<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 7, 2000)
$288,076,000 (APPROXIMATE)
MORTGAGE LOAN PASS-THROUGH CERTIFICATES, SERIES 2000-FRB1
$109,426,000 CLASS A-1 FLOATING PASS-THROUGH RATE
$6,062,900 CLASS A-1M FLOATING PASS-THROUGH RATE
$158,701,000 CLASS A-2 WEIGHTED AVERAGE PASS-THROUGH RATE
$8,794,000 CLASS A-2M WEIGHTED AVERAGE PASS-THROUGH RATE
$100 CLASS A-R WEIGHTED AVERAGE PASS-THROUGH RATE
$2,182,000 CLASS B-1 FLOATING PASS-THROUGH RATE
$1,455,000 CLASS B-2 FLOATING PASS-THROUGH RATE
$1,455,000 CLASS B-3 FLOATING PASS-THROUGH RATE
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
------------------------
FIRST REPUBLIC BANK
Seller and Servicer
------------------------
CONSIDER CAREFULLY THE
RISK FACTORS BEGINNING
ON PAGE S-7 IN THIS
PROSPECTUS SUPPLEMENT
AND ON PAGE 5 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,
the master 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 30-year conventional
adjustable-rate, first lien, residential mortgage loans.
The mortgage loans will be segregated into two loan groups
as described in this prospectus supplement.
o The Class A-1, Class A-1M, Class A-2, Class A-2M and
Class A-R Certificates will be senior certificates. The
Class A-1 and Class A-2 Certificates will be super senior
certificates. The Class A-1M and Class A-2M Certificates
will be senior mezzanine 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-1M, Class A-2, Class A-2M,
Class A-R, Class B-1, Class B-2 and Class B-3 Certificates
are being offered by this prospectus supplement and the
accompanying prospectus. The Class B-4, Class B-5,
Class B-6 and Class X 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.
CREDIT ENHANCEMENT
o Subordination--The subordinate certificates will be
subordinate in right of certain payments to the senior
certificates and may be subordinate to certain other
classes of subordinate certificates as described in this
prospectus supplement.
o Allocation of Losses--Losses on the mortgage loans in a
loan group 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
related class of senior mezzanine certificates until its
principal balance is reduced to zero. Thereafter, such
losses will be allocated to the related class of super
senior certificates.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The offered certificates are being offered by Greenwich Capital Markets, Inc.
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the depositor with respect to the
offered certificates are expected to be approximately 98.99%, before deducting
issuance expenses payable by the depositor, estimated to be approximately
$370,000. See "Method of Distribution" in this prospectus supplement.
Delivery of the offered certificates will be made in book-entry form through the
facilities of The Depository Trust Company, Clearstream, Luxembourg and the
Euroclear System on or about April 24, 2000.
------------------------
GREENWICH CAPITAL
- ----------------------
- --------------------------------------------------------------------------------
April 19, 2000
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Summary of Terms....................................S-1
Risk Factors........................................S-7
The Mortgage Loan Groups............................S-14
The Seller and Servicer.............................S-45
The Pooling and Servicing Agreement.................S-51
Description of the Certificates.....................S-59
Yield, Prepayment and Maturity Considerations.......S-83
Certain Material Federal Income Tax Consequences....S-95
State Taxes.........................................S-101
ERISA Considerations................................S-101
Legal Investment Considerations.....................S-104
Method of Distribution..............................S-104
Legal Matters.......................................S-105
Ratings.............................................S-105
Index of Defined Terms..............................S-107
PROSPECTUS
Page
Important Notice About Information in This
Prospectus and Each Accompanying Prospectus
Supplement .......................................4
Risk Factors........................................5
The Trust Fund.....................................11
Use of Proceeds....................................21
The Depositor......................................22
Mortgage Loan Program..............................22
Description of the Certificates....................24
Credit Enhancement.................................31
Yield and Prepayment Considerations................37
The Pooling and Servicing Agreement................39
Certain Legal Aspects of the Mortgage Loans........50
Certain Federal Income Tax Consequences............58
REMIC Certificates.................................67
State Tax Considerations...........................83
ERISA Considerations...............................84
Legal Investment...................................86
Method of Distribution.............................87
Legal Matters......................................88
Financial Information..............................88
Available Information..............................88
Ratings............................................88
Index of Defined Terms.............................90
<PAGE>
Summary of Terms
o This summary highlights selected information from this document and
does not contain all of the information that you need to consider in
making your investment decision. To understand all of the terms of 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.
S-1
<PAGE>
Offered Certificates
On the closing date, First Republic Mortgage Loan Trust 2000-FRB1 will issue
twelve classes of certificates. Only the Class A-1, Class A-1M, Class A-2, Class
A-2M, Class A-R, Class B-1, Class B-2 and Class B-3 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 30-year conventional adjustable rate, first lien, residential mortgage
loans having the characteristics described in this prospectus supplement.
The mortgage pool consists of two loan groups. Loan Group I consists of mortgage
loans with an aggregate principal balance of approximately $118,754,353 as of
the cut-off date. Loan Group II consists of mortgage loans with an aggregate
principal balance of approximately $172,231,084 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 eight classes of offered certificates, the trust will issue
four other classes of certificates. These certificates will be designated the
Class B-4, Class B-5, Class B-6 and Class X Certificates and are not being
offered by this prospectus supplement and the prospectus. Information about
these classes is being included because they provide credit enhancement for the
offered certificates. The Class B-4, Class B-5 and Class B-6 Certificates will
have original aggregate principal balances of approximately $1,455,000, $728,000
and $726,437, respectively. The Class X Certificate will not have a principal
balance and will be entitled only to interest on its notional balance.
See "Description of the Certificates-- General" and "--Book-Entry Certificates"
in this prospectus supplement; and "The Mortgage Loan Groups" in this prospectus
supplement and "The Trust Fund--The Mortgage Loans--General" in the prospectus
for additional information.
Cut-Off Date
April 1, 2000.
Closing Date
On or about April 24, 2000.
Seller and Servicer
First Republic Bank
See "The Seller and Servicer" in this prospectus supplement for additional
information.
The Depositor
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700.
The Trustee
Norwest Bank Minnesota, National Association.
S-2
<PAGE>
See "The Pooling and Servicing Agreement--The Trustee" in this prospectus
supplement for additional information.
Designations
Each class of certificates will have different characteristics, some of which
are reflected in the following general designations.
o Senior Certificates
Class A-1, Class A-1M, Class A-2, Class A-2M and Class A-R Certificates.
o Super Senior Certificates
Class A-1 and Class A-2 Certificates.
o Senior Mezzanine Certificates
Class A-1M and Class A-2M 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 Offered Certificates
Class A-1, Class A-1M, Class A-2, Class A-2M, Class A-R, Class B-1, Class
B-2 and Class B-3 Certificates.
o Book-Entry Certificates
All classes of offered certificates other than the Class A-R Certificate.
o Residual Certificate
Class A-R Certificate.
Loan Groups
o Loan Group I or Group I Mortgage Loans
A group of conventional first lien, fully amortizing mortgage loans with
interest rates that adjust based on various indices.
o Loan Group II or Group II Mortgage Loans
A group of conventional first lien, fully or negatively amortizing
mortgage loans with interest rates that adjust based on the weighted
average cost of funds of the 11th District members of the Federal Home
Loan Bank of San Francisco.
Distribution Date
Beginning in May 2000, the trustee will make distributions on the certificates
on the 25th day of each calendar month. If the 25th day of a month is not a
business day, then the distribution will be made on the next business day.
Payments on the Certificates
Interest Payments
Interest on the Class A-1 and Class A-1M Certificates will be calculated at a
rate equal to one-month LIBOR plus 0.32% and 0.45%, respectively, subject to a
cap equal to the lesser of (i) the weighted average of the interest rates of the
mortgage loans in Loan Group I minus the sum of the rates at which the trustee
fee and the servicing fee are calculated and (ii) 11.75%. If the servicer fails
to exercise its option to purchase the mortgage loans as described in "The
Pooling and Servicing Agreement - Termination", interest on the Class A-1 and
S-3
<PAGE>
Class A-1M Certificates will thereafter be calculated at a rate equal to
one-month LIBOR plus 0.48% and 0.675%, respectively, subject to the cap
described above.
Interest on the Class A-2 and Class A-2M Certificates will be calculated at a
rate equal to the weighted average of the interest rates of the mortgage loans
in Loan Group II minus the sum of the rates at which the trustee fee and the
servicing fee are calculated.
Interest on the Class A-R Certificate will be calculated at a rate equal to the
weighted average of the interest rates of the Mortgage Loans in Loan Group I
minus the sum of the rates at which the trustee fee and the servicing fee are
calculated.
Interest on the Class B-1, Class B-2 and Class B-3 Certificates will be
calculated at a rate equal to one-month LIBOR plus 0.50%, subject to a cap equal
to the lesser of (i) the weighted average of the interest rates of the mortgage
loans in both loan groups minus the sum of the rates at which the trustee fee
and the servicing fee are calculated and (ii) 10.75%.
Interest on the Class A-1, Class A-1M, Class B-1, Class B-2 and Class B-3
Certificates will accrue based on the actual number of days in the interest
accrual period and a 360-day year. Interest on the Class A-2, Class A-2M and
Class A-R Certificates will accrue on the basis of a 360-day year composed of
twelve 30-day months.
The interest accrual period with respect to all offered certificates other than
the Class A-2, Class A-2M and Class A-R Certificates for a distribution date is
the period beginning with the previous distribution date (or in the case of the
first distribution date, the closing date) and ending on the day prior to such
distribution date. The interest accrual period for a distribution date for the
Class A-2, Class A-2M and Class A-R 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.
The aggregate amount of interest payable on the Class A-2, Class A-2M and the
subordinate certificates on a distribution date will be reduced by the amount of
deferred interest on the mortgage loans in Loan Group II, as described in
"Description of the Certificates-Pass-Through Rates."
Principal Payments
Principal will be paid to holders of the offered 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 with respect to a particular loan group generally in the following
order of priority:
1. interest on the related senior certificates;
2. principal of the related senior certificates;
3. 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;
4. basis risk shortfall amounts on the Class A-1, Class A-1M, Class B-1,
Class B-2, Class B-3, Class B-4 and Class B-5 Certificates;
S-4
<PAGE>
5. interest on the Class X Certificate; and
6. any remaining available funds 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 unless it reasonably believes that the cash advances are
not recoverable from future payments on the related mortgage loans. Advances are
intended to maintain a regular flow of scheduled interest and principal payments
on the certificates and are not intended to guarantee or insure against losses.
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.
Optional Termination
The servicer may purchase all of the assets in the trust and retire all
outstanding certificates when the 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. Among the classes of subordinated certificates, the Class B-1
Certificates will have the highest payment priority and the Class B-6
Certificates will have the lowest payment priority.
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, beginning with the subordinated certificates with the
lowest payment priority, second, to the related class of senior mezzanine
certificates and third, to the related class of super senior certificates.
However, special hazard losses, bankruptcy losses, and fraud losses realized on
the mortgage loans in a loan group in excess of the amounts set forth in this
prospectus supplement are allocated simultaneously to the related classes of
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 May 2010, 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
pro rata share
S-5
<PAGE>
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 senior
certificates be rated "AAA", that the Class B-1 Certificates be rated at least
"AA", that the Class B-2 Certificates be rated at least "A" and that the Class
B-3 Certificates be rated at least "BBB" by both Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, and Fitch IBCA, Inc.
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
(exclusive of the rights in respect of the additional collateral and the
carryover reserve fund) 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.
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 Federal Income Tax Consequences" in the prospectus for
additional information.
ERISA Considerations
Subject to satisfaction of certain conditions, ERISA Plans may purchase the
Class A-1 and Class A-2 Certificates.
See "ERISA Considerations" in this prospectus supplement and in the prospectus.
Legal Investment
The senior certificates and Class B-1 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. The Class B-2 and Class B-3 Certificates will not be rated in one
of the two highest rating categories by a nationally recognized statistical
rating organization and, therefore, will not be "mortgage related securities"
for purposes of SMMEA.
See "Legal Investment Considerations" in this prospectus supplement and "Legal
Investment" in the prospectus.
S-6
<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............... While approximately 75.60% of the mortgage
loans in Loan Group I (by aggregate
principal amount as of the cut-off date) and
approximately 81.12% of the mortgage loans
in Loan Group II (by aggregate principal
amount as of the cut-off date) provide for a
prepayment penalty, 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
related offered certificates.
o If you purchase your certificates
at a discount and principal is
repaid slower than you anticipate,
then your yield may be lower than
you anticipate.
o If you purchase your certificates
at a premium and principal is
repaid faster than you anticipate,
then your yield may be lower than
you anticipate.
o The rate of prepayments on the
mortgage loans will be sensitive to
prevailing interest rates.
Generally, if prevailing interest
rates decline significantly below
the interest rates on the mortgage
loans, those mortgage loans are
more likely to prepay than if
prevailing rates remain above the
interest rates on the mortgage
loans. Conversely, if prevailing
interest rates rise significantly,
prepayments on the mortgage loans
are likely to decrease.
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 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.
S-7
<PAGE>
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
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 in a loan group to the
subordinated classes in the reverse order of
their numerical class designations and then
to the related class of senior mezzanine
certificates. 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 from either
loan group are allocated, first, to the
subordinated certificates in the reverse
order of their priority of payment,
beginning with the subordinated certificates
with the lowest payment priority, until the
principal amount of that class has been
reduced to zero and, second, to the related
senior mezzanine certificates until the
principal amount of that class has been
reduced to zero. Accordingly, if the
aggregate principal balance of each
subordinated class and the related senior
mezzanine class 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 related super senior
certificates. Furthermore, the subordinated
classes of 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 of the
related loan group. Among the classes of
subordinated certificates, the Class B-1
Certificates have the highest payment
priority and the Class B-6 Certificates have
the lowest payment priority.
See "Description of the Certificates --
Allocation of Losses" and "--Subordination
of the Subordinate Certificates" in this
prospectus supplement for additional
information.
S-8
<PAGE>
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 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 are
attributable to prepayments in full or in
part, but only to the extent of the
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.
Certain Features of
The Mortgage Loans May
Result in Losses............... The mortgage loans contain features that
create additional risks to investors,
including those described below.
o Approximately 51.04% and 52.54% of
the aggregate principal amount as
of the cut-off date of the mortgage
loans in Loan Group I and Loan
Group II, respectively, had
principal balances greater than
$1,000,000 as of that date. In
addition, there are only 147 and
200 mortgage loans in Loan Group I
and Loan Group II, respectively.
Because of the large principal
balances, a default on a single
mortgage loan may affect the
performance of the certificates,
which might not be true if the
mortgage pool included a greater
number of smaller balance loans.
o The security for approximately
0.59% and 1.36% of the aggregate
principal amount as of the cut-off
date of the mortgage loans in Loan
Group I and Loan Group II,
respectively, includes securities,
mutual funds or other assets in
addition to a one- to four-family
residence. If the additional
collateral is excluded, the ratio
of the principal balance of each
such loan to the value of the
related residence is higher, and
may be substantially higher.
Because of special tax rules and
applicable state anti-deficiency
laws, the trust may not be able to
make use of the value of the
additional collateral if the
borrower defaults. In addition, the
market value of any additional
collateral will change from time to
time and may not equal the market
value at the time the loan was
made. As a result, if a borrower
under one of these mortgage loans
defaults, the trust may suffer a
loss.
o Approximately 68.18% and 58.23% of
the aggregate principal amount as
of the cut-off date of the mortgage
loans in Loan Group
S-9
<PAGE>
I and Loan Group II, respectively,
require the borrowers to make
monthly payments only of accrued
interest for a fixed period
following origination. After such
interest-only period, the
borrower's monthly payment will be
recalculated to cover both interest
and principal so that the mortgage
loan will be paid in full by its
final payment date. If the monthly
payment increases, the borrowers
may not be able to pay the
increased amount and may default or
may refinance the loan to avoid the
higher payment. Because no
principal payments will be made on
the mortgage loans for a period of
time, certificateholders will
receive smaller principal
distributions than they would have
received if the borrowers were
required to make monthly payments
of interest and principal for the
lives of the mortgage loans. This
slower rate of principal
distributions may reduce the return
on an investment in an offered
certificate that is purchased at a
discount to its principal amount.
o With respect to approximately
33.53% of the aggregate principal
amount as of the cut-off date of
the mortgage loans in Loan Group
II, the monthly payment amount on
an interest adjustment date is
subject to a payment cap which
limits any increase in the monthly
payment. The amount by which the
interest accruing on such mortgage
loan exceeds the capped monthly
payment amount will be added to the
principal balance of the mortgage
loan, so that the mortgage loan
will negatively amortize. As a
result, the loan-to-value ratio of
the mortgage loan will increase. If
a borrower under one of these
mortgage loans defaults, the
mortgaged property may fail to
provide adequate security and the
trust may suffer a loss.
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.
High Loan-to-Value Ratios
Increase Risk of Loss.......... Mortgage loans with higher loan-to-value
ratios may present a greater risk of loss
than mortgage loans with loan-to-value
ratios of 80% or below. Approximately 4.33%
of the mortgage loans in Loan Group I and
1.19% of the mortgage loans in Loan Group II
(in each case based
S-10
<PAGE>
on the aggregate principal balance of the
respective loan group as of the cut-off
date) had loan-to-value ratios in excess of
80%, but not more than 99%, at origination.
None of the mortgage loans in Loan Group I
had a current loan-to-value ratio in excess
of 80% as of the cut-off date and
approximately 2.62% of the mortgage loans in
Loan Group II had a current loan-to-value
ratio in excess of 80%, but not more than
90%, as of the cut-off date (in each case
based on the aggregate principal balance of
the respective loan group as of the cut-off
date).
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 A secondary market for the offered
certificates may not develop or
provide you with liquidity of
investment.
S-11
<PAGE>
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 of the mortgage
loans in each loan group as of the cut-off
date.
Loan Group I Loan Group II
California 82.92% California 93.58%
New York 6.76%
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
S-12
<PAGE>
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
that is at least 90 days delinquent.
Insolvency or Bankruptcy May
Affect the Timing and Amount
of Distributions on the
Certificates................... The transfer of the mortgage loans by First
Republic Bank to the depositor will be
characterized in the mortgage loan purchase
agreement as a sale transaction.
Nevertheless, in the event of insolvency of
First Republic Bank, the Federal Deposit
Insurance Corporation (the "FDIC") as
conservator or receiver, 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, the FDIC 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 rates. 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. Further, with respect to
an acceleration by the FDIC, interest may be
payable only through the date of appointment
of the FDIC as conservator or receiver. The
FDIC has a reasonable period of time (which
it has stated will generally not exceed 180
days after the date of its appointment) to
elect to accelerate payment. Whether or not
an acceleration takes place, delays in
payments on the certificates and possible
reductions in the amount of such payments
could occur.
S-13
<PAGE>
THE MORTGAGE LOAN GROUPS
The information set forth in the following paragraphs has been provided
by the Seller. None of the Depositor, the Trustee or any of their respective
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 First Republic Mortgage Loan Trust 2000-FRB1 (the
"Trust") will consist principally of two groups of conventional, adjustable
rate, first lien, residential mortgage loans (each, a "Loan Group"), the first
group (the "Group I Mortgage Loans") having interest rates that adjust based on
various indices and the second group (the "Group II Mortgage Loans" and,
together with the Group I Mortgage Loans, the "Mortgage Loans" ) having interest
rates that adjust based on the weighted average cost of funds of the 11th
District members of the Federal Home Loan Bank of San Francisco ("COFI"). Loan
Group I consists of 147 Mortgage Loans having an aggregate Principal Balance
(the "Group I Loan Balance") of approximately $118,754,353 as of the Cut-Off
Date and Loan Group II consists of 200 Mortgage Loans having an aggregate
Principal Balance (the "Group II Loan Balance") of approximately $172,231,084 as
of the Cut-Off Date, in each case after application of payments of principal due
on or before the Cut-Off Date whether or not received and also in each case
subject to a permitted variance of plus or minus 5%. All weighted averages
specified in this prospectus supplement are based on the Principal Balances of
the Mortgage Loans in the related Loan Group as of the Cut-Off Date. The
"Principal Balance" of a Mortgage Loan as of any date is equal to the 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 in the related Loan Group as of the Cut-Off Date, unless
otherwise specified.
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 selected from the Seller's portfolio of
Mortgage Loans. All of the Mortgage Loans were originated by the Seller in the
ordinary course of business and underwritten by the Seller in accordance with
the underwriting standards described in this prospectus supplement under the
heading "The Seller-Underwriting Standards".
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, the due execution and enforceability of the Pooling and Servicing
Agreement and 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
S-14
<PAGE>
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.
Group I Mortgage Loan Statistics
The following statistical information, unless otherwise specified, is
based upon the aggregate principal balance of the Group I Mortgage Loans as of
the Cut-Off Date.
The Group I 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, individual condominium units
and, in the case of Cooperative Loans, the related Cooperative Shares and
Proprietary Leases (each, a "Mortgaged Property"). Approximately 4.33% of the
Group I Mortgage Loans had Loan-to-Value Ratios at origination in excess of
80.00%. None of the Group I Mortgage Loans had current Loan-to-Value Ratios
greater than 80.00%. With respect to each Mortgage Loan and any date of
determination, the Loan-to-Value Ratio ("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 less any Additional
Collateral (hereinafter defined) and the denominator of which is the value of
the Mortgaged Property. With respect to one Group I Mortgage Loan representing
approximately 0.59% of the aggregate Principal Balance of the Mortgage Loans,
the Seller required the borrower to pledge additional collateral ("Additional
Collateral") to secure the Mortgage Loan, including marketable securities or
certificates of deposit acceptable to the Seller.
All of the Group I Mortgage Loans have scheduled monthly payments due
on the first day of the month (with respect to each Mortgage Loan, a "Due
Date").
The Group I Mortgage Loans have original terms to stated maturity
ranging from 180 to 360 months with a weighted average of approximately 356
months. The weighted average remaining term to stated maturity of the Group I
Mortgage Loans was approximately 333 months as of the Cut-Off Date. None of the
Group I Mortgage Loans had a first Due Date prior to January 1, 1994 or after
April 1, 2000 or had a remaining term to stated maturity of less than 172 months
or greater than 359 months as of the Cut-Off Date. The latest stated maturity
date of any Group I Mortgage Loan is March 1, 2030.
The average Principal Balance of the Group I Mortgage Loans at
origination was approximately $862,952. The average Principal Balance of the
Group I Mortgage Loans as of the Cut-Off Date was approximately $807,853.
No Group I Mortgage Loan had a Principal Balance of greater than
$3,000,000 or less than $40,000 as of the Cut-Off Date.
Subject to the limitations described below, each Group I Mortgage Loan
provides for adjustment, on a monthly, semi-annual or annual 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").
