 2,867 194,323,567 2,925 179,834,904
60-89 days 433 31,030,436 408 26,731,879
90+ days 948 66,364,351 597 36,474,916
---------------- ---------------- --------------- -----------------
Total Delinquencies(1) 4,248 $291,718,354 3,930 $243,041,699
================ ================ =============== =================
</TABLE>
----------------
(1) Includes foreclosures, bankruptcies and real estate owned.
<PAGE>
While the above delinquency experience is typical of the Servicer's
recent experience, there can be no assurance that experience on the Mortgage
Loans will be similar. Accordingly, the information should not be considered
to reflect the credit quality of the Mortgage Loans, or as a basis for
assessing the likelihood, amount or severity of losses on the Mortgage Loans.
The statistical data in the table is based on all of the loans in the
Servicer's servicing portfolio. The Mortgage Loans may be more recently
originated than, and are likely to have other characteristics which
distinguish them from, the majority of the loans in the Servicer's servicing
portfolio.
The Pooling and Servicing Agreement
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of December 1, 2000 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Seller, the Servicer, and the
Trustee. The Trust created under the Pooling and Servicing Agreement will
consist of (i) all of the Depositor's right, title and interest in the
Mortgage Loans, including 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 Trustee to enforce the representations and warranties made by
the Seller with respect to the Mortgage Loans pursuant to the Mortgage Loan
Purchase Agreement.
Assignment of the Mortgage Loans
On the Closing Date, the Depositor will transfer to the Trust all of
its right, title and interest in and to each of the Mortgage Loans, together
with the related mortgage notes, including all scheduled payments with respect
to each Mortgage Loan due after the Cut-Off Date. Within 60 days following the
Closing Date, the Seller will deliver to the Trustee the mortgage and other
related documents (collectively, the "Related Documents") of each Mortgage
Loan. The Trustee, concurrently with the transfer of the mortgage notes, will
deliver the Certificates to the Depositor. Each Mortgage Loan transferred to
the Trust will be identified on a schedule prepared by the Seller (the
"Mortgage Loan Schedule") and delivered to the Trustee pursuant to the Pooling
and Servicing Agreement. The Mortgage Loan Schedule will include information
such as the Principal Balance of each Mortgage Loan as of the Cut-Off Date,
its Loan Rate and certain additional information.
The Pooling and Servicing Agreement will require that, prior to the
Closing Date, the Seller deliver or cause to be delivered to the Trustee (or a
custodian, as the Trustee's agent for such purpose) the mortgage notes
evidencing the Mortgage Loans endorsed to the Trustee on behalf of the
Certificateholders. In lieu of delivery of an original Mortgage, if an
original is not available or lost, the Seller may deliver or cause to be
delivered a true and complete copy of the original.
Within 90 days of the Closing Date, the Trustee or its agent of the
Related Documents, the Trustee will review the Mortgage Loans and the Related
Documents pursuant to the Pooling and Servicing Agreement. If any Mortgage
Loan or Related Document is found to be defective in any material respect and
the defect is not cured within 120 days following notification to the Seller
by the Trustee (or a custodian, as the Trustee's agent for such purpose), the
Seller will be obligated to either
o substitute for the defective Mortgage Loan an Eligible Substitute
Mortgage Loan (provided that a 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 the substitution will not
disqualify the Trust as a REMIC or result in a prohibited transaction
tax under the Code), or
o repurchase the defective Mortgage Loan at a price (the "Purchase
Price") generally equal to its outstanding Principal Balance as of
the date of purchase, plus all accrued and unpaid interest thereon,
computed at the Loan Rate 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 Servicer.
The Purchase Price will be deposited in the Collection
Account on or prior to the next 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 defect in that Mortgage Loan and the 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 related Collection Account, on or prior to the next 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 the
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 the substitution:
o have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a single 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 as of the Due Date in the calendar month during which
the substitution occurs;
o have a Maximum Loan Rate, a Minimum Loan Rate and a Gross Margin not
less than those of the defective Mortgage Loan and have the same
Index as the defective Mortgage Loan;
o have the same Due Date as the defective Mortgage Loan;
o have a remaining term to maturity not more than one year earlier and
not greater than the remaining term to maturity of the defective
Mortgage Loan;
o 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);
o have been underwritten or re-underwritten by the Seller in
accordance with the same underwriting criteria and guidelines as the
Mortgage Loan being replaced;
o be of the same or better credit quality as the Mortgage Loan being
replaced;
o be current as of the date of substitution; and
o 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 by it to
the Trustee with respect to each Mortgage Loan (e.g., Principal Balance as of
the Cut-Off Date 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, 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 120 days after
discovery or notice of the breach to effect a cure. If the breach cannot be
cured within the 120-day period, the Seller will be obligated to (i)
substitute for the defective Mortgage Loan an Eligible Substitute Mortgage
Loan or (ii) repurchase the defective Mortgage Loan from the Trust. The same
procedure and limitations that are set forth above for the substitution or
repurchase of defective Mortgage Loans as a result of deficient documentation
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.
Payments on Mortgage Loans; Deposits to Collection Accounts and Distribution
Account
The Servicer will 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 below). Upon receipt by the Servicer of amounts in respect
of the Mortgage Loans (excluding amounts representing the Servicing 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 Servicer will deposit these amounts in the Collection Account.
Amounts deposited in the Collection Account may be invested in Permitted
Investments (as set forth in the Pooling and Servicing Agreement) maturing no
later than one business day prior to the date on which the amount on deposit
is required to be deposited in the Distribution Account.
The Trustee will establish and maintain 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 in the
Distribution Account may, at the option of the Trustee and for its own
account, be invested in Permitted Investments maturing on or before the
business day prior to the related Distribution Date unless such Permitted
Investments are invested in investments managed or advised by the Trustee or
one of its affiliates, in which case the Permitted Investments may mature on
the related Distribution Date.
The "Servicer Remittance Date" with respect to any Distribution Date
is the day prior to such Distribution Date or, if such day is not a business
day, the first business day prior to such day. The first Servicer Remittance
Date will be January 17, 2001.
An "Eligible Account" is a segregated account that is
o 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 that holding company)
are rated "A-1" or its equivalent by each of S&P and Moody's, at the
time any amounts are held on deposit therein,
o an account or accounts the deposits in which are fully insured by the
Federal Deposit Insurance Corporation (to the limits established by
it), the uninsured deposits in which account are otherwise secured
such that, as evidenced by an opinion of counsel delivered to the
Trustee and to the Rating Agencies, the Certificateholders will have
a claim with respect to the funds in such account or a perfected
first priority security interest against such collateral (which shall
be limited to Permitted Investments) securing such funds that is
superior to claims of any other depositors or creditors of the
depository institution with which such account is maintained,
o 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
o otherwise acceptable to the Rating Agencies without reduction or
withdrawal of its then current ratings of the Offered Certificates as
evidenced by a letter from each Rating Agency to the Trustee.
Permitted Investments are specified in the Pooling and Servicing
Agreement and are limited to investments which meet the criteria of each
Rating Agency from time to time as being consistent with its then current
ratings of the Offered Certificates.
Advances
Subject to the following limitations, the Servicer will be obligated
to advance or cause to be advanced not later than the Servicer Remittance Date
its own funds, or funds in the Collection Account that are not included in the
Available Funds for the related Distribution Date, in an amount equal to the
aggregate of all payments of principal and interest, net of the related
Servicing Fee, that were due during the related Due Period on Mortgage Loans
and that were delinquent on the related Determination Date, plus certain
amounts representing assumed payments not covered by any current net income on
the related Mortgaged Properties acquired by foreclosure or deed in lieu of
foreclosure (any such advance, an "Advance").
The purpose of making Advances is to maintain a regular cash flow to
the Certificateholders, rather than to guarantee or insure against losses. The
Servicer is obligated to make Advances on each Mortgage Loan unless, in the
Servicer's reasonable judgment, such Advances are deemed to be non-recoverable
from related late collections, insurance proceeds or liquidation proceeds. The
Servicer will not be required, however, 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 Soldiers' and Sailors' Civil
Relief Act of 1940 (the "Relief Act"). Subject to the recoverability standard
above, the Servicer's obligation to make Advances as to any Mortgage Loan will
continue until the Mortgage Loan is paid in full or until the recovery of all
related liquidation proceeds.
Any Advance made by the Servicer will be reimbursable to the 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 Servicer to be non-recoverable from related late collections, insurance
proceeds or liquidation proceeds may be reimbursed to the Servicer out of any
funds in the Collection Account prior to payments on the Certificates. In the
event that the Servicer fails in its obligation to make an Advance, the
Trustee, in its capacity as successor Servicer, will be obligated to make the
Advance to the extent required in the Pooling and Servicing Agreement.
In the course of performing its servicing obligations, the Servicer
will pay all reasonable and customary "out-of-pocket" costs and expenses
(including reasonable attorneys' fees and disbursements) incurred in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration, inspection 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 Mortgages. Each such expenditure will
constitute a "Servicing Advance". The Servicer is obligated to pay certain
insurance premiums and certain ongoing expenses associated with the Mortgage
Loans and incurred by the Servicer in connection with its responsibilities
under the Pooling and Servicing Agreement, and is entitled to reimbursement
for them as provided in the Pooling and Servicing Agreement.
The 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 Servicer from the related
borrower (the "Mortgagor") or otherwise relating to the Mortgage Loan in
respect of which the unreimbursed amounts are owed, unless the amounts are
deemed to be non-recoverable by the Servicer, in which event the Servicer will
be reimbursed from general funds in the Collection Account.
Servicing Fees and Other Compensation and Payment of Expenses
The Expense Fees are payable out of the interest payments on each
Mortgage Loan. The Expense Fees accrue at a per annum rate (each, an "Expense
Fee Rate") calculated on the Principal Balance of the related Mortgage Loan.
The "Expense Fees" consist of (i) the servicing compensation (each a
"Servicing Fee") to be paid to the Servicer in respect of its servicing
activities for the Certificates at the rate of 0.25% per annum (the "Servicing
Fee Rate") calculated on the Principal Balance of each Mortgage Loan and (ii)
compensation payable to the Trustee at the rate of 0.0025% per annum (the
"Trustee Fee Rate") calculated on the Principal Balance of each Mortgage Loan.
The amount of the Servicer's Servicing Fee is subject to adjustment with
respect to prepaid Mortgage Loans, as described below under "--Adjustment to
Servicing Fee in Connection with Prepaid Mortgage Loans". As additional
servicing compensation, the Servicer is entitled to retain all
Servicer-related fees, including assumption fees, modification fees, extension
fees, late payment charges and other ancillary fees, 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 "Determination Date" with respect to any Distribution Date will
be the fifth business day prior to such Distribution Date.
Adjustments to Servicing Fees in Connection with Prepaid Mortgage Loans
When a Mortgagor makes a full or partial prepayment of a Mortgage
Loan between Due Dates, the Mortgagor is required to pay interest on the
amount prepaid only to the date of prepayment. Principal prepayments by
Mortgagors received by the Servicer in a calendar month will be distributed to
Certificateholders on the Distribution Date in the month following the month
of receipt and, accordingly, a shortfall in the amount of interest to be
distributed to Certificateholders with respect to the prepaid Mortgage Loans
will result (a "Prepayment Interest Shortfall"). Pursuant to the Pooling and
Servicing Agreement, the related Servicing Fee payable to the Servicer for any
month will be reduced by an amount ("Compensating Interest") equal to the
lesser of (i) the Prepayment Interest Shortfall for such month and (ii) an
amount equal to 0.25% per annum on the Principal Balance of the Mortgage Loans
(the "Compensating Interest Cap"), so as to pass through to Certificateholders
the full amount of interest to which they otherwise would be entitled, in the
absence of such a prepayment, for each prepaid Mortgage Loan on the related
Distribution Date. If the Prepayment Interest Shortfall exceeds the
Compensating Interest Cap for the related Distribution Date, the amount of
interest available to be distributed to Certificateholders will be reduced by
the amount of the excess. See "Description of the Certificates--Interest."
The Trustee
The Chase Manhattan Bank, a New York banking corporation, will act as
Trustee (the "Trustee") under the Pooling and Servicing Agreement. For the
purpose of meeting the legal requirements of some jurisdictions, the Servicer
and the Trustee, acting jointly (or in some instances, the Trustee, acting
alone), will have the power to appoint co-trustees or separate trustees, if
necessary, to comply with requirements imposed by any jurisdiction in which a
Mortgaged Property is located. In the event of an appointment, all rights,
powers, duties and obligations conferred or imposed upon the Trustee by the
Agreement will be conferred or imposed upon the Trustee and the co-trustee or
separate trustee jointly, or, in any jurisdiction where the Trustee is
incompetent or unqualified to perform some acts, singly upon the applicable
co-trustee or separate trustee, who shall exercise and perform those rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Depositor will
be obligated to appoint a successor trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to serve, becomes legally unable
to act, is adjudged insolvent or is placed in receivership or similar
proceedings. In those circumstances, the Depositor will be obligated to
appoint a successor trustee. However, any resignation or removal of the
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
The Trustee's Corporate Trust Office is located at 450 West 33rd
Street, 14th Floor, New York, NY 10001, Attn: Capital Markets Fiduciary
Services Fifth Third Mortgage Loan Trust, 2000-FTB1. Offered Certificates may
be surrendered at the Corporate Trust Office or at any other address as the
Trustee may designate from time to time. The Seller, the Depositor, the
Servicer and their respective affiliates may have other banking relationships
with the Trustee and its affiliates in the ordinary course of their business.
Voting Rights
With respect to any date of determination, 1% of the voting rights
will be allocated to the Class X Certificates, and the remainder of the voting
rights will be allocated to each of the other Classes of Certificates, pro
rata, based on a fraction, expressed as a percentage, the numerator of which
is the Certificate Principal Balance of such Class and the denominator of
which is the aggregate of the Certificate Principal Balances of all Classes
then outstanding; provided, however, that the Class A-R Certificate and the
Subordinate Certificates will not be entitled to any voting rights for so long
as any Class A-1 or Class A-2 Certificates remain outstanding; and, provided
further, that when none of the Certificates, other than the Class A-R
Certificate, are outstanding, 100% of the voting rights will be allocated to
the Holder of the Class A-R Certificate. The voting rights allocated to a
Class of Certificates will be allocated among all Holders of such Class, pro
rata, based on a fraction the numerator of which is the Certificate Principal
Balance of each Certificate of such Class and the denominator of which is the
Certificate Principal Balance of such Class; provided, however, that any
Certificate registered in the name of the Seller, the Servicer, the Depositor
or the Trustee or any of their respective affiliates will not be included in
the calculation of Voting Rights.
Amendment
The Pooling and Servicing Agreement may be amended by the Depositor,
the Servicer, the Seller 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. A proposed amendment shall
be deemed not to adversely affect in any material respect the interests of any
Certificateholder if, among other things, the Rating Agencies deliver written
confirmation that such amendment will not result in the reduction or
withdrawal of their ratings of any outstanding Class of Offered Certificates.
In addition, the Pooling and Servicing Agreement may be amended by the
Depositor, the Servicer, the Seller and the Trustee, with the consent of
holders of a majority in interest of each 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 any Class
of Offered Certificates; provided, however, that no such amendment may
o reduce in any manner the amount of, or delay the timing of,
distributions required to be made on any Class of Offered
Certificates without the consent of the holders of all the affected
Certificates;
o adversely affect in any material respect the interests of the holders
of any Class of Offered Certificates in a manner other than as
described in clause (i) above, without the consent of the holders of
that Class evidencing percentage interests aggregating at least
662/3%; or
o reduce the aforesaid percentages of the aggregate outstanding
principal amounts of the Offered Certificates, the holders of which
are required to consent to any such amendment, without the consent of
the holders of all those Certificates.
Termination
The Servicer will have the right to repurchase all of the Mortgage
Loans and REO Properties, and thereby effect the early retirement of the
Certificates, on any Distribution Date on which the Pool Balance is equal to
or less than 10% of the Cut-Off Date Pool Balance (the "Optional Termination
Date"). In the event that the option is exercised, the repurchase will be made
at a price (the "Termination Price") generally equal to par plus accrued
interest for each Mortgage Loan at the related Loan Rate up to but not
including the first day of the month in which the Termination Price is paid
plus the amount of any unreimbursed Advances and Servicing Advances made by
the Servicer, if any, and any amounts owing to the Trustee. Proceeds from the
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 repurchase of the Mortgage Loans and REO Properties in
accordance with this paragraph will result in the early retirement of any
outstanding Certificates.
Optional Purchase of Defaulted Loans
As to any Mortgage Loan which is Delinquent in payment by 90 days or
more, the Servicer may, at its option, purchase that Mortgage Loan from the
Trust at its Purchase Price.
Put Option and Optional Call
During the five business day period ending at the close of business
on the Distribution Date in August 2002, (the "Put Option Period"), each
holder of a Class A-1 or Class A-2 Certificate will have the option to require
Fifth Third Bank (the "Standby Purchaser") to purchase all or part of such
Certificateholder's Certificates (the "Put Option"). If the Put Option is
exercised with respect to more than 90% of the aggregate outstanding
Certificate Principal Balance of the Class A-1 and Class A-2 Certificates, the
Standby Purchaser will have the option to purchase on the same terms, as
described below, all of the outstanding Class A-1 and Class A-2 Certificates,
including Class A-1 and Class A-2 Certificates with respect to which the
applicable Certificateholders have not exercised the Put Option (the "Optional
Call"). The purchase price for any Class A-1 or Class A-2 Certificate for
which the related Certificateholder has exercised the Put Option or the
Standby Purchaser has exercised the Optional Call will be the sum of (A) the
outstanding Certificate Principal Balance of such Certificate on the
Distribution Date in September 2002 (the "Put and Call Date"), after giving
effect to distributions otherwise made on such date, plus (B) accrued and
unpaid interest on the outstanding Certificate Principal Balance of such
Certificate immediately prior to the Put and Call Date at the applicable
Pass-Through Rate. If the Standby Purchaser should be unable to pay the
purchase price or otherwise default on its obligation to purchase the
applicable Certificates upon the exercise of the Put Option, holders of the
Class A-1 or Class A-2 Certificates may be unable to sell their Certificates
to the Standby Purchaser.
