As filed with the Securities and Exchange Commission on May 31, 2000
Registration Statement No. 333-34330
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
---------
GREENWICH CAPITAL ACCEPTANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1199884
(State of incorporation) (I.R.S. Employer
Identification No.)
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
---------
John C. Anderson
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------
With a copy to:
Stephen B. Esko, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of to be Aggregate Price Aggregate Registration
Securities to Be Registered Registered(1) Per Unit* Offering Price Fee
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates................ $2,000,000,000 100% $2,000,000,000 $528,000
===========================================================================================================================
</TABLE>
(1) $1,000,000 aggregate principal amount of Mortgage Pass-Through
Certificates has been filed by the Registrant under Registration
Statement No. 333-34330 and is being amended. A registration fee of
$264 was paid previously in connection with such prior filing of the
Registration Statement. $125,542,241 aggregate principal amount of
Mortgage Pass-Through Certificates registered by the Registrant
under Registration Statement No. 333-90547 referred to below and not
previously sold is carried forward in this Registration Statement
pursuant to Rule 429. A registration fee was paid previously in
connection with such unsold certificates.
Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
Prospectus included in this Registration Statement is a combined prospectus
and also relates to registration statement No. 333-90547 as previously filed
by the Registrant on Form S-3. Such registration statement No. 333-90547 was
declared effective December 10, 1999. This Registration Statement, which is a
new registration statement, also constitutes Post-Effective Amendment No. 1 to
registration statement No. 333-90547 and such Post-Effective Amendment No. 1
shall hereafter become effective concurrently with the effectiveness of this
Registration Statement and in accordance with Section 8(c) of the Securities
Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
==============================================================================
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these certificates until the registration statement
filed with the Securities and Exchange commission (SEC) is effective. This
prospectus supplement is not an offer to sell these certificates and it is not
soliciting an offer to buy these certificates in any state where the offer or
sale is not permitted.
SUBJECT TO COMPLETION, DATED __________, ___, 2000
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________, 2000_)
Consider carefully the risk factors beginning on page S-8 of this prospectus
supplement and on page 14 of the prospectus.
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of Greenwich Capital Acceptance, Inc., [_______]
or any of their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
$________ (approximate) Class A, [ ____ %] [Variable Pass-Through Rate]
$________ (approximate) Class M, [ ____ %] [Variable Pass-Through Rate]
$________ (approximate) Class B, [ ____ %] [Variable Pass-Through Rate]
Mortgage Backed Certificates, Series 2000-__
The trust will issue [___] classes of certificates. Only the three classes of
certificates identified above are being offered by this prospectus supplement
and the accompanying prospectus.
The Certificates
o The Class A certificates will be senior certificates.
o The Class M certificates will be mezzanine certificates.
o The Class B certificates will be subordinate certificates.
o Each class of certificates will accrue interest at a rate equal to
[one-month LIBOR plus a fixed margin], subject to certain
limitations described in this prospectus supplement.
Credit Enhancement
o Overcollateralization - Certain excess interest received from the
mortgage loans in the trust will be applied as payments of principal
on the offered certificates to establish and maintain a required
level of overcollateralization.
o Subordination - The mezzanine certificates and the subordinate
certificates are subordinate in right of certain payments to the
senior certificates. The Class B Certificates are subordinate to the
mezzanine certificates.
o Allocation of Losses - Certain losses may be allocated among the
mezzanine and subordinate certificates in reverse order of
seniority, which would reduce the principal balances of the
certificates affected. Although the outstanding principal balance of
the Class A Certificates will not be reduced as a result of realized
losses, in some circumstances such losses may reduce the amount of
principal ultimately paid to the holders of the Class A
Certificates.
Neither the Securities and Exchange Commission (SEC) nor any state securities
commission has approved these securities or determined that this prospectus
supplement or the prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
The offered certificates are being offered by Greenwich Capital Markets, Inc.
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the depositor with respect to
the offered certificates are expected to be approximately $_____________,
before deducting issuance expenses payable by the depositor, estimated to be
$___________. See "Method of Distribution" in this prospectus supplement.
Delivery of the offered certificates will be made in book-entry form through
the facilities of The Depository Trust Company, [Clearstream Banking, societe
anonyme, and the Euroclear System,] on or about __________________, 2000_.
-------------------
GREENWICH CAPITAL MARKETS, INC.
____________ __, 2000_
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY OF TERMS...................................................................................................S-3
RISK FACTORS.......................................................................................................S-8
THE MORTGAGE POOL.................................................................................................S-15
GENERAL........................................................................................................S-15
MORTGAGE LOAN STATISTICS.......................................................................................S-15
ADJUSTABLE RATE MORTGAGE LOANS.................................................................................S-21
THE INDEX......................................................................................................S-28
UNDERWRITING STANDARDS............................................................................................S-28
THE MASTER SERVICER...............................................................................................S-29
THE POOLING AND SERVICING AGREEMENT...............................................................................S-31
GENERAL........................................................................................................S-31
ASSIGNMENT OF THE MORTGAGE LOANS...............................................................................S-31
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION ACCOUNT............................S-33
ADVANCES.......................................................................................................S-34
THE TRUSTEE....................................................................................................S-35
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES.......................................................S-35
VOTING RIGHTS..................................................................................................S-36
AMENDMENT......................................................................................................S-36
TERMINATION....................................................................................................S-36
[OPTIONAL PURCHASE OF DEFAULTED LOANS..........................................................................S-37
EVENTS OF DEFAULT..............................................................................................S-37
RIGHTS UPON EVENT OF DEFAULT...................................................................................S-37
DESCRIPTION OF THE CERTIFICATES...................................................................................S-38
GENERAL........................................................................................................S-38
BOOK-ENTRY CERTIFICATES........................................................................................S-38
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES...................................................................S-43
ALLOCATION OF AVAILABLE FUNDS..................................................................................S-44
DEFINITIONS....................................................................................................S-46
PASS-THROUGH RATES.............................................................................................S-51
CALCULATION OF [ONE-MONTH LIBOR]...............................................................................S-51
APPLICATION OF ALLOCABLE LOSS AMOUNTS..........................................................................S-52
[EXCESS RESERVE FUND ACCOUNT...................................................................................S-52
REPORTS TO CERTIFICATEHOLDERS..................................................................................S-53
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS.....................................................................S-55
OVERCOLLATERALIZATION PROVISIONS...............................................................................S-56
[ADDITIONAL INFORMATION........................................................................................S-57
WEIGHTED AVERAGE LIVES.........................................................................................S-57
USE OF PROCEEDS...................................................................................................S-58
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES..................................................................S-58
TAXATION OF REGULAR INTERESTS..................................................................................S-59
STATUS OF THE OFFERED CERTIFICATES.............................................................................S-60
NON-U.S. PERSONS...............................................................................................S-60
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES....................................................................S-61
BACKUP WITHHOLDING.............................................................................................S-61
STATE TAXES.......................................................................................................S-62
ERISA CONSIDERATIONS..............................................................................................S-62
LEGAL INVESTMENT CONSIDERATIONS...................................................................................S-65
METHOD OF DISTRIBUTION............................................................................................S-65
LEGAL MATTERS.....................................................................................................S-66
RATINGS...........................................................................................................S-66
INDEX OF DEFINED TERMS............................................................................................S-68
ANNEX I............................................................................................................A-1
</TABLE>
<PAGE>
SUMMARY OF TERMS
o This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of an offering
of the certificates, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flow
priorities and other information to aid your understanding and is
qualified by the full description of these calculations, cash flow
priorities and other information in this prospectus supplement and the
accompanying prospectus. Some of the information consists of
forward-looking statements relating to future economic performance or
projections and other financial items. Forward-looking statements are
subject to a variety of risks and uncertainties that could cause actual
results to differ from the projected results. Those risks and
uncertainties include, among others, general economic and business
conditions, regulatory initiatives and compliance with governmental
regulations, and various other matters, all of which are beyond our
control. Accordingly, what actually happens may be very different from
what we predict in our forward-looking statements.
Offered Certificates
On the closing date, [_____________Trust] will issue [___] classes of
certificates, three of which are being offered pursuant to this prospectus
supplement and the accompanying prospectus. The assets of the trust that will
support the certificates will consist of a pool of [fixed-rate] mortgage loans
with a principal balance of approximately $ _______________ and [adjustable-
rate] mortgage loans with a principal balance of approximately $_______ as of
________________, 200 . [All of the adjustable rate mortgage loans are
indexed to [six-month LIBOR], of which [__]% have initial fixed rate periods.
The mortgage loans will have original terms to maturity ranging from [______]
years to 30 years and will be secured by first liens on one- to four-family
residential properties.
Each class of certificates that is being offered will be book-entry securities
clearing through DTC [(in the United States) or Clearstream Banking, societe
anonyme ("Clearstream") or Euroclear (in Europe)] in minimum denominations of
$50,000.
Other Certificates
The trust will issue [two] additional classes of certificates. These
certificates will be designated the [Class OC and] Class R Certificates and
are not being offered to the public pursuant to this prospectus supplement and
the prospectus. [The Class OC Certificates will not have an original principal
certificate balance.] The Class R Certificates will have an original
certificate principal balance of [$100].
See "The Mortgage Pool" and "Description of the Certificates-- General" and
"--Book-Entry Certificates" in this prospectus supplement and "The Trust
Fund--The Mortgage Loans--General" in the prospectus.
Cut-off Date
__________ __, 2000
Closing Date
On or about __________ __, 2000
The Depositor
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
Seller
[____________________]
Master Servicer
[____________________]
Trustee
[____________________]
Designations
Each class of certificates will have different characteristics, some of which
are reflected in the following general designations.
o Offered Certificates
Class A, Class M and Class B Certificates
o Senior Certificates
Class A Certificates
o Mezzanine Certificates
Class M Certificates
o Subordinate Certificates
Class B Certificates
o Residual Certificates
Class R Certificates
o Book-Entry Certificates
Class A, Class M and Class B Certificates
o [Excess Reserve Fund Support Certificates
Class OC Certificates]
o Physical Certificates
[Class OC and] Class R Certificates
Distribution Dates
The trustee will make distributions on the certificates on the __th day of
each calendar month beginning on ___________ __, 2000 to the holder of record
of the certificates as of the business day preceding such date of
distribution. If the __th day of a month is not a business day, then the
distribution will be made on the next business day.
Payments on the Certificates
Interest Payments
The pass-through rate for each class of offered certificates will be
calculated at the rates specified below, subject to the limitations described
under "Description of the Certificates -- Pass-Through Rates" in this
prospectus supplement:
Class A [Index] + __ basis points
Class M [Index] + __ basis points
Class B [Index] + __ basis points
Interest payable on the certificates on a distribution date will accrue during
the period commencing on the prior distribution date and ending on the day
before the current distribution date. The first accrual period will begin on
the Closing Date and end on _________ __, 2000. Interest will be calculated on
the basis of the actual number of days included in the interest accrual
period, based on a 360-day year.
See "Description of the Certificates" in this prospectus supplement.
Payment Priorities
On each distribution date, available funds in the trust will be paid in the
following order of priority and subject to the limitations described under
"Description of the Certificates--Allocation of Available Funds" in this
prospectus supplement:
(i) to the Class A Certificates, as current interest and any previously
unpaid interest;
(ii) as current interest sequentially to the Class M and Class B
Certificates;
(iii) as principal of the Class A, Class M and Class B Certificates, in
that order, to the extent such classes are entitled to receive
distributions of principal, up to the aggregate amount received on
account of principal of the mortgage loans;
(iv) as principal of the Class A, Class M and Class B Certificates, in
that order, to the extent such classes are entitled to receive
distributions of principal, up to the amount necessary to achieve
the required levels of overcollateralization;
(v) as unpaid interest and reimbursement of certain previously allocated
losses, if any, to the Class M and Class B Certificates;
[(vi) to the Class OC Certificates for deposit into a reserve account to
cover shortfalls or required reserves, before being released to the
Class OC Certificates;] and
(vi) any remaining amounts to the Class R Certificates.
See "Description of the Certificates" in this prospectus supplement.
Advances
The Master Servicer will make cash advances with respect to delinquent
payments of principal and interest to the extent the Master Servicer
reasonably believes that the cash advances are recoverable from future
payments on the related mortgage loans. Advances are intended to maintain a
regular flow of scheduled interest and principal payments on the certificates
and are not intended to guarantee or insure against losses.
See "The Pooling and Servicing Agreement--Advances" in this prospectus
supplement.
Optional Termination
The holder of the majority interest in the residual certificates may purchase
all of the remaining assets of the trust after the principal balance of the
mortgage loans and any real estate owned by the trust declines below 10% of
the principal balance of the mortgage loans on [the Cut-off Date].
If the holder of the majority interest in the residual certificates does not
exercise this option, then the Master Servicer will have the right to exercise
this option. [If the option is not exercised, the offered certificates still
outstanding will accrue interest at a higher rate.]
See "The Pooling and Servicing Agreement --Termination" and "Description of
the Certificates -- Pass-Through Rates" in this prospectus supplement.
Credit Enhancement
The credit enhancements include overcollateralization, subordination and
allocation of losses. These credit enhancements are designed to increase the
likelihood that certificateholders with a higher payment priority will receive
regular payments of interest and principal.