S-15
<PAGE>
o Interest Only Loans: Approximately 68.18% of the Group I Mortgage Loans
provide that for a period ranging from 1 to 120 months after
origination, the required monthly payments are limited to accrued
interest (each, an "Interest Only Period"). At the end of each Interest
Only Period for a Mortgage Loan, the monthly payments are recalculated
to provide for amortization of the Principal Balance by the maturity
date and payment of interest at the then-current Loan Rate.
o Limits on Loan Rate Adjustments. On each Adjustment Date for each Group
I Mortgage Loan, the Loan Rate thereon will be adjusted to equal the
sum, generally rounded up to the nearest multiple of 0.125%, of the
index applicable to determining the Loan Rate on each Mortgage Loan
(the "Index") and a fixed percentage amount (the "Gross Margin"). The
Group I Mortgage Loans adjust according to one of the four Indices (One
Year CMT, Six Month LIBOR, 1 Month LIBOR or Prime Rate) as discussed
under "--The Index" herein. The Loan Rates on approximately 19.42% of
the Group I Mortgage Loans adjust annually, but the Loan Rates on these
Mortgage Loans cannot increase or decrease (this cap is referred to as
a "Periodic Rate Cap") by more than 2% per annum on any Adjustment
Date. Approximately 23.47% of the Group I Mortgage Loans have
semi-annual Adjustment Dates and permit up to the maximum 2% per annum
adjustment to occur on any Adjustment Date within each 12-month period
beginning with the date of origination and each anniversary thereafter.
Approximately 57.11% of the Group I Mortgage Loans do not have Periodic
Rate Caps. The Loan Rate on each Group I Mortgage Loan will not exceed
a specified maximum Loan Rate over the life of such Group I Mortgage
Loan (the "Maximum Loan Rate"). Only 2.76% of the Group I Mortgage
Loans have a specified minimum Loan Rate over the life of such Group I
Mortgage Loans (the "Minimum Loan Rate"). Effective with the first
monthly payment due on each Group I Mortgage Loan after each related
Adjustment Date (occurring after any applicable Interest Only Period),
the monthly payment amount will be adjusted to an amount that will
amortize fully the outstanding Principal Balance of the related
Mortgage Loan over its remaining term, and pay interest at the Loan
Rate as so adjusted. Due to the application of the Periodic Rate Caps
and the Maximum Loan Rates, the Loan Rate on each such Mortgage Loan,
as adjusted on any related Adjustment Date, may be less than the sum of
the Index and the related Gross Margin, rounded as described herein.
See "--The Index" herein. None of the Group I Mortgage Loans permits
the related borrower (the "Mortgagor") to convert the adjustable Loan
Rate thereon to a fixed Loan Rate.
The Group I Mortgage Loans had Loan Rates as of the Cut-Off Date of not
less than 5.100% per annum and not more than 9.750% per annum and the weighted
average Loan Rate was approximately 7.774% per annum. As of the Cut-Off Date,
the Group I Mortgage Loans had Gross Margins ranging from - 0.500% to 3.250%,
and Maximum Loan Rates ranging from 10.250% per annum to 18.000% per annum. As
of the Cut-Off Date, the weighted average Gross Margin was approximately 1.657%,
and the weighted average Maximum Loan Rate was approximately 11.991% per annum.
The latest next Adjustment Date following the Cut-Off Date on any Group I
Mortgage Loan occurs on April 1, 2001 and the weighted average next Adjustment
Date for all of the Group I Mortgage Loans following the Cut-Off Date is August
1, 2000.
The Group I 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):
S-16
<PAGE>
Principal Balances of the Group I Mortgage Loans as of the Cut-Off Date
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Outstanding as of the Balance Outstanding as of
Principal Balance ($) Mortgage Loans Cut-Off Date the Cut-Off Date
---------------------------------------------- ----------------- -------------------------- ---------------------------
<S> <C> <C> <C>
40,000 - 100,000 3 $ 206,574 0.17%
100,001 - 200,000 15 2,356,743 1.98
200,001 - 300,000 15 3,808,907 3.21
300,001 - 400,000 9 3,234,365 2.72
400,001 - 500,000 10 4,581,419 3.86
500,001 - 600,000 10 5,455,214 4.59
600,001 - 700,000 15 9,957,090 8.38
700,001 - 800,000 9 6,864,500 5.78
800,001 - 900,000 6 5,238,903 4.41
900,001 - 1,000,000 17 16,432,563 13.84
1,000,001 - 1,100,000 13 14,143,392 11.91
1,100,001 - 1,200,000 3 3,521,000 2.96
1,200,001 - 1,300,000 2 2,472,359 2.08
1,300,001 - 1,400,000 1 1,309,959 1.10
1,400,001 - 1,500,000 2 2,999,866 2.53
1,500,001 - 1,600,000 1 1,501,003 1.26
1,700,001 - 1,800,000 3 5,260,000 4.43
1,800,001 - 1,900,000 1 1,850,000 1.56
1,900,001 - 2,000,000 5 9,874,354 8.31
2,000,001 - 2,100,000 2 4,200,000 3.54
2,100,001 - 2,200,000 1 2,200,000 1.85
2,200,001 - 2,300,000 1 2,286,142 1.93
2,900,001 - 3,000,000 3 9,000,000 7.58
----------------- -------------------------- ---------------------------
Total.................................. 147 $118,754,353 100.00%
================= ========================== ===========================
</TABLE>
The average Principal Balance of the Group I Mortgage Loans as of the
Cut-Off Date was approximately $807,853.
S-17
<PAGE>
Remaining Terms to Stated Maturity of the Group I Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Remaining Term (months) of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------- ------------------- ------------------------ -------------------------
<S> <C> <C> <C>
172 - 180 1 $ 1,033,079 0.87%
217 - 228 1 2,286,142 1.93
277 - 288 7 4,088,677 3.44
289 - 300 4 2,013,525 1.70
301 - 312 1 354,505 0.30
313 - 324 13 14,017,657 11.80
325 - 336 50 41,375,441 34.84
337 - 348 17 15,879,282 13.37
349 - 359 53 37,706,045 31.75
------------------- ------------------------ -------------------------
Total...................... 147 $118,754,353 100.00%
=================== ======================== =========================
</TABLE>
The weighted average remaining term to stated maturity of the Group I
Mortgage Loans as of the Cut-Off Date was approximately 333 months.
Property Types of the Group I Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Number Principal Balance Principal Balance
of Mortgage Outstanding as of Outstanding as of
Property Type Loans the Cut-Off Date the Cut-Off Date
- ------------------------------- ------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Single Family 78 $ 80,858,867 68.09%
Condominium 29 14,080,655 11.86
Cooperative 25 13,538,848 11.40
PUD 9 6,516,283 5.49
2-4 Units 6 3,759,700 3.17
------------------- ------------------------ -------------------------
Total...................... 147 $118,754,353 100.00%
=================== ======================== =========================
</TABLE>
S-18
<PAGE>
Stated Occupancy Status of the Group I Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Stated Occupancy Status(1) of Mortgage Loans The Cut-Off Date the Cut-Off Date
- ------------------------------- ------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Primary 110 $ 95,388,360 80.32%
Non-owner 20 11,505,224 9.69
Second Home 17 11,860,769 9.99
------------------- ------------------------ -------------------------
Total...................... 147 $118,754,353 100.00%
=================== ======================== =========================
</TABLE>
- ------------
(1) Occupancy as represented by the Mortgagor at the time of origination.
Purposes of the Group I Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Number Principal Balance Principal Balance
of Mortgage Outstanding as of Outstanding as of
Purpose Loans the Cut-Off Date the Cut-Off Date
- ------------------------------- ------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Purchase 112 $ 84,539,278 71.19%
Cash Out Refinance 20 19,407,422 16.34
Rate/Term Refinance 15 14,807,653 12.47
------------------- ------------------------ -------------------------
Total...................... 147 $118,754,353 100.00%
=================== ======================== =========================
</TABLE>
S-19
<PAGE>
Original Loan-to-Value Ratios of the Group I Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Original Loan-to-Value Ratio (%) of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C>
0.01 - 5.00 1 $ 40,000 0.03%
10.01 - 15.00 1 999,631 0.84
15.01 - 20.00 1 1,000,000 0.84
20.01 - 25.00 2 2,096,028 1.77
25.01 - 30.00 2 648,594 0.55
30.01 - 35.00 4 5,294,777 4.46
35.01 - 40.00 9 7,527,903 6.34
40.01 - 45.00 4 4,434,064 3.73
45.01 - 50.00 15 9,436,615 7.95
50.01 - 55.00 6 8,886,454 7.48
55.01 - 60.00 10 11,541,619 9.72
60.01 - 65.00 14 13,461,605 11.34
65.01 - 70.00 23 16,659,069 14.03
70.01 - 75.00 13 9,075,875 7.64
75.01 - 80.00 35 22,505,681 18.95
80.01 - 85.00 2 1,590,584 1.34
85.01 - 90.00 4 2,455,854 2.07
90.01 - 95.30 1 1,100,000 0.93
------------------ ------------------------ ------------------------
Total.................................. 147 $118,754,353 100.00%
================== ======================== ========================
</TABLE>
The weighted average original Loan-to-Value Ratio of the Group I Mortgage
Loans as of the Cut-Off Date was approximately 61.16%.
S-20
<PAGE>
Current Loan-to-Value Ratios of the Group I Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Current Loan-to-Value Ratio (%) of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C>
0.01 - 5.00 1 $ 40,000 0.03%
10.01 - 15.00 2 1,185,034 1.00
15.01 - 20.00 3 2,344,395 1.97
20.01 - 25.00 2 1,299,000 1.09
25.01 - 30.00 5 3,513,352 2.96
30.01 - 35.00 3 3,294,777 2.77
35.01 - 40.00 11 9,257,218 7.80
40.01 - 45.00 5 4,906,052 4.13
45.01 - 50.00 16 11,118,377 9.36
50.01 - 55.00 9 13,023,605 10.97
55.01 - 60.00 11 13,699,938 11.54
60.01 - 65.00 16 12,936,300 10.89
65.01 - 70.00 19 14,473,859 12.19
70.01 - 75.00 13 7,395,903 6.23
75.01 - 80.00 31 20,266,543 17.07
------------------ ------------------------ ------------------------
Total.......................... 147 $118,754,353 100.00%
================== ======================== ========================
</TABLE>
The weighted average current Loan-to-Value Ratio of the Group I Mortgage
Loans as of the Cut-Off Date was approximately 57.60%.
S-21
<PAGE>
Geographic Distribution of the Group I Mortgaged Properties
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
State of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C>
California 118 $ 98,467,105 82.92%
Colorado 3 3,409,959 2.87
Connecticut 2 3,096,028 2.61
Florida 1 449,192 0.38
Hawaii 2 760,000 0.64
Massachusetts 1 2,000,000 1.68
Nevada 1 700,000 0.59
New York 16 8,025,118 6.76
Texas 1 646,951 0.54
Utah 1 700,000 0.59
Wyoming 1 500,000 0.42
------------------ ------------------------ ------------------------
Total................................. 147 $118,754,353 100.00%
================== ======================== ========================
</TABLE>
The greatest five-digit ZIP Code geographic concentration of Group I
Mortgage Loans, by Principal Balance as of the Cut-Off Date, was
approximately 8.91% in the 94109 ZIP Code.
S-22
<PAGE>
Loan Rates of the Group I Mortgage Loans as of the Cut-Off Date
<TABLE>
<CAPTION>
% of Aggregate
Number Principal Balance Principal Balance
of Mortgage Outstanding as of Outstanding as of
Loan Rate (%) Loans the Cut-Off Date the Cut-Off Date
- ------------------------------------- ----------------- --------------------------- -------------------------
<S> <C> <C> <C>
5.100 - 5.250............. 1 $ 1,094,777 0.92%
5.251 - 5.500............. 2 844,716 0.71
5.501 - 5.750............. 2 2,112,495 1.78
5.751 - 6.000............. 3 2,773,676 2.34
6.001 - 6.250............. 2 1,134,396 0.96
6.251 - 6.500............. 5 3,442,916 2.90
6.501 - 6.750............. 4 3,145,220 2.65
6.751 - 7.000............. 4 2,677,284 2.25
7.001 - 7.250............. 5 2,282,824 1.92
7.251 - 7.500............. 20 18,628,247 15.69
7.501 - 7.750............. 25 21,945,832 18.48
7.751 - 8.000............. 27 17,678,246 14.89
8.001 - 8.250............. 19 16,032,318 13.50
8.251 - 8.500............. 10 9,491,302 7.99
8.501 - 8.750............. 6 3,692,768 3.11
8.751 - 9.000............. 8 7,287,760 6.14
9.001 - 9.250............. 2 1,103,434 0.93
9.251 - 9.500............. 1 2,286,142 1.93
9.501 - 9.750............. 1 1,100,000 0.93
----------------- --------------------------- -------------------------
Total............ 147 $118,754,353 100.00%
================= =========================== =========================
</TABLE>
The weighted average Loan Rate of the Group I Mortgage Loans as of the
Cut-Off Date was approximately 7.774% per year.
S-23
<PAGE>
Maximum Loan Rates of the Group I Mortgage Loans(1)
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Maximum Loan Rate (%) Mortgage Loans Cut-Off Date Cut-Off Date
--------------------- -------------- --------------------- ---------------------
<S> <C> <C> <C>
10.001 - 10.250............. 1 $ 510,885 0.43%
10.251 - 10.500............. 2 1,226,491 1.03
10.501 - 10.750............. 5 4,958,471 4.18
10.751 - 11.000............. 14 10,297,885 8.67
11.001 - 11.250............. 1 1,750,000 1.47
11.251 - 11.500............. 7 4,414,285 3.72
11.501 - 11.750............. 1 1,100,000 0.93
11.751 - 12.000............. 99 79,795,788 67.19
12.251 - 12.500............. 5 4,062,582 3.42
12.751 - 13.000............. 8 6,118,666 5.15
13.251 - 13.500............. 1 419,300 0.35
14.751 - 15.000............. 1 2,000,000 1.68
17.751 - 18.000............. 2 2,100,000 1.77
----------------- --------------------------- -------------------------
Total....................... 147 $118,754,353 100.00%
================= =========================== =========================
</TABLE>
- --------
(1) The weighted average Maximum Loan Rate of the Group I Mortgage Loans
as of the Cut-Off Date was approximately 11.991%.
S-24
<PAGE>
Gross Margins of the Group I Mortgage Loans(1)
<TABLE>
<CAPTION>
% of Aggregate
Number of Principal Balance Principal Balance
Mortgage Outstanding as of Outstanding as of the
Gross Margins (%) Loans The Cut-Off Date Cut-Off Date
----------------- --------- ----------------- ---------------------
<S> <C> <C> <C>
Less than or
equal to 0.000................. 6 $ 8,302,385 6.99%
0.001 - 0.250................. 2 3,000,000 2.53
0.251 - 0.500................. 1 918,031 0.77
0.751 - 1.000................. 2 1,850,000 1.56
1.001 - 1.250................. 5 4,862,771 4.09
1.251 - 1.500................. 37 36,494,809 30.73
1.501 - 1.750................. 26 18,111,114 15.25
1.751 - 2.000................. 21 15,068,000 12.69
2.001 - 2.250................. 5 6,326,273 5.33
2.251 - 2.500................. 10 4,539,935 3.82
2.501 - 2.750................. 24 14,252,587 12.00
2.751 - 3.000................. 7 2,742,306 2.31
3.001 - 3.250................. 1 2,286,142 1.93
------------------- ---------------------------- -------------------------
Total........................ 147 $118,754,353 100.00%
=================== ============================ =========================
</TABLE>
- --------
(1) The weighted average Gross Margin of the Group I Mortgage Loans as of
the Cut-Off Date was approximately 1.657%.
S-25
<PAGE>
Next Adjustment Date for the Group I Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Outstanding as of the Balance Outstanding as of
Next Adjustment Date Number of Mortgage Loans Cut-Off Date the Cut-Off Date
-------------------- ------------------------ --------------------- -------------------------
<S> <C> <C> <C>
May 2000.................. 37 $ 34,260,264 28.85%
June 2000................. 14 14,302,030 12.04
July 2000................. 23 20,309,585 17.10
August 2000............... 21 14,801,623 12.46
September 2000............ 11 8,639,267 7.27
October 2000.............. 19 13,789,298 11.61
November 2000............. 3 1,104,744 0.93
December 2000............. 3 669,258 0.56
January 2001.............. 3 1,966,980 1.66
Febuary 2001.............. 5 3,391,533 2.86
March 2001................ 4 2,392,951 2.02
April 2001................ 4 3,126,820 2.63
------------------- ---------------------------- -------------------------
Total................. 147 $118,754,353 100.00%
=================== ============================ =========================
Indices of the Group I Mortgage Loans(1)
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Index Loans Cut-Off Date the Cut-Off Date
----- ------------------ --------------------- -------------------------
<S> <C> <C> <C>
Six Month LIBOR 86 $ 72,827,239 61.33%
One Year CMT 42 23,979,927 20.19
Prime Rate 10 13,320,416 11.22
1 Month LIBOR 9 8,626,771 7.26
------------------- ---------------------------- -------------------------
Total................. 147 $118,754,353 100.00%
=================== ============================ =========================
</TABLE>
- ------------
(1) Each of these Indices are described under "--The Index."
S-26
<PAGE>
Periodic Rate Caps of the Group I Mortgage Loans
<TABLE>
<CAPTION>
Number of Principal Balance % of Aggregate Principal
Mortgage Outstanding as of Balance Outstanding as of
Periodic Rate Cap Loans the Cut-Off Date the Cut-Off Date
----------------- --------- ----------------- -------------------------
<S> <C> <C> <C>
No Periodic Rate Cap 71 $ 67,823,089 57.11%
2% Annual Cap(1) 40 23,062,033 19.42
2% Annual Cap(2) 36 27,869,231 23.47
- ---------------- --------- ----------------- -------------------------
Total.................... 147 $118,754,353 100.00%
========= ================= =========================
</TABLE>
- ------------
(1) The Loan Rates on these Mortgage Loans adjust annually, but are subject to
a maximum adjustment of 2% per annum on each Adjustment Date.
(2) The Loan Rates on these Mortgage Loans adjust semi-annually and permit up
to the maximum 2% per annum adjustment to occur on any Adjustment Date
within each 12-month period beginning with the date of origination and each
anniversary thereafter.
Rate Adjustment Frequencies of the Group I Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Rate Adjustment Frequency Loans Cut-Off Date the Cut-Off Date
- ---------------------------------- ---------------------- -------------------------- ----------------------------
<S> <C> <C> <C>
Monthly 16 $ 18,994,802 16.00%
Semi-annually 90 76,278,218 64.23
Annually 41 23,481,333 19.77
Total...................... 147 $118,754,353 100.00%
====================== ========================== ============================
</TABLE>
S-27
<PAGE>
FICO Scores of the Group I Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
FICO Score Loans Cut-Off Date the Cut-Off Date
- ---------------------------------- ---------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Not Available 3 $ 5,386,142 4.54%
551 - 600 2 1,598,087 1.35
601 - 650 2 708,650 0.60
651 - 700 31 29,920,209 25.20
701 - 750 44 27,965,232 23.55
751 - 800 65 53,176,033 44.78
---------------------- -------------------------- ---------------------------
Total...................... 147 $118,754,353 100.00%
====================== ========================== ===========================
</TABLE>
The weighted average FICO score of the Group I Mortgage Loans as of the
Cut-Off Date was approximately 733.
Prepayment Penalty Types of the Group I Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Prepayment Penalty Loans Cut-Off Date the Cut-Off Date
- ---------------------------------- ---------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
With Penalty 105 $ 89,777,647 75.60%
No penalty 42 28,976,706 24.40
---------------------- -------------------------- ---------------------------
Total...................... 147 $118,754,353 100.00%
====================== ========================== ===========================
</TABLE>
Amortization Types of the Group I Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Amortization Type Loans Cut-Off Date the Cut-Off Date
- ---------------------------------- ---------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Interest Only 85 $ 80,970,116 68.18%
Fully Amortizing 62 37,784,237 31.82
---------------------- -------------------------- ---------------------------
Total...................... 147 $118,754,353 100.00%
====================== ========================== ===========================
</TABLE>
S-28
<PAGE>
Group II Mortgage Loan Statistics
The following statistical information, unless otherwise
specified, is based upon the aggregate Principal Balance of the Group
II Mortgage Loans as of the Cut-Off Date.
Each Group II Mortgage Loan is secured by a Mortgage creating a first
lien on a Mortgaged Property. Approximately 1.19% of the Group II Mortgage Loans
had Loan-to-Value Ratios at origination in excess of 80.00%. Approximately 2.62%
of the Group II Mortgage Loans had current Loan-to-Value Ratios greater than
80.00%. Two Group II Mortgage Loans, representing approximately 1.36% of the
aggregate Principal Balance of the Group II Mortgage Loans, are secured by
Additional Collateral.
All of the Group II Mortgage Loans have their Due Date on the first day
of the month.
The Group II Mortgage Loans have original terms to stated maturity of
not less than 240 and not more than 360 months with a weighted average original
term to stated maturity of approximately 360 months. The weighted average
remaining term to stated maturity of the Group II Mortgage Loans was
approximately 344 months as of the Cut-Off Date. None of the Group II Mortgage
Loans had a first Due Date prior to October 1, 1994 or after April 1, 2000 or
had a remaining term to stated maturity of less than 212 months or greater than
359 months as of the Cut-Off Date. The latest maturity date of any Group II
Mortgage Loan is March 1, 2030.
The average Principal Balance of the Group II Mortgage Loans at
origination was approximately $890,308. As of the Cut-Off Date, the average
Principal Balance of the Group II Mortgage Loans was approximately $861,155.
No Group II Mortgage Loan had a Principal Balance of greater than
$3,000,000 or less than $74,901 as of the Cut-Off Date.
Subject to the limitations described below, each Group II Mortgage Loan
provides for adjustment, on a monthly or semi-annual basis, to the Loan Rate
thereon and, except for Negative Amortization Loans as described below, for
corresponding adjustments to the monthly payment amount due thereon, in each
case on each Adjustment Date applicable thereto.
o Interest Only Loans: Approximately 58.23% of the Group II Mortgage
Loans provide that for an Interest Only Period ranging from 1 to 120
months after origination, the required monthly payments are limited to
accrued interest. At the end of each Interest Only Period for a
Mortgage Loan, the monthly payments are recalculated to provide for
amortization of the principal balance by the maturity date and payment
of interest at the then-current Loan Rate.
o Limits on Loan Rate Adjustments. On each Adjustment Date for each Group
II Mortgage Loan, the Loan Rate thereon will be adjusted to equal the
sum, generally rounded up to the nearest multiple of 0.125%, of the
Index and the Gross Margin. The Group II Mortgage Loans adjust
according to the COFI Index as discussed under "--The Index" herein.
For approximately 0.69% of the Group II Mortgage Loans, the Loan Rate
on each such Mortgage Loan adjusts semi-annually, but is subject to a
Periodic Rate Cap of 1% per annum on each Adjustment Date.
Approximately 5.24% of the Group II Mortgage Loans have semi-annual
Adjustment Dates and permit up to the maximum 2% per annum adjustment
to occur on any
S-29
<PAGE>
Adjustment Date within each 12-month period beginning with the date of
origination and each anniversary thereafter. Approximately 94.07% of
the Group II Mortgage Loans do not have Periodic Rate Caps. The Loan
Rate on each Group II Mortgage Loan will not exceed a specified Maximum
Loan Rate over the life of such Group II Mortgage Loan. None of the
Group II Mortgage Loans has a specified Minimum Loan Rate over its
life. Except with respect to the Negative Amortization Loans as
discussed below, effective with the first monthly payment due on each
Group II Mortgage Loan after each related Adjustment Date (occurring
after any applicable Interest Only Period), the monthly payment amount
will be adjusted to an amount that will amortize fully the outstanding
Principal Balance of the related Mortgage Loan over its remaining term,
and pay interest at the Loan Rate as so adjusted. Due to the
application of the Periodic Rate Caps and the Maximum Loan Rates, the
Loan Rate on each such Mortgage Loan, as adjusted on any related
Adjustment Date, may be less than the sum of the Index and the related
Gross Margin, rounded as described herein. See "--The Index" herein.