Certificateholders will be required to give written notice to the
Trustee of their intention to exercise the Put Option during the Put Option
Period. Notice of exercise of the Put Option delivered to the Trustee by a
Certificateholder will be irrevocable. Any exercise by a Certificateholder of
its Put Option shall be void and without effect unless, at all times during
the period beginning on the date of such exercise to and including the Put and
Call Date, such Certificateholder is the beneficial owner of the related Class
A-1 or Class A-2 Certificate, as applicable.
Receipt by the Trustee of notices from Certificateholders holding
more than 90% of the aggregate outstanding Certificate Principal Balance of
the Class A-1 and Class A-2 Certificates will permit the Standby Purchaser to
exercise the Optional Call. If the Standby Purchaser intends to exercise the
Optional Call, the Standby Purchaser will cause the Trustee to provide notice
to the Certificateholders of the Class A-1 and Class A-2 Certificates at least
ten days prior to the Distribution Date in September 2002.
Events of Servicing Termination
An "Event of Servicing Termination" will consist of, among other
things:
o any failure by the Servicer to make an Advance and any other failure
by the Servicer to deposit in the Collection Account or the
Distribution Account the required amounts or to remit to the Trustee
any payment which continues unremedied for one business day following
written notice to the Servicer;
o any failure by the Servicer to make a Servicing Advance or 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 60 days after the first date on which (x) the Servicer
has actual knowledge of the failure or (y) written notice of the
failure is given to the Servicer; or
o insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, and certain actions by or on
behalf of the Servicer indicating its insolvency or inability to pay
its obligations.
Resignation of Servicer
The Pooling and Servicing Agreement prohibits the resignation of the
Servicer thereunder, except upon (a) appointment of a successor Servicer and
receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not result in a downgrading of the rating of
any of the Certificates or (b) a determination that its duties thereunder are
no longer permitted under applicable law. No such resignation will be
effective until a successor Servicer has assumed such servicing obligations in
the manner provided in the Pooling and Servicing Agreement.
Rights upon Event of Servicing Termination
So long as an Event of Servicing Termination under the Pooling and
Servicing Agreement remains unremedied, the Trustee or the holders of Offered
Certificates evidencing not less than 51% of the Voting Rights may terminate
all of the rights and obligations of the Servicer in its capacity as servicer
of the Mortgage Loans, as provided in the Pooling and Servicing Agreement.
Upon such a termination, the Trustee will succeed or appoint a successor to
succeed to all of the responsibilities and duties of the Servicer under the
Pooling and Servicing Agreement, including the obligation to make Advances.
There generally will be a period of transition, not to exceed 90 days, for the
transfer of actual servicing of the Mortgage Loans to the Trustee or any
successor Servicer appointed by the Trustee. In connection with the
termination of the Servicer, the Trustee will be entitled to be reimbursed by
the Trust Fund (in the event that the Servicer does not timely reimburse the
Trustee) for all of the reasonable costs associated with the termination of
the Servicer, appointment of any successor Servicer and the transfer of
servicing to a successor Servicer, including without limitation all reasonable
costs or expenses associated with the completion, correction or manipulation
of servicing data as may be required to correct any errors or insufficiencies
in the servicing data or otherwise to enable the Trustee or the successor
Servicer to service the Mortgage Loans properly and effectively. No assurance
can be given that termination of the rights and obligations of the Servicer
under the Pooling and Servicing Agreement would not adversely affect the
servicing of the Mortgage Loans, including the loss and delinquency experience
of the Mortgage Loans.
No holder of an Offered Certificate, solely by virtue of its 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 the 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 so agree and have offered indemnity reasonably
acceptable to the Trustee.
Description of the Certificates
General
The Certificates will be issued pursuant to the 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 in this prospectus supplement by
reference.
Fifth Third Bank Mortgage Loan Trust 2000-FTB1 will issue the Class
A-1, Class A-2, Class X and Class A-R Certificates (together, the "Senior
Certificates"" or the "Offered Certificates"), and the Class B-1, Class B-2,
Class B-3, Class B-4, Class B-5 and Class B-6 Certificates (together, the
"Subordinate Certificates"). The Senior Certificates and the Subordinate
Certificates are collectively referred to in this prospectus supplement as the
"Certificates." Only the Offered Certificates are offered by this prospectus
supplement and the accompanying prospectus.
The Classes of Offered Certificates (other than the Class X
Certificates) will have the approximate initial Certificate Principal Balances
set forth on the cover page. However, the Certificate Principal Balances may
vary in the aggregate by 10%.
The Classes of Offered Certificates will have the Pass-Through Rates
described in this prospectus supplement under "--Interest" below.
The Class X Certificates will not have a Certificate Principal
Balance and will be entitled only to interest accrued on the Certificate
Notional Balance. The "Certificate Notional Balance" will be equal to the sum
of the Class A-1 and Class A-2 Certificate Principal Balances from time to
time; provided, however, that the Certificate Notional Balance will be equal
to $0 following the Distribution Date in September 2002. The "Initial
Certificate Notional Balance" will be $557,042,000 (plus or minus 10% in the
aggregate). On each Distribution Date up to and including the Distribution
Date in September 2002, interest distributable to holders of the Class X
Certificates will accrue during the related Interest Accrual Period. No
interest will be distributed to holders of the Class X Certificates after the
Distribution Date in September 2002.
The Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class
B-6 Certificates are not offered by this prospectus supplement. The
approximate initial Certificate Principal Balances of the Class B-1, Class
B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates will be as
follows:
Class B-1 $11,727,000
Class B-2 $4,397,000
Class B-3 $4,397,000
Class B-4 $4,397,000
Class B-5 $2,052,000
Class B-6 $2,348,855
The Class A-1 and Class A-2 Certificates will be issued in book-entry
form as described below. The Class A-1 and Class A-2 Certificates will be
issued in minimum dollar denominations (or, in the case of the Class X
Certificates, notional balances) of $25,000 and integral multiples of $1 in
excess thereof. The assumed final maturity date (each, an "Assumed Final
Distribution Date") for each of the Class A-1, Class A-2, Class X and Class
A-R Certificates is the Distribution Date in October 2030. The Assumed Final
Distribution Date is the Distribution Date in the second month following the
month of the latest scheduled maturity date of any Mortgage Loan as of the
Cut-Off Date.
Distributions on the Offered Certificates will be made by the Trustee
on the 18th day of each calendar month or, if the 18th day is not a business
day, the first business day after the 18th day, commencing in January 2001
(each, a "Distribution Date"), to the persons in whose names the Offered
Certificates are registered at the close of business on the Record Date. The
"Record Date" for any Distribution Date with respect to the Offered
Certificates is the last business day of the month immediately preceding the
month in which such Distribution Date occurs.
Book-Entry Certificates
The Offered Certificates (other than the Class A-R Certificate) will
be book-entry certificates ("Book-Entry Certificates"). Persons acquiring
beneficial ownership interests in the Book-Entry Certificates ("Certificate
Owners") will hold such Certificates through The Depository Trust Company
("DTC") in the United States, or Clearstream, Luxembourg or Euroclear (in
Europe) if they are participants of such systems (each, a "Participant"), or
indirectly through organizations which are Participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates which equal
the aggregate Certificate Principal Balance of such Certificates and will
initially be registered in the name of Cede & Co., the nominee of DTC.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Clearstream,
Luxembourg's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank will act as
depositary for Clearstream, Luxembourg 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 $25,000. 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 & Co., as nominee of DTC. Certificate Owners will not be
Certificateholders as that term is used in the Pooling and Servicing
Agreement. Certificate Owners are only permitted to exercise their rights
indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the 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 the Book-Entry Certificate will be recorded on the
records of DTC (or of a Participant that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC,
if the beneficial owner's Financial Intermediary is not a Participant and on
the records of Clearstream, Luxembourg or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of and
interest on the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While the Book-Entry Certificates are outstanding (except under
the circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations ("DTC's Rules"), DTC
is required to make book-entry transfers among Participants on whose behalf it
acts with respect to the Book-Entry Certificates and is required to receive
and transmit distributions of principal of, and interest on, the Book-Entry
Certificates. Participants and indirect participants with which Certificate
Owners have accounts with respect to Book-Entry Certificates similarly are
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 Book-Entry Certificates, DTC's 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 Book-Entry
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Certificateholders who are not
Participants may transfer ownership of Book-Entry Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer Book-Entry Certificates, by book-entry
transfer, through DTC for the account of the purchasers of the Book-Entry
Certificates, which account is maintained with their respective Participants.
Under DTC's Rules and in accordance with DTC's normal procedures, transfers of
ownership of Book-Entry Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Certificateholders.
Because of time zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear as a result of a transaction with a
Participant will be made during subsequent securities settlement processing
and dated the business day following the DTC settlement date. Such credits or
any transactions in such securities settled during such processing will be
reported to the relevant Euroclear or Clearstream, Luxembourg Participants on
such business day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of securities by or through a Clearstream, Luxembourg
Participant (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 Clearstream, Luxembourg or Euroclear cash
account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Certificates, see "Certain Material Federal Income Tax Consequences--REMIC
Certificates--Regular Certificates--Non-U.S. Persons", "--Information
Reporting and Backup Withholding" and "New Withholding Regulations" in the
prospectus.
Transfers between Participants will occur in accordance with DTC's
rules. Transfers between Clearstream, Luxembourg Participants and Euroclear
Participants will occur in accordance with their respective rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant
European international clearing system by the Relevant Depositary; however,
such cross market transactions will require delivery of instructions to the
relevant European international clearing system by the 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. Clearstream, Luxembourg Participants and
Euroclear Participants may not deliver instructions directly to the European
Depositaries.
DTC which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each 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.
Clearstream Banking, societe anonyme (formerly Cedelbank,
"Clearstream, Luxembourg"), 67 Bd Grande-Duchesse Charlotte, L-2967
Luxembourg, was incorporated in 1970 as a limited company under Luxembourg
law. Clearstream, Luxembourg is owned by banks, securities dealers and
financial institutions, and currently has about 92 shareholders, including
U.S. financial institutions or their subsidiaries. No single entity may own
more than five percent of Clearstream, Luxembourg's stock.
Clearstream, Luxembourg is registered as a bank in Luxembourg, and as
such is subject to regulation by the Institute Monetaire Luxembourgeois,
"IML", the Luxembourg Monetary Authority, which supervises Luxembourg banks.
Clearstream, Luxembourg holds securities for its customers
("Clearstream, Luxembourg Participants") and facilitates the clearance and
settlement of securities transactions by electronic book-entry transfers
between their accounts. Clearstream, Luxembourg provides various services,
including safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg also deals with domestic securities markets in several
countries through established depository and custodial relationships.
Clearstream, Luxembourg has established an electronic bridge with Morgan
Guaranty Trust as the Euroclear Operator in Brussels to facilitate settlement
of trades between systems. Clearstream, Luxembourg currently accepts over
70,000 securities issues on its books.
Clearstream, Luxembourg's customers are world-wide financial
institutions including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Clearstream, Luxembourg's United
States customers are limited to securities brokers and dealers and banks.
Currently, Clearstream, Luxembourg has approximately 2,000 customers located
in over 80 countries, including all major European countries, Canada, and the
United States. Indirect access to Clearstream, Luxembourg is available to
other institutions which clear through or maintain a custodial relationship
with an account holder of Clearstream, Luxembourg.
The Euroclear System ("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
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable Participants in
accordance with DTC's normal procedures. Each Participant will be responsible
for disbursing such payments to the beneficial owners 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 & Co. Distributions
with respect to Certificates held through Clearstream, Luxembourg or Euroclear
will be credited to the cash accounts of Clearstream, Luxembourg Participants
or Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See "Certain Material Federal Income
Tax Consequences--Non-U.S. Persons", "--Backup Withholding" and "--New
Withholding Regulations" in the prospectus. Because DTC can only act on behalf
of Financial Intermediaries, the ability of a beneficial owner to pledge
Book-Entry Certificates to persons or entities that do not participate in the
DTC system, or otherwise take actions in respect of the Book-Entry
Certificates, may be limited due to the lack of physical certificates for the
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 &
Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with DTC's Rules, 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 Pooling and Servicing
Agreement only at the direction of one or more Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates are credited, to the extent
that such actions are taken on behalf of Financial Intermediaries whose
holdings include such Book-Entry Certificates. Clearstream, Luxembourg or the
Euroclear Operator, as the case may be, will take any other action permitted
to be taken by a Certificateholder under the Pooling and Servicing Agreement
on behalf of a Clearstream, Luxembourg Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf
through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Book-Entry Certificates which conflict with
actions taken with respect to other Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a)
DTC or the Depositor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor, at its sole option, 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 use all reasonable efforts to notify all
beneficial owners of the occurrence of such event and the availability through
DTC of Definitive Certificates. Upon surrender by DTC of the global
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 Pooling and Servicing
Agreement.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to
the foregoing procedures in order to facilitate transfers of Book-Entry
Certificates among participants of DTC, Clearstream, Luxembourg and Euroclear,
they are under no obligation to perform or continue to perform such procedures
and such procedures may be discontinued at any time.
None of the Seller, the Depositor, the 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 & Co., as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. The Trustee will not be required to monitor, determine or inquire
as to compliance with the transfer restrictions with respect to the
Certificates in the form of Book-Entry Certificates, and the Trustee will have
no liability for transfers of Book-Entry Certificates or any interests therein
made in violation of the restrictions on transfer described in this prospectus
supplement and the Pooling and Servicing Agreement.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of
any kind.
Priority of Distributions of the Certificates
As more fully described in this prospectus supplement, on each
Distribution Date distribution of Available Funds will be made in the
following order of priority:
(i) to interest on the Classes of Senior Certificates, on a pro
rata basis;
(ii) to principal of the Class A-R Certificate;
(iii) to principal of the Class A-1 and Class A-2 Certificates,
sequentially, calculated as described in this prospectus
supplement under "--Principal";
(iv) to interest on and then principal of each Class of Subordinate
Certificates, subject to certain limitations described in this
prospectus supplement under "--Principal"; and
(v) to the Class A-R Certificate.
The "Available Funds" for any Distribution Date will be equal to
(A) the sum of the following with respect to the Mortgage Loans:
o all scheduled installments of interest (net of the related
Expense Fees) and principal due on the Due Date in the
month in which such Distribution Date occurs and received
prior to the related Determination Date, together with any
Advances in respect thereof;
o all proceeds of any insurance policies with respect to the
Mortgage Loans, to the extent such proceeds are not
applied to the restoration of the related Mortgaged
Property or released to the Mortgagor in accordance with
the Servicer's normal servicing procedures (collectively,
"Insurance Proceeds") and all other cash amounts received
and retained in connection with the liquidation of
defaulted Mortgage Loans, by foreclosure or otherwise
("Liquidation Proceeds") during the month preceding the
month of such Distribution Date (in each case, net of
unreimbursed expenses incurred in connection with a
liquidation or foreclosure and unreimbursed Advances, if
any (such net amount, "Net Liquidation Proceeds"));
o amount of Compensating Interest received from the Servicer
for such Distribution Date;
o all partial or full prepayments of the Mortgage Loans
received during the month preceding the month of such
Distribution Date; and
o amounts received with respect to such Distribution Date as
the Substitution Adjustment or Purchase Price in respect
of a defective Mortgage Loan repurchased by the Seller or
the Servicer as of such Distribution Date;
reduced by
(B) amounts in reimbursement for Advances previously made and
other amounts as to which the Servicer or the Trustee is
entitled to be reimbursed pursuant to the Pooling and
Servicing Agreement.
Interest
The Classes of Offered Certificates will have the respective
pass-through rates described below.
On each Distribution Date, to the extent of funds available therefor,
each Class of Offered Certificates will be entitled to receive an amount
allocable to interest for the related Interest Accrual Period. This interest
distributable amount for any such Class will be equal to the sum of (i)
interest at the applicable pass-through rate on the related Certificate
Principal Balance or Certificate Notional Balance and (ii) the sum of the
amounts, if any, by which the amount described in clause (i) above on each
prior Distribution Date exceeded the amount actually distributed as interest
on the prior Distribution Dates and not subsequently distributed (which are
called unpaid interest amounts). Notwithstanding the foregoing, the Class X
Certificates will not be entitled to receive any interest after the
Distribution Date in September 2002.
The "Interest Accrual Period" for each Distribution Date will be, for
all Offered Certificates, the calendar month preceding the month of such
Distribution Date, determined on the basis of an assumed 360-day year
consisting of twelve 30-day months.
The interest entitlement described above for each Class of
Certificates for any Distribution Date will be reduced by the amount of Net
Interest Shortfall experienced by the Mortgage Loans. With respect to any
Distribution Date, the "Net Interest Shortfall" is equal to
o any Net Prepayment Interest Shortfalls for that Distribution
Date and
o the amount of interest that would otherwise have been received
with respect to any Mortgage Loan that was the subject of a
Relief Act Reduction or a Special Hazard Loss, Fraud Loss, Debt
Service Reduction or Deficient Valuation, after the exhaustion
of the respective amounts of coverage provided by the
Subordinate Certificates for those types of losses.
Net Interest Shortfalls on any Distribution Date will be allocated
pro rata among all Classes of Senior Certificates and all Classes of the
Subordinate Certificates, based on the amount of interest each such Class of
Certificates would otherwise be entitled to receive on such Distribution Date
before taking into account any reduction in such amounts from such Net
Interest Shortfalls.