Overcollateralization
The mortgage loans owned by the trust pay interest each month that in the
aggregate is expected to exceed the amount needed to pay monthly interest on
the offered certificates and certain fees and expenses of the trust. A portion
of this excess interest applied to pay principal on the offered certificates,
which reduces the principal balance of the certificates at a faster rate than
the principal balance on the mortgage loans is being reduced. As a result, the
aggregate principal balance of the mortgage loans is expected to exceed the
aggregate principal balance of the offered certificates. This feature is
referred to as "overcollateralization." The required level of
overcollateralization may increase or decrease over time. We cannot assure you
that sufficient interest will be generated by the mortgage loans to maintain
the required level of overcollateralization.
See "Description of the Certificates" in this prospectus supplement.
Subordination and Allocation of Losses
The Class A Certificates will have a payment priority over the mezzanine
certificates and the subordinate certificates. The Class M Certificates will
have a payment priority over the Class B Certificates.
Subordination is designed to provide the holders of certificates with a higher
payment priority protection against losses up to a certain level that are
realized when the unpaid principal balance on a mortgage loan exceeds the
proceeds recovered upon the liquidation of that mortgage loan. Losses will
first be applied to reduce the overcollateralization amount. Thereafter, loss
protection is accomplished by allocating the realized losses first to the
subordinate certificates, until the principal amount of the subordinate
certificates is reduced to zero. Realized losses would then be allocated to
the next most junior class of certificates, the Class M Certificates, until
the principal amount of the Class M Certificates is reduced to zero. Although
the outstanding principal balance of the Class A Certificates will not be
reduced as a result of realized losses, in some circumstances such losses may
reduce the amount of principal ultimately paid to the holders of the Class A
Certificates.
See "Description of the Certificates" in this prospectus supplement.
Ratings
It is a condition of the issuance of the offered certificates that they be
assigned the following ratings by _____________ and _____________.
Rating Rating
Agency Agency
Class Rating Rating
----- ------ ------
A
M
B
A rating is not a recommendation to buy, sell or hold securities. These
ratings may be lowered or withdrawn at any time by either of the rating
agencies.
See "Ratings" in this prospectus supplement.
Tax Status
In the opinion of Brown & Wood LLP, for federal income tax purposes the trust
will include [multiple segregated asset pools]. An election will be made to
treat [each] pool as a [separate] "real estate mortgage investment conduit"
("REMIC"). Certain classes of certificates that are designated as the regular
certificates will constitute "regular interests" in the [Master] REMIC. The
Class R Certificates will represent the sole class of "residual interests" in
the [Master] REMIC. [The class of certificates designated as the residual
certificates will represent the sole class of residual interests in each
subsidiary REMIC.]
[The offered certificates will also represent the right to receive payments
from the excess reserve fund account. The excess reserve fund account will be
treated as an "outside reserve fund" and the right to receive payments from
such account will be treated as an interest rate cap agreement for federal
income tax purposes. Beneficial owners of the offered certificates will be
treated for federal income tax purposes as having purchased an undivided
beneficial interest in a regular interest in the [Master] REMIC and as having
acquired rights under an interest rate cap agreement, both to the extent of
the owner's proportionate interest in the offered certificates. A
certificateholder generally will recognize ordinary income equal to such
certificateholder's proportionate share of interest and original issue
discount, if any, accrued on the offered certificates and will take into
account a proportionate share of any payments received under the interest rate
cap agreement. A certificateholder's income derived from payments received
under the interest rate cap agreement generally must be accounted for under
the notional principal contract regulations.]
See "Certain Material Federal Income Tax Consequences" in this prospectus
supplement and "Certain Federal Income Tax Consequences" in the prospectus.
ERISA Considerations
It is expected that the Class A Certificates may be purchased by a pension or
other employee benefit plan subject to the Employee Retirement Income Security
Act of 1974 or section 4975 of the Internal Revenue Code of 1986, so long as
certain conditions are met. A fiduciary of an employee benefit plan must
determine that the purchase of a certificate is consistent with its fiduciary
duties under applicable law and does not result in a non-exempt prohibited
transaction under applicable law.
See "ERISA Considerations" in this prospectus supplement and in the
prospectus.
Legal Investment
The Class A Certificates and Class M Certificates will be "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 as long as they are rated in one of the two highest rating categories by
at least one nationally recognized statistical rating organization. The Class
B Certificates will not be rated in one of the two highest rating categories
by a nationally recognized statistical rating organization and, therefore,
will not be "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984.
See "Legal Investment Considerations" in this prospectus supplement and "Legal
Investment" in the prospectus.
<PAGE>
RISK FACTORS
The following information, which you should carefully consider,
identifies certain significant sources of risk associated with an investment
in the certificates. You should also carefully consider the information set
forth under "Risk Factors" in the prospectus.
Unpredictability
of Prepayments and
Effect on Yields ..................... Borrowers may prepay their mortgage
loans in whole or in part at any time.
We cannot predict the rate at which
borrowers will repay their mortgage
loans. A prepayment of a mortgage loan
generally will result in a prepayment
on the certificates.
o If you purchase your certificates
at a discount and principal is
repaid slower than you anticipate,
then your yield may be lower than
you anticipate.
o If you purchase your certificates
at a premium and principal is
repaid faster than you anticipate,
then your yield may be lower than
you anticipate.
o The rate of prepayments on the
mortgage loans will be sensitive
to prevailing interest rates.
Generally, if prevailing interest
rates decline significantly below
the interest rates on the
fixed-rate mortgage loans, those
mortgage loans are more likely to
prepay than if prevailing rates
remain above the interest rates on
such mortgage loans. In addition,
if interest rates decline,
adjustable-rate mortgage loan
prepayments may increase due to
the availability of fixed-rate
mortgage loans at lower interest
rates. Conversely, if prevailing
interest rates rise significantly,
the prepayments on fixed-rate and
adjustable-rate mortgage loans are
likely to decrease.
o [____% of the principal balance of
the mortgage loans on [the Cut-off
Date] are "balloon loans." Balloon
loans generally provide for
scheduled monthly payments of
principal up to the ___th month
with a final lump sum payment in
the ___th month. This lump sum
payment is substantially larger
than the previous scheduled
payments. Having balloon loans in
the trust may cause the prepayment
rate to vary more than if there
were no balloon loans, because the
borrower generally must refinance
the mortgage loan or sell the
mortgaged property prior to
payment of the lump sum on the
maturity date.]
o [Some of the mortgage loans
require the mortgagor to pay a
penalty if the mortgagor prepays
the mortgage loan during periods
ranging from [six months] to [five
years] after the mortgage loan was
originated. A prepayment penalty
may discourage a borrower from
prepaying the mortgage loan during
the applicable period.]
o The Seller may be required to
purchase mortgage loans from the
trust due to certain breaches of
representations and warranties
that have not been cured. These
purchases will have the same
effect on the holders of the
offered certificates as a
prepayment of the mortgage loans.
o So long as the
overcollateralization level
remains greater than zero,
liquidations of defaulted mortgage
loans will have the same effect on
holders of the Offered
Certificates as a prepayment of
the related mortgage loans.
o If the rate of default and the
amount of losses on the mortgage
loans is higher than you expect,
then your yield may be lower than
you expect.
See "Yield, Prepayment and
Maturity Considerations" in this
prospectus supplement for a
description of factors that may
influence the rate and timing of
prepayments on the mortgage loans.
Potential Inadequacy
of Credit Enhancement ................ The certificates are not insured by
any financial guaranty insurance
policy. The overcollateralization,
subordination and allocation of loss
features described in the summary are
intended to enhance the likelihood
that holders of the Class A
Certificates will receive regular
payments of interest and principal.
If delinquencies or defaults
occur on the mortgage loans, neither
the Master Servicer nor any other
entity will advance scheduled monthly
payments of interest and principal on
delinquent or defaulted mortgage loans
if such advances are not likely to be
recovered. We cannot assure you that
the applicable credit enhancement will
adequately cover any shortfalls in
cash available to pay your
certificates as a result of such
delinquencies or defaults.
If substantial losses occur as a
result of defaults and delinquent
payments on the mortgage loans,
investors, particularly investors in
the subordinate certificates, may lose
their initial investment.
Overcollateralization ................ Because the weighted average of the
interest rates on the mortgage loans
is expected to be higher than the
weighted average of the interest rates
on the certificates, the mortgage
loans are expected to generate more
interest than is needed to pay
interest owed on the certificates as
well as certain fees and expenses of
the trust. Any remaining interest will
then be used to compensate for losses
that occur on the mortgage loans.
After these financial obligations of
the trust are covered, the available
excess interest will be used to create
and maintain overcollateralization. We
cannot assure you, however, that
enough excess interest will be
generated to maintain the
overcollateralization level required
by the rating agencies. The factors
described below will affect the amount
of excess interest that the mortgage
loans will generate.
o Every time a mortgage loan is
prepaid, excess interest may be
reduced because the mortgage loan
will no longer be outstanding and
generating interest or, in the
case of a partial prepayment, will
be generating less interest.
o Every time a mortgage loan is
liquidated or written off, excess
interest will be reduced because
such mortgage loans will no longer
be outstanding and generating
interest.
o If the rates of delinquencies,
defaults or losses on the mortgage
loans turn out to be higher than
expected, excess interest will be
reduced by the amount necessary to
compensate for any shortfalls in
cash available on such date to pay
certificateholders.
o The mortgage loans have rates that
are fixed or that adjust based on
an index that is different from
the index used to determine rates
on the certificates. As a result,
interest rates on the certificates
may increase relative to interest
rates on the mortgage loans,
requiring that more of the
interest generated by the mortgage
loans be applied to cover interest
on the certificates.
Subordination ........................ When certain classes of certificates
provide credit enhancement for other
classes of certificates, this form of
credit enhancement is referred to as
"subordination." For any particular
class, "related junior class" means
the class that is subordinate to such
class. The order of seniority,
beginning with the most senior class,
is Class A, Class M and Class B.
Credit enhancement is provided
for the certificates first by the
right of the holders of certain
classes of certificates to receive
certain payments of interest prior to
the related junior classes and certain
payments of principal prior to the
related junior classes. This form of
credit enhancement is provided solely
from collections on the mortgage loans
otherwise payable to the holders of
the related junior classes. Credit
enhancement also is provided by the
allocation of realized losses first to
the related junior classes.
Accordingly, if the aggregate
principal balance of the related
junior classes were to be reduced to
zero, delinquencies and defaults on
the mortgage loans would reduce the
amount of funds available for monthly
payments to holders of the remaining
certificates.
See "Description of the
Certificates" in this prospectus
supplement and "Credit Enhancement --
Subordination" in the prospectus.
[Risk of Limitations
to Adjustments of
the Loan Rates ....................... The offered certificates accrue
interest at pass-through rates based
on the [one-month LIBOR] index plus a
specified margin, but are subject to
certain caps. The caps on interest
paid on the certificates are based on
the weighted average of the interest
rates on the mortgage loans in the
trust net of certain trust expenses.
The trust includes [fixed-rate] and
[adjustable-rate mortgage loans with
rates that are based on the [six-month
LIBOR] index]. The adjustable-rate
mortgage loans have periodic and
maximum limitations on adjustments to
the mortgage loan rate. As a result,
the offered certificates may accrue
less interest than they would accrue
if their rates were based solely on
the one-month LIBOR index plus the
specified margin. If this circumstance
occurred, the value of the offered
certificates may be temporarily or
permanently reduced.
A variety of factors could limit
the pass-through rates on the offered
certificates in a rising interest rate
environment. Some of these factors are
described below.
o The trust includes fixed-rate
mortgage loans on which the rate
of interest does not adjust.
o The [one-month LIBOR] index used
to calculate the pass-through
rates on the offered certificates
is different from the index used
to calculate the loan rates on the
adjustable-rate mortgage loans in
the trust.
o The pass-through rates adjust
monthly while the loan rates on
the adjustable-rate mortgage loans
adjust less frequently, [and some
adjustable-rate mortgage loans
have initial fixed rate periods of
[ _____ ] to [ _____ ] years
following the date of
origination.]
o It is possible that interest rates
on the adjustable-rate mortgage
loans may decline while interest
rates on the certificates are
stable or rising. It is also
possible that interest rates on
both the adjustable-rate mortgage
loans and the certificates may
decline or increase during the
same period, but that the interest
rates on the certificates may
decline more slowly or increase
more rapidly.
These factors may adversely
affect the yields to maturity on the
offered certificates.]
Prepayment Interest
Shortfalls ........................... When a mortgage loan is prepaid in
full, the borrower is charged interest
only up to the date on which payment
is made, rather than for an entire
month. This may result in a shortfall
in interest collections available for
payment on the next distribution date.
[The Master Servicer is required to
cover a portion of the shortfall in
interest collections that are
attributable to prepayments, but only
up to the Master Servicer's servicing
fee for the related one-month accrual
period.]
Underwriting Standards and
Default Risks ........................ The mortgage loans were originated by
[various originators], [none of which
is affiliated with the Depositor].
[Discussion of originators'
underwriting standards.]
Risks of Early Default ............... Defaults on mortgage loans are
generally expected to occur more
frequently in the early years of the
terms of mortgage loans. [Many of] the
mortgage loans in the trust were
originated [within twelve months prior
to ________ __, 2000.]
Geographic Concentration ............. The following chart reflects the
[_____] states with highest
concentrations of mortgage loans in
the trust based on the initial pool
principal balance.
[Table]
In addition, the conditions below
will have a disproportionate impact on
the mortgage loans in general.
o Economic conditions in
[___________] (which may or may
not affect real property values)
may affect the ability of
borrowers to repay their loans on
time.
o Declines in the [_______,
________, and _________]
residential real estate markets
may reduce the values of
properties located in those
states, which would result in an
increase in the loan-to-value
ratios.
o Any increase in the market value
of properties located in [_______,
________, and _________] would
reduce the loan-to-value ratios
and could, therefore, make
alternative sources of financing
available to the borrowers at
lower interest rates, which could
result in an increased rate of
prepayment of the mortgage loans.