None of the Group II Mortgage Loans permits the related Mortgagor to
convert the adjustable Loan Rate thereon to a fixed Loan Rate.
With respect to approximately 33.53% of the Group II Mortgage Loans
(the "Negative Amortization Loans"), the Loan Rate adjusts monthly but the
monthly payment amount only adjusts annually (except in the event that Maximum
Balance (defined below) would be exceeded, as described below). To the extent
the amount of interest accruing on a Negative Amortization Loan exceeds the
fixed monthly payment ("Deferred Interest"), the Principal Balance of such loan
is increased by the amount of the Deferred Interest, resulting in negative
amortization. In addition, the annual adjustment to the monthly payment is
subject to a payment cap (the "Payment Cap") which limits any increase or
decrease in the monthly payment to no more than 7.50% of the monthly payment due
prior to the adjustment. Because the Loan Rate is subject only to the Maximum
Loan Rate, the Payment Cap can result in negative amortization continuing to
occur even after the annual monthly payment adjustment. The Negative
Amortization Loans have provisions to limit the amount of negative amortization.
First, the Payment Cap is not in effect on the fifth anniversary of the date on
which the first monthly payment was due or on each five-year anniversary
thereafter. Additionally, if as a result of negative amortization, the Principal
Balance of a Negative Amortization Loan equals or exceeds a percentage of the
original Principal Balance between 101% and 110% as specified at the time of
origination (the "Maximum Balance"), the monthly payment will be adjusted on the
immediately succeeding Due Date without regard to the Payment Cap to an amount
that will fully amortize the outstanding Principal Balance of the related
Mortgage Loan over its remaining term at the applicable Loan Rate.
The Group II Mortgage Loans had Loan Rates as of the Cut-Off Date of
not less than 5.700% per annum and not more than 7.875% per annum and the
weighted average Loan Rate was approximately 7.303% per annum. As of the Cut-Off
Date, the Group II Mortgage Loans had Gross Margins ranging from 1.750% to
2.950%, and Maximum Loan Rates ranging from 8.500% per annum to 12.950% per
annum. As of the Cut-Off Date, the weighted average Gross Margin was
approximately 2.353%, and the weighted average Maximum Loan Rate was
approximately 10.409% per annum. The latest next Adjustment Date following the
Cut-Off Date on any Group II Mortgage Loan occurs on October 1, 2000 and the
weighted average next Adjustment Date for all of the Group II Mortgage Loans
following the Cut-Off Date is May 1, 2000.
The Group II Mortgage Loans are expected to have the following
characteristics as of the Cut-Off Date (the sum in any column may not equal the
total indicated due to rounding):
S-30
<PAGE>
Principal Balances of the Group II Mortgage Loans as of the Cut-Off Date
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of
Principal Balance ($) Mortgage Loans Cut-Off Date the Cut-Off Date
------------------------------------------ --------------- ------------------------ -------------------------
<S> <C> <C> <C>
74,901 - 100,000 2 $ 172,222 0.10%
100,001 - 200,000 7 1,087,704 0.63
200,001 - 300,000 15 3,906,070 2.27
300,001 - 400,000 16 5,687,686 3.30
400,001 - 500,000 21 9,440,001 5.48
500,001 - 600,000 14 7,867,955 4.57
600,001 - 700,000 19 12,245,018 7.11
700,001 - 800,000 17 12,831,850 7.45
800,001 - 900,000 9 7,883,898 4.58
900,001 - 1,000,000 21 20,626,871 11.98
1,000,001 - 1,100,000 12 12,918,061 7.50
1,100,001 - 1,200,000 7 8,209,172 4.77
1,200,001 - 1,300,000 5 6,369,782 3.70
1,300,001 - 1,400,000 6 8,133,247 4.72
1,400,001 - 1,500,000 4 5,888,065 3.42
1,500,001 - 1,600,000 6 9,360,918 5.44
1,600,001 - 1,700,000 3 5,025,836 2.92
1,800,001 - 1,900,000 1 1,882,956 1.09
1,900,001 - 2,000,000 7 13,789,172 8.01
2,000,001 - 2,100,000 3 6,133,388 3.56
2,100,001 - 2,200,000 1 2,102,868 1.22
2,400,001 - 2,500,000 2 4,850,135 2.82
2,800,001 - 2,900,000 1 2,818,209 1.64
2,900,001 - 3,000,000 1 3,000,000 1.74
--------------- ------------------------ -------------------------
Total................................. 200 $172,231,084 100.00%
=============== ======================== =========================
</TABLE>
The average Principal Balance of the Group II Mortgage Loans as of the
Cut-Off Date was approximately $861,155.
S-31
<PAGE>
Remaining Terms to Stated Maturity of the Group II Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Remaining Term (months) of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------- ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
212 - 216 1 $ 219,631 0.13%
289 - 300 1 980,000 0.57
301 - 312 2 1,889,360 1.10
313 - 324 4 2,669,287 1.55
325 - 336 49 41,845,875 24.30
337 - 348 49 36,346,561 21.10
349 - 359 94 88,280,370 51.26
------------------- ------------------------ --------------------------
Total...................... 200 $172,231,084 100.00%
=================== ======================== ==========================
</TABLE>
The weighted average remaining term to stated maturity of the Group II
Mortgage Loans as of the Cut-Off Date was approximately 344 months.
Property Types of the Group II Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Number Principal Balance Principal Balance
of Mortgage Outstanding as of Outstanding as of
Property Type Loans the Cut-Off Date the Cut-Off Date
- ------------------------------- --------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Single Family 149 $140,379,356 81.51%
Condominium 24 14,425,986 8.38
2-4 Units 12 7,722,586 4.48
PUD 6 6,025,690 3.50
Cooperative 9 3,677,466 2.14
--------------------- ------------------------ -------------------------
Total...................... 200 $172,231,084 100.00%
===================== ======================== =========================
</TABLE>
S-32
<PAGE>
Stated Occupancy Status of the Group II Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Stated Occupancy Status(1) of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Primary 165 $147,984,847 85.92%
Non-owner 18 8,895,305 5.16
Second Home 17 15,350,932 8.91
------------------- ------------------------ -------------------------
Total...................... 200 $172,231,084 100.00%
=================== ======================== =========================
</TABLE>
- ----------
(1) Occupancy as represented by the Mortgagor at the time of origination.
Purposes of the Group II Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Number Principal Balance Principal Balance
of Mortgage Outstanding as of Outstanding as of the
Purpose Loans the Cut-Off Date Cut-Off Date
---------- ----------- ----------------- ---------------------
<S> <C> <C> <C>
Purchase 167 $151,742,207 88.10%
Cash Out Refinance 27 17,702,709 10.28
Rate/Term Refinance 6 2,786,168 1.62
------------------- ------------------------ -------------------------
Total...................... 200 $172,231,084 100.00%
=================== ======================== =========================
</TABLE>
S-33
<PAGE>
Original Loan-to-Value Ratios of the Group II Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Original Loan-to-Value Ratio (%) of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C>
16.50 - 20.00 2 $ 1,145,677 0.67%
30.01 - 35.00 6 3,305,816 1.92
35.01 - 40.00 9 8,573,009 4.98
40.01 - 45.00 5 4,537,816 2.63
45.01 - 50.00 4 4,210,535 2.44
50.01 - 55.00 11 8,923,127 5.18
55.01 - 60.00 18 14,110,648 8.19
60.01 - 65.00 16 18,243,589 10.59
65.01 - 70.00 24 24,297,239 14.11
70.01 - 75.00 33 32,386,602 18.80
75.01 - 80.00 69 50,453,344 29.29
80.01 - 85.00 1 668,000 0.39
85.01 - 90.00 1 418,500 0.24
90.01 - 98.20 1 957,182 0.56
------------------ ------------------------ ------------------------
Total.................................. 200 $172,231,084 100.00%
================== ======================== ========================
</TABLE>
The weighted average original Loan-to-Value Ratio of the Group II Mortgage Loans
as of the Cut-Off Date was approximately 67.20%.
S-34
<PAGE>
Current Loan-to-Value Ratios of the Group II Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Current Loan-to-Value Ratio (%) of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C>
16.48 - 20.00 3 $ 2,245,677 1.30%
20.01 - 25.00 1 419,505 0.24
25.01 - 30.00 1 900,000 0.52
30.01 - 35.00 7 3,753,675 2.18
35.01 - 40.00 12 9,926,231 5.76
40.01 - 45.00 4 3,934,818 2.28
45.01 - 50.00 8 8,220,559 4.77
50.01 - 55.00 10 8,996,298 5.22
55.01 - 60.00 19 14,783,186 8.58
60.01 - 65.00 13 16,335,474 9.48
65.01 - 70.00 23 21,984,278 12.76
70.01 - 75.00 31 30,579,401 17.75
75.01 - 80.00 64 45,640,338 26.50
80.01 - 85.00 3 4,093,144 2.38
85.01 - 89.61 1 418,500 0.24
------------------ ------------------------ ------------------------
Total.................................. 200 $172,231,084 100.00%
================== ======================== ========================
</TABLE>
The weighted average current Loan-to-Value Ratio of the Group II Mortgage
Loans as of the Cut-Off Date was approximately 65.20%.
S-35
<PAGE>
Geographic Distribution of the Group II Mortgaged Properties
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
State of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C>
California 188 $161,176,444 93.58%
Colorado 2 3,376,066 1.96
Florida 1 991,078 0.58
Hawaii 1 110,535 0.06
Idaho 1 739,483 0.43
Illinois 1 2,000,000 1.16
New York 3 1,401,151 0.81
Oregon 1 236,327 0.14
Texas 1 1,600,000 0.93
Washington 1 600,000 0.35
------------------ ------------------------ ------------------------
Total.............................. 200 $172,231,084 100.00%
================== ======================== ========================
</TABLE>
The greatest five-digit ZIP Code geographic concentration of Group II
Mortgage Loans, by Principal Balance as of the Cut-Off Date, was
approximately 5.74% in the 94920 ZIP Code.
Loan Rates of the Group II Mortgage Loans as of the Cut-Off Date
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Loan Rate (%) of Mortgage Loans the Cut-Off Date the Cut-Off Date
- ------------------------------- ------------------- ------------------------ --------------------------
<S> <C> <C> <C>
5.700 - 5.750 1 $ 600,000 0.35%
5.751 - 6.000 2 1,474,400 0.86
6.251 - 6.500 2 914,000 0.53
6.501 - 6.750 8 4,791,764 2.78
6.751 - 7.000 32 27,363,892 15.89
7.001 - 7.250 47 42,711,780 24.80
7.251 - 7.500 57 51,968,005 30.17
7.501 - 7.750 46 37,721,661 21.90
7.751 - 7.875 5 4,685,582 2.72
--------------------------
------------------- ------------------------
Total.................. 200 $172,231,084 100.00%
=================== ======================== ==========================
</TABLE>
The weighted average Loan Rate of the Group II Mortgage Loans as of the
Cut-Off Date was approximately 7.303% per year.
S-36
<PAGE>
Maximum Loan Rates of the Group II Mortgage Loans(1)
<TABLE>
<CAPTION>
Number of Principal Balance % of Aggregate Principal
Mortgage Outstanding as of the Balance Outstanding as of
Maximum Loan Rate (%) Loans Cut-Off Date the Cut-Off Date
--------------------- --------- --------------------- -------------------------
<S> <C> <C> <C>
8.251 - 8.500 1 $ 928,000 0.54%
8.751 - 9.000 16 12,617,593 7.33
9.751 - 10.000 99 88,160,341 51.19
10.001 - 10.250 1 800,000 0.46
10.251 - 10.500 3 3,092,254 1.80
10.751 - 11.000 32 28,764,410 16.70
11.251 - 11.500 38 29,813,751 17.31
11.751 - 12.000 7 5,619,732 3.26
12.751 - 12.950 3 2,435,003 1.41
------------ ------------------- ---------------
Total........................ 200 $172,231,084 100.00%
============ =================== ===============
</TABLE>
- --------
(1) The weighted average Maximum Loan Rate of the Group II Mortgage Loans
as of the Cut-Off Date was approximately 10.409%.
S-37
<PAGE>
Gross Margins of the Group II Mortgage Loans(1)
<TABLE>
<CAPTION>
% of Aggregate
Number of Principal Balance Principal Balance Outstanding
Mortgage Outstanding as of as of
Gross Margins (%) Loans the Cut-Off Date the Cut-Off Date
----------------- --------- ----------------- -----------------------------
<S> <C> <C> <C>
1.501 - 1.750 6 $ 3,903,487 2.27%
1.751 - 2.000 29 25,180,659 14.62
2.001 - 2.250 48 40,893,625 23.74
2.251 - 2.500 50 50,307,978 29.21
2.501 - 2.750 54 43,953,797 25.52
2.751 - 2.950 13 7,991,538 4.64
------------ ------------------- ---------------
Total............................ 200 $172,231,084 100.00%
============ =================== ===============
</TABLE>
- --------
(1) The weighted average Gross Margin of the Group II Mortgage Loans as of
the Cut-Off Date was approximately 2.353%.
S-38
<PAGE>
Next Adjustment Date for the Group II Mortgage Loans
<TABLE>
<CAPTION>
Number of Principal Balance % of Aggregate Principal
Mortgage Outstanding as of the Balance Outstanding as of
Next Adjustment Date Loans Cut-Off Date the Cut-Off Date
-------------------- --------- --------------------- -------------------------
<S> <C> <C> <C>
May 2000................. 179 $159,139,033 92.40%
June 2000................ 6 2,239,456 1.30
July 2000................ 3 578,411 0.34
August 2000.............. 3 2,161,688 1.26
September 2000........... 6 6,379,118 3.70
October 2000............. 3 1,733,378 1.01
------------ ------------------- ---------------
Total................. 200 $172,231,084 100.00%
============ =================== ===============
</TABLE>
Periodic Rate Caps of the Group II Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Periodic Rate Cap Loans Cut-Off Date the Cut-Off Date
- ------------------------------------- ---------------------- --------------------------- -----------------------------
<S> <C> <C> <C>
No Periodic Rate Cap 184 $162,022,814 94.07%
1% Semi-Annual Cap(1) 2 1,180,634 0.69
2% Annual Cap(2) 14 9,027,636 5.24
------------ ------------------- ---------------
Total...................... 200 $172,231,084 100.00%
============ =================== ===============
</TABLE>
- ------------
(1) The Loan Rates on these Mortgage Loans adjust semi-annually and are subject
to a maximum adjustment of 1% per annum on each Adjustment Date.
(2) The Loan Rates on these Mortgage Loans adjust semi-annually and permit up
to the maximum 2% per annum adjustment to occur on any Adjustment Date
within each 12-month period beginning with the date of origination and each
anniversary thereafter.
S-39
<PAGE>
Rate Adjustment Frequencies of the Group II Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Rate Adjustment Frequency Loans Cut-Off Date the Cut-Off Date
- ------------------------------------- --------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
Monthly 183 $161,398,414 93.71%
Semi-annually 17 10,832,670 6.29
--------------------- --------------------------- ----------------------------
Total...................... 200 $172,231,084 100.00%
===================== =========================== ============================
</TABLE>
FICO Scores of the Group II Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
FICO Score Loans Cut-Off Date the Cut-Off Date
- ------------------------------------- --------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
655 - 700 43 $ 34,071,093 19.78%
701 - 750 76 74,705,153 43.37
751 - 800 76 61,274,359 35.58
801 - 813 5 2,180,479 1.27
--------------------- --------------------------- ----------------------------
Total...................... 200 $172,231,084 100.00%
===================== =========================== ============================
</TABLE>
Prepayment Penalty Types of the Group II Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Prepayment Penalty Loans Cut-Off Date the Cut-Off Date
- ------------------------------------- --------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
With Penalty 158 $139,707,738 81.12%
No Penalty 42 32,523,346 18.88
--------------------- --------------------------- ----------------------------
Total...................... 200 $172,231,084 100.00%
===================== =========================== ============================
</TABLE>
S-40
<PAGE>
Amortization Types of the Group II Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Amortization Types Loans Cut-Off Date the Cut-Off Date
- ------------------------------------- --------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
Interest Only 111 $100,283,589 58.23%
Fully Amortizing 89 71,947,495 41.77
--------------------- -------------------------- ----------------------------
Total...................... 200 $172,231,084 100.00%
===================== =========================== ============================
</TABLE>
Negative Amortization Feature of the Group II Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Negative Amortization Loans Cut-Off Date the Cut-Off Date
- ------------------------------------- --------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
No Negative Amortization 142 $114,485,909 66.47%
Negative Amortization 58 57,745,175 33.53
Total...................... 200 $172,231,084 100.00%
===================== =========================== ============================
</TABLE>
Negative Amortization Limits of the Group II Mortgage Loans
<TABLE>
<CAPTION>
Principal Balance % of Aggregate Principal
Number of Mortgage Outstanding as of the Balance Outstanding as of
Negative Amortization Limit (%) Loans Cut-Off Date the Cut-Off Date
- ------------------------------------- --------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
No Negative Amortization 142 $114,485,909 66.47%
101 11 8,425,203 4.89
102 4 3,009,488 1.75
105 2 2,702,747 1.57
110 41 43,607,737 25.32
--------------------- --------------------------- ----------------------------
Total...................... 200 $172,231,084 100.00%
===================== =========================== ============================
</TABLE>
S-41
<PAGE>
The Index
With respect to approximately 20.19% of the Group I Mortgage Loans, the
Index 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 ("One Year CMT"); with respect to approximately 61.33% of
the Group I Mortgage Loans, the Index is the average of interbank offered rates
for six-month U.S. dollar deposits in the London market based on quotations of
major banks, and most recently available as of a day and pursuant to a
calculation as specified in the related mortgage note ("Six Month LIBOR"); with
respect to approximately 7.26% of the Group I Mortgage Loans, the Index is the
average of interbank offered rates for one-month U.S. dollar deposits in the
London market based on quotations of major banks, and most recently available as
of a day and pursuant to a calculation as specified in the related mortgage note
("1 Month LIBOR"); and with respect to approximately 11.22% of the Group I
Mortgage Loans, the Index is the rate identified by Bank of America National
Trust and Savings Association as its "Prime Rate", and most recently available
as of a day specified in the related mortgage note ("Prime Rate").
The Index for all of the Group II Mortgage Loans is COFI.
Listed below are some historical values for the months indicated for
the One Year CMT, 1 Month LIBOR, Six Month LIBOR, Prime Rate and COFI indices.
S-42
<PAGE>
One Year CMT
<TABLE>
<CAPTION>
Year
-------------------------------------------------------------------------
Month 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
January.................................. 6.12 4.51 5.24 5.61 5.09 7.05 3.54
February................................. 6.22 4.70 5.31 5.53 4.94 6.70 3.87
March.................................... 6.22 4.78 5.39 5.80 5.34 6.43 4.32
April.................................... 4.69 5.38 5.99 5.54 6.27 4.82
May...................................... 4.85 5.44 5.87 5.64 6.00 5.31
June..................................... 5.10 5.41 5.69 5.81 5.64 5.27
July..................................... 5.03 5.36 5.54 5.85 5.59 5.48
August................................... 5.20 5.21 5.56 5.67 5.75 5.56
September................................ 5.25 4.71 5.52 5.83 5.62 5.76
October.................................. 5.43 4.12 5.46 5.55 5.59 6.11
November................................. 5.55 4.53 5.46 5.42 5.43 6.54
December................................. 5.84 4.52 5.53 5.47 5.31 7.14
1 Month LIBOR
<CAPTION>
Year
------------------------------------------------------------------------
Month 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
January.................................. 5.89 4.94 5.60 5.44 5.44 6.09 3.13
February................................. 5.92 4.96 5.69 5.44 5.31 6.13 3.56
March.................................... 6.13 4.94 5.69 5.69 5.44 6.13 3.69
April.................................... 4.90 5.66 5.69 5.44 6.06 4.00
May...................................... 4.94 5.66 5.69 5.44 6.06 4.38
June..................................... 5.24 5.66 5.69 5.50 6.13 4.56
July..................................... 5.19 5.66 5.63 5.46 5.88 4.50
August................................... 5.38 5.64 5.66 5.44 5.88 4.88
September................................ 5.40 5.38 5.66 5.43 5.88 5.06
October.................................. 5.41 5.24 5.65 5.38 5.83 5.06
November................................. 6.48 5.62 5.97 5.56 5.98 6.06
December................................. 5.82 5.06 5.72 5.50 5.69 6.00
Six Month LIBOR
<CAPTION>
Year
------------------------------------------------------------------------
Month 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
January.................................. 6.29 4.97 5.63 5.69 5.27 6.69 3.38
February................................. 6.33 5.13 5.70 5.69 5.30 6.44 4.00
March.................................... 6.53 5.06 5.75 5.94 5.50 6.50 4.25
April.................................... 5.04 5.81 6.00 5.56 6.38 4.69
May...................................... 5.25 5.75 6.00 5.63 6.00 5.00
June..................................... 5.65 5.78 5.91 5.79 6.00 5.25
July..................................... 5.71 5.75 5.80 5.88 5.88 5.31
August................................... 5.92 5.59 5.84 5.77 5.91 5.31
September................................ 5.96 5.25 5.84 5.73 5.95 5.75
October.................................. 6.12 4.98 5.79 5.57 5.88 5.94
November................................. 6.06 5.15 5.91 5.54 5.69 6.56
December................................. 6.13 5.07 5.84 5.60 5.51 7.00
</TABLE>
S-43
<PAGE>
Prime Rate
<TABLE>
<CAPTION>
Year
------------------------------------------------------------------------
Month 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
January.................................. 8.50 7.75 8.50 8.25 8.50 8.50 6.00
February................................. 8.75 7.75 8.50 8.25 8.25 9.00 6.00
March.................................... 9.00 7.75 8.50 8.50 8.25 9.00 6.25
April.................................... 7.75 8.50 8.50 8.25 9.00 6.75
May...................................... 7.75 8.50 8.50 8.25 9.00 7.25
June..................................... 7.75 8.50 8.50 8.25 9.00 7.25
July..................................... 8.00 8.50 8.50 8.25 8.75 7.25
August................................... 8.25 8.50 8.50 8.25 8.75 7.75
September................................ 8.25 8.25 8.50 8.25 8.75 7.75
October.................................. 8.25 8.00 8.50 8.25 8.75 7.75
November................................. 8.50 7.75 8.50 8.25 8.75 8.50
December................................. 8.50 7.75 8.50 8.25 8.50 8.50
COFI
<CAPTION>
Year
------------------------------------------------------------------------
Month 2000 1999 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
January.................................. 4.90 4.61 4.99 4.82 5.03 4.75 3.71
February................................. 4.97 4.56 4.97 4.76 4.98 4.93 3.69
March.................................... 4.52 4.92 4.78 4.87 5.01 3.63
April.................................... 4.49 4.90 4.82 4.84 5.06 3.67
May...................................... 4.48 4.88 4.86 4.82 5.14 3.73
June..................................... 4.50 4.88 4.85 4.81 5.18 3.80
July..................................... 4.50 4.91 4.89 4.82 5.14 3.86
August................................... 4.56 4.90 4.90 4.84 5.13 3.95
September................................ 4.61 4.88 4.94 4.83 5.11 4.04
October.................................. 4.67 4.76 4.96 4.84 5.12 4.19
November................................. 4.77 4.69 4.95 4.84 5.12 4.37
December................................. 4.85 4.66 4.96 4.84 5.06 4.59
</TABLE>
If any Index becomes unpublished or is otherwise unavailable, the
Servicer will select an alternative index which is based upon comparable
information.