A "Relief Act Reduction" is a reduction in the amount of the monthly
interest payment on a Mortgage Loan pursuant to the Soldiers' and Sailors'
Civil Relief Act of 1940. See "Certain Legal Aspects of the Mortgage
Loans--Soldiers' and Sailors' Civil Relief Act" in the prospectus. With
respect to any Distribution Date, the "Net Prepayment Interest Shortfall" is
the amount by which the aggregate of Prepayment Interest Shortfalls
experienced by the Mortgage Loans during the calendar month preceding the
month of the Distribution Date exceeds the Compensating Interest payable on
the Distribution Date by the Servicer as described under "The Pooling and
Servicing Agreement--Adjustments to Servicing Fees in Connection with Prepaid
Mortgage Loans".
If on a particular Distribution Date, Available Funds applied in the
order described above under "--Priority of Distributions of the Certificates"
are not sufficient to make a full distribution of the interest entitlement on
the Certificates, interest will be distributed pro rata on each Class of
Certificates of equal priority based on the amount of interest it would
otherwise have been entitled to receive in the absence of the shortfall. Any
unpaid interest amount will be carried forward and added to the amount holders
of each Class of Certificates will be entitled to receive on the next
Distribution Date. A shortfall could occur, for example, if losses realized on
the Mortgage Loans were exceptionally high or were concentrated in a
particular month. Any unpaid interest amount so carried forward will not bear
interest.
Pass-Through Rates
The "Pass-Through Rate" for the Class A-1 and Class A-2 Certificates
for any Distribution Date up to and including the Distribution Date in
September 2002 will equal the lesser of 6.75% in the case of the Class A-1
Certificates and 6.50% in the case of the Class A-2 Certificates and the Net
WAC. On each Distribution Date thereafter, the Pass-Through Rate for the Class
A-1 and Class A-2 Certificates will equal the Net WAC.
The "Pass-Through Rate" for the Class A-R Certificate on any
Distribution Date will equal the Net WAC.
The "Pass-Through Rate" for the Class X Certificates for any
Distribution Date up to and including the Distribution Date in September 2002
will equal the positive difference, if any, between the Net WAC and the
weighted average of the Pass-Through Rates for the Class A-1 and Class A-2
Certificates for such Distribution Date, weighted on the basis of their
respective Certificate Principal Balances as of such date (before giving
effect to distributions in reduction thereof on such date). No interest will
be distributed on the Class X Certificates following the Distribution Date in
September 2002.
"Net WAC" for the Mortgage Loans for any Distribution Date will be
equal to the weighted average of the difference between (x) the Loan Rates of
the Mortgage Loans as of the first day of the month preceding the month of
that Distribution Date (or, in the case of the first Distribution Date, the
Cut-Off Date) and (y) the Expense Fee Rates, weighted on the basis of the
related Principal Balances as of the first day of the month preceding the
month in which such Distribution Date occurs (or, in the case of the first
Distribution Date, as of the Cut-Off Date).
Principal
General. All payments and other amounts received in respect of
principal of the Mortgage Loans will be allocated between the Senior
Certificates (other than the Class X Certificates) and Subordinate
Certificates.
Principal Distribution Amount. On each Distribution Date, the
Principal Distribution Amount with respect to each Class of Certificates
(other than the Class X Certificates) will be applied as principal.
The "Principal Distribution Amount" for any Distribution Date will be
equal to the sum of:
(i) each scheduled payment of principal collected or advanced on
the Mortgage Loans by the Servicer in the related Due Period;
(ii) that portion of the Purchase Price, representing principal of
any repurchased Mortgage Loan, deposited in the Collection
Account during the related Prepayment Period;
(iii) the principal portion of any related Substitution Adjustments
deposited in the Collection Account during the related
Prepayment Period;
(iv) the principal portion of all Insurance Proceeds received during
the related Prepayment Period with respect to Mortgage Loans
that are not yet Liquidated Mortgage Loans;
(v) the principal portion of all Net Liquidation Proceeds received
during the related Prepayment Period with respect to Liquidated
Mortgage Loans; and
(vi) the principal portion of all partial and full principal
prepayments of the Mortgage Loans received during the related
Prepayment Period.
Senior Principal Distribution Amount. On each Distribution Date, the
Principal Distribution Amount, up to the Senior Principal Distribution Amount,
will be distributed as principal of, firstly, (i) the Class A-R Certificate
and then (ii) the Class A-1 and Class A-2 Certificates, sequentially, until
their respective Certificate Principal Balances are reduced to zero.
The "Certificate Principal Balance" of any Class of Offered
Certificates, other than the Class X Certificates, on any Distribution Date
will be equal to its Certificate Principal Balance on the Closing Date (the
"Original Certificate Principal Balance") reduced by the sum of (i) all
amounts actually distributed in respect of principal of that Class on all
prior Distribution Dates and (ii) all Realized Losses applied in reduction of
principal of that Class on all prior Distribution Dates.
A "Due Period" for any Distribution Date is the period commencing on
the second day of the month preceding the month in which that Distribution
Date occurs and ending on the first day of the month in which that
Distribution Date occurs.
The "Prepayment Period" for any Distribution Date means the calendar
month preceding the month in which that Distribution Date occurs.
The "Senior Principal Distribution Amount" for any Distribution Date
will equal the sum of:
(i) the Senior Percentage of all amounts described in clauses (i)
through (iv) of the definition of "Principal Distribution
Amount" for that Distribution Date;
(ii) for each Mortgage Loan that became a Liquidated Mortgage Loan
prior to the related Determination Date, the lesser of
(a) the Senior Percentage of the Stated Principal Balance of
that Mortgage Loan and
either
(b) the Senior Prepayment Percentage of the amount of the Net
Liquidation Proceeds allocable to principal received on
that Mortgage Loan; or
(c) if an Excess Loss was sustained on the Liquidated Mortgage
Loan during the preceding calendar month, the Senior
Percentage of the applicable amount of the Net Liquidation
Proceeds allocable to principal received on that Mortgage
Loan; and
(iii) the Senior Prepayment Percentage of the amounts described in
clause (vi) of the definition "Principal Distribution Amount"
for that Distribution Date;
provided, however, that if a Bankruptcy Loss that is an Excess Loss is
sustained on a Mortgage Loan that is not a Liquidated Mortgage Loan, the
Senior Principal Distribution Amount will be reduced on the related
Distribution Date by the Senior Percentage of the principal portion of the
Bankruptcy Loss.
"Stated Principal Balance" means, for any Mortgage Loan and Due Date,
the unpaid Principal Balance of the Mortgage Loan as of the Due Date, as
specified in its amortization schedule at the time (before any adjustment to
the amortization schedule for any moratorium or similar waiver or grace
period), after giving effect to any previous partial prepayments and Net
Liquidation Proceeds received and to the payment of principal due on the Due
Date and irrespective of any delinquency in payment by the related mortgagor.
The "Aggregate Stated Principal Balance" with respect to any Distribution Date
equals the aggregate of the Stated Principal Balances of the Mortgage Loans
outstanding on the Due Date in the month preceding the month of the
Distribution Date.
Except as described below, the "Senior Percentage" for any
Distribution Date occurring before January 2011 will equal 100%. The Senior
Percentage for any Distribution Date occurring (i) before January 2011 but in
or after December 2003 on which the Two Times Test is satisfied, or (ii) in or
after January 2011, is the Pro Rata Senior Percentage. If the Two Times Test
is satisfied prior to the Distribution Date in December 2003, the Senior
Percentage will be the Pro Rata Senior Percentage plus 50% of an amount equal
to 100% minus the related Pro Rata Senior Percentage; thereafter, the Senior
Percentage will be determined pursuant to the preceding sentence.
The "Pro Rata Senior Percentage" is the percentage equivalent of a
fraction the numerator of which is the aggregate of the Certificate Principal
Balances of all Classes of Senior Certificates immediately prior to such
Distribution Date and the denominator of which is the Pool Balance for such
Distribution Date.
The "Subordinate Percentage" for any Distribution Date will be the
difference between 100% and the Senior Percentage for such Distribution Date.
The "Senior Prepayment Percentage" for any Distribution Date
occurring before January 2011 will equal 100%. Thereafter, each Senior
Prepayment Percentage will be subject to gradual reduction as described in the
following paragraphs. This disproportionate allocation of unscheduled payments
of principal will have the effect of accelerating the amortization of the
Senior Certificates while, in the absence of Realized Losses, increasing the
interest in the Principal Balance of the Mortgage Loans evidenced by the
Subordinate Certificates. Increasing the respective interest of the
Subordinate Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinate Certificates. The "Subordinate Prepayment Percentage" for any
Distribution Date will be calculated as the difference between 100% and the
related Senior Prepayment Percentage.
The Senior Prepayment Percentage of a Class of Senior Certificates
(other than the Class X Certificates) for any Distribution Date occurring on
or after the tenth anniversary of the first Distribution Date will be as
follows:
o for any Distribution Date in the first year thereafter, the Senior
Percentage plus 70% of the Subordinate Percentage for the
Distribution Date;
o for any Distribution Date in the second year thereafter, the Senior
Percentage plus 60% of the Subordinate Percentage for the
Distribution Date;
o for any Distribution Date in the third year thereafter, the Senior
Percentage plus 40% of the Subordinate Percentage for the
Distribution Date;
o for any Distribution Date in the fourth year thereafter, the Senior
Percentage plus 20% of the Subordinate Percentage for the
Distribution Date; and
o for any Distribution Date thereafter, the Senior Percentage for the
Distribution Date
unless on any Distribution Date the Senior Percentage exceeds the initial Pro
Rata Senior Percentage, in which case such Senior Prepayment Percentage for
the Distribution Date will once again equal 100%.
Notwithstanding the foregoing, no decrease in the Senior Prepayment
Percentage will occur unless both of the step down conditions listed below are
satisfied with respect to the Mortgage Loans:
first, the outstanding Principal Balance of all Mortgage Loans
delinquent 60 days or more, including Mortgage Loans in
respect of REO Properties (averaged over the preceding six
month period), as a percentage of the aggregate Certificate
Principal Balance of the Subordinate Certificates, does not
equal or exceed 50%, and
second cumulative Realized Losses on the Mortgage Loans do not
exceed
o for the Distribution Date on the tenth anniversary
of the first Distribution Date, 30% of the
aggregate Certificate Principal Balances of the
Subordinate Certificates as of the Closing Date
(the "Original Subordinate Certificate Principal
Balance"),
o for the Distribution Date on the eleventh
anniversary of the first Distribution Date, 35% of
the Original Subordinate Certificate Principal
Balance,
o for the Distribution Date on the twelfth
anniversary of the first Distribution Date, 40% of
the Original Subordinate Certificate Principal
Balance,
o for the Distribution Date on the thirteenth
anniversary of the first Distribution Date, 45% of
the Original Subordinate Certificate Principal
Balance, and
o for the Distribution Date on the fourteenth
anniversary of the first Distribution Date, 50% of
the Original Subordinate Certificate Principal
Balance.
Notwithstanding the preceding paragraphs, if on any Distribution Date
(a) the Aggregate Subordinated Percentage is at least two times
the Aggregate Subordinated Percentage as of the Closing
Date,
(b) the delinquency test set forth above is satisfied, and
(c) cumulative Realized Losses do not exceed 30% of the Original
Subordinate Certificate Principal Balance (collectively, the
"Two Times Test"),
the Senior Prepayment Percentage will equal the related Senior Percentage.
For any Distribution Date, the "Aggregate Subordinated Percentage" is
the percentage equivalent of a fraction, the numerator of which is the
aggregate Certificate Principal Balance of the Subordinate Certificates
immediately prior to such Distribution Date and the denominator of which is
the Pool Balance for such Distribution Date.
If on any Distribution Date the allocation to the Senior Certificates
then entitled to distributions of scheduled principal and full and partial
principal prepayments and other amounts in the percentages required above
would reduce the outstanding Certificate Principal Balance of the Class or
Classes below zero, the distribution to the Classes of Certificates of the
Senior Prepayment Percentage and Senior Percentage of those amounts for the
Distribution Date will be limited to the percentages necessary to reduce the
related Certificate Principal Balance(s) to zero.
Subordinate Principal Distribution Amount. Except as provided in the
next paragraph, each Class of Subordinate Certificates will be entitled to
receive on each Distribution Date its pro rata share of the Subordinate
Principal Distribution Amount (based on its respective Certificate Principal
Balance), in each case to the extent of the amount available from Available
Funds for distribution of principal on such Class, as described above under
"--Priority of Distributions Among Certificates". Distributions of principal
of the Subordinate Certificates will be made on each Distribution Date
sequentially to the Classes of Subordinate Certificates in the order of their
numerical Class designations, beginning with the Class B-1 Certificates, until
each such Class has received its respective pro rata share for such
Distribution Date.
With respect to each Class of Subordinate Certificates, if on any
Distribution Date the sum of the related Class Subordination Percentages of
such Class and all Classes of Subordinate Certificates which have higher
numerical Class designations than such Class (the "Applicable Credit
Percentage") is less than the Applicable Credit Percentage for such Class on
the date of issuance of the Certificates (the "Original Applicable Credit
Percentage"), no distribution of principal prepayments will be made to any
such Classes (the "Restricted Classes") and the amount otherwise distributable
to the Restricted Classes in respect of such principal prepayments will be
allocated among the remaining Classes of Subordinate Certificates, pro rata,
based upon their respective Certificate Principal Balances, and distributed in
the order described above.
The "Class Subordination Percentage" with respect to any Distribution
Date and each Class of Subordinate Certificates, will equal the fraction
(expressed as a percentage) the numerator of which is the Certificate
Principal Balance of the Class of Subordinate Certificates immediately before
the Distribution Date and the denominator of which is the Pool Balance for
such Distribution Date.
The approximate Original Applicable Credit Percentages for the
Subordinate Certificates on the date of issuance of the certificates are
expected to be as follows:
Class B-1 5.00%
Class B-2 3.00%
Class B-3 2.25%
Class B-4 1.50%
Class B-5 0.75%
Class B-6 0.40%
The "Subordinate Principal Distribution Amount" for any Distribution
Date will equal the sum of:
o the Subordinate Percentage of all amounts described in
clauses (i) through (iv) of the definition of "Principal
Distribution Amount" for the Distribution Date,
o for each Mortgage Loan that became a Liquidated Mortgage
Loan during the calendar month preceding the month of the
Distribution Date, that portion of the Net Liquidation
Proceeds allocable to principal received on the Mortgage
Loan, after application of the amounts pursuant to clause
(ii) of the definition of "Senior Principal Distribution
Amount" up to the Subordinate Percentage of the Stated
Principal Balance of the Mortgage Loan, and
o the Subordinate Prepayment Percentage of the applicable
amounts described in clause (vi) of the definition of
"Principal Distribution Amount" for the Distribution Date.
Allocation of Losses
On each Distribution Date, all Realized Losses, other than Excess
Losses, with respect to the Mortgage Loans will be allocated first to the
Classes of Subordinate Certificates, in the reverse order of their numerical
Class designations (beginning with the Class of Subordinate Certificates then
outstanding with the highest numerical Class designation), in each case until
the Certificate Principal Balances of the respective Classes of Subordinate
Certificates have been reduced to zero, and then to the Classes of Senior
Certificates other than the Class X Certificates (pro rata, until their
respective Certificate Principal Balances have been reduced to zero). If on
any Distribution Date, the aggregate of the Certificate Principal Balances of
all Classes of Certificates following all distributions and the allocation of
Realized Losses on such Distribution Date exceeds the Pool Balance as of the
Due Date occurring in the month of such Distribution Date, the Certificate
Principal Balance of the Class of Subordinate Certificates then outstanding
with the highest numerical Class designation will be reduced by the amount of
the excess.
On each Distribution Date, the Excess Losses will be allocated pro
rata among all Classes of Certificates other than the Class X Certificates,
based upon their respective Certificate Principal Balances, immediately prior
to such Distribution Date.
In general, a "Realized Loss" means, for a Liquidated Mortgage Loan,
the amount by which the remaining unpaid Principal Balance of the Mortgage
Loan exceeds the amount of Net Liquidation Proceeds applied to the Principal
Balance of the related Mortgage Loan.
"Excess Losses" are Special Hazard Losses in excess of the Special
Hazard Loss Coverage Amount, Bankruptcy Losses in excess of the Bankruptcy
Loss Coverage Amount and Fraud Losses in excess of the Fraud Loss Coverage
Amount.
"Bankruptcy Losses" are losses that are incurred as a result of Debt
Service Reductions and Deficient Valuations. "Special Hazard Losses" are
Realized Losses in respect of Special Hazard Mortgage Loans. "Fraud Losses"
are losses sustained on a Liquidated Mortgage Loan by reason of a default
arising from fraud, dishonesty or misrepresentation.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which
the Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due
thereunder was substantially impaired by a hazard not insured against under a
standard hazard insurance policy of the type described in the prospectus under
"Credit Enhancement--Special Hazard Insurance Policies".
Subordination of the Subordinate Certificates
The rights of the holders of the Subordinate Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to the
rights of the holders of the Senior Certificates and the rights of the holders
of each Class of Subordinate Certificates to receive the distributions will be
further subordinated to the rights of the Class or Classes of Subordinate
Certificates with lower numerical Class designations, in each case only to the
extent described in this prospectus supplement. The subordination of the
Subordinate Certificates to the Senior Certificates and the further
subordination among the Subordinate Certificates is intended to provide the
Certificateholders having higher relative payment priority with protection
against Realized Losses, other than Excess Losses. In addition, the
Subordinate Certificates will provide limited protection against Special
Hazard Losses, Bankruptcy Losses and Fraud Losses up to the Special Hazard
Loss Coverage Amount, Bankruptcy Loss Coverage Amount and Fraud Loss Coverage
Amount, respectively, as described in the following paragraphs. Realized
Losses, other than Excess Losses, will be allocated to the Class of
Subordinate Certificates then outstanding with the highest numerical Class
designation.