Certificates May Not Be
Appropriate for Certain
Investors ............................ The offered certificates may not be an
appropriate investment for investors
who do not have sufficient resources
or expertise to evaluate the
particular characteristics of the
applicable class of offered
certificates. This may be the case
because, among other things:
o The yield to maturity of offered
certificates purchased at a price
other than par will be sensitive
to the uncertain rate and timing
of principal prepayments on the
mortgage loans.
o The rate of principal
distributions on and the weighted
average lives of the offered
certificates will be sensitive to
the uncertain rate and timing of
principal prepayments on the
mortgage loans and the priority of
principal payments among the
classes of certificates.
Therefore, the offered
certificates may be an
inappropriate investment if you
are an investor that requires a
payment of a particular amount of
principal on a specific date or an
otherwise predictable stream of
payments.
o You may be unable to reinvest
amounts received as principal on
an offered certificate at a rate
comparable to the pass-through
rate applicable to the
certificate. In general, principal
prepayments are expected to be
greater during periods of
relatively low interest rates.
o A market for resale of the offered
certificates may not develop or
provide certificateholders with
liquidity of investment.
You should also carefully
consider the further matters discussed
under the heading "Yield, Prepayment
and Maturity Considerations" in this
prospectus supplement and under the
heading "Risk Factors" in the
prospectus.
Liquidity ............................ Greenwich Capital Markets, Inc.
intends to make a secondary market in
the classes of certificates actually
purchased by it, but it has no
obligation to do so. There is no
assurance that such a secondary market
will develop or, if it develops, that
it will continue. Consequently, you
may not be able to sell your
certificates readily or at prices that
will enable you to realize your
desired yield. The market values of
the certificates are likely to
fluctuate; these fluctuations may be
significant and could result in
significant losses to you.
The secondary markets for
mortgage backed securities have
experienced periods of illiquidity and
can be expected to do so in the
future. Illiquidity can have a
severely adverse effect on the prices
of securities that are especially
sensitive to prepayment, credit, or
interest rate risk, or that have been
structured to meet the investment
requirements of limited categories of
investors.
<PAGE>
THE MORTGAGE POOL
General
[____________] (the "Trust Fund") will consist of a pool of closed-end,
[fixed-rate and adjustable-rate] mortgage loans (the "Mortgage Pool") secured
by conventional, one- to four-family, first lien mortgage loans having
original terms to maturity ranging from [_] to 30 years (the "Mortgage
Loans"). All Mortgage Loan statistics set forth herein are based on principal
balances, interest rates, terms to maturity, mortgage loan counts and similar
statistics as of __________ ___, 2000 (the "Cut-off Date"), unless indicated
to the contrary herein. All weighted averages specified herein are weighted
based on the principal balances of the Mortgage Loans as of the Cut-Off Date
(the "Cut-off Date Principal Balance"). References to percentages of the
Mortgage Loans mean percentages based on the aggregate of the principal
balances of the Mortgage Loans (the "Pool Principal Balance"
The description in this Prospectus Supplement of the Mortgage Pool
and the Mortgaged Properties (as defined herein) is based upon the Mortgage
Pool as constituted at the close of business on the Cut-off Date, as adjusted
for the principal payments received on or before such date. Prior to the
issuance of the Certificates by the Trust, Mortgage Loans may be removed from
the Mortgage Pool as a result of incomplete documentation or otherwise, if
Financial Asset Securities Corp. (the "Depositor") deems such removal
necessary or desirable, and may be prepaid at any time. A limited number of
other mortgage loans may be included in the Mortgage Pool prior to the
issuance of the Certificates unless including such mortgage loans would
materially alter the characteristics of the Mortgage Pool as described herein.
The Depositor believes that the information set forth herein will be
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Certificates are issued, although the range of the
interest rates on the individual Mortgage Loans (the "Mortgage Rates") and
maturities and certain other characteristics of the Mortgage Loans may vary.
Mortgage Loan Statistics
The Mortgage Pool will consist of approximately [________] conventional,
[fixed-rate and adjustable-rate] Mortgage Loans secured by first liens on
residential real property (the "Mortgaged Property"). The Mortgage Loans have
original terms to maturity ranging from [___] years to 30 years. The Mortgage
Pool consists of [fixed-rate Mortgage Loans (the "Fixed Rate Mortgage
Loans")], which will consist of approximately [________] Mortgage Loans having
an aggregate principal balance as of the Cut-off Date of approximately
$[__________] and [adjustable-rate Mortgage Loans (the "Adjustable Rate
Mortgage Loans")], which will consist of approximately [_______] Mortgage
Loans having an aggregate principal balance as of the Cut-off Date of
approximately $[___________], in each case after application of payments of
principal due on or before the Cut-off Date whether or not received, and in
each case subject to a permitted variance of plus or minus [5]%. [Each
Adjustable Rate Mortgage Loan provides for [semi-annual] adjustment to the
mortgage rate thereon based on [six-month London interbank offered rates for
United States dollar deposits] (the "Index") and for corresponding adjustments
to the monthly payment amount due thereon, in each case subject to the
limitations described under "--Adjustable Rate Mortgage Loans" herein;
provided that in the case of [_____]% of the Adjustable Rate Mortgage Loans,
the first adjustment for such Mortgage Loan will occur after an initial period
of [___] years, by aggregate principal balance of the Adjustable Rate Mortgage
Loans as of the Cut-off Date (each such Mortgage Loan described in this
proviso, a "Delayed First Adjustment Mortgage Loan").]
The Mortgage Loans are secured by first mortgages or deeds of trust or
other similar security instruments (each, a "Mortgage") creating first liens
on one- to four-family residential properties consisting of detached or
semi-detached one- to four-family dwelling units and individual condominium
units. [Approximately [______]% of the Mortgage Loans had a Loan-to-Value
Ratio at origination in excess of 80%.] There can be no assurance that the
Loan-to-Value Ratio of any Mortgage Loan determined at any time after
origination is less than or equal to its original Loan-to-Value Ratio. The
Mortgage Loans have scheduled monthly payments due on [the first day of the
month] (with respect to each Mortgage Loan, a "Due Date"), [except for
approximately [____]% of the Mortgage Loans which have Due Dates on other
dates during the month.] [Each Mortgage Loan will contain a customary
"due-on-sale" clause.]
[Approximately [_____]% of the Mortgage Loans provide for payment by
the mortgagor of a prepayment charge in limited circumstances on certain
prepayments. Generally, each such Mortgage Loan provides for payment of a
prepayment charge on certain partial prepayments and all prepayments in full
made within [______] from the date of origination of such Mortgage Loan. The
amount of the prepayment charge is provided in the related Mortgage Note and
is generally equal to [______].
[___] Fixed Rate Mortgage Loans comprising approximately [____]% of
the Pool Principal Balance as of the Cut-off Date are balloon payment mortgage
loans (each, a "Balloon Loan"). Each Balloon Loan amortizes over [360] months,
but the final payment (the "Balloon Payment") on each Balloon Loan is due and
payable on the Due Date of the [___]th month. The amount of the Balloon
Payment on each Balloon Loan is substantially in excess of the amount of the
scheduled monthly payment on the Mortgage Loan for the period prior to the Due
Date of such Balloon Payment.
Each Mortgage Loan had a Loan Rate of not less than [___]% per annum
and not more than [_____]% per annum and as of the Cut-off Date the weighted
average Loan Rate was approximately [____]% per annum.
The weighted average remaining term to maturity of the Mortgage Loans
will be approximately [___] months as of the Cut-off Date. [None of the
Mortgage Loans will have a first Due Date prior to __________ __, 20__ or
after ___________ __, 2000 or will have a remaining term to maturity of less
than [___] months or greater than 30 years as of the Cut-off Date.] The month
of the latest maturity date of any Mortgage Loan is ___________ 20__].
The average principal balance of the Mortgage Loans at origination
was approximately $[________]. The average principal balance of the Mortgage
Loans as of the Cut-off Date was approximately $[_________].
No Mortgage Loan had a principal balance as of the Cut-off Date of
greater than approximately $[____________] or less than approximately
$[_______]. The Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal
the total indicated due to rounding):
<TABLE>
<CAPTION>
Principal Balances of the Mortgage Loans as of the Cut-off Date(1)
Number of Principal Balance % of Aggregate Principal
Mortgage Outstanding as of Balance Outstanding as of
Principal Balance ($) Loans the Cut-off Date the Cut-off Date
------------------------------------------ -------------- --------------------- ---------------------------
<S> <C> <C> <C>
$ %
-------------- --------------------- ---------------------------
Total................................ $ 100.00%
============== ===================== ===========================
---------
(1) The average principal balance of the Mortgage Loans as of the Cut-off Date was $[______].
</TABLE>
<TABLE>
<CAPTION>
Original Terms to Maturity of the Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Original Term (months) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total................... $ 100.00%
=================== ======================== =======================
---------
(1) The weighted average original term to maturity of the Mortgage Loans was [___] months.
</TABLE>
Property Types of the 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>
%
2-4 Units.................... $
Condominium..................
Manufactured Housing.........
PUD..........................
Single Family Detached.......
Unknown.....................
------------------- ------------------------ -----------------------
Total................... $ 100.00%
=================== ======================== =======================
</TABLE>
<TABLE>
<CAPTION>
Occupancy Status of the Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Occupancy Status of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------- -----------------------
<S> <C> <C> <C>
Investor..................... $ %
Primary......................
Second Home..................
------------------- ------------------------- -----------------------
Total................... $ 100.00%
=================== ========================= =======================
</TABLE>
<TABLE>
<CAPTION>
Purpose of the Mortgage Loans
% of Aggregate
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..................... $ %
Rate/Term Refinance..........
------------------- ------------------------ -----------------------
Total................... $ 100.00%
=================== ======================== =======================
</TABLE>
<TABLE>
<CAPTION>
Loan Rates of the Mortgage Loans (1)
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Loan Rate (%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total....................... $ 100.00%
=================== ======================== =======================
------------------
(1) The weighted average Loan Rate of the Mortgage Loans as of the Cut-off Date was [____]%.
</TABLE>
<TABLE>
Original Loan-to-Value Ratios of the Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Original Loan-to-Value Ratio(%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C>
$ %
------------------ ---------------------- --------------------
Total....................... $ 100.00%
================== ====================== ====================
---------
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans was [_____]%.
</TABLE>
<TABLE>
<CAPTION>
Geographic Distribution of the Mortgaged Properties
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Location of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C>
$ %
------------------ ---------------------- --------------------
Total................................... $ 100.00%
================== ====================== ====================
-------------------
</TABLE>
<TABLE>
<CAPTION>
Prepayment Charges(1)
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Months of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C>
$ %
------------------ ---------------------- --------------------
Total............................... $ 100.00%
================== ====================== ====================
---------
(1) Prepayment charges are assessed on any Mortgage Loans prepaid in full or
in part within the specified number of months.
</TABLE>
<TABLE>
<CAPTION>
Loan Rates of the Fixed Rate Mortgage Loans(1)
% of Aggregate
Principal Balance
of Fixed Rate
Number Principal Balance Mortgage Loans
of Mortgage Outstanding as of Outstanding as of
Loan Rate (%) Loans the Cut-off Date the Cut-off Date
----------------------------------- ----------------- --------------------------- -------------------------
<S> <C> <C> <C>
$ %
----------------- --------------------------- -------------------------
Total........................ $ 100.00%
================= =========================== =========================
---------
(1)The weighted average Loan Rate of the Fixed Rate Mortgage Loans as of the
Cut-off Date was [_______]% per annum.
</TABLE>
Adjustable Rate Mortgage Loans
Each Adjustable Rate Mortgage Loan provides for [semi-annual] adjustment
to the Loan Rate thereon and for corresponding adjustments to the monthly
payment amount due thereon, in each case on each adjustment date applicable
thereto (each such date, an "Adjustment Date"); provided that the first
adjustment for such Mortgage Loan will occur after an initial period of
[__________] in the case of [____]% of the Adjustable Rate Mortgage Loans, by
aggregate principal balance of the Adjustable Rate Mortgage Loans as of the
Cut-off Date. On each Adjustment Date for each Adjustable Rate Mortgage Loan,
the Loan Rate thereon will be adjusted to equal the sum, [rounded to the
nearest multiple of 0.125%,] of the Index (as described below) and a fixed
percentage amount (the "Gross Margin"); [provided, however, that the Loan Rate
on each such Mortgage Loan generally will not increase or decrease by more
than 1.50% per annum on any related Adjustment Date (the "Periodic Rate Cap"),
except that each such Mortgage Loan may increase or decrease by a higher
percentage per annum on the initial Adjustment Date.] Each Loan Rate on each
such Mortgage Loan will not exceed a specified maximum Loan Rate over the life
of such Mortgage Loan (the "Maximum Loan Rate") or be less than a specified
minimum Loan Rate over the life of such Mortgage Loan (the "Minimum Loan
Rate"). The Delayed First Adjustment Mortgage Loans have a weighted average
Periodic Rate Cap of approximately [___]% per annum. Effective with the first
monthly payment due on each Adjustable Rate Mortgage Loan after each related
Adjustment Date, the monthly payment amount will be adjusted to an amount that
will amortize fully the outstanding principal balance of the related Mortgage
Loan over its remaining term, and pay interest at the Loan Rate as so
adjusted. Due to the application of the Periodic Rate Caps and the Maximum
Loan Rates, the Loan Rate on each such Mortgage Loan, as adjusted on any
related Adjustment Date, may be less than the sum of the Index and the related
Gross Margin, rounded as described herein. See "--The Index" below. None of
the Adjustable Rate Mortgage Loans permits the related mortgagor to convert
the adjustable Loan Rate thereon to a fixed Loan Rate.