S-44
<PAGE>
The Seller and Servicer
General
First Republic Bank ("First Republic Bank" or the "Seller") is a
commercial bank, specializing in real estate lending, private banking and
investment management. The Seller is engaged in the business of originating
non-conforming residential mortgage loans. Its executive offices are located at
One Eleven Pine Street, San Francisco, California, 94111. The Seller originates
mortgage loans through regional offices in San Francisco, Silicon Valley, Los
Angeles, San Diego and New York. Certain functions, such as final credit
approval, loan servicing and loan closing, are centralized.
During the years ended December 31, 1996, December 31, 1997, December
31, 1998, and December 31, 1999, the Seller originated one-to-four family
residential first mortgage loans having aggregate principal balances of
approximately $644 million, $799 million, $1,126 million and $1,150 million,
respectively.
Underwriting Standards
The Seller's mortgage origination business is a retail lending
operation. The Mortgage Loans were originated by loan officers employed by the
Seller generally in accordance with the underwriting criteria described herein.
Although the underwriting policies used in originating the Mortgage Loans change
from time to time, the policies described herein generally apply to the Mortgage
Loans in all material respects.
The Seller focuses on originating loans secured by residential mortgage
loans, located in specific geographic areas, where the Seller has relationships
with clients. The Seller's loans are of sufficient average size to justify
executive management's involvement in most transactions. The Seller's Executive
Loan Committee (which consists of the President, the Executive Vice Presidents,
Chief Credit Officer and Senior Credit Officers) reviews all loan applications
and approves all loan originations. Certain larger loans and loans to borrowers
with significant relationships with the Seller are approved by the Seller's
Director Loan Committee or the Seller's Board of Directors. The majority of all
properties are visited by the originating loan officer, and, generally, an
additional visit is made by one of the members of the Executive Loan Committee,
prior to loan closing. The majority of the loans that the Seller originates are
secured by properties located within 25 miles of one of the Seller's offices.
The Seller's strategy includes lending to borrowers who are successful
professionals, business executives, or entrepreneurs and who are buying or
refinancing homes in supply-constrained, desirable, metropolitan communities.
Many of the borrowers have high liquidity and a substantial net worth, and are
not first-time homebuyers. Additionally, the Seller offers specific loan
programs for first-time homebuyers and borrowers with low- to moderate-incomes.
The Seller's single family loans are secured by single family detached homes,
condominiums, cooperative apartments, and two-to-four unit properties.
Due to the Seller's focus on upper-end home mortgage loans, the number
of single family loans originated is limited (approximately 1,462 for 1999),
allowing the loan officers and executive
S-45
<PAGE>
management to apply the Seller's underwriting criteria and service to each loan.
Repeat customers or their direct referrals account for the most important source
of the loans originated by the Seller.
The Seller offers a variety of loan products in addition to home
mortgage loans, as well as deposit and investment products. Many of the Seller's
customers are users of multiple products, with the average for 1999 being 4.58
products per customer. The Seller believes this additional interaction with its
customers increases the level of financial information available to the Seller's
loan officers concerning its customers and hence enhances the underwriting
process.
The Seller requires that its loan officers be involved, along with the
Collections Department staff, in the collection activities relating to any
delinquent mortgage loans originated by them. Annually, the loan officers
employed by the Seller enter into an agreement which provides that future
origination fees otherwise payable to the loan officer may be reduced if any
loan originated by the loan officer suffers a loss. The Seller believes that
these loan officer policies contribute to establishing a conservative approach
to the underwriting process.
The underwriting process is intended to assess both the prospective
borrower's credit standing and ability to repay, and the value and adequacy of
the mortgaged property as collateral. However, the Seller relies primarily on
the borrower's ability to repay the loan. This includes analyzing the borrower's
cash flow, verified liquidity, employment history, and overall financial
condition. The value of the mortgaged property is considered as a measure of the
extent of its recovery in the event of default. To determine the adequacy of the
property as collateral for a loan, appraisals are obtained from qualified
outside appraisers approved by the Seller. These appraisers are chosen from a
small group of appraisers and their qualifications are reviewed at least
annually.
The Seller's appraisal requirements satisfy or exceed guidelines of
Fannie Mae, Freddie Mac and the requirements prescribed in the FIRREA
regulations. The Seller's focus on loans secured by a limited number of property
types located in specific geographic areas enables management to maintain a
continually updated knowledge of collateral values in the areas in which the
Seller lends. The appraiser is instructed to inspect the interior and exterior
of the property and to prepare a report that includes a market data analysis
based on the estimated current cost of constructing a similar home. In addition,
the loan officer and, in most cases, a member of the Executive Loan Committee
perform a drive-by of every property prior to the final lending decision. Both
the outside appraiser's report and the internal employees' drive-by provide the
basis for the final determination of the collateral value.
Each prospective borrower submits an application package that includes
the applicant's federal income tax returns for at least the last two years
(self-employed individuals are required to submit their personal and business
tax returns for the past three years, as are individuals seeking larger loans)
and information with respect to the applicant's bank and brokerage accounts,
assets, liabilities, income, and employment history. In addition, the Seller,
with the applicant's permission, obtains credit reports from three credit
bureaus, including their respective credit scores. The Seller verifies the
income, employment and liquid assets of the applicant to determine the
borrower's ability to make timely payment. In all cases, the Seller obtains the
applicant's permission to obtain copies of tax returns directly from the
Internal Revenue Service to verify income information. The Seller will generally
obtain a verification of mortgage and current mortgage statement for mortgage
loans not reported on the credit report. Information relative to adverse credit
and legal actions must be explained in writing by the
S-46
<PAGE>
applicant and must be acceptable to the Seller. The origination process also
requires that adequate title insurance, standard fire and hazard insurance and,
where necessary, flood insurance be obtained and maintained.
Once all applicable employment, credit and property information is
received, a determination is made as to whether the prospective borrower has (1)
sufficient income available to meet both housing and total debt obligation and
(2) sufficient post-loan liquidity to carry the debt in the event of any
personal setback or regional economic downturn. The borrower's credit history
and track record for accumulation of assets is another important factor in
deciding the amount of credit to be extended. The amount of the loan may be
limited by these factors, in addition to the established value of the mortgaged
property.
In some cases, the Seller may exceed its standard maximum loan-to-value
guidelines and extend additional credit to a qualified borrower. In such cases,
the Seller will require the borrower to pledge additional collateral to secure
the mortgage loan, including marketable securities or certificates of deposit
acceptable to the Seller. In other cases, the Seller may require a borrower to
secure the mortgage loan with additional real estate collateral. The value of
the additional collateral must be such that the total collateral value greatly
exceeds the appraised value of the property. Securities and certificates of
deposit, as additional collateral, are pledged specifically to secure the
borrower's loan, and are marked to market daily and cannot be removed from the
pledge agreement until the loan amount is within the Seller's conservative,
standard loan to value requirements, and only upon the Seller's Executive Loan
Committee's express approval. If the market value of the additional collateral
declines below specified levels, the related borrower is required to pledge
sufficient additional collateral to secure the mortgage loan or to pay down the
mortgage loan balance to an acceptable level.
Servicing Activities
Pursuant to the terms of the Pooling and Servicing Agreement, First
Republic Bank will act as servicer (in such capacity, the "Servicer"). The
Servicer's corporate headquarters are located at One Eleven Pine Street, San
Francisco, CA, 94111. The Servicer may perform any of its obligations under the
Pooling and Servicing Agreement through one or more subservicers.
Notwithstanding any subservicing arrangement, the Servicer will remain liable
for its servicing duties and obligations under the Pooling and Servicing
Agreement.
As of December 31, 1999, the Servicer's total loan single family
servicing portfolio of loans held on its balance sheet and sold to investors
contained loans with an aggregate outstanding principal balance of approximately
$2.974 billion. The loans contained in the Servicer's servicing portfolio
include fixed and adjustable rate loans, first and second lien loans and
one-to-four family loans, and therefore performance may differ significantly
from the Mortgage Loans. There can be no assurance, and no representation is
made, that the delinquency 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 Servicer applies its collection policies uniformly to both its
portfolio loans and loans serviced for others. It is the Servicer's policy to
discuss each loan with one or more past due payments at a weekly meeting of all
lending personnel. The Servicer has policies requiring rapid notification of
S-47
<PAGE>
delinquency and the prompt initiation of collection actions. The Servicer
primarily utilizes loan officers, credit administration personnel, and senior
management in its collection activities in order to maximize attention and
efficiency.
When a mortgagor fails to make a required payment on a mortgage loan by
the end of the 10- or 15-day grace period, the loan officer who originated the
loan is required to establish telephone contact with the borrower. At the same
time, the Collections Department sends the borrower a "friendly" reminder that
the mortgage payment is past due. If these early contacts do not prompt the
borrower to make the mortgage payment, and the loan continues to be delinquent
then the borrower will receive a Notice of Intent to Foreclose, generally within
five days of the end of the grace period. During this period, the loan officer
and Collections Department maintain regular contact with the borrower to
determine the likelihood of serious delinquent status and to formulate
recommendations on how to proceed. In most cases, delinquencies are cured
promptly. If the mortgage loan is not brought current, a notice of default is
filed 45 to 50 days after the due date (thirty days after the grace period), and
foreclosure proceedings are commenced according to standard servicing procedures
and state law.
The following table sets forth certain information regarding the
delinquency, foreclosure and loss experience of the Servicer with respect to all
the residential mortgage loans originated and serviced by it. The indicated
periods of delinquency are based on the number of days past due on a contractual
basis.
S-48
<PAGE>
<TABLE>
<CAPTION>
Delinquency, Foreclosure and Loss Experience(1)
December 31, 1996 December 31, 1997
------------------------------------------------------ ----------------------------------------
Percent of Total Percent of
Number Dollar Portfolio Dollar Number Total Portfolio
of Loans Amount Amount of Loans Dollar Amount Dollar Amount
-------- ------ ---------------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio................. 4,596 $ 1,998,429 100.00% 4,794 $ 2,308,359 100.00%
Delinquent Loans
30-59 days delinquent...... 0 $ 0 0.00% 0 $ 0 0.00%
60-89 days delinquent...... 1 947 0.05 2 2,024 0.09
90+ days delinquent........ 6 5,733 0.29 3 1,099 0.05
REO........................ 0 0 0.00 1 125 0.01
---------- ----------- -------- -------- ----------- --------
Total........................... 7 $ 6,680 0.33% 6 $ 3,248 0.14%
Losses(2)....................... 0 $ 0 0.00% 0 $ 0 0.00%
<CAPTION>
December 31, 1998 December 31, 1999
------------------------------------------------------ ----------------------------------------
Percent of Total Percent of
Number Dollar Portfolio Dollar Number Total Portfolio
of Loans Amount Amount of Loans Dollar Amount Dollar Amount
-------- ------ ---------------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio................. 5,139 $2,543,156 100.00% 5,565 $2,973,952 100.00%
Delinquent Loans
30-59 days delinquent...... 2 $ 1,717 0.07% 1 $ 1,200 0.04%
60-89 days delinquent...... 0 0 0.00 0 0 0.00
90+ days delinquent 0 0 0.00 0 0 0.00
REO........................ 0 0 0.00 0 0 0.00
---------- ----------- ------- ------- ----------- -------
Total........................... 2 $ 1,717 0.07% 1 $ 1,200 0.04%
Losses(2)....................... 0 $ 0 0.00% 0 $ 0 0.00%
</TABLE>
- -------------
(1) Percentages in the table are rounded to the nearest 0.01%. Dollar
amounts are in thousands and are rounded to the nearest thousand
dollar.
(2) Losses are shown by year of loan origination.
S-49
<PAGE>
The above delinquency, foreclosure and loss statistics represent the
recent experience of the Servicer. There can be no assurance, however, that the
delinquency, foreclosure and loss experience on the Mortgage Loans will be
comparable. In addition, the foregoing statistics include mortgage loans with a
variety of payment and other characteristics that may not correspond to those of
the Mortgage Loans. Further, the Mortgage Loans were not chosen from the
Servicer's portfolio on the basis of any methodology, which could or would make
them representative of the total pool of mortgage loans in the Servicer's
portfolio. The actual loss and delinquency experience on the Mortgage Loans will
depend on, among other things, the value of the real estate and cooperative
shares securing such Mortgage Loans and the ability of the Mortgagors to make
required payments. If the Servicer undertakes litigation or retains outside
attorneys or investigators, the costs thereof will be borne by the Trust or the
Certificateholders. The Servicer will not be required to advance funds for the
conduct of such litigation or the hiring of such outside attorneys or
investigators, if it reasonably believes that such advances will not be promptly
reimbursed.
The likelihood that mortgagors will become delinquent in the payment of
their mortgage loans and the rate of any subsequent foreclosures may be affected
by a number of factors related to borrowers' personal circumstances, including,
for example, unemployment or change in employment (or in the case of
self-employed borrowers or borrowers relying on commission income, fluctuations
in income), marital separation and a borrower's equity in the related mortgaged
property. In addition, delinquency and foreclosure experience may be sensitive
to adverse economic conditions, either nationally or regionally, may exhibit
seasonal variations and may be influenced by the level of interest rates and
servicing decisions on the applicable mortgage loans. Regional economic
conditions (including declining real estate values) may particularly affect
delinquency and foreclosure experience on mortgage loans to the extent that
mortgaged properties are concentrated in certain geographic areas.
S-50
<PAGE>
THE POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of March 1, 2000 (the "Pooling and Servicing Agreement"),
among the Depositor, the Seller, First Republic Bank, in its capacity as
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, mortgages and other related documents
(collectively, the "Related Documents"), including all scheduled payments with
respect to each Mortgage Loan due after the Cut-Off Date. The Trustee,
concurrently with the transfer, will deliver the Certificates to the Depositor.
Each Mortgage Loan transferred to the Trust will be identified on a schedule
(the "Mortgage Loan Schedule") 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, upon certain
conditions and within the time period specified therein, 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, together with the other Related
Documents. 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
correct copy.
Within 45 days after the receipt by 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 90 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
(i) 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
S-51
<PAGE>
(ii) purchase the defective Mortgage Loan at a price (the "Purchase
Price") 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 applicable Seller will be required to deposit in the 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:
(i) 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;
(ii) have a Maximum 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;
(iii) have the same Due Date as the defective Mortgage Loan;
(iv) have a remaining term to maturity not more than one year
earlier and not later than the remaining term to maturity of
the defective Mortgage Loan;
(v) comply with each representation and warranty as to the
Mortgage Loans set forth in the Pooling and Servicing
Agreement (deemed to be made as of the date of substitution);
(vi) have been underwritten or reunderwritten by the Seller in
accordance with the same underwriting criteria and guidelines
as the Mortgage Loan being replaced;
(vii) be of the same or better credit quality as the Mortgage Loan
being replaced; and
(viii) 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
S-52
<PAGE>
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 60 days after discovery or notice of the breach to
effect a cure. If the breach cannot be cured within the 60-day period, the
Seller will be obligated to (i) substitute for the defective Mortgage Loan an
Eligible Substitute Mortgage Loan or (ii) purchase the defective Mortgage Loan
from the Trust. The same procedure and limitations that are set forth above for
the substitution or purchase of defective Mortgage Loans as a result of
deficient documentation 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.
Pursuant to the Pooling and Servicing Agreement, the Servicer will
service and administer the Mortgage Loans as more fully set forth therein.
Payments on Mortgage Loans; Deposits to Collection Account and Distribution
Account
The Servicer shall establish and maintain or cause to be maintained a
separate trust account (the "Collection Account") for the benefit of the holders
of the Certificates. The Collection Account will be an Eligible Account (as
defined 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 Eligible Investments (as described in the
Pooling and Servicing Agreement) maturing no later than one business day prior
to the date on which the amount on deposit 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 Eligible Investments maturing on or before the business day prior
to the related Distribution Date unless such Eligible Investments are invested
in investments managed or advised by the Trustee or one of its affiliates, in
which case the Eligible Investments may mature on the related Distribution Date.
An "Eligible Account" is a segregated account that is
(i) an account or accounts maintained with a federal or state
chartered depository institution or trust company the
short-term unsecured debt obligations of which (or, in the
case of a depository institution or trust company that is the
principal subsidiary of a holding company, the short-term
unsecured debt obligations of that holding company) are rated
A-1 or its equivalent by each of the Rating Agencies and F-1
by Fitch at the time any amounts are held on deposit therein,
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(ii) 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
Eligible Investments) securing such funds that is superior to
claims of any other depositors or creditors of the depository
institution with which such account is maintained,
(iii) a trust account or accounts maintained with the trust
department of a federal or state chartered depository
institution, national banking association or trust company
acting in its fiduciary capacity or
(iv) otherwise acceptable to 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.
Eligible 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 business day prior to each
Distribution Date its own funds, or funds in the Collection Account that are not
included in the Available Funds for that Distribution Date, in an amount equal
to the aggregate of all payments of principal and interest, net of the Servicing
Fee, that was due during the related Due Period on the 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
Mortgaged Properties acquired by foreclosure or deed in lieu of foreclosure (any
such advance, an "Advance").
Advances are required to be made unless they are deemed by the Servicer
to be non-recoverable from related late collections, insurance proceeds or
liquidation proceeds. 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 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.
All Advances will be reimbursable to the Servicer from late
collections, insurance proceeds and liquidation proceeds from the Mortgage Loan
as to which an 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
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may be reimbursed to the Servicer out of any funds in the Collection Account
prior to payments on the Certificates. In the event 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 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 Fee 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 (the "Expense Fee
Rate") calculated on the Principal Balance of the related Mortgage Loan. The
"Expense Fees" consist of (i) servicing compensation (the "Servicing Fee") to be
paid to the Servicer in respect of its servicing activities for the Certificates
at the rate of 0.30% per year (the "Servicing Fee Rate") calculated on the
Principal Balance of each Mortgage Loan and (ii) compensation payable to the
Trustee at the rate of 0.01% per year (the "Trustee Fee Rate") calculated on the
Principal Balance of each Mortgage Loan. The amount of the 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, prepayment penalty 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 20th day of the calendar month in which that Distribution Date occurs or, if
the 20th is not a business day, the business day immediately following the 20th.
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Adjustment to Servicing Fee 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 Servicing Fee for any month will be reduced by an
amount ("Compensating Interest") sufficient to pass through to
Certificateholders the full amount of interest to which they would be entitled
for each prepaid Mortgage Loan on the related Distribution Date. If the
Prepayment Interest Shortfall exceeds an amount equal to the Servicing Fee
otherwise payable on 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
Norwest Bank Minnesota, National Association, a national banking
association, 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 the fiduciary
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 Servicer will be
obligated to appoint a successor trustee. The Servicer 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 Servicer 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, for Certificate
transfer services, at Norwest Center, Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479-0113, Attention: Corporate Trust Services--Mortgage
Loan Pass-Through Certificates, Series 2000-FRB1, and for all other purposes at
11000 Broken Land Parkway, Columbia, Maryland 21044-3562, attention: Corporate
Trust Services--Mortgage Loan Pass-Through Certificates, Series 2000-FRB1.
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 Depositor, the
Servicer, the Seller and their respective affiliates may have other banking
relationships with the Trustee and its affiliates in the ordinary course of
their business.
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Voting Rights
With respect to any date of determination, 1% of the voting rights will
be allocated to the Class X Certificate and the remainder of the voting rights
will be allocated to each of the other Classes of Certificates other than the
Class X Certificate, 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
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 Senior Certificates remain outstanding; and, provided further, that when
none of the Regular Certificates is 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
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 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. In addition, the Pooling and
Servicing Agreement may be amended by the Depositor, the Servicer, the Seller
and the Trustee and the 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 either Class of Offered Certificates; provided, however, that no such
amendment may
(i) reduce in any manner the amount of, or delay the timing of,
distributions required to be made on any Class of Offered
Certificates without the consent of the holders of all the
affected Certificates;
(ii) 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 66%; or
(iii) 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 aggregate Principal Balance
of the Mortgage Loans and REO Properties is equal to or less than 10% of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-Off Date (the
"Optional
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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. Proceeds from the repurchase will be included in Available
Funds and will be distributed to the holders of the related 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.
Events of Servicing Termination
An "Event of Servicing Termination" will consist, among other things,
of:
o any failure by the Servicer to make an Advance and any other failure by
the Servicer to deposit in the Collection Account or 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 30 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;
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;
or
o cumulative Realized Losses or delinquencies on the Mortgage Loans
included in either Loan Group as of any Distribution Date exceed the
levels specified 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 with
respect to the Mortgage Loans, as provided in the Pooling and Servicing
Agreement, whereupon 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 it. In connection
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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 related 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.
First Republic Mortgage Loan Trust 2000-FRB1 will issue the Class A-1,
Class A-1M, Class A-2, Class A-2M and Class A-R Certificates (together, the
"Senior Certificates"), the Class B-1, Class B-2, and Class B-3 Certificates
(together with the Senior Certificates, the "Offered Certificates"), the Class
B-4, Class B-5 and Class B-6 Certificates (together with the Class B-1, Class
B-2 and Class B-3 Certificates, the "Subordinate Certificates") and the Class X
Certificate. The Senior Certificates, the Subordinate Certificates and the Class
X Certificate are collectively referred to in this prospectus supplement as the
"Certificates." The Class A-1 and Class A-2 Certificates are collectively
referred to in this prospectus supplement as the "Super Senior Certificates."
The Class A-1M and Class A-2M Certificates are collectively referred to in this
prospectus supplement as the "Senior Mezzanine Certificates." Only the Offered
Certificates are offered by this prospectus supplement and the accompanying
prospectus.
The Classes of Offered Certificates will have the respective initial
Certificate Principal Balances set forth on the cover page and the Initial
Pass-Through Rates described in this prospectus supplement under "--Interest"
below.
The Class B-4, Class B-5, Class B-6 and Class X Certificates are not
offered by this prospectus supplement. The initial Certificate Principal
Balances of the Class B-4, Class B-5 and Class B-6
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Certificates will be approximately $1,455,000, $728,000 and $726,437,
respectively. The pass-through rates for the Class B-4 and Class B-5
Certificates will be equal to the pass-through rate on the Class B-1, Class B-2
and Class B-3 Certificates. The pass-through rate for the Class B-6 Certificates
will generally be the Net WAC for Loan Group I and Loan Group II. The notional
balance of the Class X Certificate at all times will be equal to the aggregate
Certificate Principal Balance of all Classes of Certificates (other than the
Class X Certificate). The pass-through rate for the Class X Certificate will be
equal to the excess of the Net WAC for both Loan Groups over the weighted
average of the Pass-Through Rates on all Classes of Certificates (other than the
Class X Certificate), subject to adjustment in certain circumstances described
in the Pooling and Servicing Agreement.
The Certificate Principal Balances may vary in the aggregate by 5%.
The Offered Certificates, other than the Class A-R Certificate, will be
issued in book-entry form as described below. The Offered Certificates, other
than the Class A-R Certificate, will be issued in minimum dollar denominations
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-1M, Class A-2, Class A-2M, Class A-R, Class B-1, Class B-2 and
Class B-3 Certificates is the Distribution Date in June 2030.