The Subordinate Certificates will provide limited protection to the
Classes of certificates of higher relative priority against
o Special Hazard Losses in an initial amount expected to be up
to approximately $5,853,610 (the "Special Hazard Loss
Coverage Amount"),
o Bankruptcy Losses in an initial amount expected to be up to
approximately $450,000 (the "Bankruptcy Loss Coverage
Amount") and
o Fraud Losses in an initial amount expected to be up to
approximately $11,727,219 (the "Fraud Loss Coverage
Amount").
The Special Hazard Loss Coverage Amount will be reduced, from time to
time, to be an amount equal on any Distribution Date to the lesser of
o the Special Hazard Loss Coverage Amount as of the closing
date less the amount, if any, of losses attributable to
Special Hazard Mortgage Loans incurred since the Closing
Date, or
o the greater of
o 1% of the aggregate of the Principal Balances of the
Mortgage Loans and
o twice the Principal Balance of the largest Mortgage Loan.
All Principal Balances for the purpose of this definition will be
calculated as of the first day of the month before the month in which the
Distribution Date occurs after giving effect to scheduled installments of
principal and interest on the Mortgage Loans then due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by
the amount of Fraud Losses allocated to the certificates. In addition, on each
anniversary of the Cut-Off Date, the Fraud Loss Coverage Amount will be
reduced as follows:
o on the first and second anniversaries of the Cut-Off Date,
to an amount equal to the lesser of (a) 2.00% of the then
current Pool Balance and (b) the excess of the Fraud Loss
Coverage Amount as of the preceding anniversary of the
Cut-Off Date (or, in the case of the first anniversary, as
of the Cut-Off Date) over the cumulative amount of Fraud
Losses allocated to the Certificates since such preceding
anniversary or the Cut-Off Date, as the case may be,
o on the third, fourth and fifth anniversaries of the Cut-Off
Date, to an amount equal to the lesser of (a) 1.00% of the
then current Pool Balance and (b) the excess of the Fraud
Loss Coverage Amount as of the preceding anniversary of the
Cut-Off Date over the cumulative amount of Fraud Losses
allocated to the Certificates since such preceding
anniversary or the Cut-Off Date, as the case may be, and
o on the sixth anniversary of the Cut-Off Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to
time, by the amount of Bankruptcy Losses allocated to the Certificates.
The amount of coverage provided by each Class of Subordinate
Certificates for Special Hazard Losses, Bankruptcy Losses and Fraud Losses may
be cancelled or reduced from time to time for each of the risks covered,
provided that the then current ratings of the Certificates assigned by the
Rating Agencies are not adversely affected as a result. In addition, a reserve
fund or other form of credit enhancement may be substituted for the protection
provided by the Subordinate Certificates for Special Hazard Losses, Bankruptcy
Losses and Fraud Losses.
A "Deficient Valuation" is a bankruptcy proceeding whereby the
bankruptcy court may establish the value of a Mortgaged Property at an amount
less than the then outstanding Principal Balance of the Mortgage Loan secured
by the Mortgaged Property or may reduce the outstanding Principal Balance of
the related Mortgage Loan. In the case of a reduction in that value of the
related Mortgaged Property, the amount of the secured debt could be reduced to
that value, and the holder of the Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding Principal Balance of the Mortgage Loan
exceeds the value so assigned to the Mortgaged Property by the bankruptcy
court. In addition, other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction (a "Debt Service
Reduction") of the amount of the monthly payment on the related Mortgage Loan.
However, none of these shall be considered a Debt Service Reduction or
Deficient Valuation with respect to any Mortgage Loan so long as the Servicer
is pursuing any other remedies that may be available with respect to the
related Mortgage Loan and either the Mortgage Loan has not incurred payment
default or scheduled monthly payments of principal and interest are being
advanced by the Servicer without giving effect to any Debt Service Reduction
or Deficient Valuation.
Reports to Certificateholders
On each Distribution Date, the Trustee will post on its website at
http://www.chase.com/sfa (which posting shall be accessible to each holder of
a Certificate and the Rating Agencies) a statement (based on information
received from each Servicer) generally setting forth, among other things:
o the amount of the distributions, separately identified, with
respect to each Class of Certificates;
o the amount of the 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;
o the amount of the distributions set forth in clause (i)
allocable to interest and the calculation thereof;
o the amount of any unpaid interest shortfall amount with
respect to each Class of Certificates;
o the Certificate Principal Balance (or Certificate Notional
Balance, if applicable) of each Class of Certificates after
giving effect to the distribution of principal on that
Distribution Date;
o the Pool Balance and the Net WAC at the end of the related
Prepayment Period;
o the Pro Rata Senior Percentage, Senior Percentage and
Subordinate Percentage for the following Distribution Date;
o the Senior Prepayment Percentage for the following
Distribution Date;
o the amount of the related Servicing Fee paid to or retained
by the Servicer;
o the amount of Advances for the related Due Period;
o 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 that Distribution Date;
o the rolling six month delinquency rate for that Distribution
Date;
o the total number and principal balance of the Mortgaged
Properties acquired by the Trust in foreclosure or by deed
in lieu of foreclosure (any such property, an "REO
Property") as of the close of business on the last day of
the preceding Due Period;
o the aggregate amount of Realized Losses incurred during the
preceding calendar month;
o the cumulative amount of Realized Losses;
o the aggregate amount of Special Hazard Losses, Bankruptcy
Losses and Fraud Losses incurred during the preceding
calendar month;
o the cumulative amount of Special Hazard Losses, Bankruptcy
Losses and Fraud Losses;
o the Special Hazard Loss Coverage Amount, the Fraud Loss
Coverage Amount and the Bankruptcy Loss Coverage Amount, in
each case as of the related Determination Date;
o the Realized Losses and Excess Losses, if any, allocated to
each Class of Certificates on that Distribution Date; and
o the Pass-Through Rate for each Class of Certificates for
that Distribution Date.
In addition, upon request, 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. These statements will not have been
examined and reported upon by an independent public accountant.
Yield, Prepayment and Maturity Considerations
General
The effective yields to the holders of the Offered Certificates will
be lower than the yields otherwise produced by the applicable rate at which
interest is passed through to those holders and the purchase price of such
Certificates because monthly distributions will not be payable to those
holders until generally the 18th day of the month following the month in which
interest accrues on the Mortgage Loans, without any additional distribution of
interest or earnings thereon in respect of the delay.
Delinquencies on the Mortgage Loans which are not advanced by the
Servicer or the Trustee as successor Servicer, as the case may be, because
amounts, if advanced, would be nonrecoverable, will adversely affect the yield
on the Senior Certificates and the Subordinate Certificates. Because of the
priority of distributions, shortfalls resulting from delinquencies not so
advanced will be borne first by the Subordinate Certificates in the reverse
order of their numerical Class designations, and then by the Senior
Certificates. If, as a result of these shortfalls, the aggregate of the
Certificate Principal Balances of all Classes of Certificates following all
distributions and the allocation of Realized Losses on a Distribution Date
exceeds the Pool Balance as of the Due Date occurring in the month of such
Distribution Date, the Certificate Principal Balance of the Class of
Subordinate Certificates then outstanding with the highest numerical Class
designation will be reduced by the amount of the excess.
Net Interest Shortfalls will adversely affect the yields on the
Senior Certificates and the Subordinate Certificates. In addition, although
all losses initially will be borne by the Subordinate Certificates, in the
reverse order of their numerical Class designations, Excess Losses will be
borne by the Senior Certificates and the Subordinate Certificates in the
manner set forth in this prospectus supplement under "Description of the
Certificates--Allocation of Losses" and "--Subordination of the Subordination
Certificates". As a result, the yields on the Offered Certificates will depend
on the rate and timing of Realized Losses, including Excess Losses, on the
Mortgage Loans. Excess Losses could occur at a time when one or more Classes
of Subordinate Certificates are still outstanding and otherwise available to
absorb other types of Realized Losses.
Prepayment Considerations and Risks
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, condemnations and repurchases by
the Seller and purchases by the Servicer. The Mortgage Loans may be prepaid by
the Mortgagors at any time. The Mortgage Loans are subject to the
"due-on-sale" provisions included therein. See "The Mortgage Loans" in this
prospectus supplement.
Prepayments, liquidations and purchases of the Mortgage Loans,
including any purchase by the Servicer of a defaulted Mortgage Loan and any
optional repurchase of the remaining Mortgage Loans in connection with the
termination of the Trust Fund, in each case as described in this prospectus
supplement, 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 applicable Mortgage Loans. Further, an investor should
consider the risk that, in the case of any Offered Certificates purchased at a
discount, a slower than anticipated rate of principal payments, including
prepayments, on the applicable 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 Certificates purchased at a premium, a faster than anticipated
rate of principal payments on the applicable 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. These factors
include changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgaged properties and servicing decisions, as
well as the characteristics of the mortgage loans as described under "The
Mortgage Loans --General" and "--Mortgage Loan Statistics" in this prospectus
supplement. If prevailing interest rates were to fall significantly below the
Loan Rates on the Mortgage Loans, the Mortgage Loans could be subject to
higher prepayment rates than if prevailing interest rates were to remain at or
above the Loan Rates on the Mortgage Loans because the Mortgagors may seek to
"lock in" a lower interest rate. Conversely, if prevailing interest rates were
to rise significantly, the rate of prepayments on the Mortgage Loans would
generally be expected to decrease. The existence of a periodic rate cap on
some of the Mortgage Loans also may affect the likelihood of prepayments in
either a rising or falling interest rate environment.
The rate of prepayment will affect the Pass-Through Rates on the
Offered Certificates. Prepayments of Mortgage Loans with net Loan Rates in
excess of the then-current Net WAC may reduce the Pass-Through Rate on the
Senior Certificates. Mortgage Loans with higher Loan Rates may prepay at
faster rates than Mortgage Loans with relatively lower Loan Rates in response
to a given change in market interest rates. Any such disproportionate rate of
prepayments may adversely affect the Pass-Through Rate on the Subordinate
Certificates.
The exercise of the Put Option by Certificateholders holding Class
A-1 and Class A-2 Certificates of less than the amount necessary to permit the
exercise of the Optional Call may adversely affect the liquidity for the Class
A-1 and Class A-2 Certificates of the non-exercising Certificateholders.
Similarly, if the Standby Purchaser does not exercise its Optional Call right
when it is permitted to do so, the liquidity for the Class A-1 and Class A-2
Certificates of the remaining Certificateholders will likely be adversely
affected.
The Mortgagor of any Mortgage Loan may convert the adjustable rate of
the Mortgage Loan to a fixed rate. The conversion feature may be exercised
more often during periods of rising interest rates as Mortgagors attempt to
limit their exposure to higher interest rates. If Mortgagors were to exercise
the conversion right in such an interest rate environment, the Seller would be
obligated to repurchase such converted Mortgage Loans, which repurchases would
have the same effect on Certificateholders as prepayments at a time when
prepayments would generally not be expected. If interest rates were to fall
significantly, adjustable rate mortgage loans could be subject to higher
prepayment rates than if interest rates were to remain constant because the
availability of fixed rate mortgage loans at competitive interest rates may
encourage Mortgagors to exercise their option to convert the adjustable Loan
Rates to fixed Loan Rates on such Mortgage Loans or prepay such Mortgage
Loans.
As described in this prospectus supplement under "Description of the
Certificates--Principal", the applicable Senior Prepayment Percentage of all
principal prepayments on the Mortgage Loans will be distributed to the Classes
of Senior Certificates then entitled to receive principal distributions. This
may result in all or a disproportionate percentage of principal prepayments
being distributed to holders of Senior Certificates and none or less than
their pro rata share of principal prepayments being distributed to holders of
the Subordinate Certificates during the periods of time described in the
definition of "Senior Prepayment Percentage".
The timing of changes in the rate of prepayments on the Mortgage
Loans may significantly affect an investor's actual yield to maturity, even if
the average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the Mortgage
Loans, the greater the effect on an investor's yield to maturity. The effect
on an investor's yield as a result of principal payments occurring at a rate
higher or lower than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be
offset by a subsequent like decrease or increase in the rate of principal
payments.
The Subordinate Certificates
The weighted average lives of, and the yields to maturity on, the
Subordinate Certificates, in increasing order of their numerical Class
designations, will be progressively more sensitive to the rate and timing of
Mortgagor defaults and the severity of ensuing losses on the Mortgage Loans.
If the actual rate and severity of losses on the Mortgage Loans are higher
than those assumed by a holder of a Subordinate Certificate, the actual yield
to maturity of that Certificate may be lower than the yield expected by the
holder based on such assumption. The timing of losses on the Mortgage Loans
will also affect an investor's actual yield to maturity, even if the rate of
defaults and severity of losses over the life of the mortgage pool are
consistent with an investor's expectations. In general, the earlier a loss
occurs, the greater the effect on an investor's yield to maturity. Realized
Losses on the Mortgage Loans will reduce the Certificate Principal Balances of
the applicable Class of Subordinate Certificates to the extent of any losses
allocated thereto (as described under "Description of the
Certificates--Allocation of Losses"), without the receipt of cash attributable
to such reduction. In addition, shortfalls in cash available for distributions
on the Subordinate Certificates will result in a reduction in the Certificate
Principal Balance of the Class of Subordinate Certificates then outstanding
with the highest numerical Class designation if and to the extent that the
aggregate of the Certificate Principal Balances of all Classes of
Certificates, following all distributions and the allocation of Realized
Losses on a Distribution Date, exceeds the Pool Balance as of the Due Date
occurring in the month of such Distribution Date. As a result of these
reductions, less interest will accrue on such Class of Subordinate
Certificates than otherwise would be the case. The yields to maturity of the
Subordinate Certificates will also be affected by the disproportionate
allocation of principal prepayments to the Senior Certificates, Net Interest
Shortfalls and other cash shortfalls in Available Funds.
If on any Distribution Date the Applicable Credit Percentage for any
Class of Subordinate Certificates is less than its Original Applicable Credit
Percentage, all principal prepayments available for distribution on the
Subordinate Certificates will be allocated solely to all other Classes of
Subordinate Certificates with lower numerical designations, thereby
accelerating the amortization thereof relative to that of the Restricted
Classes and reducing the weighted average lives of such Classes of Subordinate
Certificates receiving such distributions. Accelerating the amortization of
the Classes of Subordinate Certificates with lower numerical designations
relative to the other Classes of Subordinate Certificates is intended to
preserve the availability of the subordination provided by such other Classes.
Weighted Average Lives
The projected weighted average life of each Class of Offered
Certificates is the average amount of time that will elapse from the Closing
Date, until each dollar of principal is scheduled to be repaid to the
investors in that Class. 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 Loans as
set forth in this prospectus supplement under "The Mortgage Loans".
In general, the weighted average lives of the Offered Certificates
will be shortened if the level of prepayments of principal of the Mortgage
Loans increases. However, the weighted average lives of the Offered
Certificates will depend upon a variety of other factors, including the timing
of changes in such rate of principal payments and the priority sequence of
distributions of principal of the Classes of Certificates. See "Description of
the Certificates--Principal" in this prospectus supplement.
The interaction of the foregoing factors may have different effects
on various Classes of Offered Certificates and the effects on any Class may
vary at different times during the life of such Class. Accordingly, no
assurance can be given as to the weighted average life of any Class of Offered
Certificates. Further, to the extent that the prices of the Offered
Certificates represent discounts or premiums to their respective original
Certificate Principal Balances, variability in the weighted average lives of
such Classes of Offered Certificates will result in variability in the related
yields to maturity.
The assumed final maturity date for each Class of Offered
Certificates is as set forth in this prospectus supplement under "Description
of the Certificates--General" above. The assumed final maturity date for each
Class of Offered Certificates is the Distribution Date in the second month
following the month of the latest maturity date of any Mortgage Loan. 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, and (ii) the Servicer may cause a termination of the Trust as provided
in this prospectus supplement.
Structuring Assumptions
Prepayments of mortgage loans are commonly measured relative to a
prepayment standard or model. The model used with respect to the Mortgage
Loans assumes a constant prepayment rate ("CPR"). This is not 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.
The tables on pages S-66 and S-67 were prepared on the basis of the
assumptions in the following paragraph and the table 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 Class A-1 and
Class A-2 Certificates set forth in the tables on pages S-66 and S-67. In
addition, since the actual Mortgage Loans in the Trust will have
characteristics that differ from those assumed in preparing the tables set
forth below, the distributions of principal of the Class A-1 and Class A-2
Certificates may be made earlier or later than indicated in the tables.