The Adjustable Rate Mortgage Loans had Loan Rates as of the Cut-off Date
of not less than [______]% per annum and not more than [_____]% per annum and
the weighted average Loan Rate was approximately [_____]% per annum. As of the
Cut-off Date, the Adjustable Rate Mortgage Loans had Gross Margins ranging
from [_______]% to [______]%, Minimum Loan Rates ranging from [_____]% per
annum to [_____]% per annum and Maximum Loan Rates ranging from [_____]% per
annum to [_____]% per annum. As of the Cut-off Date, the weighted average
Gross Margin was approximately [_____]%, the weighted average Minimum Loan
Rate was approximately [_____]% per annum [(exclusive of the Mortgage Loans
that do not have a Minimum Loan Rate)] and the weighted average Maximum Loan
Rate was approximately [_____]% per annum. The latest next Adjustment Date
following the Cut-off Date on any Adjustable Rate Mortgage Loan occurs in
[_______ 2000] and the weighted average next Adjustment Date for all of the
Adjustable Rate Mortgage Loans following the Cut-off Date is [_______ 200_].
<PAGE>
The Adjustable Rate Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal
the total indicated due to rounding) and the percentages set forth in the
tables are percentages of the Adjustable Rate Mortgage Loans as of the Cut-off
Date.
<TABLE>
<CAPTION>
Loan Rates of the Adjustable Rate Mortgage Loans(1)
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number of Outstanding as of Outstanding as of
Loan Rate (%) Mortgage Loans the Cut-off Date the Cut-off Date
---------------------------------- ------------------- ------------------------ -------------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -------------------------
Total........................ $ 100.00%
=================== ======================== =========================
---------
(1)The weighted average Loan Rate of the Adjustable Rate Mortgage
Loans as of the Cut-off Date was [_______]% per annum.
</TABLE>
<TABLE>
<CAPTION>
Maximum Loan Rates of the Adjustable Rate Mortgage Loans(1)
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number of Outstanding as of Outstanding as of
Maximum Loan Rate (%) Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------ ----------------- ------------------------- ----------------------
<S> <C> <C> <C>
$ %
$ 100.00%
---------
(1)The weighted average Maximum Loan Rate of the Adjustable Rate Mortgage
Loans as of the Cut-off Date was approximately [____]% per annum.
</TABLE>
<TABLE>
<CAPTION>
Minimum Loan Rates of the Adjustable Rate Mortgage Loans(1)
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number of Outstanding as of Outstanding as of
Minimum Loan Rate (%) Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------ ----------------- ------------------------- ----------------------
<S> <C> <C> <C>
$ %
----------------- ------------------------- ----------------------
Total.......................... $ 100.00%
================= ========================= ======================
---------
(1)The weighted average Minimum Loan Rate of the Adjustable Rate Mortgage
Loans as of the Cut-off Date was approximately [___]% per annum.
</TABLE>
<TABLE>
<CAPTION>
Gross Margins of the Adjustable Rate Mortgage Loans(1)
% of Aggregate
Principal Balance
of Adjustable Rate
Number Principal Balance Mortgage Loans
of Mortgage Outstanding as of Outstanding as of
Gross Margins (%) Loans the Cut-off Date the Cut-off Date
----------------------------- ----------------- ------------------------ ------------------------
<S> <C> <C> <C>
$ %
----------------- ------------------------ ------------------------
Total.................. $ 100.00%
================= ======================== ========================
---------
(1)The weighted average Gross Margin of the Adjustable Rate Mortgage Loans as of the Cut-off Date was
approximately [_____]%.
</TABLE>
<TABLE>
<CAPTION>
Next Adjustment Date for the Adjustable Rate Mortgage Loans
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number of Outstanding as of Outstanding as of
Next Adjustment Date Mortgage Loans the Cut-off Date the Cut-off Date
----------------------------- ----------------- ----------------------- ------------------------
<S> <C> <C> <C>
$ %
----------------- ----------------------- ------------------------
Total.................. $ 100.00%
================= ======================= ========================
</TABLE>
<TABLE>
<CAPTION>
Initial Fixed Term/Subsequent Adjustable Rate Term of the Adjustable Rate Mortgage Loans
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Initial Fixed Term/Subsequent Number of Outstanding as of Outstanding as of
Adjustable Rate Term Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------ ----------------- ----------------------- ------------------------
<S> <C> <C> <C>
$ %
----------------- ----------------------- ------------------------
Total..................................... $ 100.00%
================= ======================= ========================
</TABLE>
<TABLE>
<CAPTION>
Initial Adjustment Rate Caps of the Adjustable Rate Mortgage Loans(1)
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number of Outstanding as of Outstanding as of
Initial Periodic Rate Cap (%) Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------ --------------- ------------------------- ------------------------
<S> <C> <C> <C>
$ %
--------------- ------------------------- ------------------------
Total................................ $ 100.00%
=============== ========================= ========================
---------
(1)Relates solely to initial rate adjustments.
</TABLE>
<TABLE>
<CAPTION>
Subsequent Periodic Rate Caps of the Adjustable Rate Mortgage Loans(1)
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number of Outstanding as of Outstanding as of
Periodic Rate Cap (%) Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------------------ --------------- ------------------------- ------------------------
<S> <C> <C> <C>
$ %
--------------- ------------------------- ------------------------
Total............................. $ 100.00%
=============== ========================= ========================
------------------
(1)Relates to all rate adjustments subsequent to initial rate adjustments.
</TABLE>
The Index
As of any Adjustment Date, the Index applicable to the determination of
the Loan Rate on each Adjustable Rate Mortgage Loan will be [________________].
In the event that the Index becomes unavailable or otherwise unpublished,
the Master Servicer will select a comparable alternative index over which it
has no direct control and which is readily verifiable.
UNDERWRITING STANDARDS
All of the Mortgage Loans have been [originated by, or purchased in the
secondary market by], [__________] (the "Seller") in the ordinary course of
its business. The Mortgage Loans were purchased from [___________],
representing [___]% of the Pool Principal Balance as of the Cut-Off Date. Each
entity from which the Seller purchased the Mortgage Loans has represented and
warranted that each of the Mortgage Loans sold by it was underwritten in
accordance with standards utilized by it or the applicable originator in
originating mortgage loans generally comparable to such Mortgage Loans during
the period of origination. As described herein under "The Pooling and
Servicing Agreement--Assignment of the Mortgage Loans," the Seller, as Seller,
will make certain representations and warranties to the Trustee regarding the
Mortgage Loans. In the event of a breach that materially and adversely affects
the Certificateholders, the Seller will be obligated either to cure such
breach or repurchase or replace each affected Mortgage Loan.
[Underwriting standards are applied by or on behalf of a lender to
evaluate a borrower's credit standing and repayment ability, and the value and
adequacy of the related mortgaged property as collateral. In general, a
prospective borrower applying for a loan is required to fill out a detailed
application designed to provide the underwriting officer pertinent credit
information. As part of the description of the borrower's financial condition,
the borrower generally is required to provide a current list of assets and
liabilities and a statement of income and expense, as well as an authorization
to apply for a credit report which summarizes the borrower's credit history
with local merchants and lenders and any record of bankruptcy.]
When the Seller [originates or acquires] a mortgage loan, the borrower's
credit report is reviewed. [Generally, each credit report provides a credit
score for the borrower. The credit score is based upon the credit evaluation
methodology developed by _________ ("Scoring Company"), a consulting firm
specializing in creating evaluation predictive models through a high number of
variables components. Scoring Company scores generally range from [__] to [__]
and are available from three major credit bureaus: Experian (formerly TRW),
Equifax and Trans Union. These scores estimate, on a relative basis, which
loans are most likely to default in the future. Lower scores imply higher
default risk relative to a higher score. Scoring Company scores are
empirically derived from historical credit bureau data and represent a
numerical weighing of a borrower's credit characteristics over a two-year
period. A Scoring Company score is generated through the statistical analysis
of a number of credit-related characteristics or variables. Common
characteristics include number of credit lines (trade lines), payment history,
past delinquencies, severity of delinquencies, current levels of indebtedness,
types of credit and length of credit history. Attributes are specific values
of each characteristic. A scorecard (the model) is created with weights or
points assigned to each attribute. An individual loan applicant's credit score
is derived by adding together the attribute weights for the applicant. With
respect to the Mortgage Loans, [_____]% have credit scores for the borrowers
and their weighted average Scoring Company score was [____] at the time of
scoring.]
THE MASTER SERVICER
The information set forth in the following paragraphs has been provided
by [_________________]. None of the Depositor, the Trustee, the Underwriter or
any of their respective affiliates has made or will make any representation as
to the accuracy or completeness of such information.
The following table sets forth, for the servicing portfolio serviced by
the Master Servicer as of [December 31, 1997, as of December 31, 1998 and as
of December 31, 1999], certain information relating to the delinquency
experience (including loans in foreclosure included in the Master Servicer's
servicing portfolio (which portfolio does not include mortgage loans that are
subserviced by others)) at the end of the indicated periods. The indicated
periods of delinquency are based on the number of days past due on a
contractual basis. No mortgage loan is considered delinquent for these
purposes until it is one month past due on a contractual basis. The
information contained in the monthly remittance reports which will be sent to
investors will be compiled using the same methodology as that used to compile
the information contained in the table below.
<TABLE>
<CAPTION>
As of As of As of
December 31, 1997 December 31, 1998 December 31, 1999
--------------------------------- ---------------------------------- ----------------------------------
By Percent By Percent By Percent Percent
No. By Percent By No. By Percent By No. By By No. By
of Dollar By No. Dollar of Dollar By No. Dollar of Dollar of Dollar
Loans Amount of Loans Amount Loans Amount of Loans Amount Loans Amount Loans Amount
----- ------ -------- ------ ----- ------ -------- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio...... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Period of
Delinquency:
30-59 Days.......
60-89 Days.......
90 Days or more..
Total Delinquent
Loans..............
Loans in
Foreclosure(1).....
---------
(1) Loans in foreclosure are also included under the heading "Total Delinquent
Loans."
</TABLE>
The following tables set forth, [December 31, 1997, as of December 31,
1998 and as of December 31, 1999], certain information relating to the
foreclosure, REO and loan loss experience of mortgage loans included in the
Master Servicer's servicing portfolio [(which portfolio does not include
mortgage loans that are subserviced by others)] at the end of the indicated
periods.
<TABLE>
<CAPTION>
Real Estate Owned
(Dollars in Thousands)
-----------------------------------------------------------------------------
As of As of As of
December 31, 1997 December 31, 1998 December 31, 1999
-----------------------------------------------------------------------------
By No. By By No. By By No. By
of Dollar of Dollar of Dollar
Loans Amount Loans Amount Loans Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio............
Foreclosed Loans(1)........
Foreclosed Ratio(2)........
---------
(1) For the purposes of these tables, Foreclosed Loans means the principal
balance of mortgage loans secured by mortgaged properties the title to
which has been acquired by the Master Servicer.
(2) The Foreclosure Ratio is equal to the aggregate principal balance or
number of Foreclosed Loans divided by the aggregate principal balance, or
number, as applicable, or mortgage loans in the total portfolio at the
end of the indicated period.
</TABLE>
<TABLE>
<CAPTION>
Loan Gain/(Loss) Experience
(Dollars in Thousands)
------------------------------------------------------------------------
As of As of As of
December 31, 1997 December 31, 1998 December 31, 1999
----------------------- ----------------------- --------------------
<S> <C> <C> <C>
Total Portfolio (1)......................
Net Gains/(Losses) (2)...................
Net Gains/(Losses) as a Percentage of
Total Portfolio..........................
---------
(1)"Total Portfolio" on the date stated above is the principal balance of the
mortgage loans outstanding on the last day of the period.
(2)"Net Gains/(Losses)" are actual gains or losses incurred on liquidated
properties and shortfall payoffs for each respective period. Gains or
losses on liquidated properties are calculated as net sales proceeds less
book value (exclusive of loan purchase premium or discount). Shortfall
payoffs are calculated as the difference between principal payoff amount
and unpaid principal at the time of payoff.
</TABLE>
It is unlikely that the delinquency experience of the Mortgage Loans
comprising the Mortgage Pool will correspond to the delinquency experience of
the Master Servicer's mortgage portfolio set forth in the foregoing tables.
The statistics shown above represent the delinquency experience for the Master
Servicer's mortgage servicing portfolio only for the periods presented,
whereas the aggregate delinquency experience on the Mortgage Loans comprising
the Mortgage Pool will depend on the results obtained over the life of the
Mortgage Pool. There can be no assurance that the Mortgage Loans comprising
the Mortgage Pool will perform consistent with the delinquency or foreclosure
experience described herein. It should be noted that if the residential real
estate market should experience an overall decline in property values, the
actual rates of delinquencies and foreclosures could be higher than those
previously experienced by the Master Servicer. In addition, adverse economic
conditions may affect the timely payment by borrowers of scheduled payments of
principal and interest on the Mortgage Loans and, accordingly, the actual
rates of delinquencies and foreclosures with respect to the Mortgage Pool.