Distributions on the Offered Certificates will be made by the Trustee
on the 25th day of each calendar month, or if the 25th day is not a business
day, on the first business day after the 25th day, commencing in May 2000 (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 (i) with respect to the Class A-2, Class A-2M and
Class A-R Certificates is the last business day of the month immediately
preceding the month in which such Distribution Date occurs, and (ii) with
respect to all other Offered Certificates (for so long as they are Book-Entry
Certificates) is the business day immediately preceding such Distribution Date.
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
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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
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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 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,
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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
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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 Federal Income Tax
Consequences--Tax Characterization of a Trust Fund as a Partnership--Tax
Consequences to Holder of the Certificates--Tax Consequences to Foreign
Certificateholders", "--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,
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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 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 Subordinate 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 herein, on each Distribution Date distribution
of Available Funds will be made in the following order of priority:
(A) The Loan Group Available Funds:
(i) to interest on the related Class or Classes of Senior
Certificates; and
(ii) to principal of the related Class or Classes of Senior
Certificates, calculated as described in this prospectus
supplement under "--Principal"; and
(B) All remaining Available Funds:
(i) to interest on and then principal of each Class of Subordinate
Certificates, in the order of their numerical Class
designations, beginning with the Class B-1 Certificates,
subject to certain limitations described in this prospectus
supplement under "--Principal;"
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(ii) to the Carryover Reserve Fund, in an amount equal to the
Carryover Reserve Fund Deposit;
(iii) to the Class A-1, Class A-1M, Class B-1, Class B-2, Class B-3,
Class B-4 and Class B-5 Certificates from the Carryover
Reserve Fund, in that order, as a distribution of any Basis
Risk Shortfall Amount as described in "--Pass-Through Rates";
(iv) to interest on the Class X Certificate; and
(v) to the Class A-R Certificate.
"Loan Group Available Funds" for any Distribution Date and Loan Group will be
equal to
o the sum of the following with respect to the Mortgage Loans in
that Loan Group:
1. 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;
2. 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"));
3. all partial or full prepayments of the Mortgage Loans received
during the month preceding the month of such Distribution
Date; and
4. 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
o amounts in reimbursement for Advances previously made and
other amounts as to which the Servicer is entitled to be
reimbursed pursuant to the Pooling and Servicing Agreement;
plus
o Transfer Payments Received for that Distribution Date;
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minus
o Transfer Payments Made for that Distribution Date.
The Transfer Payments Received and Transfer Payments Made are described
under "--Principal" below.
The "Available Funds" for any Distribution Date will equal the sum of
the Loan Group Available Funds for both Loan Groups.
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 (a) the sum of (i)
interest at the applicable pass-through rate on the related Certificate
Principal 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) reduced by
(b) in the case of each Class of Offered Certificates other than the Class A-1,
Class A-1M and Class A-R Certificates, such Class's pro rata share of the amount
of Deferred Interest added to the Principal Balances of the Negative
Amortization Loans as of the first day of the month of such Distribution Date.
The "Interest Accrual Period" for each Distribution Date will be (i)
for the Class A-2, Class A-2M and Class A-R Certificates, the calendar month
preceding the month of the Distribution Date, and (ii) for all other Offered
Certificates, the period beginning with the previous Distribution Date (or in
the case of the first Distribution Date, the Closing Date) and ending on the day
prior to such Distribution Date.
The interest entitlement described above for each Class of Certificates
for any Distribution Date will be reduced by the amount of "Net Interest
Shortfalls" experienced by (a) the related Loan Group, with respect to the
Senior Certificates and (b) both Loan Groups, with respect to the Subordinate
Certificates. With respect to any Distribution Date and Loan Group, the Net
Interest Shortfall is equal to
o any Net Prepayment Interest Shortfalls for that Loan Group
and Distribution Date and
o the amount of interest that would otherwise have been
received with respect to any Mortgage Loan in that Loan
Group 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 for a Loan Group on any Distribution Date will
be allocated pro rata among all Classes of Senior Certificates and all Classes
of the Subordinate Certificates entitled to
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receive distributions of interest on such Distribution Date from such Loan
Group, based on the amount of interest each such Class of Certificates would
otherwise be entitled to receive (or, in the case of the Subordinate
Certificates, deemed to be entitled to receive, as described more fully below)
on such Distribution Date before taking into account any reduction in such
amounts from such Net Interest Shortfalls.
For purposes of allocating Net Interest Shortfalls for a Loan Group to
the Subordinate Certificates on any Distribution Date, the amount of interest
each Class of such certificates shall be deemed to be entitled to receive from
Available Funds for that Loan Group on the Distribution Date will be equal to an
amount of interest at the pass-through rate on a balance equal to that Class's
pro rata share (based on the respective Certificate Principal Balances) of the
Subordinate Percentage for that Distribution Date relating to that Loan Group as
of the Due Date occurring in the month of that Distribution Date; provided,
however, on any Distribution Date after the Senior Termination Date for a Senior
Certificate group, Net Interest Shortfalls for the related Loan Group will be
allocated to the Classes of Subordinate Certificates based on the amount of
interest each such Class of Subordinate Certificates would otherwise be entitled
to receive on that Distribution Date.
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 "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" for a Loan Group is the amount by
which the aggregate of Prepayment Interest Shortfalls experienced by the
Mortgage Loans in that Loan Group during the calendar month preceding the month
of the Distribution Date exceeds the aggregate amount payable on the
Distribution Date by the Servicer as described under "The Pooling and Servicing
Agreement -- Adjustment to Servicing Compensation in Connection with Prepaid
Mortgage Loans."
With respect to the Class A-2, Class A-2M and Class A-R Certificates,
interest will be calculated and payable on the basis of a 360-day year divided
into twelve 30-day months. With respect to all other Classes of Offered
Certificates, interest will be calculated and payable on the basis of the actual
number of days elapsed in the related Interest Accrual Period and a 360-day
year.
If on a particular Distribution Date, Available Funds for a Loan Group
in the Certificate Account 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 in that Loan Group,
interest will be distributed 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 in that Loan Group 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-1M Certificates
will equal the sum of One-Month LIBOR plus 0.32% and 0.45%, respectively,
subject to a cap (the "Class A-1 Cap") which will equal the lesser of (i) the
Net WAC for Loan Group I and (ii) 11.75%. On any Distribution Date
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after the Optional Termination Date, the Pass-Through Rate for the Class A-1 and
Class A-1M Certificates will equal the sum of One-Month LIBOR plus 0.48% and
0.675%, respectively, subject to the Class A-1 Cap.
"Net WAC" for any Loan Group and Distribution Date will be equal to the
difference between (x) the average of the Loan Rates of the Mortgage Loans in
such Loan Group, 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), 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) and (y) the
Expense Fee Rate.
The "Pass-Through Rate" for the Class A-2 and Class A-2M Certificates
for any Distribution Date will equal the Net WAC for Loan Group II.
The "Pass-Through Rate" for the Class A-R Certificate will equal the
Net WAC for Loan Group I. The Pass-Through Rate for the Class B-1, Class B-2 and
Class B-3 Certificates will equal the sum of One-Month LIBOR plus 0.50%, subject
to a cap (the "Subordinate Cap") which will equal the lesser of (i) the weighted
average Net WAC for Loan Group I and Loan Group II (weighted on the basis of the
respective Subordinate Components) and (ii) 10.75%. The "Subordinate Component"
for a Loan Group is the aggregate Principal Balance of the Mortgage Loans in the
related Loan Group minus the aggregate Certificate Principal Balance of the
related Senior Certificates.
The Pass-Through Rates for the Class A-1, Class A-1M, Class B-1, Class
B-2 and Class B-3 Certificates for the first Distribution Date will be
determined on the second business day preceding the Closing Date and for each
subsequent Distribution Date will be determined on the second LIBOR business day
prior to the immediately preceding Distribution Date (each such date, a "LIBOR
Determination Date"). The Trustee will determine the London interbank offered
rate for one-month U.S. dollar deposits ("One-Month LIBOR") for each Interest
Accrual Period on the basis of the interbank offered rate for one-month U.S.
dollar deposits, in the London market as quoted on Telerate Page 3750, as of
11:00 a.m. (London time) on such LIBOR Determination Date. As used in this
section: "LIBOR business day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City; "Telerate Page 3750"
means the display page currently so designated on the Dow Jones Telerate Service
(or such other page as may replace the Telerate Page 3750 page on that service
for the purpose of displaying London interbank offered rates of major banks);
and "Reference Banks" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market (i)
with an established place of business in London, (ii) which have been designated
as such by the Trustee and (iii) which are not controlling, controlled by, or
under common control with, the Depositor or any affiliate; provided, however,
that National Westminster Bank Plc, an affiliate of the Depositor may be a
Reference Bank.
On each LIBOR Determination Date, if One-Month LIBOR does not appear on
Telerate Page 3750 or any page replacing such Telerate Page 3750, One-Month
LIBOR for the related Interest Accrual Period will be established by the Trustee
as follows:
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(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related
Interest Accrual Period shall be the arithmetic mean of such
offered quotations (rounded upwards if necessary to the nearest
whole multiple of 0.001%).
(b) If on such LIBOR Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the
related Interest Accrual Period shall be the higher of (x)
One-Month LIBOR as determined on the previous LIBOR
Determination Date and (y) the Reserve Interest Rate. The
"Reserve Interest Rate" shall be the rate per annum that the
Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 0.001%) of
the one-month U.S. dollar lending rates which New York City
banks selected by the Depositor are quoting on the relevant
LIBOR Determination Date to the principal London offices of
leading banks in the London interbank market or, in the event
that such quotations are not available (ii) the lowest one-month
U.S. dollar lending rate which New York City banks selected by
the Depositor are quoting on such LIBOR Determination Date to
leading European banks.
The establishment of One-Month LIBOR on each LIBOR Determination Date
by the Trustee and the Trustee's calculation of the rate of interest applicable
to each Class of Certificates for the related Interest Accrual Period shall (in
the absence of manifest error) be final and binding.
The "Basis Risk Shortfall Amount" is calculated on any Distribution
Date when the Pass-Through Rate for the Class A-1 and Class A-1M Certificates is
based on the Net WAC for Loan Group I or the Pass-Through Rate for the Class
B-1, Class B-2 and Class B-3 Certificates is based on the Net WAC for Loan
Groups I and II and equals the excess of
o the amount of interest each Class of Certificates would have
been entitled to receive on such Distribution Date had its
Pass-Through Rate not been subject to the applicable Net WAC,
up to 11.75% or 10.75%, as applicable, over
o the amount of interest each Class of Certificates received on
such Distribution Date based on the applicable Net WAC, plus
o the unpaid portion of any such excess from prior Distribution
Dates (and interest accrued thereon at the then applicable
Pass-Through Rate on the related Certificate, without giving
effect to the applicable Net WAC, up to 11.75% or 10.75%, as
applicable).
Any Basis Risk Shortfall Amount on the Certificates will be paid on
future Distribution Dates from and to the extent of funds in the Carryover
Reserve Fund.
Principal
General. All payments and other amounts received in respect of
principal of the Mortgage Loans in each Loan Group will be allocated between the
related Senior Certificates and Subordinate Certificates.
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Principal Distribution Amount. On each Distribution Date, the Principal
Distribution Amount with respect to each Certificate Group will be applied as
principal.
The "Principal Distribution Amount" for any Distribution Date and Loan
Group will be equal to
o the sum of:
(i) each scheduled payment of principal collected or advanced on
the related Mortgage Loans by the Servicer in the related Due
Period;
(ii) that portion of the Purchase Price, representing principal of
any repurchased Mortgage Loan in that Loan Group, 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 in that Loan Group 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 in that Loan Group; and
(vi) the principal portion of all partial and full principal
prepayments of the related Mortgage Loans received during the
related Prepayment Period
plus
o any Transfer Payments Received for that Distribution
Date,
minus
o any Transfer Payments Made for that Distribution
Date.
Transfer payments will arise in one of the following circumstances (as long as a
Class of Senior Certificates is outstanding):
1. Prior to the Senior Credit Support Depletion Date, the
aggregate Certificate Principal Balance of the Senior
Certificates related to a Loan Group is reduced to zero
and either
o the Distribution Date is prior to the Distribution
Date in September 2003 and the aggregate Certificate
Principal Balance of the Subordinate Certificates is
less than 50% of the amount thereof on the Closing
Date
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or
o the Distribution Date is on and after the
Distribution Date in September 2003 and the aggregate
Certificate Principal Balance of the Subordinate
Certificates is less than 25% of the amount thereof
on the Closing Date;
or
2. Prior to the Senior Credit Support Depletion Date, the
aggregate Certificate Principal Balance of the Senior
Certificates related to a Loan Group is greater than the
aggregate Principal Balance of such Loan Group.
The existence of either of these conditions for one or more Loan Groups is a
"Transfer Condition." If a Transfer Condition specified in 1. above exists, the
related Loan Group will have a Transfer Payment Made which will reduce the
Available Funds for the related Loan Group and the other Loan Group will have a
Transfer Payment Received, which will increase the Available Funds for the
applicable Loan Group. If a Transfer Condition specified in 2. above exists, the
related Loan Group will have a Transfer Payment Received and the other Loan
Group will have a Transfer Payment Made. The amount of a Transfer Payment Made
will equal
o in the case of 1. above, all principal collected on the Loan
Group experiencing that Transfer Condition, and
o in the case of 2. above, the Subordinate Principal
Distribution Amount up to the amount necessary to eliminate
the Transfer Condition in the applicable Loan Group.
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 the related Classes of Senior Certificates,
as follows:
o with respect to Loan Group I, sequentially to (i) the Class
A-R Certificate and then (ii) the Class A-1 and Class A-1M
Certificates, pro rata, until their respective Certificate
Principal Balances are reduced to zero; and
o with respect to Loan Group II, to the Class A-2 and Class A-2M
Certificates, pro rata, until their Certificate Principal
Balances are reduced to zero.
The "Certificate Principal Balance" of any Class of Offered
Certificates on any Distribution Date will be equal to its Certificate Principal
Balance on the Closing Date (the "Original Certificate Principal Balance") (a)
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 and (b) in the case of each Class of Offered Certificates other than the
Class A-1, Class A-1M and Class A-R Certificates, increased by such Class's pro
rata share of the amount of Deferred Interest added to the Principal Balances of
the Negative Amortization Loans on all prior Distribution Dates.
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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 "Senior Credit Support Depletion Date" is the date on which the
Certificate Principal Balance of each Class of Subordinate Certificates has been
reduced to zero.
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
and Loan Group will equal the sum of:
(i) the related Senior Percentage of all amounts described in
clauses (i) through (iv) of the definition of "Principal
Distribution Amount" with respect to the related Loan Group
for that Distribution Date;
(ii) for each Mortgage Loan in the related Loan Group that became a
Liquidated Mortgage Loan prior to the related Determination
Date, the lesser of
(a) the related Senior Percentage of the Stated Principal
Balance of that Mortgage Loan and
either
(b) the related 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 related Senior Percentage of the
applicable amount of the Net Liquidation Proceeds
allocable to principal received on that Mortgage
Loan; and
(iii) the related Senior Prepayment Percentage of the amounts
described in clause (vi) of the definition "Principal
Distribution Amount" for that Distribution Date; and
(iv) any Transfer Payments Received for that Distribution Date;
provided, however, that if a Bankruptcy Loss that is an Excess Loss is sustained
on a Mortgage Loan in that Loan Group that is not a Liquidated Mortgage Loan,
such Senior Principal Distribution Amount will be reduced on the related
Distribution Date by the related Senior Percentage of the principal portion of
the Bankruptcy Loss; provided further, however, that on any Distribution Date
after a Senior Termination Date, the Senior Principal Distribution Amount for
the remaining Senior Certificates in a Loan Group will be calculated pursuant to
the above formula based on all the Mortgage Loans in the Mortgage Pool, as
opposed to the Mortgage Loans in the related Loan Group only.
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"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 and, in the
case of Negative Amortization Loans, increased by the amount of any Deferred
Interest added to the Principal Balance of such Negative Amortization Loan. The
"Pool 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 each Loan Group
for any Distribution Date occurring before May 2010 will equal 100%. The Senior
Percentage for any Loan Group for any Distribution Date occurring (i) before May
2010 but in or after April 2003 on which the Two Times Test is satisfied, or
(ii) in or after May 2010, is the Pro Rata Senior Percentage.
The "Pro Rata Senior Percentage" for a Loan Group 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 relating to
that Loan Group immediately prior to such Distribution Date and the denominator
of which is the aggregate Stated Principal Balance of all Mortgage Loans in the
related Loan Group for such Distribution Date; provided, however, that on any
Distribution Date after a Senior Termination Date, the Pro Rata Senior
Percentage of the remaining Senior Certificates is the percentage equivalent of
a fraction, the numerator of which is the aggregate of the Certificate Principal
Balances of each remaining Class of Senior Certificates immediately prior to
such date and the denominator of which is the aggregate of the Certificate
Principal Balances of all Classes of Certificates, immediately prior to such
date. If the Two Times Test is satisfied prior to April 2003, the Senior
Percentage for a Loan Group is the Pro Rata Senior Percentage plus 50% of an
amount equal to 100% minus the related Pro Rata Senior Percentage. For any
Distribution Date occurring on or prior to a Senior Termination Date, the
"Subordinate Percentage" for the portion of the Subordinate Certificates
relating to a Loan Group will be calculated as the difference between 100% and
the Senior Percentage of the Senior Certificates relating to that Loan Group on
such Distribution Date. After a Senior Termination Date, the Subordinate
Percentage will represent the entire interest of the Subordinate Certificates in
the mortgage pool and will be calculated as the difference between 100% and the
Senior Percentage for such Distribution Date. With respect to any Distribution
Date after the first Distribution Date on which the aggregate of the Certificate
Principal Balances of all Classes of Senior Certificates has been reduced to
zero, the Senior Percentage will equal 0%.
The "Senior Prepayment Percentage" for each Loan Group for any
Distribution Date occurring before May 2010 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 applicable Loan Group 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
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Prepayment Percentage" for a Loan Group as of 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 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 related
Senior Percentage plus 70% of the related Subordinate Percentage for the
Distribution Date;
o for any Distribution Date in the second year thereafter, the related
Senior Percentage plus 60% of the related Subordinate Percentage for the
Distribution Date;
o for any Distribution Date in the third year thereafter, the related
Senior Percentage plus 40% of the related Subordinate Percentage for the
Distribution Date;
o for any Distribution Date in the fourth year thereafter, the related
Senior Percentage plus 20% of the related Subordinate Percentage for the
Distribution Date; and
o for any Distribution Date thereafter, the related Senior Percentage for
the Distribution Date
unless on any Distribution Date the Senior Percentage for a Loan Group exceeds
the initial Pro Rata Senior Percentage for such Loan Group, 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 for either Loan Group 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 (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,
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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 for each Loan Group 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.
The "Senior Termination Date" for a Loan Group is the date on which the
aggregate of the Certificate Principal Balances of the related Classes of Senior
Certificates is reduced to zero.
If on any Distribution Date the allocation to the Class or Classes of
Senior Certificates then entitled to distributions of principal of full and
partial principal prepayments and other amounts in the percentage required above
would reduce the outstanding Certificate Principal Balance of the Class or
Classes below zero, the distribution to the Class or Classes of certificates of
the related Senior Prepayment Percentage of those amounts for the Distribution
Date will be limited to the percentage 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 Support Percentage")
is less than the Applicable Credit Support Percentage for such Class on the date
of
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issuance of the Certificates (the "Original Applicable Credit Support
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 aggregate of the
Certificate Principal Balances of all Classes of certificates immediately before
the Distribution Date.
The approximate Original Applicable Credit Support Percentages for the
Subordinate Certificates on the date of issuance of the certificates are
expected to be as follows:
Class B-1 2.75%
Class B-2 2.00%
Class B-3 1.50%
Class B-4 1.00%
Class B-5 0.50%
Class B-6 0.25%
The "Subordinate Principal Distribution Amount" for any Loan Group and
Distribution Date will equal the sum of:
o the related 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 in that Loan Group 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 the
second bulleted item of the definition of Senior Principal
Distribution Amount up to the related Subordinate Percentage of
the Stated Principal Balance of the Mortgage Loan, and
o the related Subordinate Prepayment Percentage for that Loan Group
of the applicable amounts described in clause (vi) of the
definition of Principal Distribution Amount for the Distribution
Date
minus
o any Transfer Payments Made for that Distribution Date.
On any Distribution Date after a Senior Termination Date, the
Subordinate Principal Distribution Amount will not be calculated by Loan Group
but will equal the amount calculated pursuant to the formula set forth above
based on the applicable Subordinate Percentage or Subordinate Prepayment
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Percentage, as applicable, for the Subordinate Certificates for such
Distribution Date with respect to all of the Mortgage Loans as opposed to only
the Mortgage Loans in the related Loan Group.
Carryover Reserve Fund
The Agreement also establishes an account (the "Carryover Reserve
Fund"), which is held in trust by the Trustee on behalf of the Class A-1, Class
A-1M, Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5
Certificateholders. The Carryover Reserve Fund will not be an asset of any REMIC
created pursuant to the Pooling and Servicing Agreement.
The amount (the "Carryover Reserve Fund Deposit") required to be
deposited in the Carryover Reserve Fund on any Distribution Date will equal the
greater of:
(1) any Basis Risk Shortfall Amount (limited to Available
Funds) for such Distribution Date, and
(2) the amount, if any, necessary to be deposited so that the
amount on deposit in the Carryover Reserve Fund is at least $5,000
(after taking into account any other amount already on deposit
therein).
The Basis Risk Shortfall Amount for any Distribution Date will be
allocated pro rata among the Class A-1, Class A-1M, Class B-1, Class B-2, Class
B-3, Class B-4 and Class B-5 Certificates, in that order, based on the amount of
shortfall for each such Class of Certificates. To the extent of any unpaid Basis
Risk Shortfall Amount on a Distribution Date, such amount will also be
distributable on such date even if the applicable Pass-Through Rate is not based
on Net WAC Cap. Any investment earnings on amounts on deposit in the Carryover
Reserve Fund will be paid to (and for the benefit of) the holder of the Class X
Certificate and will not be available to pay any Basis Risk Shortfall Amount.
Allocation of Losses
On each Distribution Date, all Realized Losses, other than Excess
Losses, with respect to the Mortgage Loans in either Loan Group will be
allocated first to the 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, then to the related Class of
Senior Mezzanine Certificates until its Certificate Principal Balance has been
reduced to zero, and then to the related Class of Super Senior Certificates. If
on any Distribution Date, the aggregate of the Certificate Principal Balances of
all Classes of Certificates exceeds the Pool Balance, 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 for a Loan Group will be
allocated pro rata among the related Classes of Senior Certificates and the
related Subordinate Component of the Subordinate Certificates, based upon their
respective Certificate Principal Balances, immediately prior to such
Distribution Date; provided, however, on any Distribution Date on and after the
Senior Credit Support Depletion Date, any Excess Loss will be allocated pro rata
among the related Classes of Senior
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Certificates, based on 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 (other than the Class B-1
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 $5,991,391 (the "Special Hazard Loss Coverage
Amount"),
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o Bankruptcy Losses in an initial amount expected to be up to
approximately $200,000 (the "Bankruptcy Loss Coverage Amount")
and
o Fraud Losses in an initial amount expected to be up to
approximately $2,909,855 (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 greatest of
o 1% of the aggregate of the Principal Balances of the
Mortgage Loans,
o twice the Principal Balance of the largest Mortgage
Loan and
o the aggregate Principal Balances of the Mortgage
Loans secured by mortgaged properties located in the
single California postal ZIP code area having the
highest aggregate Principal Balance of any such ZIP
code area.