The percentages and weighted average lives in the tables on pages
S-66 and S-67 and the Class X yield table on page S-68 were determined
assuming that (the "Structuring Assumptions"):
(i) the Mortgage Loans collectively have the characteristics set
forth in the table below,
(ii) distributions on the Certificates are received, in cash, on
the 18th day of each month, commencing in January 2001,
(iii) the Mortgage Loans prepay at the indicated percentages of
CPR,
(iv) (a) no defaults or delinquencies occur in the payment by the
mortgagors of principal and interest on the Mortgage Loans
and (b) no shortfalls due to the application of the Relief
Act are incurred,
(v) no Mortgage Loan is purchased by the Seller or the Servicer
from the Trust Fund pursuant to any obligation or option
under the Pooling and Servicing Agreement,
(vi) scheduled monthly payments on the Mortgage Loans are
received on the first day of each month commencing in
January 2001, and are computed prior to giving effect to any
prepayments received in the prior month,
(vii) prepayments representing payment in full of individual
Mortgage Loans are received on the last day of each month
(commencing in December 2000) and include 30 days' interest
thereon,
(viii) the scheduled monthly payment for each Mortgage Loan is
calculated based on its Principal Balance, Loan Rate and
remaining term to maturity such that the Mortgage Loan will
amortize in amounts sufficient to repay the remaining
Principal Balance of such Mortgage Loan by its remaining
term to maturity,
(ix) interest accrues on each Certificate at the applicable rate
described under "Description of the
Certificates--Pass-Through Rates" in this prospectus
supplement,
(x) the Initial Certificate Principal Balances of the
Certificates (or Certificate Notional Balance, in the case
of the Class X Certificates) are those set forth on the
cover of this prospectus supplement or as described in this
prospectus supplement,
(xi) 1-Year CMT is 5.70%, 3-Year CMT is 5.31% and 5-Year CMT is
5.19%,
(xii) no optional termination or exercise of the Put Option or the
Optional Call will occur, except that such assumption does
not apply to the calculation of weighted average lives to
the optional termination or the Put Option, as applicable,
(xiii) the Certificates are purchased on December 21, 2000, and
(xiv) no Mortgage Loan converts to a fixed rate of interest.
<PAGE>
<TABLE>
<CAPTION>
Assumed Mortgage Loan Characteristics
Weighted Weighted
Weighted Weighted Weighted Weighted Average Average
Average Average Average Average Weighted Weighted Months Rate
Loan Original Remaining Gross Average Average to Adjustment
Current Rate Term Term Margin Maximum Minimum Roll Frequency
Index Balance($) (%) (months) (months) (%) Rate (%) Rate (%) (months) (months)
---------- -------------- -------- -------- --------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3-year CMT 700,097.25 6.74297 124 98 2.87149 11.74297 2.87149 10 36
3-year CMT 9,461,304.30 7.13981 358 328 3.02794 12.04659 3.02794 12 36
3-year CMT 4,069,454.39 7.58033 180 166 2.84600 12.41699 2.84600 25 36
3-year CMT 37,956,383.24 8.05639 360 346 3.08102 12.98408 3.08102 24 36
1-year CMT 41,261,364.27 7.39128 360 326 2.79601 12.81505 2.79601 7 12
1-year CMT 100,305,060.22 7.12166 360 348 2.75702 13.12166 2.75702 24 12
5-year CMT 2,466,629.50 7.20558 180 129 2.75000 11.71474 2.75000 13 60
5-year CMT 9,303,395.36 7.51755 360 312 2.78851 12.38982 2.78851 23 60
5-year CMT 10,799,832.21 6.92437 180 164 2.77273 11.15227 2.77273 44 60
5-year CMT 56,696,052.74 7.30375 360 343 2.85301 12.27708 2.85301 45 60
1-year CMT 33,944,766.57 7.22395 360 317 2.76734 12.21097 2.76734 17 12
1-year CMT 36,081,564.62 6.87917 360 331 2.76923 11.88004 2.76923 31 12
1-year CMT 243,315,050.74 7.10768 360 346 2.76585 12.10869 2.76585 47 12
Weighted
Average
First/
Periodic
Rate
Index Cap (%)
---------- --------
<S> <C>
3-year CMT 2.00000
3-year CMT 2.00000
3-year CMT 2.00000
3-year CMT 2.00000
1-year CMT 2.00000
1-year CMT 2.00000
5-year CMT 2.00000
5-year CMT 2.00000
5-year CMT 2.00000
5-year CMT 2.00000
1-year CMT 2.00000
1-year CMT 2.00000
1-year CMT 2.00000
</TABLE>
There will be discrepancies between the characteristics of the actual
Mortgage Loans and the characteristics assumed in preparing the tables. Any
such discrepancy may have an effect upon the percentages of the initial
Certificate Principal Balance outstanding (and the weighted average lives) of
the Senior Certificates set forth in the tables. In addition, to the extent
that the actual Mortgage Loans have characteristics that differ from those
assumed in preparing the tables set forth below, the Senior Certificates may
mature earlier or later than indicated by the tables. Based on the foregoing
assumptions, the following tables indicate the projected weighted average
lives of the Class A-1 and Class A-2 Certificates and set forth the
percentages of the initial Certificate Principal Balance of each such Class
that would be outstanding after each of the Distribution Dates shown, at
various constant prepayment percentages. Neither the prepayment model used in
this prospectus supplement nor any other prepayment model or assumption
purports to be an historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Mortgage Loans included in the Trust. Variations in the
prepayment experience and the balance of the Mortgage Loans that prepay may
increase or decrease the percentages of initial Certificate Principal Balances
(and weighted average lives) shown in the following tables. Such variations
may occur even if the average prepayment experience of all such Mortgage Loans
equals any of the specified percentages of CPR.
<PAGE>
<TABLE>
<CAPTION>
Percent of Original Certificate Principal Balance Outstanding*
Class A-1
-----------------------------------------------------------------------------------
Percentage of CPR
-----------------------------------------------------------------------------------
Distribution Date 0% 5% 10% 18% 30% 40% 45%
----------------- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................. 100% 100% 100% 100% 100% 100% 100%
December 18, 2001.................. 98% 89% 81% 67% 47% 30% 21%
December 18, 2002.................. 96% 79% 64% 40% 10% 0% 0%
December 18, 2003.................. 93% 70% 48% 19% 0% 0% 0%
December 18, 2004.................. 91% 61% 35% 2% 0% 0% 0%
December 18, 2005.................. 89% 52% 22% 0% 0% 0% 0%
December 18, 2006.................. 86% 44% 12% 0% 0% 0% 0%
December 18, 2007.................. 83% 36% 3% 0% 0% 0% 0%
December 18, 2008.................. 80% 28% 0% 0% 0% 0% 0%
December 18, 2009.................. 77% 21% 0% 0% 0% 0% 0%
December 18, 2010.................. 73% 14% 0% 0% 0% 0% 0%
December 18, 2011.................. 69% 8% 0% 0% 0% 0% 0%
December 18, 2012.................. 65% 3% 0% 0% 0% 0% 0%
December 18, 2013.................. 61% 0% 0% 0% 0% 0% 0%
December 18, 2014.................. 57% 0% 0% 0% 0% 0% 0%
December 18, 2015.................. 52% 0% 0% 0% 0% 0% 0%
December 18, 2016.................. 47% 0% 0% 0% 0% 0% 0%
December 18, 2017.................. 42% 0% 0% 0% 0% 0% 0%
December 18, 2018.................. 36% 0% 0% 0% 0% 0% 0%
December 18, 2019.................. 30% 0% 0% 0% 0% 0% 0%
December 18, 2020.................. 23% 0% 0% 0% 0% 0% 0%
December 18, 2021.................. 15% 0% 0% 0% 0% 0% 0%
December 18, 2022.................. 7% 0% 0% 0% 0% 0% 0%
December 18, 2023.................. 0% 0% 0% 0% 0% 0% 0%
December 18, 2024.................. 0% 0% 0% 0% 0% 0% 0%
December 18, 2025.................. 0% 0% 0% 0% 0% 0% 0%
December 18, 2026.................. 0% 0% 0% 0% 0% 0% 0%
December 18, 2027.................. 0% 0% 0% 0% 0% 0% 0%
December 18, 2028.................. 0% 0% 0% 0% 0% 0% 0%
December 18, 2029.................. 0% 0% 0% 0% 0% 0% 0%
December 18, 2030.................. 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life (years)
To Maturity (1)............... 14.23 5.58 3.16 1.79 1.04 0.74 0.64
To Put Option/Optional Call (1) 1.71 1.59 1.46 1.27 0.98 0.74 0.64
(1) The weighted average life of any Class of Certificates is
determined by (i) multiplying the assumed net reduction, if
any, in the principal amount on each Distribution Date on
that Class of Certificates by the number of years from the
date of issuance of the Certificates to the related
Distribution Date, (ii) summing the results, and (iii)
dividing the sum by the aggregate amount of the assumed net
reductions in principal amount on that Class of
Certificates.
* Rounded to the nearest whole percentage.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Original Certificate Principal Balance Outstanding*
Class A-1
-----------------------------------------------------------------------------------
Percentage of CPR
-----------------------------------------------------------------------------------
Distribution Date 0% 5% 10% 18% 30% 40% 45%
----------------- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................. 100% 100% 100% 100% 100% 100% 100%
December 18, 2001.................. 100% 100% 100% 100% 100% 100% 100%
December 18, 2002.................. 100% 100% 100% 100% 100% 83% 69%
December 18, 2003.................. 100% 100% 100% 100% 78% 47% 35%
December 18, 2004.................. 100% 100% 100% 100% 54% 28% 19%
December 18, 2005.................. 100% 100% 100% 84% 37% 17% 10%
December 18, 2006.................. 100% 100% 100% 67% 26% 10% 6%
December 18, 2007.................. 100% 100% 100% 54% 18% 6% 3%
December 18, 2008.................. 100% 100% 92% 44% 12% 3% 2%
December 18, 2009.................. 100% 100% 81% 35% 8% 2% 1%
December 18, 2010.................. 100% 100% 71% 28% 6% 1% 0%
December 18, 2011.................. 100% 100% 62% 22% 4% 1% 0%
December 18, 2012.................. 100% 100% 54% 18% 3% 0% 0%
December 18, 2013.................. 100% 96% 47% 14% 2% 0% 0%
December 18, 2014.................. 100% 88% 41% 11% 1% 0% 0%
December 18, 2015.................. 100% 80% 36% 9% 1% 0% 0%
December 18, 2016.................. 100% 73% 31% 7% 1% 0% 0%
December 18, 2017.................. 100% 66% 26% 5% 0% 0% 0%
December 18, 2018.................. 100% 59% 22% 4% 0% 0% 0%
December 18, 2019.................. 100% 53% 19% 3% 0% 0% 0%
December 18, 2020.................. 100% 46% 16% 2% 0% 0% 0%
December 18, 2021.................. 100% 40% 13% 2% 0% 0% 0%
December 18, 2022.................. 100% 34% 10% 1% 0% 0% 0%
December 18, 2023.................. 97% 29% 8% 1% 0% 0% 0%
December 18, 2024.................. 83% 23% 6% 1% 0% 0% 0%
December 18, 2025.................. 66% 18% 5% 0% 0% 0% 0%
December 18, 2026.................. 49% 12% 3% 0% 0% 0% 0%
December 18, 2027.................. 31% 7% 2% 0% 0% 0% 0%
December 18, 2028.................. 14% 3% 1% 0% 0% 0% 0%
December 18, 2029.................. 0% 0% 0% 0% 0% 0% 0%
December 18, 2030.................. 0% 0% 0% 0% 0% 0% 0%
Weighted Average Life (years)
To Maturity (1)................
To Put Option/Optional Call (1) 25.93 19.82 14.01 8.67 5.04 3.54 3.02
1.74 1.74 1.74 1.74 1.74 1.74 1.72
(1) The weighted average life of any Class of Certificates is
determined by (i) multiplying the assumed net reduction, if
any, in the principal amount on each Distribution Date on
that Class of Certificates by the number of years from the
date of issuance of the Certificates to the related
Distribution Date, (ii) summing the results, and (iii)
dividing the sum by the aggregate amount of the assumed net
reductions in principal amount on that Class of
Certificates.
* Rounded to the nearest whole percentage.
</TABLE>
<PAGE>
Sensitivity of the Class X Certificates
The yields to maturity of the Class X Certificates will be highly
sensitive to the principal prepayment, repurchase and default experience of
the Mortgage Loans. Investors should carefully consider the associated risks,
including the risk that a rapid rate of principal prepayments on the Mortgage
Loans or repurchases of Mortgage Loans could result in the failure of
investors in the Class X Certificates to recover their initial investments.
The yields to holders of the Class X Certificates could also be adversely
affected in the event that the Servicer exercises the right under the Pooling
and Servicing Agreement to repurchase all remaining Mortgage Loans and REO
Properties in the Trust Fund and thereby effects the early retirement of the
Certificates, as described in "The Pooling and Servicing
Agreement--Termination".
The following table (the "Class X Yield Table") demonstrates the
sensitivity of the pre-tax yields on the Class X Certificates to various
percentages of CPR by projecting the aggregate payments of interest on such
Certificates and the corresponding pre-tax yields on a corporate bond
equivalent ("CBE") basis, assuming distributions on the Mortgage Loans are
made as set forth above under "--Weighted Average Lives."
<TABLE>
<CAPTION>
Pre-Tax Yields (%) on the Class X Certificates
(Priced to Maturity)
Assumed Percentage of CPR
Purchase -------------------------------------------------------------------------------------
Price*(%) 0% 5% 10% 18% 30% 40% 45%
--------- ------ ----- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
0.40625% 54.705 50.021 45.234 37.346 24.928 14.049 7.868
</TABLE>
---------
* The price shown does not include accrued interest. Accrued interest
has been added to such price for calculating the yields set forth in
the table above.
The pre-tax yields set forth in the Class X Yield Table were
calculated by determining the monthly discount rates which, when applied to
the assumed streams of cash flows to be paid on the Class X Certificates,
would cause the discounted present value of such assumed streams of cash flows
to the Closing Date to equal the assumed purchase price (plus accrued
interest), and converting such monthly rates to CBE rates. Such calculations
do not take into account the interest rates at which funds received by holders
of the Class X Certificates may be reinvested and consequently does not
purport to reflect the return on any investment in the Class X Certificates
when such reinvestment rates are considered.
It is highly unlikely that the Mortgage Loans will prepay at the same
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate or time. As a result of these factors, the pre-tax yields on the Class X
Certificates are likely to differ from those shown in such tables, even if all
of the Mortgage Loans prepay at the indicated percentages of CPR. No
representation is made as to the actual rate of principal payments on the
Mortgage Loans (or the Loan Rates thereon) for any period or over the life of
the Class X Certificates or as to the yields on the Class X Certificates.
Investors must make their own decisions as to the appropriate prepayment
assumptions to be used in deciding whether to purchase the Class X
Certificates.
Certain Material Federal Income Tax Consequences
General
For federal income tax purposes, the Trust Fund will consist of
multiple segregated asset pools, each of which will constitute a "real estate
mortgage investment conduit" ("REMIC") for federal income tax purposes.
It is anticipated that the Offered Certificates (other than the Class
A-R Certificate and exclusive of the Put Option related to each Class A-1 and
Class A-2 Certificates, and the rights associated therewith) will constitute
"regular interests" in the upper tier REMIC ("Regular Interest") for tax
purposes. The Class A-R Certificate will represent beneficial ownership of the
sole Class of "residual interests" in each REMIC created pursuant to the
Pooling and Servicing Agreement (the "Agreement"). Upon issuance of the
Offered Certificates, Brown & Wood LLP ("Tax Counsel") will deliver its
opinion concluding, assuming compliance with the Agreement, for U.S. federal
income tax purposes, each REMIC created pursuant to the Agreement will be
characterized as a REMIC within the meaning of Section 860D of the Code.
Taxation of Regular Interests
A holder of a Class X Certificate will be treated for federal income
tax purposes as owning a regular interest in the upper tier REMIC. See
"Certain Material Federal Income Tax Considerations" in the prospectus.
A holder of a Class A-1 or Class A-2 Certificate will be treated for
federal income tax purposes as owning two separate assets: (a) the Certificate
without the related Put Option (which constitute a Regular Interest -- see
"Certain Material Federal Income Tax Considerations" in the prospectus) and
(b) the related Put Option. Such a Certificateholder will also be treated for
federal income tax purposes as having written a call option to sell the
related Certificates in exchange for an option premium equal to the fair
market value of the call option. An owner of an interest in the Class A-1 or
Class A-2 Certificates should be considered to have purchased Regular
Interests and the related Put Option for an amount equal to the sum of the
actual purchase price paid for the Certificates plus the fair market value of
the call option premium. Consequently, the sum of the bases to an owner of
Class A-1 or Class A-2 Certificates in the Regular Interests and the related
Put Option will be greater in the aggregate than the purchase price paid
directly by the owner to acquire those Certificates.
When an owner sells an interest in Class A-1 or Class A-2
Certificates, the owner will be deemed to have made a payment to the purchaser
in an amount equal to the fair market value of the call option because the
purchaser will have assumed the owner's obligation under the call option.
Consequently, the amount realized by the owner upon the sale of Class A-1 or
Class A-2 Certificates may be greater than the purchase price paid directly by
the purchaser.
An owner of Class A-1 or Class A-2 Certificates will not be required
to include immediately in income the call option premium that such owner is
deemed to have received upon the purchase of such Certificates. Instead, the
owner must account for such premium when the call rights are exercised, or
when those rights lapse, or when those rights are otherwise terminated with
respect to the owner.
An owner of Class A-1 or Class A-2 Certificates will include option
premium in income as short-term capital gain when the option lapses. The
principal balance of the Certificates likely will be reduced over time through
principal payments. Under existing authorities, it is not entirely clear
whether the rights held by the Standby Purchaser would be deemed to lapse as
the underlying Mortgage Loans pay down. Each owner of Certificates is urged to
consult its own tax advisor on these matters.
If the Standby Purchaser exercises the Optional Call to call the
Class A-1 and Class A-2 Certificates, an owner of such Certificates would
include in its amount realized from the sale of such Certificates an amount
equal to the unamortized portion of the option premium. If an owner transfers
its interest in such Certificates, the transfer will be treated as a closing
transaction with respect to the call option the owner is deemed to have
written. As a result, the owner will recognize a short-term capital gain or
loss equal to the difference between the unamortized amount of option premium
and the amount the owner is deemed to pay to be relieved from the obligation
under the option.