THE POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of ____________ __, 2000_ (the "Pooling and Servicing
Agreement"), among the Depositor, the Seller, the Master Servicer and the
Trustee. The Trust Fund created under the Pooling and Servicing Agreement will
consist of (i) all of the Depositor's right, title and interest in the
Mortgage Loans, the related mortgage notes, Mortgages and other related
documents, (ii) all payments on or collections in respect of the Mortgage
Loans due after the Cut-off Date, together with any proceeds thereof, (iii)
any Mortgaged Properties acquired on behalf of Certificateholders by
foreclosure or by deed in lieu of foreclosure, and any revenues received
thereon, (iv) the rights of the Trustee under all insurance policies required
to be maintained pursuant to the Pooling and Servicing Agreement and (v) the
rights of the Depositor under the Mortgage Loan Purchase Agreement between the
Depositor and the Seller. The Offered Certificates will be transferable and
exchangeable at the corporate trust offices of the Trustee.
Assignment of the Mortgage Loans
On the Closing Date the Depositor will transfer to the Trust Fund all of
its right, title and interest in and to each Mortgage Loan, the related
mortgage notes, mortgages and other related documents (collectively, the
"Related Documents"), including all scheduled payments with respect to each
such Mortgage Loan due after the applicable Cut-off Date. The Trustee,
concurrently with such transfer, will deliver the Certificates to the
Depositor. Each Mortgage Loan transferred to the Trust Fund will be identified
on a schedule (the "Mortgage Loan Schedule") delivered to the Trustee pursuant
to the Pooling and Servicing Agreement. Such schedule will include information
such as the Principal Balance of each Mortgage Loan as of the Cut-off Date,
its Loan Rate as well as other information.
The Pooling and Servicing Agreement will require that, within the time
period specified therein, the Seller will deliver or cause to be delivered to
the Trustee (or a custodian, as the Trustee's agent for such purpose) the
Mortgage Loans endorsed to the Trustee on behalf of the Certificateholders and
the Related Documents. In lieu of delivery of original Mortgages, if such
original is not available, the Seller may deliver or cause to be delivered
true and correct copies thereof, together with a lost note affidavit executed
by the Seller.
Within [___] days of the Closing Date, the Trustee will review the
Mortgage Loans and the Related Documents pursuant to the Pooling and Servicing
Agreement and if any Mortgage Loan or Related Document is found to be
defective in any material respect and such defect is not cured within [___]
days following notification thereof to the Seller by the Trustee, the Seller
will be obligated to either (i) substitute for such Mortgage Loan an Eligible
Substitute Mortgage Loan; however, such substitution is permitted only within
two years of the Closing Date and may not be made unless an opinion of counsel
is provided to the effect that such substitution will not [disqualify the
Trust Fund as a REMIC or] result in a prohibited transaction tax under the
Code or (ii) purchase such Mortgage Loan at a price (the "Purchase Price")
equal to the outstanding Principal Balance of such Mortgage Loan as of the
date of purchase, plus all accrued and unpaid interest thereon, computed at
the Loan Rate (net of the Servicing Fee Rate and the Trustee Fee) through the
end of the calendar month in which the purchase is effected, plus the amount
of any unreimbursed Advances and Servicing Advances made by the Master
Servicer. The Purchase Price will be deposited in the Collection Account on or
prior to the next succeeding Determination Date after such obligation arises.
The obligation of the Seller to repurchase or substitute for a Defective
Mortgage Loan is the sole remedy regarding any defects in the Mortgage Loans
and Related Documents available to the Trustee or the Certificateholders.
In connection with the substitution of an Eligible Substitute Mortgage
Loan, the Seller will be required to deposit in the Collection Account on or
prior to the next succeeding Determination Date after such obligation arises
an amount (the "Substitution Adjustment") equal to the excess of the Principal
Balance of the related Defective Mortgage Loan over the Principal Balance of
such Eligible Substitute Mortgage Loan.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not in excess of, and not more than 5% less
than, the Principal Balance of the Defective Mortgage Loan; (ii) have a Loan
Rate, with respect to a Fixed Rate Mortgage Loan, not less than the Loan Rate
of the Defective Mortgage Loan and not more than 1% in excess of the Loan Rate
of such Defective Mortgage Loan or, with respect to an Adjustable Rate
Mortgage Loan, have a Maximum Loan Rate and Minimum Loan Rate not less than
the respective rate for the Defective Mortgage Loan and have a Gross Margin
equal to or greater than the Defective Mortgage Loan; (iii) have the same Due
Date as the Defective Mortgage Loan; (iv) have a remaining term to maturity
not more than one year earlier and not later than the remaining term to
maturity of the Defective Mortgage Loan; (v) comply with each representation
and warranty as to the Mortgage Loans set forth in the Pooling and Servicing
Agreement (deemed to be made as of the date of substitution); and (vi) satisfy
certain other conditions specified in the Pooling and Servicing Agreement.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal
Balance and the Loan Rate). In addition, the Seller will represent and
warrant, on the Closing Date, that, among other things: (i) at the time of
transfer to the Depositor, the Seller has transferred or assigned all of its
right, title and interest in each Mortgage Loan and the Related Documents,
free of any lien; and (ii) each Mortgage Loan complied, at the time of
origination, in all material respects with applicable state and federal laws.
Upon discovery of a breach of any such representation and warranty which
materially and adversely affects the interests of the Certificateholders in
the related Mortgage Loan and Related Documents, the Seller will have a period
of [___] days after discovery or notice of the breach to effect a cure. If the
breach cannot be cured within the [___]-day period, the Seller will be
obligated to (i) substitute for such Defective Mortgage Loan an Eligible
Substitute Mortgage Loan or (ii) purchase such Defective Mortgage Loan from
the Trust Fund. The same procedure and limitations that are set forth above
for the substitution or purchase of Defective Mortgage Loans as a result of
deficient documentation relating thereto will apply to the substitution or
purchase of a Defective Mortgage Loan as a result of a breach of a
representation or warranty in the Pooling and Servicing Agreement that
materially and adversely affects the interests of the Certificateholders.
Mortgage Loans required to be transferred to the Seller as described in
the preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Pooling and Servicing Agreement, the Master Servicer will
service and administer the Mortgage Loans as more fully set forth herein.
Payments on Mortgage Loans; Deposits to Collection Account and Distribution
Account
The Master Servicer shall establish and maintain or cause to be
maintained a separate trust account (the "Collection Account") for the benefit
of the holders of the Certificates. The Collection Account will be an Eligible
Account (as defined herein). Upon receipt by the Master Servicer of amounts in
respect of the Mortgage Loans (excluding amounts representing the Servicing
Fee, the Trustee Fee, reimbursement for Advances and Servicing Advances and
insurance proceeds to be applied to the restoration or repair of a Mortgaged
Property or similar items), the Master Servicer will deposit such amounts in
the Collection Account. Amounts so deposited may be invested in Eligible
Investments (as described in the Pooling and Servicing Agreement) maturing no
later than one Business Day prior to the date on which the amount on deposit
therein is required to be deposited in the Distribution Account or on such
Distribution Date if approved by the Rating Agencies. The Trustee will
establish an account (the "Distribution Account") into which will be deposited
amounts withdrawn from the Collection Account for distribution to
Certificateholders on a Distribution Date. The Distribution Account will be an
Eligible Account. Amounts on deposit therein may be invested in Eligible
Investments maturing on or before the Business Day prior to the related
Distribution Date unless such Eligible Investments are invested in investments
managed or advised by the Trustee or an affiliate thereof, in which case such
Eligible Investments may mature on the related Distribution Date.
An "Eligible Account" is a segregated account that is (i) an account or
accounts maintained with a federal or state chartered depository institution
or trust company the short-term unsecured debt obligations of which (or, in
the case of a depository institution or trust company that is the principal
subsidiary of a holding company, the short-term unsecured debt obligations of
such holding company) are rated P-1 by Moody's and A-1 by Standard & Poor's
(or comparable ratings if Moody's and Standard & Poor's are not the Rating
Agencies) at the time any amounts are held on deposit therein, (ii) an account
or accounts the deposits in which are fully insured by the Federal Deposit
Insurance Corporation (to the limits established by such corporation), the
uninsured deposits in which account are otherwise secured such that, as
evidenced by an opinion of counsel delivered to the Trustee and to each Rating
Agency, the Certificateholders will have a claim with respect to the funds in
such account or a perfected first priority security interest against such
collateral (which shall be limited to Eligible Investments) securing such
funds that is superior to claims of any other depositors or creditors of the
depository institution with which such account is maintained, (iii) a trust
account or accounts maintained with the trust department of a federal or state
chartered depository institution, national banking association or trust
company acting in its fiduciary capacity or (iv) otherwise acceptable to each
Rating Agency without reduction or withdrawal of their then current ratings of
the Certificates as evidenced by a letter from each Rating Agency to the
Trustee. Eligible Investments are specified in the Pooling and Servicing
Agreement and are limited to investments which meet the criteria of the Rating
Agencies from time to time as being consistent with their then current ratings
of the Certificates.
Advances
Subject to the following limitations, the Master Servicer will be
obligated to advance or cause to be advanced on or before each Distribution
Date its own funds, or funds in the Collection Account that are not included
in the Available Funds for such Distribution Date, in an amount equal to the
aggregate of all payments of principal and interest, net of the Servicing Fee,
and the Trustee Fee, that were due during the related Due Period on the
Mortgage Loans, other than Balloon Payments, and that were delinquent on the
related Determination Date, plus certain amounts representing assumed payments
not covered by any current net income on the Mortgaged Properties acquired by
foreclosure or deed in lieu of foreclosure, and, with respect to Balloon
Loans, with respect to which the Balloon Payment is not made when due, an
assumed monthly payment that would have been due on the related Due Date based
on the original principal amortization schedule for such Balloon Loan (any
such advance, an "Advance").
Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, insurance
proceeds or liquidation proceeds. The purpose of making such Advances is to
maintain a regular cash flow to the Certificateholders, rather than to
guarantee or insure against losses. The Master Servicer will not be required
to make any Advances with respect to reductions in the amount of the monthly
payments on the Mortgage Loans due to bankruptcy proceedings or the
application of the Relief Act.
All Advances will be reimbursable to the Master Servicer from late
collections, insurance proceeds and liquidation proceeds from the Mortgage
Loan as to which such unreimbursed Advance was made. In addition, any Advances
previously made in respect of any Mortgage Loan that are deemed by the Master
Servicer to be nonrecoverable from related late collections, insurance
proceeds or liquidation proceeds may be reimbursed to the Master Servicer out
of any funds in the Collection Account prior to the distributions on the
Certificates. In the event the Master Servicer fails in its obligation to make
any such advance, the Trustee, in its capacity as successor Master Servicer,
will be obligated to make any such advance, to the extent required in the
Pooling and Servicing Agreement.
In the course of performing its servicing obligations, the Master
Servicer will pay all reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of (i) the preservation, restoration and
protection of the Mortgaged Properties, (ii) any enforcement or judicial
proceedings, including foreclosures, and (iii) the management and liquidation
of Mortgaged Properties acquired in satisfaction of the related mortgage. Each
such expenditure will constitute a "Servicing Advance."
The Master Servicer's right to reimbursement for Servicing Advances is
limited to late collections on the related Mortgage Loan, including
liquidation proceeds, released mortgaged property proceeds, insurance proceeds
and such other amounts as may be collected by the Master Servicer from the
related Mortgagor or otherwise relating to the Mortgage Loan in respect of
which such unreimbursed amounts are owed, unless such amounts are deemed to be
nonrecoverable by the Master Servicer, in which event reimbursement will be
made to the Master Servicer from general funds in the Collection Account.
The Trustee
[__________], a [________], will be named trustee (the "Trustee")
pursuant to the Pooling and Servicing Agreement. The Trustee will initially
serve as custodian of the Mortgage Loans.
The principal compensation (the "Trustee Fee") to be paid to the Trustee
in respect of its obligations under the Pooling and Servicing Agreement will
be equal to [____________]. The Pooling and Servicing Agreement will provide
that the Trustee and any director, officer, employee or agent of the Trustee
will be indemnified by the Trust Fund and will be held harmless against any
loss, liability or expense (not including expenses, disbursements and advances
incurred or made by the Trustee, including the compensation and the expenses
and disbursements of its agents and counsel, in the ordinary course of the
Trustee's performance in accordance with the provisions of the Pooling and
Servicing Agreement) incurred by the Trustee arising out of or in connection
with the acceptance or administration of its obligations and duties under the
Pooling and Servicing Agreement, other than any loss, liability or expense (i)
that constitutes a specific liability of the Trustee under the Pooling and
Servicing Agreement or (ii) incurred by reason of willful misfeasance, bad
faith or negligence in the performance of the Trustee's duties under the
Pooling and Servicing Agreement or as a result of a breach, or by reason of
reckless disregard, of the Trustee's obligations and duties under the Pooling
and Servicing Agreement.
Servicing and Other Compensation and Payment of Expenses
The principal compensation (the "Servicing Fee") to be paid to the Master
Servicer in respect of its servicing activities for the Certificates will be
at the "Servicing Fee Rate" of up to [___]% per annum on the Principal Balance
of each Mortgage Loan. The amount resulting from the difference, if any,
between the Servicing Fee Rate for any Mortgage Loan and [____]% per annum
(the "Excess Servicing Fee") will be [retained by the Seller]. As additional
servicing compensation, the Master Servicer is entitled to retain all
service-related fees (other than prepayment penalties), including assumption
fees, modification fees, extension fees and late payment charges, to the
extent collected from mortgagors, together with any interest or other income
earned on funds held in the Collection Account and any escrow accounts. [The
Master Servicer is obligated to offset any Prepayment Interest Shortfall on
any Distribution Date (payments made by the Master Servicer in satisfaction of
such obligation, "Compensating Interest") by an amount not in excess of its
Servicing Fee for such Distribution Date.] The Master Servicer is obligated to
pay certain insurance premiums and certain ongoing expenses associated with
the Mortgage Pool and incurred by the Master Servicer in connection with its
responsibilities under the Pooling and Servicing Agreement and is entitled to
reimbursement therefor as provided in the Pooling and Servicing Agreement.