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) 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
(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, and
o on the third and fourth anniversaries of the Cut-Off Date, to
an amount equal to the lesser of (a) 0.50% 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 fifth anniversary of the Cut-Off Date, to zero.
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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 make available to each
holder of a Certificate and will forward to the Rating Agencies a statement
(based on information received from the Servicer) generally setting forth, among
other things:
(i) the amount of the distributions, separately identified, with
respect to each Class of Certificates;
(ii) 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;
(iii) the amount of the distributions set forth in clause (i)
allocable to interest and the calculation thereof;
(iv) the amount of any unpaid interest shortfall amount with
respect to each Class of Certificates;
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(v) the Certificate Principal Balance of each Class of
Certificates after giving effect to the distribution of
principal on that Distribution Date;
(vi) each Loan Group Balance at the end of the related Prepayment
Period;
(vii) the Pro Rata Senior Percentage, Senior Percentage and
Subordinate Percentage for the following Distribution Date;
(viii) the Senior Prepayment Percentage for the following
Distribution Date;
(ix) the amount of the Servicing Fee paid to or retained by the
Servicer;
(x) the amount of Advances for the related Due Period;
(xi) the number and aggregate Principal Balance of Mortgage Loans
by Loan Group 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;
(xii) the rolling six month delinquency rate for that Distribution
Date by Loan Group;
(xiii) for any Mortgage Loan as to which the related Mortgaged
Property was acquired by the Trust in foreclosure or by deed
in lieu of foreclosure (any such property, an "REO Property")
during the preceding calendar month, the loan number, the
Principal Balance of that Mortgage Loan as of the close of
business on the last day of the related Due Period and the
date of acquisition thereof;
(xiv) the total number and principal balance of any REO Properties
as of the close of business on the last day of the preceding
Due Period;
(xv) the aggregate amount of Realized Losses by Loan Group incurred
during the preceding calendar month;
(xvi) the cumulative amount of Realized Losses by Loan Group;
(xvii) the aggregate amount of Special Hazard Losses, Bankruptcy
Losses and Fraud Losses by Loan Group incurred during the
preceding calendar month;
(xviii) the cumulative amount of Special Hazard Losses, Bankruptcy
Losses and Fraud Losses for each Loan Group;
(xix) 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;
(xx) the Realized Losses and Excess Losses, if any, allocated to
each Class of Certificates on that Distribution Date; and
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(xx1) the Pass-Through Rate for each Class of Certificates for that
Distribution Date.
The Trustee will make such statement available each month, to any
interested party, via the Trustee's website, and its fax-on-demand service. The
Trustee's website can be accessed at "http://www.ctslink.com" and its
fax-on-demand service may be accessed by calling (301) 815-6610.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each holder of a
Certificate of record during the previous calendar year a statement containing
information necessary to enable holders of the Certificates to prepare their tax
returns. 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 25th 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 exceeds the Pool
Balance, 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
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rate and timing of payments of principal on the Mortgage Loans generally in the
related Loan Group, in the case of the Senior Certificates, and in all Loan
Groups, in the case of the Subordinate Certificates. 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 or the Servicer. The Mortgage Loans may be prepaid by the
Mortgagors at any time but may subject the Mortgagor to a prepayment penalty.
The Mortgage Loans are subject to the "due-on-sale" provisions included therein.
See "The Mortgage Loan Groups" 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 Loan
Groups--General" and "--Group I Mortgage Loan Statistics" and "--Group II
Mortgage Loan Statistics" in this prospectus supplement. As is the case with
fixed rate mortgage loans, 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 the Mortgage Loans also may affect the likelihood of
prepayments in either a rising or falling interest rate environment.
The particular features of the Mortgage Loans may affect the prepayment
experience. The interest-only feature of the Mortgage Loans may reduce the
perceived benefits of refinancing to take advantage of lower market rates of
interest or to avoid adjustments in the Loan Rates. However, as a Mortgage Loan
nears the end of its interest-only period, the Mortgagor may be more likely to
refinance the Mortgage Loan, even if market rates are only slightly less than
the Loan Rate in order to avoid the
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increase in the monthly payments to amortize the Mortgage Loan over its
remaining life. No assurances can be given as to the rate of prepayments on the
Mortgage Loans in stable or changing interest rate environments.
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 for a Loan Group may (and, in the case of the
Class A-2 and Class A-2M Certificates, will) reduce the Pass-Through Rate on the
related Senior Certificates. Mortgage Loans with higher Adjusted Net Loan Rates,
and consequently 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. In addition,
differences in the rates of prepayments or of Realized Losses as among the Loan
Groups may adversely affect the Pass-Through Rate on the Subordinate
Certificates by reducing the weighting factor used to determine that
Pass-Through Rate. Due to the different types of Mortgage Loans comprising the
two Loan Groups, such different experience is likely to occur.
As described herein under "Description of the Certificates-Principal,"
the applicable Senior Prepayment Percentage of all principal prepayments on the
related Mortgage Loans will be distributed to the related 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." In addition, since the step down in each
Senior Prepayment Percentage is dependent on the performance of the entire
mortgage pool rather than a particular Loan Group, the poor performance of one
Loan Group may prevent the Subordinate Certificates from receiving distributions
of principal prepayments from either of the Loan Groups.
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
S-85
<PAGE>
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 Support Percentage
for any Class of Subordinate Certificates is less than its Original Applicable
Credit Support Percentage, all principal payments 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 Loan Groups".
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 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.
S-86
<PAGE>
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 third month following the
month of the latest maturity date of any Mortgage Loan in the related Loan
Group. 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-91 through S-94 were prepared on the basis of the
assumptions in the following paragraph and the tables set forth below. There are
certain differences between the loan characteristics included in such
assumptions and the characteristics of the actual Mortgage Loans. Any such
discrepancy may have an effect upon the percentages of Original Certificate
Principal Balances outstanding and weighted average lives of the Offered
Certificates set forth in the tables on pages S-91 through S-94. 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 Classes of Offered Certificates may be made
earlier or later than indicated in the tables.
The percentages and weighted average lives in the tables on pages S-91
through S-94 were determined assuming that (the "Structuring Assumptions"):
(i) each Loan Group consists of Mortgage Loans with the
characteristics set forth in the table below,
(ii) distributions on the Certificates are received, in cash, on
the 25th day of each month, commencing in May 2000,
(iii) the Mortgage Loans prepay at the indicated constant
percentages,
(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 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 May 2000, and are
computed prior to giving effect to any prepayments received in
the prior month,
S-87
<PAGE>
(vii) prepayments representing payment in full of individual
Mortgage Loans are received on the last day of each month
(commencing in April 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
original 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 (taking into account any
interest-only period),
(ix) interest accrues on each Certificate at the applicable rate
described in this prospectus supplement under "Description of
the Certificates--Pass-Through Rates,"
(x) the Initial Certificate Principal Balances of the Certificates
are those set forth on the cover of this prospectus
supplement,
(xi) the Expense Fee Rate is 0.31%, Six Month LIBOR is 6.510%, 1
Month LIBOR is 6.130%, COFI is 4.967%, One Year CMT is 6.170%
and the Prime Rate is 9.000%, and
(xii) the Certificates are purchased on April 24, 2000.
S-88
<PAGE>
Assumed Mortgage Loan Characteristics
Group I Mortgage Loans
<TABLE>
<CAPTION>
Interest
Only Original Remaining
Current Period Gross Net Term Term Gross Maximum
Loan Index Balance ($) (months) Coupon (%) Coupon (%) (months) (months) Margin (%) Rate (%)
---------- ----------- ------- ---------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Mo Libor 966,771 N/A 7.36999 7.05999 360 358 1.21999 10.95000
One Mo Libor 7,660,000 120 7.30744 6.99744 360 359 1.29961 11.28290
Six Mo Libor 11,176,586 N/A 7.37957 7.06957 343 321 1.72419 11.95000
Six Mo Libor 15,812,645 120 7.67159 7.36159 360 337 1.71529 11.57065
Six Mo Libor 4,072,222 N/A 7.92950 7.61950 347 334 1.70482 11.95000
Six Mo Libor 41,765,786 120 7.77068 7.46068 360 339 1.59018 11.91387
One Yr CMT 17,650,627 N/A 7.86337 7.55337 344 309 2.75425 11.76352
One Yr CMT 6,329,300 91 6.95438 6.64438 360 334 2.63333 11.82438
Prime Rate 880,000 120 8.50000 8.19000 360 324 -0.25000 11.95000
Prime Rate 3,918,031 N/A 8.48431 8.17431 360 339 -0.26569 12.06715
Prime Rate 8,522,385 120 8.91063 8.60063 360 329 0.21708 14.53470
</TABLE>
<TABLE>
<CAPTION>
Months Rate Adj
Periodic to Next Rate Frequency
Loan Index Rate Cap (%) Change Date (months)
---------- ------------ ------------ ----------
<S> <C> <C> <C>
One Mo Libor N/A 1 1
One Mo Libor N/A 1 1
Six Mo Libor 2 4 6
Six Mo Libor 2 4 6
Six Mo Libor N/A 4 6
Six Mo Libor N/A 4 6
One Yr CMT N/A 8 12
One Yr CMT N/A 6 12
Prime Rate 2 6 6
Prime Rate N/A 1 1
Prime Rate N/A 2 2
</TABLE>
Group II Mortgage Loans
<TABLE>
<CAPTION>
Interest
Only Original Remaining
Current Period Gross Net Term Term Gross Maximum
Loan Index Balance ($) (months) Coupon (%) Coupon (%) (months) (months) Margin (%) Rate (%)
---------- ----------- ------- ---------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COFI 5,047,636 N/A 7.51749 7.20749 355 334 2.67847 11.80562
COFI 3,980,000 120 7.62500 7.31500 360 338 2.72538 10.70377
COFI 66,899,859 N/A 7.27431 6.96431 360 343 2.35064 10.44115
COFI 96,303,589 120 7.29801 6.98801 360 345 2.32201 10.30164
</TABLE>
Group I Mortgage Loans
Group II Mortgage Loans
<TABLE>
<CAPTION>
Months Rate Adj
Periodic to Next Rate Frequency
Loan Index Rate Cap (%) Change Date (months)
---------- ------------ ------------ ----------
<S> <C> <C> <C>
COFI 2 5 6
COFI 2 6 6
COFI N/A 1 1
COFI N/A 1 1
</TABLE>
S-89
<PAGE>
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 table. 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 table. Based on the foregoing assumptions, the following
tables indicate the projected weighted average lives of each Class of Offered
Certificates and set forth the percentages of the 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 herein 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.
S-90
<PAGE>
Percent of Original Certificate Principal Balance Outstanding
<TABLE>
<CAPTION>
Class A-1 and Class A-1M
------------------------------------------------------------------------------------
Distribution Date Loan Group I 0% 15% 20% 25% 30% 35% 40%
- ------------------ ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.................. 100 100 100 100 100 100 100
April 25, 2001...................... 100 84 79 74 69 64 59
April 25, 2002...................... 99 71 63 55 47 40 34
April 25, 2003...................... 99 60 49 40 32 25 20
April 25, 2004...................... 98 50 39 29 22 16 12
April 25, 2005...................... 98 42 30 22 15 11 7
April 25, 2006...................... 97 35 24 16 11 7 4
April 25, 2007...................... 97 29 19 12 7 4 3
April 25, 2008...................... 96 25 15 9 5 3 2
April 25, 2009...................... 94 20 12 7 4 2 1
April 25, 2010...................... 92 17 9 5 2 1 1
April 25, 2011...................... 90 14 7 4 2 1 0
April 25, 2012...................... 87 12 6 3 1 0 0
April 25, 2013...................... 84 9 4 2 1 0 0
April 25, 2014...................... 81 8 3 1 1 0 0
April 25, 2015...................... 78 6 3 1 0 0 0
April 25, 2016...................... 74 5 2 1 0 0 0
April 25, 2017...................... 70 4 1 0 0 0 0
April 25, 2018...................... 66 3 1 0 0 0 0
April 25, 2019...................... 62 3 1 0 0 0 0
April 25, 2020...................... 57 2 1 0 0 0 0
April 25, 2021...................... 51 2 0 0 0 0 0
April 25, 2022...................... 45 1 0 0 0 0 0
April 25, 2023...................... 39 1 0 0 0 0 0
April 25, 2024...................... 32 1 0 0 0 0 0
April 25, 2025...................... 24 0 0 0 0 0 0
April 25, 2026...................... 16 0 0 0 0 0 0
April 25, 2027...................... 9 0 0 0 0 0 0
April 25, 2028...................... 2 0 0 0 0 0 0
April 25, 2029...................... 1 0 0 0 0 0 0
April 25, 2030...................... 0 0 0 0 0 0 0
Weighted Average Life (years)
To Maturity (1)................ 19.93 5.57 4.22 3.33 2.72 2.26 1.92
To Call (1).................... 19.88 5.52 4.16 3.28 2.67 2.23 1.86
</TABLE>
- ---------------------------------------
(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.
S-91
<PAGE>
Percent of Original Certificate Principal Balance Outstanding
<TABLE>
<CAPTION>
Class A-2 and Class A-2M
-----------------------------------------------------------------------------------
Distribution Date Loan Group II 0% 6% 9% 12% 15% 18% 25%
- ----------------- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage.................... 100 100 100 100 100 100 100
April 25, 2001........................ 100 93 90 87 84 81 74
April 25, 2002........................ 99 87 82 76 71 66 55
April 25, 2003........................ 99 81 74 66 59 53 40
April 25, 2004........................ 98 76 66 58 50 43 30
April 25, 2005........................ 97 71 60 50 42 35 22
April 25, 2006........................ 97 66 54 44 36 29 17
April 25, 2007........................ 96 61 49 38 30 23 12
April 25, 2008........................ 95 57 44 34 25 19 9
April 25, 2009........................ 94 53 39 29 21 15 7
April 25, 2010........................ 92 49 35 25 18 12 5
April 25, 2011........................ 89 44 31 21 15 10 4
April 25, 2012........................ 87 41 27 18 12 8 3
April 25, 2013........................ 84 37 24 16 10 6 2
April 25, 2014........................ 81 33 21 13 8 5 1
April 25, 2015........................ 78 30 19 11 7 4 1
April 25, 2016........................ 74 27 16 9 5 3 1
April 25, 2017........................ 71 24 14 8 4 2 1
April 25, 2018........................ 67 21 12 7 3 2 0
April 25, 2019........................ 62 19 10 5 3 1 0
April 25, 2020........................ 58 16 9 4 2 1 0
April 25, 2021........................ 53 14 7 4 2 1 0
April 25, 2022........................ 47 12 6 3 1 1 0
April 25, 2023........................ 42 10 5 2 1 0 0
April 25, 2024........................ 35 8 4 2 1 0 0
April 25, 2025........................ 29 6 3 1 0 0 0
April 25, 2026........................ 22 4 2 1 0 0 0
April 25, 2027........................ 14 3 1 0 0 0 0
April 25, 2028........................ 6 1 0 0 0 0 0
April 25, 2029........................ 0 0 0 0 0 0 0
April 25, 2030........................ 0 0 0 0 0 0 0
Weighted Average Life (years)
To Maturity (1).................. 20.18 10.99 8.56 6.87 5.65 4.75 3.37
To Call (1)...................... 20.08 10.42 7.83 6.11 4.95 4.11 2.90
</TABLE>
- ---------------------------------------
(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.
S-92
<PAGE>
Percent of Original Certificate Principal Balance Outstanding
<TABLE>
<CAPTION>
Class A-R
---------------------------------------------------------------------------
Distribution Date Loan Group I 0% 15% 20% 25% 30% 35% 40%
- ----------------- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............... 100 100 100 100 100 100 100
April 25, 2001................... 0 0 0 0 0 0 0
April 25, 2002................... 0 0 0 0 0 0 0
April 25, 2003................... 0 0 0 0 0 0 0
April 25, 2004................... 0 0 0 0 0 0 0
April 25, 2005................... 0 0 0 0 0 0 0
April 25, 2006................... 0 0 0 0 0 0 0
April 25, 2007................... 0 0 0 0 0 0 0
April 25, 2008................... 0 0 0 0 0 0 0
April 25, 2009................... 0 0 0 0 0 0 0
April 25, 2010................... 0 0 0 0 0 0 0
April 25, 2011................... 0 0 0 0 0 0 0
April 25, 2012................... 0 0 0 0 0 0 0
April 25, 2013................... 0 0 0 0 0 0 0
April 25, 2014................... 0 0 0 0 0 0 0
April 25, 2015................... 0 0 0 0 0 0 0
April 25, 2016................... 0 0 0 0 0 0 0
April 25, 2017................... 0 0 0 0 0 0 0
April 25, 2018................... 0 0 0 0 0 0 0
April 25, 2019................... 0 0 0 0 0 0 0
April 25, 2020................... 0 0 0 0 0 0 0
April 25, 2021................... 0 0 0 0 0 0 0
April 25, 2022................... 0 0 0 0 0 0 0
April 25, 2023................... 0 0 0 0 0 0 0
April 25, 2024................... 0 0 0 0 0 0 0
April 25, 2025................... 0 0 0 0 0 0 0
April 25, 2026................... 0 0 0 0 0 0 0
April 25, 2027................... 0 0 0 0 0 0 0
April 25, 2028................... 0 0 0 0 0 0 0
April 25, 2029................... 0 0 0 0 0 0 0
April 25, 2030................... 0 0 0 0 0 0 0
Weighted Average Life (years)
To Maturity (1)............. 0.09 0.09 0.09 0.09 0.09 0.09 0.09
To Call (1)................. 0.09 0.09 0.09 0.09 0.09 0.09 0.09
</TABLE>
- ---------------------------------------
(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.
S-93
<PAGE>
<TABLE>
<CAPTION>
Percent of Original Certificate Principal Balance Outstanding
Class B-1, Class B-2 and Class B-3
------------------------------------------------------------------------
Distribution Date Loan Group I 0% 15% 20% 25% 30% 35% 40%
- -----------------
Loan Group II 0% 6% 9% 12% 15% 18% 25%
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................ 100 100 100 100 100 100 100
April 25, 2001.................... 100 100 100 100 100 100 100
April 25, 2002.................... 100 100 100 100 100 100 98
April 25, 2003.................... 100 100 100 100 100 92 80
April 25, 2004.................... 100 100 100 95 80 69 55
April 25, 2005.................... 100 100 99 81 65 52 39
April 25, 2006.................... 100 100 86 68 53 41 27
April 25, 2007.................... 100 99 76 57 43 32 19
April 25, 2008.................... 100 90 66 49 36 26 14
April 25, 2009.................... 100 82 58 41 29 20 10
April 25, 2010.................... 100 74 51 35 24 16 7
April 25, 2011.................... 97 66 44 29 19 13 5
April 25, 2012.................... 95 59 38 25 16 10 4
April 25, 2013.................... 92 53 33 21 13 8 3
April 25, 2014.................... 88 47 29 17 10 6 2
April 25, 2015.................... 85 42 24 14 8 5 1
April 25, 2016.................... 81 36 21 12 7 4 1
April 25, 2017.................... 77 32 18 10 5 3 1
April 25, 2018.................... 72 28 15 8 4 2 0
April 25, 2019.................... 68 24 12 6 3 2 0
April 25, 2020.................... 62 20 10 5 3 1 0
April 25, 2021.................... 57 17 8 4 2 1 0
April 25, 2022.................... 51 14 7 3 2 1 0
April 25, 2023.................... 44 12 5 3 1 1 0
April 25, 2024.................... 37 9 4 2 1 0 0
April 25, 2025.................... 29 7 3 1 1 0 0
April 25, 2026.................... 21 5 2 1 0 0 0
April 25, 2027.................... 13 3 1 0 0 0 0
April 25, 2028.................... 5 1 0 0 0 0 0
April 25, 2029.................... 0 0 0 0 0 0 0
April 25, 2030.................... 0 0 0 0 0 0 0
Weighted Average Life (years)
To Maturity (1).............. 21.27 14.73 11.66 9.42 7.78 6.60 5.20
To Call (1).................. 21.19 14.07 10.76 8.47 6.89 5.79 4.53
</TABLE>
- ---------------------------------------
(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.
S-94
<PAGE>
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
For federal income tax purposes, the Trust Fund (exclusive of the
rights in respect of the Additional Collateral and the Carryover Reserve Fund)
will consist of several segregated asset pools, each of which shall constitute a
"real estate mortgage investment conduit" ("REMIC") for federal income tax
purposes.
It is anticipated that the Certificates (other than the Class A-R
Certificate) will constitute "regular interests" in the upper tier REMIC 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 of Offered Certificates (other than the Class A-R
Certificate) will be treated for federal income tax purposes as owning a regular
interest in the REMIC. See "Certain Federal Income Tax Considerations" in the
accompanying prospectus.
In addition, the Class A-1, Class A-1M, Class B-1, Class B-2, Class
B-3, Class B-4 and Class B-5 Certificates will represent a beneficial interest
in the right to receive payments from the Carryover Reserve Fund pursuant to the
provisions of the Pooling and Servicing Agreement. Due to their entitlement to
such payments, the Class A-1, Class A-1M, Class B-1, Class B-2, Class B-3, Class
B-4 and Class B-5 Certificates will be treated as also representing beneficial
interests in contractual rights that would either be treated for United States
federal income tax purposes as an interest rate cap agreement (the "Interest
Rate Cap Agreement") treated as a notional principal contract or as an interest
in an entity taxable as a partnership with the Class X Certificateholder in
respect of the Class X Certificate's entitlement to interest for federal income
tax purposes. In the event that the rights of the Class A-1, Class A-1M, Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates to Basis Risk
Shortfall Amounts are treated as representing beneficial interests in an entity
taxable as a partnership for federal income tax purposes, such
Certificateholders may be subject to different tax timing consequences and
withholding on such amounts with respect to holders of the Class A-1, Class
A-1M, Class B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates who
are non-U.S. Persons. Prospective investors in the Class A-1, Class A-1M, Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-5 Certificates should consult
their tax advisors regarding the tax treatment of the rights of the holders of
such Certificates to Basis Risk Shortfall Amounts.
A holder of a Class A-1, Class A-1M, Class B-1, Class B-2, Class B-3,
Class B-4 or Class B-5 Certificate must allocate its purchase price for such
Certificate between its two components - the REMIC regular interest component
and the Interest Rate Cap Agreement component or the partnership interest
component, as applicable. For information reporting purposes, the Trustee will
assume that, with respect to any Class A-1, Class A-1M, Class B-1, Class B-2,
Class B-3, Class B-4 or Class B-5
S-95
<PAGE>
Certificate, the Interest Rate Cap Agreement component or the partnership
interest component, as applicable, will have only nominal value relative to the
value of the regular interest component. The IRS could argue, however, that the
Interest Rate Cap Agreement component or the partnership interest component, as
applicable, has significant value, and if that argument were to be sustained,
the regular interest component could be viewed as having been issued with an
additional amount of original issue discount ("OID") (which could cause the
total amount of discount to exceed a statutorily defined de minimis amount).