Accordingly, the purchaser of a Class A-1 or Class A-2 Certificate
must allocate its purchase price between the two assets comprising the
applicable Certificate. In general, the allocation would be based on the
relative fair market values of such assets on the date of purchase of the
Certificate. No representation is or will be made as to the relative fair
market values and all holders of such Certificates should consult their tax
advisors concerning the determination of such fair market values. Upon
exercise of a Put Option, the holder of such Put Option, for the purposes of
computing gain or loss, would reduce the amount realized on the sale of the
related Certificate by the amount of unrecognized option premium. The holder
of a Put Option should recognize a loss if the put rights lapse. The principal
balance of the Mortgage Loans as to which the Put Option relates will likely
be reduced over time through principal payments. Under existing authorities,
it is not entirely clear whether the rights held by the holder of a Put Option
would be deemed to lapse as principal from the underlying Mortgage Loans is
allocated to the related Certificate. There is no assurance that the Internal
Revenue Service (the "IRS") would agree with this methodology. Furthermore,
the allocation of the purchase price to the Put Option may cause some
Certificates to be issued with more original issue discount (or more than de
minimis original issue discount) or less premium.
Interest on the Offered Certificates 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, the Class X
Certificates will, and the other Classes of Offered Certificates may, be
issued with original issue discount ("OID") for federal income tax purposes.
See "Certain Material Federal Income Tax Considerations" in the prospectus.
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. The prepayment assumption that will be used in
determining the accrual of any OID, market discount, or bond premium, if any,
will be 18% CPR for all the Mortgage Loans. No representation is made that the
Mortgage Loans will prepay at such a rate or at any other rate.
The Offered Certificates (exclusive of the Put Option related to each
Class A-1 and Class A-2 Certificate, and the rights associated therewith) will
generally constitute:
(a) a "real estate asset" within the meaning of section 856(c)(4)(A)
of the Code for a real estate investment trust;
(b) an "obligation secured by an interest in real property" within
the meaning of section 860G(a)(3) Code if held by a REMIC; or
(c) an asset described in section 7701(a)(19)(C)(xi) of the Code if
held by a domestic building and loan association.
The Put Option related to each Class A-1 and Class A-2 Certificate
will not constitute any of the above.
As indicated above, the characterization of the Class A-1 and Class
A-2 Certificates for federal income tax purposes is not clear. The combination
of put rights and call rights under the instruments could be viewed for
federal income tax purposes as vesting in the Standby Purchaser ownership of
the regular interest represented by such Certificates. If such a
characterization were to prevail, a holder would be treated as owning debt of
the Standby Purchaser secured by the regular interest. Holders of Class A-1
and Class A-2 Certificates are encouraged to consult their tax advisors
concerning the tax treatment of owning such Certificates.
Application of the Straddle Rules
With respect to a holder of the Class A-1 and Class A-2 Certificates,
the IRS might take the position that those Certificates and the related Put
Options constitute positions in a straddle. If the IRS successfully asserted
this position, holders of the Class A-1 and Class A-2 Certificates may have
their losses deferred (including losses from the lapse of the put rights) and
have their holding periods suspended for purposes of determining whether any
gains on a sale or exchange of their Certificates was long term or short term
capital gain. The straddle rules would then require the holder to capitalize,
rather than deduct, interest and carrying charges allocable to the holder's
interest in the straddle. The Put Option and the related Offered Certificate
may be required to be treated as part of a conversion transaction, in which
case gain on sale will be treated as ordinary to the extent the holder's yield
from the investment is less than 120% of the applicable federal rate instead
of the rule generally applicable to REMIC regular interests that treats gain
on sale as ordinary to the extent the holder's yield from the REMIC regular
interest is less than 110% of the applicable federal rate. Each holder of
Class A-1 and Class A-2 Certificates is encouraged to consult its own tax
advisor regarding these matters.
The Residual Certificate
The holder of the Class A-R Certificate must include the taxable
income of each REMIC in its federal taxable income. The resulting tax
liability of such holder may exceed cash distributions to such holder during
certain periods. All or a portion of the taxable income from the Class A-R
Certificate recognized by a holder may be treated as "excess inclusion"
income, which, with limited exceptions, is subject to U.S. federal income tax.
Proposed Treasury regulations issued on February 4, 2000 (the "New
Proposed Regulations") would modify the safe harbor which, if satisfied,
provides that transfers of noneconomic residual interests are not disregarded
for federal income tax purposes. Under the New Proposed Regulations, a
transfer of a noneconomic residual interest will not qualify under this safe
harbor unless the present value of the anticipated tax liabilities associated
with holding the residual interest does not exceed the present value of the
sum of (i) any consideration given to the transferee to acquire the interest,
(ii) expected future distributions on the interest, and (iii) any anticipated
tax savings associated with holding the interest as the REMIC generates
losses. For purposes of this calculation, the present value generally is
calculated using a discount rate equal to applicable federal rate. The
Proposed Regulations indicate that the effective date of the modification to
the safe harbor requirements could be as early as February 4, 2000.
Also, purchasers of the Class A-R Certificate should consider
carefully the tax consequences of an investment in Residual Certificates
discussed in the prospectus and should consult their own tax advisors with
respect to those consequences. See "Certain Material Federal Income Tax
Consequences--REMIC Certificates--Residual Certificates" in the prospectus.
Specifically, prospective holders of the Class A-R Certificate should consult
their tax advisors regarding whether, at the time of acquisition, the Class
A-R Certificate will be treated as a "non-economic" residual interest, a
"non-significant value" residual interest and a "tax avoidance potential"
residential interest. See "Certain Material Federal Income Tax
Consequences--REMIC Certificates--Tax-Related Restrictions on Transfer of
Residual Certificates" and "-- Residual Certificates" in the prospectus.
Additionally, for information regarding prohibited transactions and treatment
of Realized Losses, see "Certain Material Federal Income Tax
Consequences--REMIC Certificates--Prohibited Transactions and Other Taxes" and
"-- Regular Certificates--Treatment of Realized Losses" in the prospectus.
New Withholding Regulations
On October 6, 1997 and on May 22, 2000, the Treasury Department
issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The New Regulations attempt to unify certification
requirements and modify reliance standards and have detailed rules regarding
the determination of beneficial ownership. The New Regulations will generally
be effective for payments made after December 31, 2000, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
Non-U.S. Persons
For purposes of the following 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.
Interest paid to or accrued by a Certificateholder (other than the
Class A-R 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 or a "controlled foreign corporation" with respect
to which the Trust is a "related person" within the meaning of the Code and
(ii) provides the Trust or other person who is otherwise required to withhold
U.S. tax with respect to the Offered Certificates (other than the Class A-R
Certificate) with an appropriate statement (on Form W-8BEN or a substantially
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 (other than
the Class A-R 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-8BEN 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 (other than the Class A-R
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.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a Mortgage Loan, the receipt of income from a source
other than a Mortgage Loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset
purchased with the payments on the Mortgage Loans for temporary investment
pending distribution on the Certificates. It is not anticipated that the Trust
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a trust that elects to be
treated as a REMIC made after the day on which such trust issues all of its
interests could result in the imposition of a tax on the trust equal to 100%
of the value of the contributed property (the "Contributions Tax"). It is
anticipated that the Trust will not accept contributions that would subject it
to such tax.
In addition, a trust that elects to be treated as a REMIC may also be
subject to federal income tax at the highest corporate rate on "net income
from foreclosure property", determined by reference to the rules applicable to
real estate investment trusts. "Net income from foreclosure property"
generally means gain from the sale of a foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust. It is not anticipated that the Trust will recognize net income from
foreclosure property subject to federal income tax.
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 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 & Co., 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
General
Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and Section 4975 of the Code prohibit "parties in
interest" (under ERISA) and "disqualified persons" (under the Code) with
respect to an employee benefit plan subject to ERISA and/or a plan or other
arrangement subject to 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 in this prospectus supplement and
in the prospectus, subject to the provisions of other applicable federal and
state law. However, any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code may be subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Investments by Plans that are subject to ERISA 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 investment to
the rate of principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted to Greenwich Capital
Markets, Inc. Prohibited Transaction Exemption 90-59, Application No. D-8374,
55 Fed. Reg. 36724 (September 6, 1990), as amended (the "Exemption") which
exempts from the application of the prohibited transaction rules transactions
relating to (1) the acquisition, sale and holding by Plans of certain
securities representing an undivided interest in certain asset-backed
pass-through entities with respect to which Greenwich Capital Markets, Inc. or
any of its affiliates is the sole underwriter or the manager or co-manager of
the underwriting syndicate; and (2) the servicing, operation and management of
such asset-backed pass-through entities, provided that the general conditions
and certain other conditions set forth in the Exemption are satisfied. The
Exemption was amended by PTCE 2000-58, Exemption Application No. D-10829, 65
Fed. Reg. 67765 (2000) to extend exemptive relief to subordinated certificates
and certificates rated in the four highest generic rating categories in
certain designated transactions when the conditions of the Exemption are met.
Among the conditions which must be satisfied for the Exemption to
apply are the following:
(1) The acquisition of the securities by a Plan is on terms
(including the price for such securities) that are at least as
favorable to the investing Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the securities
acquired by the Plan are not subordinated to the rights and
interests evidenced by other securities of the entity, except when
the trust holds certain types of assets, including assets of the
type held in the Trust;
(3) The securities acquired by the Plan have received a rating
at the time of such acquisition that is in one of the three (four,
if the trust holds certain types of assets, including assets of the
type held in the Trust) highest generic rating categories from S&P,
Moody's or Fitch (each, a rating agency);
(4) The sum of all payments made to and retained by the
underwriter in connection with the distribution of the securities
represents not more than reasonable compensation for underwriting
such certificates; the sum of all payments made to and retained by
the seller pursuant to the sale of the trust assets to the trust
represents not more than the fair market value of such assets; and
the sum of all payments made to and retained by any servicer
represents not more than reasonable compensation for such servicer's
services under the applicable servicing agreement and reimbursement
of such servicer's reasonable expenses in connection therewith;
(5) The trustee is not an affiliate of any underwriter, the
seller, any servicer, the certificate insurer, any borrower whose
obligations constitute more than 5% of the aggregate unamortized
principal balance of the assets in the Trust, or any of their
respective affiliates (together with the trustee, the "Restricted
Group");
(6) The Plan investing in the securities is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the SEC
under the Securities Act of 1933, as amended; and
(7) The documents establishing the issuer must contain certain
provisions to ensure that its assets may not be reached by creditors
of the sponsor in the event of the bankruptcy or other insolvency of
the sponsor.
In addition, (i) the investment pool must consist only of assets of
types enumerated in the Exemption which have been included in other investment
pools; (ii) certificates evidencing interests in such other investment pools
must have been rated in one of the three (four, if the pool holds certain
types of assets) highest generic rating categories by a rating agency for at
least one year prior to a Plan's acquisition of securities; and (iii)
securities evidencing interests in such other investment pools must have been
purchased by investors other than Plans for at least one year prior to a
Plan's acquisition of securities.
The Exemption will not apply to a Plan's investment in a Certificate
if the Plan fiduciary responsible for the decision to invest in the
Certificates is a mortgagor or obligor with respect to obligations held in the
Trust or an affiliate of such a person, unless: (1) in the case of an
acquisition in connection with the initial issuance of any Certificates, at
least 50% of each Class of Certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least 50% of
the aggregate interest in the Trust is acquired by persons independent of the
Restricted Group; (2) a Plan's investment in any Class of Certificates does
not exceed 25% of the outstanding certificates of that Class at the time of
acquisition; (3) immediately after such acquisition, no more than 25% of the
assets of any Plan with respect to which the investing fiduciary has
discretionary authority or renders investment advice are invested in
securities evidencing interests in entities sponsored or containing assets
sold or serviced by the same entity; (4) the Plan is not sponsored by any
member of the Restricted Group; and (5) the fiduciary (or its affiliates) is
an obligor with respect to 5% or less of the fair market value of obligations
contained in the Trust.
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the Offered Certificates other than the Class A-R
Certificate and that all conditions of the Exemption other than those within
the control of the investors will be met. The Exemption also applies to the
"direct or indirect ... disposition of Securities by a plan in the secondary
market." Prospective Plan investors in the Class A-1 and Class A-2
Certificates should consult with counsel concerning whether the Exemption
would apply to the acquisition of rights under and the disposition of the
Class A-1 or Class A-2 Certificates pursuant to the Put Option and the
Optional Call.
The rating of a Certificate may change. If the rating of a
Certificate declines below BBB-, the Certificate will no longer be eligible
for relief under the Exemption and, consequently, may not be purchased by or
sold to a Plan (although a Plan that had purchased the Certificate when it had
an investment-grade rating would not be required by the Exemption to dispose
of it).
Because the characteristics of the Class A-R Certificate may not meet
the requirements of the Exemption or any other issued exemption under ERISA,
the purchase and holding of the Class A-R Certificate by a Plan or by an
individual retirement account or other plan subject to Section 4975 of the
Code may result in prohibited transactions or the imposition of excise taxes
or civil penalties. Consequently, transfers of the Class A-R Certificate will
not be registered by the Trustee unless the Trustee receives:
1. a representation from the transferee of such Certificate,
acceptable to and in form and substance satisfactory to the
Trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or a
plan or arrangement subject to Section 4975 of the Code, nor
a person acting on behalf of any such plan or arrangement
nor using the assets of any such plan or arrangement to
effect such transfer; or
2. an opinion of counsel satisfactory to the Trustee that the
purchase and holding of such Certificate by a Plan, or any
person acting on behalf of a Plan or using a Plan's assets,
will not result in a non-exempt prohibited transaction under
either Title I of ERISA or Section 4975 of the Code and will
not subject the Trustee, the Servicer or the Depositor to
any obligation in addition to those undertaken in the
Agreement.
In the event that such representations are violated, or any attempt
to transfer to a Plan or person acting on behalf of a Plan or using such
Plan's assets is attempted without such opinion of counsel, such attempted
transfer or acquisition shall be void and of no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of 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 Offered Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization and, as such, are legal investments for certain entities to the
extent provided for in SMMEA.
There may be restrictions on the ability of certain investors,
including depository institutions, either to purchase the Offered Certificates
or to purchase Offered Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Offered Certificates
constitute legal investments for such investors. See "Legal Investment" in the
prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and Greenwich Capital Markets, Inc. (the
"Underwriter"), which is an affiliate of the Depositor, the Depositor has
agreed to sell to the Underwriter, and the Underwriter has agreed to purchase
from the Depositor, all of 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 the Offered Certificates may be deemed to
be underwriters, and any discounts, commissions or concessions received by
them, and any profits on resale of the Offered Certificates purchased by them,
may be deemed to be underwriting discounts and commissions under the
Securities 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 Securities Act.
The Class A-R Certificate will not be purchased by the Underwriter
but will be transferred to the Seller on the Closing Date as partial
consideration for the sale of the Mortgage Loans to the Depositor. The Class
A-R Certificate may be offered by the Seller (or an affiliate) from time to
time directly or through an underwriter or agent in a negotiated transaction,
or otherwise, at a price to be determined at the time of sale. Any underwriter
or agent that participates in the distribution of the Class A-R Certificate
may be deemed to be an "underwriter" within the meaning of the Securities Act
of 1933 and any profit on the sale of that Certificate by them and any
discounts, commissions, concessions or other compensation received by any of
them may be deemed to be underwriting discounts and commissions under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Offered
Certificates will be passed upon by Brown & Wood LLP, New York, New York, as
counsel for the Depositor and the Underwriter. Certain legal matters will be
passed upon for the Seller and the Standby Purchaser by James R. Hubbard,
Esq., Counsel for Fifth Third Bank and Fifth Third Mortgage Company, and by
Brown & Wood LLP, New York, New York. Certain federal income tax consequences
with respect to the Certificates will be passed upon for the Trust by Brown &
Wood LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that
the Class A-1, Class A-2 and Class X Certificates be rated "AAA" and "Aaa", in
each case by Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies ("S&P") and Moody's Investor Service, Inc. ("Moody's"), respectively
(each a "Rating Agency"); and that the Class A-R Certificate be rated "AAA" by
S&P.
The ratings assigned by each Rating Agency 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 those certificates are issued. Each Rating Agency's ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with those
certificates, and the extent to which the payment stream on that mortgage pool
is adequate to make payments required by those certificates. Each Rating
Agency's ratings on those certificates do not, however, constitute a statement
regarding frequency of prepayments on the related mortgage loans.
The ratings of each Rating Agency do not address the possibility
that, as a result of principal prepayments, holders of the Offered
Certificates may receive a lower than anticipated yield or that the holders of
the Class X Certificates may fail to recoup their initial investments or the
ability of the Seller to repurchase any Mortgage Loan that has converted its
interest rate to a fixed rate.
Dependent ratings of "A-1+" will be assigned by S&P to the Class A-1,
Class A-2 Certificates to address the creditworthiness of Fifth Third Bank to
fulfill its obligations with respect to the related Put Options. In the case
of Moody's, Fifth Third Bank's ability or obligation to purchase the Class A-1
and Class A-2 Certificates under the related Put Options is directly linked to
their short term rating, which is currently "P-1", and their long term rating,
which is currently "Aa3". Each rating is dependent on the Credit Rating
received by Fifth Third Bank from S&P or Moody's, as applicable. Credit
Ratings are based on current information furnished by the obligors or obtained
by either S&P or Moody's, as the case may be, from other sources it considers
reliable. Neither S&P nor Moody's performs an audit in connection with any
credit rating and either may, on occasion, rely on unaudited financial
information. Credit Ratings may be changed, suspended or withdraw as a result
of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings assigned to the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by either Rating Agency.
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 that rating
agency. Any rating on the Offered Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Offered
Certificates by the Rating Agencies.