The "Determination Date" with respect to any Distribution Date will be
the [__]th day of the calendar month in which such Distribution Date occurs
or, if such [___]th day is not a Business Day, the Business Day immediately
following such [___]th day. [With respect to any Determination Date and each
Mortgage Loan as to which a principal prepayment in full or in part was
applied during the related Due Period, the "Prepayment Interest Shortfall" is
an amount equal to the interest at the applicable Loan Rate (net of the
Servicing Fee) on the amount of such principal prepayment for the number of
days commencing on the date on which the principal prepayment is applied and
ending on the last day of the related Due Period.]
Voting Rights
With respect to any date of determination, the percentage of all the
voting rights ("Voting Rights") allocated among holders of the Offered
Certificates shall be the fraction, expressed as a percentage, the numerator
of which is the aggregate Certificate Principal Balance of all the
Certificates of such Class then outstanding and the denominator of which is
the aggregate Certificate Principal Balance of all the Certificates then
outstanding. The Voting Rights allocated to each Class of Offered Certificates
shall be allocated among all holders of each such Class in proportion to the
outstanding Certificate Principal Balance of such Certificates.
Amendment
The Pooling and Servicing Agreement may be amended by the Seller, the
Depositor, the Master Servicer and the Trustee, without the consent of the
holders of the Certificates, for any of the purposes set forth under "The
Pooling and Servicing Agreement--Amendment" in the Prospectus. In addition,
the Pooling and Servicing Agreement may be amended by the Seller, the
Depositor, the Master Servicer and the Trustee and the holders of a majority
in interest of any Class of Offered Certificates affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Pooling and Servicing Agreement or of modifying
in any manner the rights of the holders of Offered Certificates; provided,
however, that no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, distributions required to be made on any Offered
Certificate without the consent of the holder of such Certificate; (ii)
adversely affect in any material respect the interests of the holders of any
Class of the Offered Certificates in a manner other than as described in
clause (i) above, without the consent of the holders of Offered Certificates
of such Class evidencing percentage interests aggregating at least 66%; or
(iii) reduce the aforesaid percentage of aggregate outstanding principal
amounts of Offered Certificates, the holders of which are required to consent
to any such amendment, without the consent of the holders of all such
Certificates.
Termination
The holder of the majority interest in the Residual Certificate (or if
such holder does not exercise such option, the Master Servicer) will have the
right to repurchase all remaining Mortgage Loans and REO Properties and
thereby effect the early retirement of the Certificates, on any Distribution
Date following the Due Period during which the aggregate principal balance of
the Mortgage Loans and any real estate owned by the Trust is less than or
equal to 10% of the Pool Principal Balance as of the Cut-off Date. In the
event that the option is exercised, the repurchase will be made at a price
generally equal to par plus accrued interest for each Mortgage Loan at the
related Loan Rate to but not including the first day of the month in which
such repurchase price is distributed plus the amount of any unreimbursed
Advances and Servicing Advances made by the Master Servicer. Proceeds from
such repurchase will be included in Available Funds and will be distributed to
the holders of the Certificates in accordance with the Pooling and Servicing
Agreement. Any such repurchase of the Mortgage Loans and REO Properties will
result in the early retirement of the Certificates.
[Optional Purchase of Defaulted Loans
As to any Mortgage Loan which is delinquent in payment by [__] days or
more, the Master Servicer may, at its option, purchase such Mortgage Loan from
the Trust Fund at the Purchase Price for such Mortgage Loan.]
Events of Default
Events of Default will consist, among other things, of: (i) (a) any
failure by the Master Servicer to make an Advance and (b) any other failure by
the Master Servicer to deposit in the Collection Account or Distribution
Account the required amounts or remit to the Trustee any payment which
continues unremedied for one Business Day following written notice to the
Master Servicer; (ii) any failure of the Master Servicer to make any Advance
or to cover any Prepayment Interest Shortfalls, as described herein, which
failure continues unremedied for one Business Day; (iii) any failure by the
Master Servicer to observe or perform in any material respect any other of its
covenants or agreements in the Pooling and Servicing Agreement, which
continues unremedied for 30 days after the first date on which (x) the Master
Servicer has knowledge of such failure or (y) written notice of such failure
is given to the Master Servicer; (iv) insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, and certain
actions by or on behalf of the Master Servicer indicating its insolvency or
inability to pay its obligations or (v) cumulative Realized Losses as of any
Distribution Date exceed the amount specified in the Pooling and Servicing
Agreement.
Rights upon Event of Default
So long as an Event of Default under the Pooling and Servicing Agreement
remains unremedied, the Trustee at the direction of the holders of Offered
Certificates evidencing not less than 51% of the Voting Rights may terminate
all of the rights and obligations of the Master Servicer in its capacity as
servicer with respect to the Mortgage Loans, as provided in the Pooling and
Servicing Agreement, whereupon the Trustee will succeed to all of the
responsibilities and duties of the Master Servicer under the Pooling and
Servicing Agreement, including the obligation to make Advances. No assurance
can be given that termination of the rights and obligations of the Master
Servicer under the Pooling and Servicing Agreement would not adversely affect
the servicing of the related Mortgage Loans, including the delinquency
experience of such Mortgage Loans.
No holder of an Offered Certificate, solely by virtue of such holder's
status as a holder of an Offered Certificate, will have any right under the
Pooling and Servicing Agreement to institute any proceeding with respect
thereto, unless such holder previously has given to the Trustee written notice
of default and unless the holders of Offered Certificates having not less than
51% of the Voting Rights evidenced by the Offered Certificates so agree and
have offered reasonable indemnity to the Trustee.
DESCRIPTION OF THE CERTIFICATES
General
The Offered Certificates will be issued pursuant to a Pooling and
Servicing Agreement. Set forth below are summaries of the specific terms and
provisions pursuant to which the Offered Certificates will be issued. The
following summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the provisions of the Pooling and
Servicing Agreement. When particular provisions or terms used in the Pooling
and Servicing Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference.
[_______________________] will issue the Class A Certificates (the
"Senior Certificates"), (ii) the Class M Certificates (the "Mezzanine
Certificates"), (iii) the Class B Certificates (the "Subordinate
Certificates") and (iv) the Class R Certificates (the "Residual
Certificates"). The Senior Certificates, the Mezzanine Certificates and the
Subordinate Certificates (collectively, the "Offered Certificates") and the
Residual Certificates are collectively referred to herein as the
"Certificates." Only the Offered Certificates are offered hereby.
The Class A, the Class M and the Class B Certificates will have the
respective Original Certificate Principal Balances specified on the cover
hereof. The aggregate of the Original Certificate Principal Balances of the
Offered Certificates is approximately $[_____________].
The Class R Certificates will have an Original Certificate Principal
Balance of $[___] and will [not] bear interest.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar denominations
of $[______] and integral multiples of $[_______] in excess thereof (except
that one Certificate of each Class may be issued in a denomination which is
not an integral multiple thereof). The assumed final maturity date for each
Class of Offered Certificates is the Distribution Date occurring in
[___________ 20__].
Distributions on the Offered Certificates will be made by the Trustee on
the [__]th day of each month, or if such day is not a Business Day, on the
first Business Day thereafter, commencing on _________ __, 2000 (each, a
"Distribution Date"), to the persons in whose names such Certificates are
registered at the close of business on the Business Day immediately preceding
such Distribution Date (each, a "Record Date").
Book-Entry Certificates
The Offered Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the
Offered Certificates ("Certificate Owners") will hold their Offered
Certificates through The Depository Trust Company ("DTC") [in the United
States, or Clearsteam Bank, societe anonyme ("Clearstream"), or Euroclear (in
Europe)] if they are participants of such system[s], or indirectly through
organizations which are participants in such system[s]. The Book-Entry
Certificates will be issued in one or more certificates which equal the
aggregate principal balance of the Offered Certificates and will initially be
registered in the name of Cede & Co., ("Cede"), the nominee of DTC.
[Clearstream and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Clearstream'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 and The Chase Manhattan Bank will act as depositary for Euroclear
(in such capacities, individually the "Relevant Depositary" and collectively
the "European Depositaries").] Investors may hold such beneficial interests in
the Book-Entry Certificates in minimum denominations of $50,000. Except as
described below, no person acquiring a Book-Entry Certificate (each, a
"beneficial owner) will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Offered Certificates will be Cede, as nominee of
DTC. Certificate Owners will not be Certificateholders as that term is used in
the Pooling and Servicing Agreement. Certificate Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC if the beneficial owner's Financial Intermediary is not a DTC
participant [and on the records of Clearstream or Euroclear, as appropriate]).
Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers among participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and indirect participants with which Certificate Owners have
accounts with respect to Offered Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates representing their respective interests in the
Offered Certificates, the Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interest.
Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Certificateholders which are not
DTC participants may transfer ownership of Offered Certificates only through
participants and indirect participants by instructing such participants and
indirect participants to transfer Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Offered Certificates will be executed through DTC and the
accounts of the respective participants at DTC will be debited and credited.
Similarly, the participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Certificateholders.
[Because of time zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a DTC participant
will be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear or Clearstream Participants on such
business day. Cash received in Clearstream or Euroclear as a result of sales
of securities by or through a Clearstream Participant (as defined below) or
Euroclear Participant (as defined below) to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Clearstream or Euroclear cash account only as of the business day following
settlement in DTC. For information with respect to tax documentation
procedures relating to the Certificates, see "Certain Federal Income Tax
Consequences--REMIC Certificates --Regular Certificates--Non-U.S. Persons" and
"--Information Reporting and Backup Withholding" in the Prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures--Certain U.S. Federal
Income Tax Documentation Requirements" in Annex I hereto.]
Transfers between DTC participants will occur in accordance with the
Rules. [Transfers between Clearstream 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
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with the Rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Clearstream Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.]
DTC which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives)
own DTC. In accordance with its normal procedures, DTC is expected to record
the positions held by each DTC participant in the Book-Entry Certificates,
whether held for its own account or as a nominee for another person. In
general, beneficial ownership of Book-Entry Certificates will be subject to
the Rules, as in effect from time to time.
[Clearstream Banking, societe anonyme ("Clearsteam, Luxembourg"), 67 Bd
Grande-Duchesse Charlotte, L-1331 Luxembourg, was incorporated in 1970 as a
limited liability company under Luxembourg law. Clearstream is owned by banks,
securities dealers and financial institutions, and currently has about 100
shareholders, including U.S. financial institutions or their subsidiaries. No
single entity may own more than five percent of Clearstream's stock.]
[Clearstream is registered as a bank in Luxembourg, and as such is
subject to regulation by the Institut Monetaire Luxembourgeois (i.e., the
Luxembourg Monetary Authority), which supervises Luxembourg banks.]
[Clearstream holds securities for its customers ("Clearstream
Participants") and facilitates the clearance and settlement of securities
transactions by electronic book-entry transfers between their accounts.
Clearstream provides various services, including safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream also deals with domestic securities markets
in several countries through established depository and custodial
relationships. Clearstream has established an electronic bridge with Morgan
Guaranty Trust as the Euroclear Operator in Brussels to facilitate settlement
of trades between systems. Clearstream currently accepts over 70,000
securities issues on its books.]
[Clearstream's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Clearstream's United States customers are limited to
securities brokers and dealers and banks. Currently, Clearstream has
approximately 3,000 customers located in over 60 countries, including all
major European countries, Canada, and the United States. Indirect access to
Clearstream is available to other institutions which clear through or maintain
a custodial relationship with an account holder of Clearstream.]
[Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may be settled in any of 29 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.]
[The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.]
[Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.]
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be
responsible for disbursing funds to the beneficial owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede. [Distributions with
respect to Certificates held through Clearstream or Euroclear will be credited
to the cash accounts of Clearstream Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences--REMIC Certificates--Regular
Certificates--Non-U.S. Persons" and "--Information Reporting and Backup
Withholding" in the Prospectus.] Because DTC can only act on behalf of
Financial Intermediaries, the ability of a beneficial owner to pledge
Book-Entry Certificates to persons or entities that do not participate in DTC,
or otherwise take actions in respect of such Book-Entry Certificates, may be
limited due to the lack of physical certificates for such Book-Entry
Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede, as
nominee of DTC, and may be made available by Cede to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are
taken on behalf of Financial Intermediaries whose holdings include such
Book-Entry Certificates. [Clearstream or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a
Certificateholder under the Agreement on behalf of a Clearstream Participant
or Euroclear Participant only in accordance with its relevant rules and
procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC.] DTC may take actions, at the
direction of the related participants, with respect to some Offered
Certificates which conflict with actions taken with respect to other Offered
Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a)
DTC or [______________] advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Book-Entry Certificates and
[________________] or the Trustee is unable to locate a qualified successor,
(b) [_________________], at its sole option, with the consent of the Trustee,
elects to terminate a book-entry system through DTC or (c) after the
occurrence of an Event of Default, beneficial owners having Percentage
Interests aggregating not less than 51% of the Book-Entry Certificates advise
the Trustee and DTC through the Financial Intermediaries and the DTC
participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interests of beneficial
owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
Although DTC [, Clearstream and Euroclear] have agreed to the foregoing
procedures in order to facilitate transfers of Offered Certificates among
participants of DTC, [Clearstream and Euroclear,] they are under no obligation
to perform or continue to perform such procedures and such procedures may be
discontinued at any time.