Upon the sale, exchange, or other disposition of a Class A-1, Class
A-1M, Class B-1, Class B-2, Class B-3, Class B-4 or Class B-5 Certificate, the
holder must allocate the amount realized between the two components of the Class
A-1, Class A-1M, Class B-1, Class B-2, Class B-3, Class B-4 or Class B-5
Certificate based on the relative fair market values of those components at the
time of sale. Assuming that a Class A-1, Class A-1M, Class B-1, Class B-2, Class
B-3, Class B-4 or Class B-5 Certificate is held as a "capital asset" within the
meaning of section 1221 of the Code, gain or loss on the disposition of an
interest in the Interest Rate Cap Agreement component or the partnership
interest component, as applicable, should be capital gain or loss, and, gain or
loss on the disposition of the regular interest component should, subject to the
limitation described below, be capital gain or loss. Except as described above
with respect to market discount, and except as provided in this paragraph, any
gain or loss on the sale or exchange of a Class A-1, Class A-1M, Class B-1,
Class B-2, Class B-3, Class B-4 or Class B-5 Certificate realized by an investor
who holds such Certificate as a capital asset will be gain or loss and will be
long-term or short-term depending on whether the Certificate has been held for
the long-term capital gain holding period (currently more than one year). Such
gain will be treated as ordinary income (i) if the Certificate is held as part
of a "conversion transaction" as described in Code Section 1258(c), up to the
amount of interest that would have accrued on the holder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate under
Code Section 1274(d) in effect at the time the holder entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as a part of such
transaction, (ii) in the case of a non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net capital
gains taxed as investment income at ordinary income rates, or (iii) to the
extent that such gain does not exceed the excess, if any, of (a) the amount that
would have been includable in the gross income of the holder if its yield on
such Certificate were 110% of the applicable Federal rate as of the date of
purchase, over (b) the amount of income actually includable in the gross income
of such holder with respect to such Certificate. In addition, gain or loss
recognized from the sale of a Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code Section
582(c). Long-term capital gains of certain non-corporate taxpayers are subject
to a lower minimum tax rate than ordinary income of such taxpayers for property
held for more than one year. The maximum tax rate for corporations is the same
with respect to both ordinary income and capital gains.
The following discussion assumes that the right of each of the holders
of the Class A-1, Class A-1M, Class B-1, Class B-2, Class B-3, Class B-4 and
Class B-5 Certificates to receive payments from the Carryover Reserve Fund will
be treated as an interest rate cap agreement for federal income tax purposes. As
indicated above, a portion of the purchase price paid by a holder to acquire a
Class A-1, Class A-1M, Class B-1, Class B-2, Class B-3, Class B-4 or Class B-5
Certificate will be attributable to the Interest Rate Cap Agreement component of
such Certificate. The portion of the overall purchase price attributable to the
Interest Rate Cap Agreement component must be amortized over the life of a
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Class A-1, Class A-1M, Class B-1, Class B-2, Class B-3, Class B-4 or Class B-5
Certificate, taking into account the declining balance of the related Regular
Interest component. Treasury regulations concerning notional principal contracts
provide alternative methods for amortizing the purchase price of an interest
rate cap contract. Under one method - the level yield constant interest method -
the price paid for an interest rate cap agreement is amortized over the life of
the cap as though it were the principal amount of a loan bearing interest at a
reasonable rate. Holders are urged to consult their tax advisors concerning the
methods that can be employed to amortize the portion of the purchase price paid
for the Interest Rate Cap Agreement component of a Class A-1, Class A-1M, Class
B-1, Class B-2, Class B-3, Class B-4 or Class B-5 Certificate.
Any payments made to a holder of a Class A-1, Class A-1M, Class B-1,
Class B-2, Class B-3, Class B-4 or Class B-5 Certificate from the Carryover
Reserve Fund, will be treated as periodic payments on an interest rate cap
agreement. To the extent the sum of such periodic payments for any year exceed
that year's amortized cost of the Interest Rate Cap Agreement component, such
excess is ordinary income. If for any year the amount of that year's amortized
cost exceeds the sum of the periodic payments, such excess is allowable as an
ordinary deduction.
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, a regular
interest could be considered to have been issued with original issue discount
("OID"). See "Certain 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 25% CPR for the
Group I Mortgage Loans and 12% CPR for the Group II Mortgage Loans. No
representation is made that the Mortgage Loans will prepay at such a rate or at
any other rate.
The Residual Certificate
The holder of the Class A-R Certificate must include the taxable income
of the REMIC in its federal taxable income. The resulting tax liability of such
holder may exceed cash distributions to such holder during certain periods. All
or a portion of the taxable income from the Class 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.
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to residual certificates
continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a REMIC residual certificateholder. First, alternative
minimum taxable income for such residual holder is determined without regard to
the special rule that taxable income cannot be less than excess inclusions.
Second, a
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residual holder's alternative minimum taxable income for a tax year cannot be
less than the excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. These rules are effective for tax years
beginning after December 31, 1986, unless a residual holder elects to have such
rules apply only to tax years beginning after August 20, 1996.
Furthermore, the Small Business Job Protection Act of 1996, as part of
the repeal of the bad debt reserve method for thrift institutions, repealed the
application of Section 593(d) of the Code to any taxable year beginning after
December 31, 1995.
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 Federal Income Tax Consequences--REMIC
Certificates--b. 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 Federal Income Tax Consequences--REMIC
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Noneconomic Residual Certificates" in the Prospectus.
Additionally, for information regarding prohibited transactions and treatment of
Realized Losses, see "Certain Federal Income Tax Consequences--REMIC
Certificates--Prohibited Transactions and Other Taxes" and "--REMIC
Certificates-- Regular Certificates--Treatment of Realized Losses" in the
Prospectus.
Status of the Offered Certificates
In general, the regular interest component of the Certificates will be
treated as (i) assets described in Section 7701(a)(19)(C) of the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) "real estate assets"
under Section 856(c)(4)(A) of the Code, in the same proportion that the assets
of the Trust Fund, exclusive of the Carryover Reserve Fund, would be so treated.
The Interest Rate Cap Agreement component or the partnership interest component,
as applicable, of the Class A-1 and Class A-1M Certificates will not be treated
as assets described in Section 7701(a)(19)(C) of the Code or "real estate
assets" under Section 856(c)(4)(A) of the Code.
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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-8 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-8 or substitute form provided by the non-U.S.
Person that owns the Certificate.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of an Offered Certificate (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.
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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 Internal Revenue
Service (the "IRS"), and to each Certificateholder of record, the amount of
interest paid (and OID accrued, if any) on the Offered Certificates (and the
amount of interest withheld for federal income taxes, if any) for each calendar
year, except as to exempt holders (generally, holders that are corporations,
certain tax-exempt organizations or nonresident aliens who provide certification
as to their status as nonresidents). As long as the only holder of record of a
Class of Offered Certificates is Cede & 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.
New Withholding Regulations
On October 6, 1997, 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
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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.
STATE TAXES
The Depositor makes no representations regarding the tax consequences
of purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit "parties in interest"
(under ERISA) "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 herein and in the Prospectus, subject to
the provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
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 investments 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) (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 certificates representing an
undivided interest in certain asset-backed pass-through trusts with respect to
which Greenwich Capital Markets,
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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 trusts, provided that the general
conditions and certain other conditions set forth in the Exemption are
satisfied.
Among the conditions which must be satisfied for the Exemption to apply
are the following:
(1) The acquisition of the certificates by a Plan is on terms
(including the price for such certificates) 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 certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) The certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three
highest generic rating categories from S&P, Moody's Investors Service,
Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc.;
(4) The sum of all payments made to and retained by the
underwriter in connection with the distribution of the certificates
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 pooling
and 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"); and
(6) The Plan investing in the certificates 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.
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 highest generic rating categories by a
rating agency for at least one year prior to a Plan's acquisition of
certificates; and (iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to a Plan's acquisition of certificates.
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
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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 certificates evidencing interests in trusts sponsored or containing assets
sold or serviced by the same entity; and (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.
The Class A-R Certificate will not be transferred and the Trustee will
not register any proposed transfer of the Class A-R Certificate unless it
receives (i) a representation substantially to the effect that the proposed
transferee is not a Plan, is not acquiring the Class A-R Certificate on behalf
of or with the assets of a Plan (including assets that may be held in an
insurance company's separate or general accounts where assets in such accounts
may be deemed "plan assets" for purposes of ERISA), or (ii) an opinion of
counsel in form and substance satisfactory to the Trustee and the Depositor that
the purchase or holding of the Class A-R Certificate by or on behalf of a Plan
will not constitute a prohibited transaction and will not result in the assets
of the Trust being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
ERISA and the Code or any similar law or subject the Trustee, the Servicer or
the Depositor to any obligation in addition to those undertaken in the Trust
Agreement. In the event that such representation is violated or any transfer to
a Plan or person acting on behalf of a Plan or using a Plan's assets is
attempted without such opinion of counsel, such attempted transfer or
acquisition shall be void and of no effect.
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the Class A-1 and Class A-2 Certificates and that all
conditions of the Exemption other than those within the control of the investors
will be met.
Because the characteristics of the Class A-1M, Class A-2M, Class A-R,
Class B-1, Class B-2 and Class B-3 Certificates may not meet the requirements of
the Exemption or any other issued exemption under ERISA, the purchase and
holding of the Class A-1M, Class A-2M, Class A-R, Class B-1, Class B-2 and Class
B-3 Certificates by a Plan or by individual retirement accounts or other plans
subject to Section 4975 of the Code may result in prohibited transactions or the
imposition of excise taxes or civil penalties. Consequently, transfers of the
Class A-1M, Class A-2M, Class A-R, Class B-1, Class B-2 and Class B-3
Certificates will not be registered by the Trustee unless the Trustee receives:
1. a representation from the transferee of such Certificate,
acceptable to 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;
2. if the purchaser is an insurance company, a representation that
the purchaser is an insurance company which is purchasing such
Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of
Prohibited
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Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificates are covered under
Sections I and III of PTCE 95-60; or
3. an opinion of counsel satisfactory to the Trustee that the
purchase or holding of such Certificate by a Plan, any person
acting on behalf of a Plan or using such Plan's assets, will not
result in a non-exempt prohibited transaction under either Title
I of ERISA or Section 4975 of the Code and will not subject the
Trustee to any obligation in addition to those undertaken in the
Agreement.
Such representations as described above, or as contained in any opinion
of counsel described above, shall be deemed to have been made to the Trustee by
the transferee's acceptance of a Class A-1M, Class A-2M, Class B-1, Class B-2 or
Class B-3 Certificate. 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 Class A-1, Class A-1M, Class A-2, Class A-2M, Class A-R, and Class
B-1 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
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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.
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 Servicer by Lionel, Sawyer and Collins, Reno,
Nevada, Nevada counsel to the Seller, and by Tobin & Tobin, San Francisco,
California, special counsel to the Seller and Servicer. 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
Senior Certificates be rated "AAA", that the Class B-1 Certificates be rated at
least "AA", that the Class B-2 Certificates be rated at least "A" and that the
Class B-3 Certificates be rated at least "BBB" by both Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, and Fitch IBCA, Inc. (each a
"Rating Agency").
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.
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.
S-105
<PAGE>
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.
S-106
<PAGE>
INDEX OF DEFINED TERMS
Page
-----
1 Month LIBOR........................................S-42
Additional Collateral................................S-15
Adjustment Date......................................S-15
Advance..............................................S-54
Aggregate Subordinated Percentage....................S-76
Agreement............................................S-95
Applicable Credit Support Percentage.................S-76
Assumed Final Distribution Date......................S-60
Available Funds......................................S-67
Bankruptcy Loss Coverage Amount......................S-80
Bankruptcy Losses....................................S-79
Basis Risk Shortfall Amount..........................S-70
Beneficial Owner.....................................S-60
Book-Entry Certificates..............................S-60
Carryover Reserve Fund...............................S-78
Carryover Reserve Fund Deposit.......................S-78
Certificate Owners...................................S-60
Certificate Principal Balance........................S-72
Certificateholder....................................S-61
Certificates.........................................S-59
Class A-1 Cap........................................S-68
Class Subordination Percentage.......................S-77
Clearstream, Luxembourg..............................S-62
Clearstream, Luxembourg Participants.................S-62
Code.................................................S-98
COFI.................................................S-14
Collection Account...................................S-53
Compensating Interest................................S-56
Contributions Tax...................................S-100
Cooperative..........................................S-63
CPR............................................S-87, S-97
Debt Service Reduction...............................S-81
Deferred Interest....................................S-30
Deficient Valuation..................................S-81
Definitive Certificate...............................S-61
Determination Date...................................S-55
Distribution Account.................................S-53
Distribution Date....................................S-60
DTC..................................................S-60
DTC's Rules..........................................S-61
Due Date.............................................S-15
Due Period...........................................S-73
Eligible Account.....................................S-53
Eligible Substitute Mortgage Loan....................S-52
ERISA...............................................S-101
Euroclear............................................S-63
Euroclear Operator...................................S-63
Euroclear Participants...............................S-63
European Depositaries................................S-60
Event of Servicing Termination.......................S-58
Excess Losses........................................S-79
Exemption...........................................S-101
Expense Fee Rate.....................................S-55
Expense Fees.........................................S-55
FDIC.................................................S-13
Financial Intermediary...............................S-61
First Republic Bank..................................S-45
Fraud Loss Coverage Amount...........................S-80
Fraud Losses.........................................S-79
Gross Margin.........................................S-16
Group I Loan Balance.................................S-14
Group I Mortgage Loans...............................S-14
Group II Loan Balance................................S-14
Group II Mortgage Loans..............................S-14
IML..................................................S-62
Index................................................S-16
Insurance Proceeds...................................S-66
Interest Accrual Period..............................S-67
Interest Only Period.................................S-16
Interest Rate Cap Agreement..........................S-95
IRS.................................................S-100
LIBOR business day...................................S-69
LIBOR Determination Date.............................S-69
Liquidated Mortgage Loan.............................S-79
Liquidation Proceeds.................................S-66
Loan Group...........................................S-14
Loan Group Available Funds...........................S-66
Loan Rate............................................S-15
Loan to Value Ratio..................................S-15
Maximum Balance......................................S-30
Maximum Loan Rate....................................S-16
Minimum Loan Rate....................................S-16
Mortgage.............................................S-15
Mortgage Loan Purchase Agreement.....................S-14
Mortgage Loan Schedule...............................S-51
Mortgage Loans.......................................S-14
S-107
<PAGE>
Mortgaged Property...................................S-15
Mortgagor............................................S-16
Negative Amortization Loans..........................S-30
Net income from foreclosure property................S-100
Net Interest Shortfalls..............................S-67
Net Liquidation Proceeds.............................S-66
Net Prepayment Interest Shortfall....................S-68
Net WAC..............................................S-69
New Proposed Regulations.............................S-98
New Regulations.....................................S-100
non-U.S. Person".....................................S-99
Offered Certificates.................................S-59
OID............................................S-96, S-97
One Year CMT.........................................S-42
One-Month LIBOR......................................S-69
Optional Termination Date............................S-58
Original Applicable Credit Support
Percentage........................................S-77
Original Certificate Principal Balance...............S-72
Original Subordinate Certificate Principal Balance...S-75
Participant..........................................S-60
Pass-Through Rate....................................S-68
Payment Cap..........................................S-30
Periodic Rate Cap....................................S-16
Plan................................................S-101
Pool Balance.........................................S-74
Pooling and Servicing Agreement......................S-51
Prepayment Interest Shortfall........................S-56
Prepayment Period....................................S-73
Prime Rate...........................................S-42
Principal Balance....................................S-14
Principal Distribution Amount........................S-71
Pro Rata Senior Percentage...........................S-74
Prohibited Transactions Tax..........................S-99
PTCE 95-60..........................................S-104
Purchase Price.......................................S-52
Rating Agency.......................................S-105
Realized Loss........................................S-79
Record Date..........................................S-60
Reference Banks......................................S-69
regular interests.....................................S-6
Related Documents....................................S-51
Relevant Depositary..................................S-60
Relief Act...........................................S-54
Relief Act Reduction.................................S-68
REMIC................................................S-95
REO Property.........................................S-82
Reserve Interest Rate................................S-70
Residual Interest.....................................S-6
Restricted Group...................................S-102
Restricted Classes...................................S-77
Seller...............................................S-45
Senior Certificates..................................S-59
Senior Credit Support Depletion Date.................S-73
Senior Mezzanine Certificates........................S-59
Senior Percentage....................................S-74
Senior Prepayment Percentage.........................S-74
Senior Principal Distribution Amount.................S-73
Senior Termination Date..............................S-76
Servicer.............................................S-47
Servicing Advance....................................S-55
Servicing Fee........................................S-55
Servicing Fee Rate...................................S-55
Six Month LIBOR......................................S-42
SMMEA...............................................S-104
Special Hazard Loss Coverage Amount..................S-79
Special Hazard Losses................................S-79
Special Hazard Mortgage Loan.........................S-79
Stated Principal Balance.............................S-74
Structuring Assumptions..............................S-87
Subordinate Cap......................................S-69
Subordinate Certificates.............................S-59
Subordinate Component................................S-69
Subordinate Percentage...............................S-74
Subordinate Prepayment Percentgage...................S-75
Subordinate Principal Distribution Amount............S-77
Substitution Adjustment..............................S-52
Super Senior Certificates............................S-59
Tax Counsel..........................................S-95
Telerate Page 3750...................................S-69
Termination Price....................................S-58
Terms and Conditions.................................S-63
thrift institutions..................................S-97
Transfer Condition...................................S-72
Trust................................................S-14
Trustee..............................................S-56
Trustee Fee Rate.....................................S-55
Two Times Test.......................................S-76
Underwriter.........................................S-104
S-108
<PAGE>
PROSPECTUS
Mortgage Pass-Through Certificates
(Issuable in Series)
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
Consider carefully the risk factors beginning on page 5 of this prospectus.
The certificates represent obligations of the trust only and do not represent an
interest in or obligation of the depositor, the seller, the master servicer or
any of their affiliates.
This prospectus may be used to offer and sell the securities only if
accompanied by a prospectus supplement.
The Certificates
Greenwich Capital Acceptance, Inc., as depositor, will sell the certificates.
Each issue of certificates will have its own series designation and will
evidence the ownership of certain trust assets.
Each series of certificates will consist of one or more classes. Each class of
certificates will represent the entitlement to a specified portion of future
interest payments and a specified portion of future principal payments on the
assets in the related trust. In each case, the specified portion may equal from
100% to 0%. A series may include one or more classes of securities that are
senior in right of payment to one or more other classes. One or more classes of
securities may be entitled to receive distributions of principal, interest or
both prior to one or more other classes or before or after certain specified
events have occurred. The related prospectus supplement will specify each of
these features.
The Trust and Its Assets
As specified in the related prospectus supplement, the assets of a trust will
include primarily the following:
o mortgage loans secured by senior liens on one- to four-family
residential properties or participation interests in loans of this
type;
o mortgage loans secured by senior liens on multifamily residential
properties (including cooperative apartment buildings) or
participation interests in loans of this type;
o conditional sales contracts, installment sales agreements or loan
agreements secured by manufactured housing;
o mortgage pass-through securities issued or guaranteed by the
Government National Mortgage Association (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.
April 7, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT...................4
RISK FACTORS........................................................................................................5
THE TRUST FUND.....................................................................................................11
The Mortgage Loans--General................................................................................11
Single Family Loans.......................................................................................14
Multifamily Loans.........................................................................................14
Contracts.................................................................................................15
Agency Securities.........................................................................................15
Private Mortgage-Backed Securities........................................................................20
Incorporation of Certain Information by Reference.........................................................21
USE OF PROCEEDS....................................................................................................21
THE DEPOSITOR......................................................................................................22
MORTGAGE LOAN PROGRAM..............................................................................................22
Underwriting Standards....................................................................................22
Qualifications of Sellers.................................................................................23
Representations by Sellers; Repurchases...................................................................23
DESCRIPTION OF THE CERTIFICATES....................................................................................24
General...................................................................................................25
Distributions on Certificates.............................................................................26
Advances..................................................................................................28
Reports to Certificateholders.............................................................................29
CREDIT ENHANCEMENT.................................................................................................31
General...................................................................................................31
Subordination.............................................................................................31
Mortgage Pool Insurance Policies..........................................................................32
FHA Insurance; VA Guarantees..............................................................................33
Special Hazard Insurance Policies.........................................................................34
Bankruptcy Bonds..........................................................................................35
FHA Insurance on Multifamily Loans........................................................................36
Reserve Accounts..........................................................................................36
Cross Support.............................................................................................37
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar Instruments or Agreements........37
Financial Instruments.....................................................................................37
YIELD AND PREPAYMENT CONSIDERATIONS................................................................................37
THE POOLING AND SERVICING AGREEMENT................................................................................39
Assignment of Mortgage Assets.............................................................................39
Payments on Mortgage Loans; Deposits to Certificate Account...............................................41
Sub-Servicing by Sellers..................................................................................42
Collection Procedures.....................................................................................43
Hazard Insurance..........................................................................................44
Realization upon Defaulted Mortgage Loans.................................................................45
Servicing and Other Compensation and Payment of Expenses..................................................47
Evidence as to Compliance.................................................................................47
Certain Matters Regarding the Master Servicer and the Depositor...........................................48
Events of Default.........................................................................................48
Rights upon Event of Default..............................................................................49
</TABLE>
2
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<TABLE>
<S> <C>
Amendment.................................................................................................49
Termination; Optional Termination.........................................................................50
The Trustee...............................................................................................50
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS........................................................................50
General...................................................................................................50
Foreclosure/Repossession..................................................................................53
Environmental Risks.......................................................................................55
Rights of Redemption......................................................................................56
Anti-Deficiency Legislation and Other Limitations on Lenders..............................................56
Due-on-Sale Clauses.......................................................................................57
Prepayment Charges........................................................................................58
Applicability of Usury Laws...............................................................................58
Soldiers' and Sailors' Civil Relief Act...................................................................58
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES...................................................................58
General...................................................................................................59
Non-REMIC Certificates....................................................................................59
Single Class of Senior Certificates.......................................................................59
Multiple Classes of Senior Certificates...................................................................62
Possible Application of Contingent Payment Regulations to Certain Non-REMIC Certificates..................65
Sale or Exchange of a Senior Certificate..................................................................66
Non-U.S. Persons..........................................................................................66
Information Reporting and Backup Withholding..............................................................67
New Withholding Regulations...............................................................................67
REMIC CERTIFICATES.................................................................................................67
Tiered REMIC Structures...................................................................................68
Regular Certificates......................................................................................69
Residual Certificates.....................................................................................76
Prohibited Transactions and Other Taxes...................................................................80
Liquidation and Termination...............................................................................80
Administrative Matters....................................................................................81
Tax-Exempt Investors......................................................................................81
Non-U.S. Persons..........................................................................................81
Tax-Related Restrictions on Transfers of Residual Certificates............................................82
STATE TAX CONSIDERATIONS...........................................................................................83
ERISA CONSIDERATIONS...............................................................................................84
LEGAL INVESTMENT...................................................................................................86
METHOD OF DISTRIBUTION.............................................................................................87
LEGAL MATTERS......................................................................................................88
FINANCIAL INFORMATION..............................................................................................88
AVAILABLE INFORMATION..............................................................................................88
RATINGS............................................................................................................88
INDEX OF DEFINED TERMS.............................................................................................90
</TABLE>
3
<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 prospectus, which provides general information, some of which may not
apply to a particular series; and
o the accompanying prospectus supplement for a particular series, which
describes the specific terms of the certificates of that series. If
the prospectus supplement contains information about a particular
series that differs from the information contained in this prospectus,
you should rely on the information in the prospectus supplement.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus and
the accompanying prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
Beginning with the section titled "The Trust Fund", certain capitalized terms
are used in this prospectus to assist you in understanding the terms of the
certificates. The capitalized terms used in this prospectus are defined on the
pages indicated under the caption "Index of Defined Terms" beginning on page 90
of this prospectus.