<PAGE>
Index of Defined Terms
<PAGE>
1-Year CMT.......................................S-25
3-Year CMT.......................................S-25
5-Year CMT.......................................S-25
Adjustment Date..................................S-16
Advance..........................................S-34
Aggregate Stated Principal Balance...............S-50
Aggregate Subordinated Percentage................S-53
Agreement........................................S-69
Applicable Credit Percentage.....................S-53
Assumed Final Distribution Date..................S-40
Available Funds..................................S-46
Bankruptcy Loss Coverage Amount..................S-55
Bankruptcy Losses................................S-55
Beneficial Owner.................................S-41
Book-Entry Certificates..........................S-41
CBE..............................................S-68
Certificate Notional Balance.....................S-40
Certificate Owners...............................S-41
Certificate Principal Balance....................S-49
Certificateholder................................S-41
Certificates.....................................S-40
Class Subordination Percentage...................S-53
Class X Yield Table..............................S-68
Clearstream, Luxembourg..........................S-43
Clearstream, Luxembourg Participants.............S-43
Collection Account...............................S-32
Compensating Interest............................S-35
Compensating Interest Cap........................S-35
Contributions Tax................................S-73
Cooperative......................................S-44
CPR..............................................S-63
Cut-Off Date.....................................S-14
Cut-Off Date Pool Balance........................S-14
Debt Service Reduction...........................S-57
Deficient Valuation..............................S-57
Definitive Certificate...........................S-41
Determination Date...............................S-35
Distribution Account.............................S-32
Distribution Date................................S-41
DTC..............................................S-41
DTC's Rules......................................S-41
Due Date.........................................S-15
Due Period.......................................S-50
Eligible Account.................................S-33
Eligible Substitute Mortgage Loan................S-31
ERISA............................................S-74
Euroclear........................................S-43
Euroclear Operator...............................S-44
Euroclear Participants...........................S-43
European Depositaries............................S-41
Event of Servicing Termination...................S-38
Excess Losses....................................S-55
Exemption........................................S-75
Expense Fee Rate.................................S-35
Expense Fees.....................................S-35
Fifth Third......................................S-25
Financial Intermediary...........................S-41
First Rate Cap...................................S-16
Flex 53 Program..................................S-26
Fraud Loss Coverage Amount.......................S-55
Fraud Losses.....................................S-55
Gross Margin.....................................S-16
IML..............................................S-43
Index............................................S-16
Indices..........................................S-16
Insurance Proceeds...............................S-46
Interest Accrual Period..........................S-47
IRS..............................................S-70
Liquidated Mortgage Loan.........................S-55
Liquidation Proceeds.............................S-46
Loan Rate........................................S-16
Loan-to-Value Ratio..............................S-15
Maximum Loan Rate................................S-16
Minimum Loan Rate................................S-16
Moody's..........................................S-79
Mortgage.........................................S-15
Mortgage Loan....................................S-14
Mortgage Loan Purchase Agreement.................S-14
Mortgage Loan Schedule...........................S-30
Mortgaged Property...............................S-15
Mortgagor........................................S-34
Net income from foreclosure property.............S-73
Net Interest Shortfall...........................S-47
Net Liquidation Proceeds.........................S-47
Net Prepayment Interest Shortfall................S-48
Net WAC..........................................S-49
New Proposed Regulations.........................S-71
New Regulations..................................S-72
non-U.S. Person..................................S-72
Offered Certificates.............................S-40
OID..............................................S-70
Optional Call....................................S-38
Optional Termination Date........................S-37
Original Applicable Credit Percentage............S-53
Original Certificate Principal Balance...........S-49
Original Subordinate Certificate Principal
Balance.........................................S-52
Participant......................................S-41
Pass-Through Rate................................S-48
Periodic Rate Cap................................S-16
Plan.............................................S-75
Pool Balance.....................................S-14
Pooling and Servicing Agreement..................S-30
Prepayment Interest Shortfall....................S-35
Prepayment Period................................S-50
Principal Balance................................S-14
Principal Distribution Amount....................S-49
Pro Rata Senior Percentage.......................S-51
Prohibited Transactions Tax......................S-73
Purchase Price...................................S-31
Put and Call Date................................S-38
Put Option.......................................S-37
Put Option Period................................S-37
Rating Agency....................................S-79
Realized Loss....................................S-55
Record Date......................................S-41
Regular Interest.................................S-69
Related Documents................................S-30
Relevant Depositary..............................S-41
Relief Act.......................................S-34
Relief Act Reduction.............................S-48
REMIC............................................S-69
REO Property.....................................S-58
Restricted Group................................S-76
Restricted Classes...............................S-53
S&P..............................................S-79
Seller...........................................S-25
Senior Certificates..............................S-40
Senior Percentage................................S-51
Senior Prepayment Percentage.....................S-51
Senior Principal Distribution Amount.............S-50
Servicer.........................................S-27
Servicer Remittance Date.........................S-33
Servicing Advance................................S-34
Servicing Fee....................................S-35
Servicing Fee Rate...............................S-35
SMMEA............................................S-78
Special Hazard Loss Coverage Amount..............S-55
Special Hazard Losses............................S-55
Special Hazard Mortgage Loan.....................S-55
Standby Purchaser................................S-37
Stated Principal Balance.........................S-50
Structuring Assumptions..........................S-63
Subordinate Certificates.........................S-40
Subordinate Percentage...........................S-51
Subordinate Prepayment Percentage................S-51
Subordinate Principal Distribution Amount........S-54
Substitution Adjustment..........................S-31
Tax Counsel......................................S-69
Termination Price................................S-37
Terms and Conditions.............................S-44
Trust............................................S-14
Trustee..........................................S-35
Trustee Fee Rate.................................S-35
Two Times Test...................................S-52
Underwriter......................................S-78
<PAGE>
PROSPECTUS
Mortgage Pass-Through Certificates
(Issuable in Series)
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
Consider carefully the risk factors beginning on page 6 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
accompan-ied 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 (Ginnie 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.
November 13, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT................5
RISK FACTORS.....................................................................................................6
THE TRUST FUND..................................................................................................14
The Mortgage Loans--General.....................................................................................15
Single Family Loans.............................................................................................18
Multifamily Loans...............................................................................................19
Contracts.......................................................................................................19
Agency Securities...............................................................................................20
Private Mortgage-Backed Securities..............................................................................26
Incorporation of Certain Information by Reference...............................................................28
USE OF PROCEEDS.................................................................................................29
THE DEPOSITOR...................................................................................................29
MORTGAGE LOAN PROGRAM...........................................................................................29
Underwriting Standards..........................................................................................29
Qualifications of Sellers.......................................................................................31
Representations by Sellers; Repurchases.........................................................................31
DESCRIPTION OF THE CERTIFICATES.................................................................................33
General.........................................................................................................33
Distributions on Certificates...................................................................................35
Advances........................................................................................................39
Reports to Certificateholders...................................................................................40
CREDIT ENHANCEMENT..............................................................................................41
General.........................................................................................................41
Subordination...................................................................................................42
Mortgage Pool Insurance Policies................................................................................43
FHA Insurance; VA Guarantees....................................................................................44
Special Hazard Insurance Policies...............................................................................46
Bankruptcy Bonds................................................................................................48
FHA Insurance on Multifamily Loans..............................................................................48
Reserve Accounts................................................................................................49
Cross Support...................................................................................................49
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar Instruments or Agreements..............50
Financial Instruments...........................................................................................50
YIELD AND PREPAYMENT CONSIDERATIONS.............................................................................50
THE POOLING AND SERVICING AGREEMENT.............................................................................53
Assignment of Mortgage Assets...................................................................................53
Payments on Mortgage Loans; Deposits to Certificate Account.....................................................55
Sub-Servicing by Sellers........................................................................................57
Collection Procedures...........................................................................................59
Hazard Insurance................................................................................................60
Realization upon Defaulted Mortgage Loans.......................................................................62
Servicing and Other Compensation and Payment of Expenses........................................................64
Evidence as to Compliance.......................................................................................64
Certain Matters Regarding the Master Servicer and the Depositor.................................................65
Events of Default...............................................................................................66
Rights upon Event of Default....................................................................................66
Amendment.......................................................................................................67
Termination; Optional Termination...............................................................................68
The Trustee.....................................................................................................68
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS.....................................................................68
General.........................................................................................................69
Foreclosure/Repossession........................................................................................72
Environmental Risks.............................................................................................75
Rights of Redemption............................................................................................77
Anti-Deficiency Legislation and Other Limitations on Lenders....................................................77
Due-on-Sale Clauses.............................................................................................78
Prepayment Charges..............................................................................................79
Applicability of Usury Laws.....................................................................................79
Soldiers' and Sailors' Civil Relief Act.........................................................................80
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................................80
General.........................................................................................................80
Non-REMIC Certificates..........................................................................................80
Single Class of Senior Certificates.............................................................................81
Multiple Classes of Senior Certificates.........................................................................85
Possible Application of Contingent Payment Regulations to Certain Non-REMIC Certificates........................90
Sale or Exchange of a Senior Certificate........................................................................91
Non-U.S. Persons................................................................................................91
Information Reporting and Backup Withholding....................................................................92
New Withholding Regulations.....................................................................................92
REMIC CERTIFICATES..............................................................................................93
Tiered REMIC Structures.........................................................................................94
Regular Certificates............................................................................................94
Residual Certificates..........................................................................................105
Prohibited Transactions and Other Taxes........................................................................110
Liquidation and Termination....................................................................................111
Administrative Matters.........................................................................................111
Tax-Exempt Investors...........................................................................................112
Non-U.S. Persons...............................................................................................112
Tax-Related Restrictions on Transfers of Residual Certificates.................................................112
STATE TAX CONSIDERATIONS.......................................................................................115
ERISA CONSIDERATIONS...........................................................................................115
LEGAL INVESTMENT...............................................................................................119
METHOD OF DISTRIBUTION.........................................................................................121
LEGAL MATTERS..................................................................................................122
FINANCIAL INFORMATION..........................................................................................122
AVAILABLE INFORMATION..........................................................................................122
RATINGS........................................................................................................122
INDEX OF DEFINED TERMS.........................................................................................124
</TABLE>
<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
122 of this prospectus.
---------------------
If you require additional information, the mailing address of our principal
executive offices is Greenwich Capital Acceptance, Inc., 600 Steamboat Road,
Greenwich, Connecticut 06830 and the telephone number is (203) 625-2700. 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 14 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.
<TABLE>
<CAPTION>
<S> <C>
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.
Financial Instruments...................... As described under "Credit Enhancement--Financial Instruments," a
trust may include financial instruments to protect against certain
risks or to provide certain cash flow characteristics for particular
classes of the certificates of a series. If you invest in such a
class and the issuer of the financial instruments fails to perform
its obligations, the yield to maturity, market price and liquidity
of your certificates could be materially adversely affected. In
addition, if the issuer of the related financial instruments
experiences a credit rating downgrade, the market price and
liquidity of your certificates could be reduced. Finally, if the
financial instruments are intended to provide an approximate or
partial hedge for certain risks or cashflow characteristics, the
yield to maturity, market price and liquidity of your certificates
could be adversely affected to the extent that the financial
instruments do not provide a perfect hedge.
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.
</TABLE>
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 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 ("Ginnie Mae"), the
Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan
Mortgage Corporation ("Freddie Mac") or (v) Private Mortgage-Backed Securities
(as defined herein), in each case, as specified in the related Prospectus
Supplement, together with payments in respect of such Mortgage Assets and
certain other accounts, obligations or agreements, in each case as specified
in the related Prospectus Supplement.
The Certificates* will be entitled to payment from the assets of the
related Trust Fund or Funds or other assets pledged for the benefit of the
holders of the Certificates as specified in the related Prospectus Supplement
and will not be entitled to payments in respect of the assets of any other
trust fund established by the Depositor. Unless otherwise specified in the
related Prospectus Supplement, the Mortgage Assets of any Trust Fund will
consist of Mortgage Loans, Agency Securities or Private Mortgage-Backed
Securities but not a combination thereof.
The Mortgage Loans and Agency Securities will be acquired by the
Depositor, either directly or through affiliates, from originators or sellers
which may be affiliates of the Depositor (the "Sellers"), and conveyed by the
Depositor to the related Trust Fund. Mortgage Loans acquired by the Depositor
will have been originated in accordance with the underwriting criteria
specified below under "Mortgage Loan Program--Underwriting Standards" or as
otherwise described in a related Prospectus Supplement. See "Mortgage Loan
Program--Underwriting Standards".
The following is a brief description of the Mortgage Assets expected to
be included in the Trust Funds. If specific information respecting the
Mortgage Assets is not known at the time the related Series of Certificates
initially is offered, more general information of the nature described below
will be provided in the related Prospectus Supplement, and specific
information will be set forth in a report on Form 8-K to be filed with the
Securities and Exchange Commission within fifteen days after the initial
issuance of such Certificates (the "Detailed Description"). A copy of the
Agreement with respect to each Series of Certificates will be attached to the
Form 8-K and will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. A schedule of the
Mortgage Assets relating to such Series will be attached to the Agreement
delivered to the Trustee upon delivery of the Certificates.
-------------------
* 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.
<PAGE>
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:
(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.
-------------------
* 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.
<PAGE>
(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. Section 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. The Government National
Mortgage Association ("Ginnie Mae") 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 Ginnie Mae 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, Ginnie Mae 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 Ginnie Mae to
perform its obligations under its guarantee.
Ginnie Mae Certificates. Each "Ginnie Mae 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 "Ginnie Mae Issuer") approved by Ginnie Mae or approved by Fannie Mae as a
seller-servicer of FHA Loans and/or VA Loans. The Ginnie Mae Certificates may
be issued under either the Ginnie Mae I program ("Ginnie Mae I Certificates")
or under the Ginnie Mae II program ("Ginnie Mae II Certificates"). The
mortgage loans underlying the Ginnie Mae 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. Ginnie Mae will approve the
issuance of each such Ginnie Mae Certificate in accordance with a guaranty
agreement (each, a "Guaranty Agreement") between Ginnie Mae and the Ginnie Mae
Issuer. Pursuant to its Guaranty Agreement, a Ginnie Mae Issuer will be
required to advance its own funds in order to make timely payments of all
amounts due on each such Ginnie Mae Certificate, even if the payments received
by the Ginnie Mae Issuer on the FHA Loans or VA Loans underlying each such
Ginnie Mae Certificate are less than the amounts due on each such Ginnie Mae
Certificate.
The full and timely payment of principal of and interest on each Ginnie
Mae Certificate will be guaranteed by Ginnie Mae, which obligation is backed
by the full faith and credit of the United States. Each such Ginnie Mae
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
Ginnie Mae 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 Ginnie Mae Issuer to the
registered holder of such Ginnie Mae 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 Ginnie Mae 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 Ginnie Mae 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 Ginnie Mae Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans or VA Loans.
If a Ginnie Mae Issuer is unable to make the payments on a Ginnie Mae
Certificate as it becomes due, it must promptly notify Ginnie Mae and request
Ginnie Mae to make such payment. Upon notification and request, Ginnie Mae
will make such payments directly to the registered holder of such Ginnie Mae
Certificate. In the event no payment is made by a Ginnie Mae Issuer and the
Ginnie Mae Issuer fails to notify and request Ginnie Mae to make such payment,
the holder of such Ginnie Mae Certificate will have recourse only against
Ginnie Mae to obtain such payment. The Trustee or its nominee, as registered
holder of the Ginnie Mae Certificates held in a Trust Fund, will have the
right to proceed directly against Ginnie Mae under the terms of the Guaranty
Agreements relating to such Ginnie Mae Certificates for any amounts that are
not paid when due.
All mortgage loans underlying a particular Ginnie Mae 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
Ginnie Mae I Certificate will equal the interest rate on the mortgage loans
included in the pool of mortgage loans underlying such Ginnie Mae I
Certificate, less one-half percentage point per annum of the unpaid principal
balance of the mortgage loans.
Mortgage loans underlying a particular Ginnie Mae II Certificate may have
per annum interest rates that vary from each other by up to one percentage
point. The interest rate on each Ginnie Mae 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 Ginnie Mae II Certificate (except for pools of
mortgage loans secured by manufactured homes).
Regular monthly installment payments on each Ginnie Mae Certificate held
in a Trust Fund will be comprised of interest due as specified on such Ginnie
Mae Certificate plus the scheduled principal payments on the FHA Loans or VA
Loans underlying such Ginnie Mae Certificate due on the first day of the month
in which the scheduled monthly installments on such Ginnie Mae Certificate are
due. Such regular monthly installments on each such Ginnie Mae Certificate are
required to be paid to the Trustee as registered holder by the 15th day of
each month in the case of a Ginnie Mae I Certificate and are required to be
mailed to the Trustee by the 20th day of each month in the case of a Ginnie
Mae II Certificate. Any principal prepayments on any FHA Loans or VA Loans
underlying a Ginnie Mae 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 Ginnie Mae Certificate.
Ginnie Mae 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 Ginnie Mae Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other Ginnie Mae 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 Ginnie Mae and of a Ginnie Mae Issuer will be the same
irrespective of whether the Ginnie Mae 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.
Ginnie Mae Certificates related to a Series of Certificates may be held in
book-entry form.
If specified in a Prospectus Supplement, Ginnie Mae Certificates may be
backed by multifamily mortgage loans having the characteristics specified in
such Prospectus Supplement.
Federal Home Loan Mortgage Corporation. The Federal Home Loan Mortgage
Corporation ("Freddie Mac") is a shareholder-owned, government sponsored
enterprise created pursuant to Title III of the Emergency Home Finance Act of
1970, as amended (the "Freddie Mac Act"). Freddie Mac 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 Freddie Mac 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 Freddie Mac
Certificates. Freddie Mac 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.
Freddie Mac Certificates. Each Freddie Mac 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 "Freddie Mac Certificate Group"),
Freddie Mac Certificates are sold under the terms of a Mortgage Participation
Certificate Agreement. A Freddie Mac Certificate may be issued under either
Freddie Mac's Cash Program or its Guarantor Program.