None of [_________], the Master Servicer or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held
by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Priority of Distributions Among Certificates
As more fully described herein, distributions on the Certificates will be
made on each Distribution Date from Available Funds and will be made to the
Classes of Certificates (subject to the prior payment of principal
distributions to the Class R Certificates on the first Distribution Date as
described herein) in the following order of priority: (i) to interest on each
Class of Offered Certificates in the priority and subject to the limitations
described under "--Allocations of Available Funds" below; (ii) to current
principal of the Classes of Certificates then entitled to receive
distributions of principal, in the order and subject to the priorities set
forth herein under "--Allocation of Available Funds"; (iii) to principal of
the Classes of Certificates then entitled to receive distributions of
principal in order to maintain the Overcollateralization Target Amount; (iv)
to unpaid interest and the Loss Reimbursement Entitlement in the order and
subject to the priorities described herein under "--Allocation of Available
Funds"; (v) to the Class OC Certificates for deposit into the Excess Reserve
Fund Account first to cover any Basis Risk Shortfall Amount and then to cover
any Required Reserve Amount, and then to be released to the Class OC
Certificates, in each case subject to certain limitations set forth herein
under "--Allocation of Available Funds"; and (vi) any remaining amounts to the
holders of the Class R Certificates.
Allocation of Available Funds
Distributions to holders of each Class of Offered Certificates will be
made on each Distribution Date from Available Funds. "Available Funds" for any
Distribution Date is equal to the sum, net of amounts reimbursable therefrom
to the Master Servicer, of (i) the aggregate amount of monthly payments on the
related Mortgage Loans due on the related Due Date and received by the Trustee
on or prior to the related Determination Date, after deduction of the
Servicing Fee, the Excess Servicing Fee and the Trustee Fee, (ii) certain
unscheduled payments in respect of the Mortgage Loans, including prepayments,
insurance proceeds, Net Liquidation Proceeds and proceeds from repurchases of
and substitutions for such Mortgage Loans occurring during the related
Prepayment Period [,excluding prepayment penalties] and (iii) all Advances
with respect to the related Mortgage Loans received by the Trustee for such
Distribution Date.
The "Prepayment Period" with respect to any Distribution Date is the
period commencing on the Determination Date in the month preceding the month
in which such Distribution Date occurs (or, in the case of the first
Distribution Date, the day following the Cut-off Date) and ending on the
Determination Date relating to such Distribution Date.
On each Distribution Date, the Trustee will withdraw from the
Distribution Account all Available Funds then on deposit therein and will
distribute the same in the following order of priority (provided, however, on
the first Distribution Date, the Trustee will first distribute all principal
due to the Class R Certificates):
(i) on account of interest to the holders of each Class of Offered
Certificates in the following order of priority:
(a) to the Class A Certificates, the Interest Distributable Amount
for such Class for such Distribution Date; and
(b) ____ sequentially, to the Class M and Class B Certificates, in
that order, the related Monthly Interest Distributable Amount for such
Distribution Date;
(ii) _____ from the Principal Distribution Amount (giving effect first to
the component of the Principal Distribution Amount equal to the Basic
Principal Distribution Amount and then to the component of the Principal
Distribution Amount equal to the Extra Principal Distribution Amount pursuant
to clause (iii)(a) below):
(a) on each Distribution Date (1) before the Stepdown Date or (2) with
respect to which a Trigger Event is in effect, sequentially to the
holders of the Class A, Class M and Class B Certificates, in that
order, the respective Class Principal Distribution Amount; or
(b) ____ on each Distribution Date (1) on or after the Stepdown Date and
(2) as long as a Trigger Event is not in effect, to the holders of
the Class or Classes of Offered Certificates then entitled to
distribution of principal, in an amount equal to in the aggregate
the Principal Distribution Amount in the following amounts and order
of priority:
(1) the lesser of (x) the Principal Distribution Amount and (y)
the Class A Principal Distribution Amount to the Class A
Certificateholders, until the Certificate Principal Balance thereof
is reduced to zero;
(2) the lesser of (x) the excess of (i) the Principal
Distribution Amount over (ii) the amount distributed to the Class A
Certificateholders in clause (ii)(b)(1) above and (y) the Class M
Principal Distribution Amount, to the Class M Certificateholders,
until the Certificate Principal Balance thereof is reduced to zero;
(3) the lesser of (x) the excess of (i) the Principal
Distribution Amount over (ii) the sum of the amounts distributed to
the Class A Certificateholders in clause (ii)(b)(1) above and the
amount distributed to the Class M Certificateholders in clause
(ii)(b)(2) above and (y) the Class B Principal Distribution Amount,
to the Class B Certificateholders, until the Certificate Principal
Balance thereof is reduced to zero;
(iii) any amounts remaining after the distributions in clauses (i)
through (ii) above shall be distributed in the following order of priority:
(a) to fund the Extra Principal Distribution Amount for such
Distribution Date to be paid as a component of the Principal Distribution
Amount in the same order of priority described in clause (ii) above;
(b) to the Class M Certificateholders, the related Unpaid Interest
Shortfall Amount for such Distribution Date and then the related Loss
Reimbursement Entitlement, if any, for such Distribution Date;
(c) to the Class B Certificateholders, the related Unpaid Interest
Shortfall Amount for such Distribution Date and then the related Loss
Reimbursement Entitlement, if any, for such Distribution Date; and
(d) to the holders of the Class OC Certificates for deposit into the
Excess Reserve Fund Account first to cover any Basis Risk Shortfall
Amount and then to cover any Required Reserve Amount, and then to be
released to the holders of the Class OC Certificates, such amounts, if
any, as described in the Pooling and Servicing Agreement; and
(iv) to the holders of the Class R Certificates, the remaining amount.
On each Distribution Date, all amounts representing prepayment penalties
received during the related Due Period will be distributed to the holders of
the Class OC Certificates.
Definitions
The "Accrual Period" for the Offered Certificates for a given
Distribution Date will be the actual number of days (based on a 360-day year)
included in the period commencing on the immediately preceding Distribution
Date and ending on the day immediately preceding the current Distribution
Date; provided, however, that the initial Accrual Period for the Offered
Certificates will be the actual number of days included in the period
commencing on the Closing Date and ending on ________ __, 2000_.
The "Allocable Loss Amount" with respect to each Distribution Date means
the excess, if any, of (a) the aggregate of the Certificate Principal Balances
of all Classes of Offered Certificates (after giving effect to all
distributions on such Distribution Date) over (b) the Pool Principal Balance
as of the end of the preceding Due Period.
The "Basic Principal Distribution Amount" means with respect to any
Distribution Date the excess of (i) the Principal Remittance Amount for such
Distribution Date over (ii) the Overcollateralization Release Amount, if any,
for such Distribution Date.
The "Call Option Date" is the first Distribution Date on which the Pool
Principal Balance is less than or equal to 10% of the Pool Principal Balance
as of the Cut-off Date.
The "Certificate Principal Balance" of any Class of Offered Certificates,
as of any Distribution Date, will be equal to the Certificate Principal
Balance thereof on the Closing Date (the "Original Certificate Principal
Balance") reduced by the sum of (i) all amounts actually distributed in
respect of principal of such Class on all prior Distribution Dates and (ii)
with respect to any Mezzanine Certificates and the Class B Certificates, all
related Allocable Loss Amounts applied in reduction of principal of such
Certificates on all prior Distribution Dates.
"Class A Principal Distribution Amount" means as of any Distribution Date
(a) prior to the Stepdown Date or with respect to which a Trigger Event is in
effect, the lesser of (i) 100% of the Principal Distribution Amount and (ii)
the aggregate Certificate Principal Balance of the Class A Certificates and
(b) on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the positive difference, if any, of the excess of (x) the aggregate
Certificate Principal Balance of the Class A Certificates immediately prior to
such Distribution Date over (y) the lesser of (A) the product of (i)
approximately [____]% and (ii) the aggregate Principal Balance of the Mortgage
Loans as of the last day of the related Due Period and (B) the aggregate
Principal Balance of the Mortgage Loans as of the last day of the related Due
Period minus approximately $[__________].
"Class M Principal Distribution Amount" means as of any Distribution Date
(a) prior to the Stepdown Date or with respect to which a Trigger Event is in
effect, the lesser of (i) 100% of the Principal Distribution Amount and (ii)
the aggregate Certificate Principal Balance of the Class M Certificates and
(b) on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the positive difference, if any, of the excess of (x) the sum of (i)
the aggregate Certificate Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A Principal Distribution Amount
on such Distribution Date) and (ii) the Certificate Principal Balance of the
Class M Certificates immediately prior to such Distribution Date over (y) the
lesser of (A) the product of (i) approximately [____]% and (ii) the aggregate
Principal Balance of the Mortgage Loans as of the last day of the related Due
Period and (B) the aggregate Principal Balance of the Mortgage Loans as of the
last day of the related Due Period minus approximately $[__________].
"Class B Principal Distribution Amount" means as of any Distribution Date
(a) prior to the Stepdown Date or with respect to which a Trigger Event is in
effect, the lesser of (i) 100% of the Principal Distribution Amount and (ii)
the aggregate Certificate Principal Balance of the Class B Certificates and
(b) on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the positive difference, if any, of the excess of (x) the sum of (i)
the aggregate Certificate Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A Principal Distribution Amount
on such Distribution Date), (ii) the Certificate Principal Balance of the
Class M Certificates (after taking into account the payment of the Class M
Principal Distribution Amount on such Distribution Date) and (iii) the
Certificate Principal Balance of the Class B Certificates immediately prior to
such Distribution Date over (y) the lesser of (A) the product of (i)
approximately [_____]% and (ii) the aggregate Principal Balance of the
Mortgage Loans as of the last day of the related Due Period and (B) the
aggregate Principal Balance of the Mortgage Loans as of the last day of the
related Due Period minus approximately $[________].
The "Delinquency Percentage," with respect to any Distribution Date and
the related Due Period, is the fraction, expressed as a percentage, the
numerator of which is the aggregate of the Principal Balances of all Mortgage
Loans that are 60 or more days Delinquent, in foreclosure or relating to REO
Properties as of the close of business on the last day of the related Due
Period and the denominator of which is the Pool Principal Balance as of the
close of business on the last day of such Due Period.
A Mortgage Loan is "Delinquent" if any monthly payment due thereon is not
made by the close of business on the day such monthly payment is scheduled to
be due. A Mortgage Loan is "30 days Delinquent" if such monthly payment has
not been received by the close of business on the corresponding day of the
month immediately succeeding the month in which such monthly payment was due
or, if there was no such corresponding day (e.g., as when a 30-day month
follows a 31-day month in which a payment was due on the 31st day of such
month), then on the last day of such immediately succeeding month; and
similarly for "60 days Delinquent", etc.
A "Due Period" with respect to the any Distribution Date is the period
commencing on the [second] day of the month preceding the month in which such
Distribution Date occurs and ending on the [first] day of the month in which
such Distribution Date occurs.
The "Extra Principal Distribution Amount" for any Distribution Date, is
the lesser of (x) the General Excess Available Amount for such Distribution
Date and (y) Overcollateralization Deficiency Amount for such Distribution
Date.
The "General Excess Available Amount" means with respect to each
Distribution Date is the amount, if any, by which the Available Funds for such
Distribution Date exceeds the aggregate amount distributed on such
Distribution Date pursuant to clauses (i) and (ii) under "--Allocation of
Available Funds" above (other than the Extra Principal Distribution Amount).
The "Interest Distributable Amount" for any Distribution Date and each
Class of Offered Certificates equals the sum of (i) the Monthly Interest
Distributable Amount for such Class for such Distribution Date and (ii) the
Unpaid Interest Shortfall Amount for such Class for such Distribution Date.
"Loss Reimbursement Entitlement" means, with respect to any Distribution
Date and the Class M Certificates or Class B Certificates, the amount of
Allocable Loss Amounts applied to the reduction of the Certificate Principal
Balance of such Class and not reimbursed pursuant to "--Allocation of
Available Funds" above as of such Distribution Date.
The "Monthly Interest Distributable Amount" for any Distribution Date and
each Class of Offered Certificates equals the amount of interest accrued
during the related Accrual Period at the related Pass-Through Rate on the
Certificate Principal Balance of such Class immediately prior to such
Distribution Date (or, in the case of the first Distribution Date, from the
Closing Date).
An "Overcollateralization Deficiency Amount" with respect to any
Distribution Date equals the amount, if any, by which the
Overcollateralization Target Amount exceeds the related Overcollateralized
Amount on such Distribution Date (after giving effect to distributions in
respect of the Basic Principal Distribution Amount but without giving effect
to any Allocable Loss Amounts on such Distribution Date).
"Overcollateralization Release Amount" means, with respect to any
Distribution Date on or after the Stepdown Date on which an
Overcollateralization Stepdown Trigger Event is not in effect, the lesser of
(x) the Principal Remittance Amount for such Distribution Date and (y) the
excess, if any, of (i) the Overcollateralized Amount for such Distribution
Date, assuming that 100% of the Principal Remittance Amount is applied to as a
principal payment on the Offered Certificates on such Distribution Date over
(ii) the Overcollateralization Target Amount for such Distribution Date.
The "Overcollateralization Target Amount" means with respect to (a) any
Distribution Date occurring prior to the Stepdown Date, an amount equal to
[____]% of the Pool Principal Balance as of the Cut-off Date; and (b) with
respect to any Distribution Date on or after the Stepdown Date and (A) as long
as an Overcollateralization Stepdown Trigger Event is not in effect, an amount
equal to the greater of (x) [____]% of the Pool Principal Balance as of the
end of the related Due Period and (y) approximately $[_________] or (B) for so
long as an Overcollateralization Stepdown Trigger Event is in effect, the
Overcollateralization Target Amount for the preceding Distribution Date.