- ---------------------
If you require additional information, the mailing address of our principal
executive offices is 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 21 of this prospectus.
--------------------
4
<PAGE>
RISK FACTORS
You should carefully consider the following information, since it
identifies certain significant sources of risk associated with an investment in
the certificates.
<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.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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>
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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.
The Mortgage Loans--General
For purposes hereof, Single Family Loans, Multifamily Loans and
Contracts are collectively referred to as "Mortgage Loans", and the real
property and Manufactured Homes, as the case may be, which secure repayment of
the Mortgage Loans are collectively referred to as "Mortgaged Properties". The
Mortgaged Properties may be located in any one of the fifty states, the District
of Columbia, Guam, Puerto Rico or any other territory of the United States.
Mortgage Loans with certain Loan-to-Value Ratios and/or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Mortgage Insurance
- -----------------
* Whenever the terms "Mortgage Pool" and "Certificates" are used in this
Prospectus, such terms will be deemed to apply, unless the context indicates
otherwise, to one specific Mortgage Pool and the Certificates representing
certain undivided interests, as described below, in a single Trust Fund
consisting primarily of the Mortgage Loans in such Mortgage Pool. Similarly, the
term "Pass-Through Rate" will refer to the Pass-Through Rate borne by the
Certificates of one specific Series and the term "Trust Fund" will refer to one
specific Trust Fund.
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<PAGE>
Policy"). The existence, extent and duration of any such coverage will be
described in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans in a Mortgage Pool* will have monthly payments due on the
first day of each month. The payment terms of the Mortgage Loans to be included
in a Trust Fund will be described in the related Prospectus Supplement and may
include any of the following features or combination thereof or other features
described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index (which will be specified in the
related Prospectus Supplement), a rate that is fixed for a period of time
or under certain circumstances and is followed by an adjustable rate, a
rate that otherwise varies from time to time or a rate that is convertible
from an adjustable rate to a fixed rate. Changes to an adjustable rate may
be subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest may be deferred and added
to the principal of a loan for such periods and under such circumstances as
may be specified in the related Prospectus Supplement. Mortgage Loans may
provide for the payment of interest at a rate lower than the specified
interest rate borne by such Mortgage Loan (the "Mortgage Rate") for a
period of time or for the life of the loan, and the amount of any
difference may be contributed from funds supplied by the seller of the
Mortgaged Property or another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the Mortgage Loan over its term, may be calculated on the basis of
an assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
interest rate on the Mortgage Loan or may not be amortized during all or a
portion of the original term. Payment of all or a substantial portion of
the principal may be due on maturity (a "balloon payment"). Principal may
include interest that has been deferred and added to the principal balance
of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the Mortgage Loan, may increase over a specified period of time or
may change from period to period. Mortgage Loans may include limits on
periodic increases or decreases in the amount of monthly payments and may
include maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the Mortgage Loan or may decline over time,
and may be prohibited for the life of the Mortgage Loan or for certain
periods ("lockout periods"). Certain Mortgage Loans may permit prepayments
after expiration of the applicable lockout period and may require the
payment of a prepayment fee in connection with any such subsequent
prepayment. Other Mortgage Loans may permit prepayments without payment of
a fee unless the prepayment occurs during specified time periods. The
Mortgage Loans may include "due-on-sale" clauses which permit the mortgagee
to demand payment of the entire Mortgage Loan in connection with the sale
or certain transfers of the related Mortgaged Property. Other Mortgage
Loans may be assumable by persons meeting the then applicable underwriting
standards of the Seller.
Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then specifically known to the
Depositor, with respect to the Mortgage Loans contained in the related Mortgage
Pool, including (i) the aggregate outstanding principal balance and the average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing each Mortgage Loan (e.g., one- to
four-family houses, individual units in condominium projects or in buildings
owned by
- -----------------
* Whenever the terms "Mortgage Pool" and "Certificates" are used in this
Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Mortgage Pool and the Certificates
representing certain undivided interests, as described below, in a single
Trust Fund consisting primarily of the Mortgage Loans in such Mortgage
Pool. Similarly, the term "Pass-Through Rate" will refer to the
Pass-Through Rate borne by the Certificates of one specific Series and the
term "Trust Fund" will refer to one specific Trust Fund.
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<PAGE>
cooperative housing corporations, vacation and second homes, Manufactured Homes,
multifamily apartments or other real property), (iii) the original terms to
maturity of the Mortgage Loans, (iv) the largest principal balance and the
smallest principal balance of any of the Mortgage Loans, (v) the earliest
origination date and latest maturity date of any of the Mortgage Loans, (vi) the
aggregate principal balance of Mortgage Loans having Loan-to-Value Ratios at
origination exceeding 80%, (vii) the Mortgage Rates or APRs or range of Mortgage
Rates or APRs borne by the Mortgage Loans, and (viii) the geographical location
of the related Mortgaged Properties on a state-by-state basis. If specific
information respecting the Mortgage Loans is not known to the Depositor at the
time the related Certificates are initially offered, more general information of
the nature described above will be provided in the related Prospectus
Supplement, and specific information will be set forth in the Detailed
Description.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio, expressed as a percentage, of the then outstanding principal balance of
the Mortgage Loan to the Collateral Value of the related Mortgaged Property.
Unless otherwise specified in the related Prospectus Supplement, the "Collateral
Value" of a Mortgaged Property, other than with respect to Contracts and certain
Mortgage Loans the proceeds of which were used to refinance an existing mortgage
loan ("Refinance Loans"), is the lesser of (a) the appraised value determined in
an appraisal obtained by the originator at origination of such Mortgage Loan and
(b) the sales price for such property. In the case of Refinance Loans, the
"Collateral Value" of the related Mortgaged Property is the appraised value
thereof determined in an appraisal obtained at the time of refinancing. Unless
otherwise specified in the related Prospectus Supplement, for purposes of
calculating the Loan-to-Value Ratio of a Contract relating to a new Manufactured
Home, the Collateral Value is no greater than the sum of a fixed percentage of
the list price of the unit actually billed by the manufacturer to the dealer
(exclusive of freight to the dealer site) including "accessories" identified in
the invoice (the "Manufacturer Invoice Price"), plus the actual cost of any
accessories purchased from the dealer, a delivery and set-up allowance,
depending on the size of the unit), and the cost of state and local taxes,
filing fees and up to three years' prepaid hazard insurance premiums. Unless
otherwise specified in the related Prospectus Supplement, the Collateral Value
of a used Manufactured Home is the least of the sales price, appraised value,
and National Automobile Dealers' Association book value plus prepaid taxes and
hazard insurance premiums. The appraised value of a Manufactured Home is based
upon the age and condition of the manufactured housing unit and the quality and
condition of the mobile home park in which it is situated, if applicable.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the Mortgage Loans, and any secondary financing on the Mortgaged
Properties, in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect the
timely payment by borrowers of scheduled payments of principal and interest on
the Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to any Mortgage Pool. In the case of
Multifamily Loans, such other factors could include excessive building resulting
in an oversupply of rental housing stock or a decrease in employment reducing
the demand for rental units in an area; federal, state or local regulations and
controls affecting rents; prices of goods and energy; environmental
restrictions; increasing labor and material costs; and the relative
attractiveness to tenants of the Mortgaged Properties. To the extent that such
losses are not covered by subordination provisions or alternative arrangements,
such losses will be borne, at least in part, by the holders of the Certificates
of the related Series.
The Depositor will cause the Mortgage Loans comprising each Mortgage
Pool to be assigned to the Trustee named in the related Prospectus Supplement
for the benefit of the holders of the Certificates of the related Series. The
Master Servicer named in the related Prospectus Supplement will service the
Mortgage Loans, either directly or through other mortgage servicing institutions
(each, a "Sub-Servicer"), pursuant to a Pooling and Servicing Agreement (each,
an "Agreement") among the Depositor, the Master Servicer and the Trustee, and
will receive a fee for such services. See "Mortgage Loan Program" and "The
Pooling and Servicing Agreement". With respect to Mortgage Loans serviced by the
Master Servicer through a Sub-Servicer, the Master Servicer will remain liable
for its servicing obligations under the related Agreement as if the Master
Servicer alone were servicing such Mortgage Loans.
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<PAGE>
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,
14
<PAGE>
payment of real estate taxes and hazard and liability insurance. A Cooperative's
ability to meet debt service obligations on a Multifamily Loan, as well as all
other operating expenses, will be dependent in large part on the receipt of
maintenance payments from the tenant-stockholders, as well as any rental income
from units or commercial areas the Cooperative might control. Unanticipated
expenditures may in some cases have to be paid by special assessments on the
tenant-stockholders.
Contracts
The Contracts will consist of manufactured housing conditional sales
contracts and installment sales or loan agreements each secured by a
Manufactured Home. Contracts may be conventional, insured by the FHA or
partially guaranteed by the VA, as specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
each Contract will be fully amortizing and will bear interest at a fixed
percentage rate ("APR"). Unless otherwise specified in the related Prospectus
Supplement, Contracts will all have individual principal balances at origination
of not less than $10,000 and not more than $1,000,000 and original terms to
stated maturity of from five to 30 years.
"Manufactured Homes" securing the Contracts will consist of
manufactured homes within the meaning of 42 U.S.C. ss. 5402(6) which defines a
"manufactured home" as "a structure, transportable in one or more sections
which, in the traveling mode, is eight body feet or more in width or forty body
feet or more in length or, when erected on site, is three hundred twenty or more
square feet, and which is built on a permanent chassis and designed to be used
as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of this paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under this chapter."
The related Prospectus Supplement will specify for the Contracts
contained in the related Trust Fund, among other things, the dates of
origination of the Contracts, the APRs on the Contracts, the Loan-to-Value
Ratios of the Contracts, the minimum and maximum outstanding principal balances
as of the Cut-off Date and the average outstanding principal balance, the
outstanding principal balances of the Contracts included in the related Trust
Fund, and the original maturities of the Contracts and the last maturity date of
any Contract.
Agency Securities
Government National Mortgage Association. 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
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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
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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.
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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.
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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.
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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.
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Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of reserve funds, subordination of other private mortgage
certificates issued under the PMBS Agreement, letters of credit, surety bonds,
insurance policies or other types of credit support may be provided with respect
to the Mortgage Loans underlying the Private Mortgage-Backed Securities or with
respect to the Private Mortgage-Backed Securities themselves.
Additional Information. The Prospectus Supplement for a Series for
which the Trust Fund includes Private Mortgage-Backed Securities will specify
(i) the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Mortgage Loans which comprise the underlying assets for
the Private Mortgage-Backed Securities including (A) the payment features of
such Mortgage Loans, (B) the approximate aggregate principal balance, if known,
of underlying Mortgage Loans insured or guaranteed by a governmental entity, (C)
the servicing fee or range of servicing fees with respect to the Mortgage Loans,
and (D) the minimum and maximum stated maturities of the underlying Mortgage
Loans at origination, (iii) the maximum original term-to-stated maturity of the
Private Mortgage-Backed Securities, (iv) the weighted average term-to-stated
maturity of the Private Mortgage-Backed Securities, (v) the pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vi) the weighted
average pass-through or certificate rate of the Private Mortgage-Backed
Securities, (vii) the PMBS Issuer, the PMBS Servicer (if other than the PMBS
Issuer) and the PMBS Trustee for such Private Mortgage-Backed Securities, (viii)
certain characteristics of credit support, if any, such as reserve funds,
insurance policies, surety bonds, letters of credit or guaranties relating to
the Mortgage Loans underlying the Private Mortgage-Backed Securities or to such
Private Mortgage-Backed Securities themselves, (ix) the term on which the
underlying Mortgage Loans for such Private Mortgage-Backed Securities may, or
are required to, be purchased prior to their stated maturity or the stated
maturity of the Private Mortgage-Backed Securities and (x) the terms on which
Mortgage Loans may be substituted for those originally underlying the Private
Mortgage-Backed Securities.
Incorporation of Certain Information by Reference
There are incorporated herein by reference all documents and reports
filed or caused to be filed by Greenwich Capital Acceptance, Inc. ("GCA") with
respect to a Trust Fund pursuant to Section 13(a), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, prior to the termination of the offering of
Certificates evidencing interests therein. Upon request by any person to whom
this Prospectus is delivered in connection with the offering of one or more
classes of Certificates, GCA will provide or cause to be provided without charge
a copy of any such documents and/or reports incorporated herein by reference, in
each case to the extent such documents or reports relate to such classes of
Certificates, other than the exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Requests to GCA
should be directed in writing to: Paul D. Stevelman, Greenwich Capital
Acceptance, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, telephone
number (203) 625-2700. GCA has determined that its financial statements are not
material to the offering of any Certificates.
Investors may read and copy the documents and/or reports incorporated
herein by reference at the Public Reference Room of the Securities and Exchange
Commission (the "SEC") at 450 Fifth Street, N.W., Washington, DC 20549.
Investors may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website
at http:\\www.sec.gov containing reports, proxy and information statements and
other information regarding issuers, including each Trust Fund, that file
electronically with the SEC.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Mortgage Assets or will be used
by the Depositor for general corporate purposes. The Depositor expects to sell
Certificates in Series from time to time, but the timing and amount of offerings
of Certificates will depend on a number of factors, including the volume of
Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
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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.
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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
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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.
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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
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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;
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(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
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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
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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;
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(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.
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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.
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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
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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
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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),
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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
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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.
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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
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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".
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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
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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.
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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;
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(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.
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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
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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
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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
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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
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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.
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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.
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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.
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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
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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.
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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
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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.
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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
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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.
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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.
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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
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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,
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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:
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(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
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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
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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
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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
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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
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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.
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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
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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
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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.
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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.
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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
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
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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
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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.
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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.
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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
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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
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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
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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
"certificates" that are obligations of a "trust" 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.
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The Underwriter Exemption contains several requirements, some of which
differ from those in PTE 83-1. The Underwriter Exemption contains an expanded
definition of "certificate" which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments. The
Underwriter Exemption contains an expanded definition of "trust" which permits
the trust corpus to consist of secured consumer receivables, including
obligations secured by shares issued by a cooperative housing association. The
definition of "trust," however, does not include any investment pool unless,
inter alia, (i) the investment pool consists only of assets of a type which have
been included in other investment pools, (ii) certificates evidencing interests
in such other investment pools have been purchased by investors other than Plans
for at least one year prior to the Plan's acquisition of certificates pursuant
to the Underwriter Exemption, and (iii) certificates in such other investment
pools have been rated in one of the three highest generic rating categories of
the four credit rating agencies noted below. Generally, the Underwriter
Exemption holds that the acquisition of the certificates by a Plan must be on
terms (including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an unrelated
party. The Underwriter Exemption requires that the rights and interests
evidenced by the certificates not be "subordinated" to the rights and interests
evidenced by other certificates of the same trust. The Underwriter Exemption
requires that certificates acquired by a Plan have received a rating at the time
of their acquisition that is in one of the three highest generic rating
categories of Standard & Poor's Ratings Services, Moody's Investors Service,
Inc., Duff & Phelps Inc. or Fitch IBCA, Inc. The Underwriter Exemption specifies
that the pool trustee must not be an affiliate of the pool sponsor, nor an
affiliate of the Underwriter, the pool servicer, any insurer of the pool, any
obligor with respect to mortgage loans included in the trust constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the trust, or any affiliate of such entities. Finally, the Underwriter
Exemption stipulates that any Plan investing in the certificates must be an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
Any Plan fiduciary which proposes to cause a Plan to purchase
Certificates should consult with their counsel concerning the impact of ERISA
and the Code, the applicability of PTE 83-1 and the Underwriter Exemption, and
the potential consequences in their specific circumstances, prior to making such
investment. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment procedure and diversification an
investment in the Certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Certificates will specify
which, if any, of the Classes of Certificates offered thereby constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). Classes of Certificates that
qualify as "mortgage related securities" will be legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation to the same extent
as, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any such entities. Under SMMEA, if a state
enacts legislation prior to October 4, 1991 specifically limiting the legal
investment authority of any such entities with respect to "mortgage related
securities," Certificates will constitute legal investments for entities subject
to such legislation only to the extent provided therein. Approximately
twenty-one states adopted such legislation prior to the October 4, 1991
deadline. SMMEA provides, however, that in no event will the enactment of any
such legislation affect the validity of any contractual commitment to purchase,
hold or invest in Certificates, or require the sale or other disposition of
Certificates, so long as such contractual commitment was made or such
Certificates were acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal in
Certificates without limitations as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase Certificates for their own account
without regard to the limitations generally applicable to investment securities
set forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal authority may prescribe. In this connection, federal
credit unions should review the National Credit Union Administration ("NCUA")
Letter to Credit Unions No. 96, as
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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.
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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
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addition, holders of stripped pass-through certificates in certain cases might
fail to recoup their underlying investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
Page
----
<S> <C>
1986 Act.........................................................................................................64
Accrual Certificates.............................................................................................27
AFR..............................................................................................................66
Agency Securities................................................................................................11
Agreement........................................................................................................13
Amortizable Bond Premium Regulations.............................................................................60
Applicable Amount................................................................................................75
APR..............................................................................................................15
ARM Loans........................................................................................................64
Asset Conservation Act...........................................................................................55
Available Funds..................................................................................................26
Bankruptcy Bond..................................................................................................35
Bankruptcy Code..................................................................................................39
BIF..............................................................................................................41
CERCLA...........................................................................................................55
Certificate Account..............................................................................................41
Certificate Principal Balance....................................................................................27
Certificate Register.............................................................................................25
Certificates.....................................................................................................11
Charter Act......................................................................................................18
Closing Date.....................................................................................................69
Code.............................................................................................................44
Collateral Value.................................................................................................13
Contingent Payment Regulations...................................................................................65
Contracts........................................................................................................11
Cooperative Loans................................................................................................14
Cooperatives.....................................................................................................14
Deferred Interest............................................................................................65, 73
Detailed Description.............................................................................................11
Determination Date...............................................................................................26
DOL..............................................................................................................84
EPA..............................................................................................................55
ERISA............................................................................................................84
Events of Default................................................................................................48
Fannie Mae.......................................................................................................11
FDIC.............................................................................................................23
FHA..............................................................................................................14
FHA Loans........................................................................................................15
Freddie Mac......................................................................................................11
Freddie Mac Act..................................................................................................17
Freddie Mac Certificate Group....................................................................................17
FTC Rule.........................................................................................................57
Garn-St Germain Act..............................................................................................57
GCA..............................................................................................................21
GCM..............................................................................................................87
Ginnie Mae.......................................................................................................11
Ginnie Mae Certificate...........................................................................................15
Ginnie Mae I Certificates........................................................................................15
Ginnie Mae II Certificates.......................................................................................15
Ginnie Mae Issuer................................................................................................15
Guaranty Agreement...............................................................................................15
</TABLE>
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<TABLE>
<S> <C>
Housing Act......................................................................................................15
HUD..............................................................................................................33
Insolvency Trustee...............................................................................................39
Insurance Proceeds...............................................................................................42
Insured Expenses.................................................................................................42
IRS..............................................................................................................60
Legislative History..............................................................................................64
Liquidation Expenses.............................................................................................42
Liquidation Proceeds.............................................................................................42
Loan-to-Value Ratio..............................................................................................13
Manufactured Homes...............................................................................................15
Manufacturer Invoice Price.......................................................................................13
Mark-to-Market Regulations.......................................................................................78
Master REMIC.....................................................................................................68
Mortgage.........................................................................................................39
Mortgage Assets..................................................................................................11
Mortgage Loans...................................................................................................11
Mortgage Pool....................................................................................................11
Mortgage Pool Insurance Policy...................................................................................32
Mortgage Rate....................................................................................................12
Mortgaged Properties.............................................................................................11
Multifamily Loans................................................................................................11
NCUA.............................................................................................................86
New Regulations..................................................................................................67
Non-economic Residual Certificate................................................................................82
OID Regulations..................................................................................................61
Parties in Interest..............................................................................................84
Payment Lag Certificates.........................................................................................74
Permitted Investments............................................................................................41
Plans............................................................................................................84
PMBS Agreement...................................................................................................20
PMBS Issuer......................................................................................................20
PMBS Servicer....................................................................................................20
PMBS Trustee.....................................................................................................20
Policy Statement.................................................................................................87
Pool Insurer.....................................................................................................32
Prepayment Assumption........................................................................................64, 70
Primary Insurer..................................................................................................45
Primary Mortgage Insurance Policy................................................................................11
Principal Prepayments............................................................................................28
PTE 83-1.........................................................................................................84
Purchase Price...................................................................................................24
Rating Agency....................................................................................................41
RCRA.............................................................................................................56
Record Date......................................................................................................25
Refinance Loans..................................................................................................13
Regular Certificateholders.......................................................................................69
Regular Certificates.............................................................................................68
Relief Act.......................................................................................................58
REMIC............................................................................................................26
REMIC Regulations................................................................................................59
Reserve Account..................................................................................................26
Residual Certificates............................................................................................68
Retained Interest................................................................................................25
SAIF.............................................................................................................41
SEC..............................................................................................................21
</TABLE>
91
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<TABLE>
<S> <C>
Sellers..........................................................................................................11
Senior Certificates..............................................................................................31
Series...........................................................................................................11
Single Family Certificates.......................................................................................84
Single Family Loans..............................................................................................11
SMMEA............................................................................................................86
Special Hazard Insurance Policy..................................................................................34
Special Hazard Insurer...........................................................................................34
Stripped ARM Obligations.........................................................................................65
Stripped Bond Certificates.......................................................................................62
Stripped Coupon Certificates.....................................................................................62
Subordinated Certificates........................................................................................31
Sub-Servicer.....................................................................................................13
Sub-Servicing Account............................................................................................41
Sub-Servicing Agreement..........................................................................................42
Subsidiary REMIC.................................................................................................68
Super-Premium Certificates.......................................................................................70
Support Agreement................................................................................................29
Support Servicer.................................................................................................29
Title V..........................................................................................................58
Treasury.........................................................................................................61
Trust Fund.......................................................................................................11
U.S. Person......................................................................................................67
UCC..............................................................................................................51
Underwriter Exemption............................................................................................85
VA ..............................................................................................................14
VA Guaranty Policy...............................................................................................34
VA Loans.........................................................................................................15
</TABLE>
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[INTENTIONALLY LEFT BLANK]
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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.
$288,076,000
(APPROXIMATE)
MORTGAGE LOAN PASS-THROUGH CERTIFICATES, SERIES 2000-FRB1
[LOGO]
$109,426,000 CLASS A-1 FLOATING PASS-THROUGH RATE
$6,062,900 CLASS A-1M FLOATING PASS-THROUGH RATE
$158,701,000 CLASS A-2 WEIGHTED AVERAGE PASS-THROUGH RATE
$8,794,000 CLASS A-2M WEIGHTED AVERAGE PASS-THROUGH RATE
$100 CLASS A-R WEIGHTED AVERAGE PASS-THROUGH RATE
$2,182,000 CLASS B-1 FLOATING PASS-THROUGH RATE
$1,455,000 CLASS B-2 FLOATING PASS-THROUGH RATE
$1,455,000 CLASS B-3 FLOATING PASS-THROUGH RATE
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
FIRST REPUBLIC BANK
Seller and Servicer
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PROSPECTUS SUPPLEMENT
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GREENWICH CAPITAL
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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.
April 19, 2000