Mortgage loans underlying the Freddie Mac 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 Freddie Mac Act. A Freddie Mac Certificate Group may include
whole loans, participation interests in whole loans and undivided interests in
whole loans and/or participations comprising another Freddie Mac Certificate
Group. Under the Guarantor Program, any such Freddie Mac Certificate Group may
include only whole loans or participation interests in whole loans.
Freddie Mac guarantees to each registered holder of a Freddie Mac
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 Freddie Mac Certificate Group represented by such
Freddie Mac Certificate, whether or not received. Freddie Mac also guarantees
to each registered holder of a Freddie Mac 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 Freddie Mac's Gold PC Program, Freddie Mac
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, Freddie Mac indemnifies holders of Freddie Mac Certificates
against any diminution in principal by reason of charges for property repairs,
maintenance and foreclosure. Freddie Mac 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 Freddie Mac Certificates, including the timing of demand for
acceleration, Freddie Mac 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 Freddie Mac to
determine that a mortgage loan should be accelerated varies with the
particular circumstances of each mortgagor, and Freddie Mac has not adopted
standards which require that the demand be made within any specified period.
Freddie Mac 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 Freddie Mac
under its guarantee are obligations solely of Freddie Mac and are not backed
by, or entitled to, the full faith and credit of the United States. If Freddie
Mac were unable to satisfy such obligations, distributions to holders of
Freddie Mac Certificates would consist solely of payments and other recoveries
on the underlying mortgage loans and, accordingly, monthly distributions to
holders of Freddie Mac Certificates would be affected by delinquent payments
and defaults on such mortgage loans.
Registered holders of Freddie Mac Certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by Freddie Mac, including any scheduled principal
payments, full and partial repayments of principal and principal received by
Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by Freddie Mac or the seller thereof.
Freddie Mac is required to remit each registered Freddie Mac
Certificateholder's pro rata share of principal payments on the underlying
mortgage loans, interest at the Freddie Mac 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 Freddie Mac.
Under Freddie Mac's Cash Program, there is no limitation on the amount by
which interest rates on the mortgage loans underlying a Freddie Mac
Certificate may exceed the pass-through rate on the Freddie Mac Certificate.
Under such program, Freddie Mac 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 Freddie Mac. 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 Freddie Mac Certificate Group under the Cash
Program will vary since mortgage loans and participations are purchased and
assigned to a Freddie Mac Certificate Group based upon their yield to Freddie
Mac rather than on the interest rate on the underlying mortgage loans. Under
Freddie Mac's Guarantor Program, the pass-through rate on a Freddie Mac
Certificate is established based upon the lowest interest rate on the
underlying mortgage loans, minus a minimum servicing fee and the amount of
Freddie Mac's management and guaranty income as agreed upon between the seller
and Freddie Mac.
Freddie Mac 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
Freddie Mac 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 Freddie Mac 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 Freddie Mac
Certificates sold by Freddie Mac 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. The Federal National Mortgage
Association ("Fannie Mae") is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act, as amended (the "Charter Act"). Fannie Mae 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.
Fannie Mae provides funds to the mortgage market primarily by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending. Fannie Mae 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, Fannie Mae helps to redistribute mortgage funds from
capital-surplus to capital-short areas.
Fannie Mae Certificates. Fannie Mae Certificates are Guaranteed Mortgage
Pass-Through Certificates representing fractional undivided interests in a
pool of mortgage loans formed by Fannie Mae. Each mortgage loan must meet the
applicable standards of the Fannie Mae purchase program. Mortgage loans
comprising a pool are either provided by Fannie Mae from its own portfolio or
purchased pursuant to the criteria of the Fannie Mae purchase program.
Mortgage loans underlying Fannie Mae 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 Fannie Mae 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 Fannie Mae 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 Fannie Mae 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
Fannie Mae'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 Fannie
Mae 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 Fannie Mae assumes the entire risk for foreclosure losses),
the annual interest rates on the mortgage loans underlying a Fannie Mae
Certificate will generally be between 55 basis points and 255 basis points
greater than the annual Fannie Mae Certificate pass-through rate. If specified
in the related Prospectus Supplement, Fannie Mae Certificates may be backed by
adjustable rate mortgages.
Fannie Mae guarantees to each registered holder of a Fannie Mae
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 Fannie Mae 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 Fannie Mae under its guarantees are
obligations solely of Fannie Mae 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 Fannie Mae
up to $2.25 billion outstanding at any time, neither the United States nor any
agency thereof is obligated to finance Fannie Mae's operations or to assist
Fannie Mae in any other manner. If Fannie Mae were unable to satisfy its
obligations, distributions to holders of Fannie Mae Certificates would consist
solely of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of Fannie Mae Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
Fannie Mae Certificates evidencing interests in pools of mortgage loans
formed on or after May 1, 1985 (other than Fannie Mae 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 Fannie Mae Certificate will be made by Fannie
Mae on the 25th day of each month to the persons in whose name the Fannie Mae
Certificate is entered in the books of the Federal Reserve Banks (or
registered on the Fannie Mae Certificate register in the case of fully
registered Fannie Mae Certificates) as of the close of business on the last
day of the preceding month. With respect to Fannie Mae Certificates issued in
book-entry form, distributions thereon will be made by wire and, with respect
to fully registered Fannie Mae 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 Freddie Mac,
Fannie Mae or Ginnie Mae Certificates. The underlying securities will be held
under a trust agreement by Freddie Mac, Fannie Mae or Ginnie Mae, each as
trustee, or by another trustee named in the related Prospectus Supplement.
Freddie Mac, Fannie Mae or Ginnie Mae 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 Freddie Mac, Fannie Mae or Ginnie Mae. 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
Fannie Mae- or Freddie Mac-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 (the "Exchange Act"), 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 Fannie Mae or Freddie Mac.
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.
Financial Instruments
If specified in the related Prospectus Supplement, the Trust Fund may
include one or more financial instruments that are intended to meet the
following goals: (i) to convert the payments on some or all of the related
Mortgage Assets from fixed to floating payments, or from floating to fixed, or
from floating based on a particular index to floating based on another index;
(ii) to provide payments if any index rises above or falls below specified
levels; or (iii) to provide protection against interest rate changes, certain
types of losses or other payment shortfalls to one or more Classes of the
related Series.
If a Trust Fund includes financial instruments of this type, the
instruments may be structured to be exempt from the registration requirements
of the Securities Act of 1933, as amended.
The related Prospectus Supplement will include, or incorporate by
reference, material financial and other information about the provider of the
financial instruments.
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 Freddie
Mac, 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 Freddie Mac 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 Freddie Mac (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, Fannie Mae or Freddie Mac 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 Material 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 Liability 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 MATERIAL 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 to 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. Generally,
the New Regulations replace the IRS Form W-8, Form 1001 and Form 4224 with
various revised Forms W-8, and provide that the old Form W-8, Form 1001 and
Form 4224 will not be effective after December 31, 2000. The New Regulations
will generally be effective for payments made after December 31, 2000, 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, 2000, 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.
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.
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
Freddie Mac, 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.
The IRS has issued proposed Treasury regulations that would add to the
conditions necessary to ensure that a transfer of a noneconomic residual
interest would be respected. The proposed additional condition provides that
the transfer of a noneconomic residual interest will not qualify under this
safe harbor unless the present value of the anticipated tax liabilities
associated with holding the residual interest does not exceed the present
value of the sum of
o any consideration given to the transferee to acquire the interest
(the inducement payment),
o future distributions on the interest, and
o any anticipated tax savings associated with holding the interest as
the REMIC generates losses.
For purposes of this calculation, the present value is calculated using a
discount rate equal to the lesser of the applicable federal rate and the
transferee's cost of borrowing. The proposed effective date for the changes is
February 4, 2000.
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 or IRS Form W-8ECI and the Trustee
consents to such transfer in writing. IRS Form 4224 will not be valid after
December 31, 2000.
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 Income 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 impose
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 transaction prohibited 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"), 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 of a specified
percentage of interest payments only or principal payments only, or a notional
amount of either principal or interest payments 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") 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 holdings and the subsequent resale by Plans of
"securities" that are obligations of an issuer containing certain receivables,
loans and other obligations, 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 a number of requirements. The
Underwriter Exemption does not apply to any investment pool unless, among
other things, (i) the investment pool consists only of assets of a type which
have been included in other investment pools, (ii) securities 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
securities pursuant to the Underwriter Exemption, and (iii) securities in such
other investment pools have been rated in one of the three (or four, if the
trust holds certain types of assets) highest generic rating categories by one
of the credit rating agencies noted below. Generally, the Underwriter
Exemption holds that the acquisition of the securities by a Plan must be on
terms (including the price for the securities) 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 securities not be "subordinated" to the rights and interests
evidenced by other securities of the same trust, except when the trust holds
certain types of assets. The Underwriter Exemption requires that securities
acquired by a Plan have received a rating at the time of their acquisition
that is in one of the three (or four, if the trust holds certain types of
assets) highest generic rating categories of Standard & Poor's Ratings
Services, Moody's Investors Service, Inc. or Fitch, Inc. The Underwriter
Exemption specifies that the pool trustee must not be an affiliate of any
other member of the Restricted Group (as defined below). The Underwriter
Exemption stipulates that any Plan investing in the securities 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. Finally, the Underwriter Exemption requires that the documents
establishing the issuer and governing the transaction contain certain
provisions to protect the assets of the issuer, and that the issuer receive
certain legal opinions.
Moreover, the Underwriter Exemption generally provides relief from
certain self-dealing and conflict of interest prohibited transactions that may
occur when the Plan fiduciary causes a Plan to acquire securities in a trust
holding receivables as to which the fiduciary (or its affiliate) is an
obligor, provided that, among other requirements: (i) in the case of an
acquisition in connection with the initial issuance of securities, at least
fifty percent of each class of securities in which Plans have invested is
acquired by persons independent of the Restricted Group; (ii) the fiduciary
(or its affiliate) is an obligor with respect to five percent or less of the
fair market value of the obligations contained in the trust; (iii) the Plans'
investment in securities of any class does not exceed twenty-five percent of
all of the securities of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent of the assets of any Plan with respect to which the person
is a fiduciary is invested in securities representing an interest in one or
more trusts containing assets sold or serviced by the same entity.
The Underwriter Exemption generally does not apply to Plans sponsored by
the seller, the underwriter, the trustee, the master servicer, any servicer or
any insurer with respect to the mortgage loans, any obligor with respect to
mortgage loans included in the Trust Fund constituting more than five percent
of the aggregate principal balance of the assets in the trust fund, or any
affiliate of those parties (the "Restricted Group").
The Underwriter Exemption generally allows mortgage loans or other
secured receivables supporting payments to securitiesholders, and having a
value equal to no more than twenty-five percent of the total principal amount
of the securities being offered by the trust, to be transferred to the trust
within a 90-day or three-month period following the closing date, instead of
requiring that all obligations be either identified or transferred on or
before the closing date. This relief is available when certain conditions are
met.
The prospectus supplement for each series of certificates will indicate
the classes of certificates, if any, offered thereby as to which it is
expected that the Underwriter Exemption will apply.
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
material 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>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
Page
----
<S> <C>
1986 Act.........................................................................................................86
Accrual Certificates.............................................................................................37
AFR..............................................................................................................89
Agency Securities................................................................................................14
Agreement........................................................................................................17
Amortizable Bond Premium Regulations.............................................................................82
Applicable Amount...............................................................................................102
APR..............................................................................................................19
ARM Loans........................................................................................................86
Asset Conservation Act...........................................................................................75
Available Funds..................................................................................................35
Bankruptcy Bond..................................................................................................47
Bankruptcy Code..................................................................................................52
BIF..............................................................................................................54
CERCLA...........................................................................................................74
Certificate Account..............................................................................................55
Certificate Principal Balance....................................................................................36
Certificate Register.............................................................................................34
Certificates.....................................................................................................14
Charter Act......................................................................................................24
Closing Date.....................................................................................................94
Code.............................................................................................................59
Collateral Value.................................................................................................17
Contingent Payment Regulations...................................................................................89
Contracts........................................................................................................14
Cooperative Loans................................................................................................18
Cooperatives.....................................................................................................18
Deferred Interest................................................................................................88
Detailed Description.............................................................................................15
Determination Date...............................................................................................36
DOL.............................................................................................................115
EPA..............................................................................................................74
ERISA...........................................................................................................114
Events of Default................................................................................................65
Exchange Act.....................................................................................................28
Fannie Mae.......................................................................................................14
FDIC.............................................................................................................31
FHA..............................................................................................................18
FHA Loans........................................................................................................20
Freddie Mac......................................................................................................14
Freddie Mac Act..................................................................................................22
Freddie Mac Certificate Group....................................................................................22
FTC Rule.........................................................................................................77
Garn-St Germain Act..............................................................................................78
GCA..............................................................................................................28
GCM.............................................................................................................120
Ginnie Mae.......................................................................................................14
Ginnie Mae Certificate...........................................................................................20
Ginnie Mae I Certificates........................................................................................20
Ginnie Mae II Certificates.......................................................................................20
Ginnie Mae Issuer................................................................................................20
Guaranty Agreement...............................................................................................20
Housing Act......................................................................................................20
HUD..............................................................................................................44
Insolvency Trustee...............................................................................................52
Insurance Proceeds...............................................................................................56
Insured Expenses.................................................................................................56
IRS..............................................................................................................82
Legislative History..............................................................................................87
Liquidation Expenses.............................................................................................56
Liquidation Proceeds.............................................................................................56
Loan-to-Value Ratio..............................................................................................16
Manufactured Homes...............................................................................................19
Manufacturer Invoice Price.......................................................................................17
Mark-to-Market Regulations......................................................................................106
Master REMIC.....................................................................................................93
Mortgage.........................................................................................................53
Mortgage Assets..................................................................................................14
Mortgage Loans...................................................................................................15
Mortgage Pool....................................................................................................14
Mortgage Pool Insurance Policy...................................................................................42
Mortgage Rate....................................................................................................15
Mortgaged Properties.............................................................................................15
Multifamily Loans................................................................................................14
NCUA............................................................................................................119
New Regulations..................................................................................................91
Non-economic Residual Certificate...............................................................................112
OID Regulations..................................................................................................82
Parties in Interest.............................................................................................115
Payment Lag Certificates........................................................................................101
Permitted Investments............................................................................................55
Plans...........................................................................................................114
PMBS Agreement...................................................................................................26
PMBS Issuer......................................................................................................27
PMBS Servicer....................................................................................................26
PMBS Trustee.....................................................................................................26
Policy Statement................................................................................................119
Pool Insurer.....................................................................................................42
Prepayment Assumption............................................................................................87
Primary Insurer..................................................................................................61
Primary Mortgage Insurance Policy................................................................................15
Principal Prepayments............................................................................................37
PTE 83-1........................................................................................................115
Purchase Price...................................................................................................32
Rating Agency....................................................................................................55
RCRA.............................................................................................................75
Record Date......................................................................................................34
Refinance Loans..................................................................................................17
Regular Certificateholders.......................................................................................93
Regular Certificates.............................................................................................92
Relief Act.......................................................................................................79
REMIC............................................................................................................34
REMIC Regulations................................................................................................79
Reserve Account..................................................................................................35
Residual Certificates............................................................................................92
Restricted Group................................................................................................118
Retained Interest................................................................................................33
SAIF.............................................................................................................55
SEC..............................................................................................................28
Sellers..........................................................................................................14
Senior Certificates..............................................................................................41
Series...........................................................................................................14
Single Family Certificates......................................................................................115
Single Family Loans..............................................................................................14
SMMEA...........................................................................................................118
Special Hazard Insurance Policy..................................................................................46
Special Hazard Insurer...........................................................................................46
Stripped ARM Obligations.........................................................................................88
Stripped Bond Certificates.......................................................................................84
Stripped Coupon Certificates.....................................................................................85
Subordinated Certificates........................................................................................41
Sub-Servicer.....................................................................................................17
Sub-Servicing Account............................................................................................54
Sub-Servicing Agreement..........................................................................................56
Subsidiary REMIC.................................................................................................93
Super-Premium Certificates.......................................................................................95
Support Agreement................................................................................................39
Support Servicer.................................................................................................39
Title V..........................................................................................................78
Treasury.........................................................................................................83
Trust Fund.......................................................................................................14
U.S. Person......................................................................................................91
UCC..............................................................................................................69
Underwriter Exemption...........................................................................................117
VA ..............................................................................................................18
VA Guaranty Policy...............................................................................................45
VA Loans.........................................................................................................20
</TABLE>
Until 90 days after the date of this prospectus supplement, all
dealers effecting transactions in the securities offered by this prospectus
supplement, whether or not participating in this distribution, may be required
to deliver this prospectus supplement and the prospectus. This is in addition
to the obligation of dealers to deliver this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
$557,042,100 (Approximate)
Fifth Third Bank Mortgage Loan Trust 2000-FTB1
Mortgage Pass-Through Certificates, Series 2000-FTB1
-----------------
Fifth Third LOGO
-----------------
Class A-1 $339,000,000 Initial Fixed Pass-Through Rate
Class A-2 $218,042,000 Initial Fixed Pass-Through Rate
Class X Notional Balance Variable Pass-Through Rate
Class A-R $100 Weighted Average Pass-Through Rate
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
FIFTH THIRD MORTGAGE COMPANY
Seller
FIFTH THIRD BANK
Servicer
GREENWICH CAPITAL
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PROSPECTUS SUPPLEMENT
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<PAGE>
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 different information.
We are not offering the certificates in any state where the offer is
not permitted.
We do not claim that the information in this prospectus supplement
and the accompanying prospectus is accurate as of any date other than the
dates stated on their respective covers.
December 15, 2000