The "Overcollateralized Amount" for any Distribution Date is the amount,
if any, by which (i) the Pool Principal Balance on the last day of the
immediately preceding Due Period exceeds (ii) the aggregate Certificate
Principal Balance of the Offered Certificates as of such Distribution Date
after giving effect to distributions to be made on such Certificates on such
Distribution Date.
The "Principal Distribution Amount" for any Distribution Date will equal
the sum of (i) the Basic Principal Distribution Amount and (ii) the Extra
Principal Distribution Amount for such Distribution Date.
A "Principal Prepayment" with respect to any Distribution Date is any
mortgagor payment or other recovery of principal on a Mortgage Loan that is
received in advance of its scheduled Due Date and is not accompanied by an
amount representing scheduled interest due on any date or dates in any month
or months subsequent to the month of prepayment.
The "Principal Remittance Amount" means with respect to any Distribution
Date, the sum of (i) each scheduled payment of principal collected on the
Mortgage Loans by the Master Servicer in the related Due Period, (ii) the
principal portion of all partial and full principal prepayments of such
Mortgage Loans applied by the Master Servicer during such Due Period, (iii)
the principal portion of all Net Liquidation Proceeds and Insurance Proceeds
received during such Due Period, (iv) that portion of the Purchase Price,
representing principal of any repurchased Mortgage Loan, required to be
deposited to the Collection Account during such Due Period, (v) the principal
portion of any Substitution Adjustments required to be deposited in the
Collection Account during such Due Period, and (vi) on the Distribution Date
on which the Trust Fund is to be terminated in accordance with the Pooling and
Servicing Agreement, that portion of the Termination Price, in respect of
principal.
A "Realized Loss" with respect to any defaulted Mortgage Loan that is
finally liquidated (a "Liquidated Mortgage Loan") is (i) the amount of loss
realized equal to the portion of the Principal Balance remaining unpaid after
application of all liquidation proceeds net of amounts reimbursable to the
Master Servicer for related Advances, Servicing Advances and Servicing Fees
(such amount, the "Net Liquidation Proceeds") in respect of such Mortgage Loan
and (ii) with respect to certain Mortgage Loans the principal balances or the
scheduled payments of principal and interest of which have been reduced in
connection with bankruptcy proceedings, (a) in the case of a reduction of the
principal balance of a Mortgage Loan, the amount of such principal reduction,
and (b) in the case of a reduction in the scheduled payments of principal and
interest of a Mortgage Loan, the net present value (using as the discount rate
the higher of the Loan Rate on such Mortgage Loan or the rate of interest, if
any, specified by the court in such order) of the scheduled payments as so
modified or restructured.
The "Rolling Delinquency Percentage" means, with respect to any
Distribution Date, the average of the Delinquency Percentages with respect to
the last day of each of the three immediately preceding Due Periods.
The "Senior Credit Enhancement Percentage," with respect to any
Distribution Date, is the percentage obtained by dividing (i) the sum of (a)
the aggregate of the Certificate Principal Balances of the Mezzanine
Certificates and the Class B Certificates and (b) the Overcollateralized
Amount, in each case after giving effect to the distributions of principal on
such Distribution Date, by (ii) the Pool Principal Balance as of the end of
the related Due Period.
The "Senior Specified Enhancement Percentage" on any date of
determination thereof means [_____]%.
The "Stepdown Date" means the earlier of (A) the Distribution Date on
which the Certificate Principal Balance of the Senior Certificates equals zero
and (B) the later to occur of (x) the Distribution Date in ______________ 200_
and (y) the first Distribution Date on which the Senior Credit Enhancement
Percentage (calculated for this purpose only using the Pool Principal Balance
as of the end of the related Due Period but prior to any application of
Principal Distribution Amount to the Certificates) is greater than or equal to
the Senior Specified Enhancement Percentage.
A "Trigger Event" has occurred on any Distribution Date, if the Rolling
Delinquency Percentage exceeds [__]% of the Senior Credit Enhancement
Percentage for such Distribution Date.
An "Overcollateralization Stepdown Trigger Event" means the occurrence on
any Distribution Date of either of the following: (i) the Cumulative Loss
Trigger has occurred or (ii) the Trigger Event has occurred.
The "Cumulative Loss Trigger" has occurred on a Distribution Date if
cumulative Realized Losses as of such Distribution Date exceed the percentages
of the Pool Principal Balance as of the Cut-off Date set forth below with
respect to such Distribution Date.
Percentage of
the Pool Principal
Balance as of the
Distribution Date Cut-off Date
----------------- ------------
The "Unpaid Interest Shortfall Amount" means (i) for each Class of
Offered Certificates and the first Distribution Date, zero, and (ii) with
respect to each Class of Offered Certificates and any Distribution Date after
the first Distribution Date, the amount, if any, by which (a) the sum of (1)
the Monthly Interest Distributable Amount for such Class for the immediately
preceding Distribution Date and (2) the outstanding Unpaid Interest Shortfall
Amount, if any, for such Class for such preceding Distribution Date exceeds
(b) the aggregate amount distributed on such Class in respect of interest
pursuant to clause (a) of this definition on such preceding Distribution Date,
plus interest on the amount of interest due but not paid on the Certificates
of such Class on such preceding Distribution Date, to the extent permitted by
law, at the Pass-Through Rate for such Class for the related Accrual Period.
Pass-Through Rates
The Pass-Through Rate for the Class A, the Class M and the Class B
Certificates for a particular Distribution Date is a per annum rate equal to
[the lesser of (a) the sum of (i) One-Month LIBOR on the related LIBOR
Determination Date (as defined herein) and (ii) the related Pass-Through
Margin and (b) the Available Funds Cap]. The Pass-Through Margins for the
Class A, the Class M-1 and Class B Certificates will be equal to [___]% ([__]
basis points), [___]% ([__] basis points) and [___]% ([___] basis points),
respectively, until the first Distribution Date following the Call Option
Date, and [____]% ([___] basis points), [___]% ([___] basis points) and [___]%
([___] basis points), respectively, on and after such Distribution Date]. [As
to any Distribution Date, the "Available Funds Cap" is a rate per annum equal
to the weighted average of the Loan Rates on the Mortgage Loans outstanding as
of the first day of the related Due Period, net of [___]% in fees.]
[If on any Distribution Date, the Pass-Through Rate for any Class of
Offered Certificates is based upon the Available Funds Cap, the excess of (i)
the amount of interest such Class of Certificates would have been entitled to
receive on such Distribution Date had such Pass-Through Rate not been subject
to the Available Funds Cap, up to the Maximum Cap, over (ii) the amount of
interest such Class of Offered Certificates received on such Distribution Date
based on the Available Funds Cap, together with the unpaid portion of any such
excess from prior Distribution Dates (and interest accrued thereon at the then
applicable Pass-Through Rate on such Class of Offered Certificates, without
giving effect to the Available Funds Cap) is the "Basis Risk Shortfall Amount"
for such Class of Offered Certificates. Any Basis Risk Shortfall Amount on any
Class of Offered Certificates will be paid on future Distribution Dates from
and to the extent of funds available therefor in the Excess Reserve Fund
Account (as described herein). The ratings on the Offered Certificates do not
address the likelihood of the payment of any Basis Risk Shortfall Amount.]
The "Maximum Cap" for any Distribution Date is [___]% per annum.
Calculation of [One-Month LIBOR]
[On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period following the initial Accrual Period (each
such date, a "LIBOR Determination Date"), the Trustee (except for the first
Accrual Period) will determine the London interbank offered rate for one-month
United States dollar deposits ("One-Month LIBOR") for such Accrual Period for
the Offered Certificates on the basis of the offered rates of the Reference
Banks for one-month United States dollar deposits, as such rates appear on the
Telerate Page 3750, as of 11:00 a.m. (London time) on such LIBOR Determination
Date. As used in this section, "LIBOR Business Day" means a day on which banks
are open for dealing in foreign currency and exchange in London and New York
City; "Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices); and
"Reference Banks" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market
(i) with an established place of business in London, (ii) whose quotations
appear on the Telerate Page 3750 on the LIBOR Determination Date in question,
(iii) which have been designated as such by the Trustee and (iv) not
controlling, controlled by or under common control with, the Depositor, the
Master Servicer or any successor Master Servicer.
On each LIBOR Determination Date, One-Month LIBOR for the related Accrual
Period for the Offered Certificates will be established by the Trustee as
follows:
(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period will be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of 0.0625%).
(b) If on such LIBOR Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period will be the higher of (x) One-Month LIBOR as determined on
the previous LIBOR Determination Date and (y) the Reserve Interest Rate.
The "Reserve Interest Rate" will be the rate per annum that the Trustee
determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 0.0625%) of the one-month
United States dollar lending rates which New York City banks selected by
the Trustee are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market
or (ii) in the event that the Trustee can determine no such arithmetic
mean, the lowest one-month United States dollar lending rate which New
York City banks selected by the Trustee are quoting on such LIBOR
Determination Date to leading European banks.
The establishment of One-Month LIBOR on each LIBOR Determination Date by
the Trustee and the Trustee's calculation of the rate of interest applicable
to the Offered Certificates for the related Accrual Period will (in the
absence of manifest error) be final and binding.]
Application of Allocable Loss Amounts
Following any reduction of the Overcollateralized Amount to zero, any
Allocable Loss Amounts will be applied, sequentially, in reduction of the
Certificate Principal Balances of the Class B Certificates and the Class M
Certificates, in that order, until their respective Certificate Principal
Balances have been reduced to zero. The Certificate Principal Balance of the
Class A Certificates will not be reduced by any application of Allocable Loss
Amounts. However, if the Subordinate and Mezzanine Certificates are reduced to
zero, such losses may ultimately reduce the amount of principal ultimately
paid to the holders of the Class A Certificates. The reduction of the
Certificate Principal Balance of any applicable Class of Offered Certificates
by the application of Allocable Loss Amounts entitles such Class to
reimbursement in an amount equal to the Loss Reimbursement Entitlement. Each
such Class of Offered Certificates will be entitled to receive its Loss
Reimbursement Entitlement, or any portion thereof, in accordance with the
payment priorities specified herein. Payment in respect of Loss Reimbursement
Entitlements will not reduce the Certificate Principal Balance of the related
Class or Classes.
[Excess Reserve Fund Account
The Pooling and Servicing Agreement establishes an account (the "Excess
Reserve Fund Account"), which is held in trust, as part of the Trust Fund, by
the Trustee on behalf of the Offered Certificateholders. The Excess Reserve
Fund Account will not be an asset of any REMIC. Certificateholders of each
Class of Offered Certificates in the order of their priority of payment will
be entitled to receive payments from the Excess Reserve Fund Account to the
extent of amounts on deposit therein in an amount equal to any Basis Risk
Shortfall Amount for such Class of Certificates. On the Closing Date, $[_____]
will be deposited into the Excess Reserve Fund Account. Thereafter, if the
Available Funds Cap does not exceed One-Month LIBOR by at least [___]%, the
amount to be held in the Excess Reserve Fund Account (the "Required Reserve
Amount") on any Distribution Date thereafter will equal the greater of (i)
[___]% of the outstanding Class Certificate Balance of the Offered
Certificates as of such Distribution Date and (ii) $[_____] and will be funded
from amounts otherwise to be paid to the Class OC Certificates. If the
Available Funds Cap does exceed One-Month LIBOR by [___]% or more, the
Required Reserve Amount will be $[_____]. Any distribution by the Trustee from
amounts in the Excess Reserve Fund Account shall be made on the applicable
Distribution Date.
Amounts on deposit in the Excess Reserve Fund Account in excess of
$[_____] will be released therefrom and distributed to the holders of the
Class OC Certificates on any Distribution Date on which the Available Funds
Cap exceeds One-Month LIBOR by [____]% or more.]
Reports to Certificateholders
On each Distribution Date, the Trustee will forward to each holder of a
Certificate and the Rating Agency a statement generally setting forth:
(i) the amount of the distributions, separately identified, with
respect to each Class of the Offered Certificates;
(ii) the amount of such distributions set forth in clause (i)
allocable to principal, separately identifying the aggregate amount of
any Principal Prepayments or other unscheduled recoveries of principal
included therein;
(iii) the amount of such distributions set forth in clause (i)
allocable to interest and the calculation thereof;
(iv) the amount of any Unpaid Interest Shortfall Amount with respect
to each Class of Certificates, separately identified;
(v) the Overcollateralization Target Amount and Overcollateralized
Amount as of such Distribution Date;
(vi) the Certificate Principal Balance of each Class of Offered
Certificates after giving effect to the distribution of principal on such
Distribution Date;
(vii) the Pool Principal Balance at the end of the related Due
Period;
(viii) the amount of the Servicing Fee paid to or retained by the
Master Servicer;
(ix) the amount of the Trustee Fee paid to the Trustee;
(x) the amount of Advances for the related Due Period;
(xi) the number and aggregate Principal Balance of Mortgage Loans
that were (A) delinquent (exclusive of Mortgage Loans in foreclosure) (1)
30 to 59 days, (2) 60 to 89 days and (3) 90 or more days, (B) in
foreclosure and delinquent (1) 30 to 59 days, (2) 60 to 89 days and (3)
90 or more days and (C) in bankruptcy as of the close of business on the
last day of the calendar month preceding such Distribution Date;
(xii) with respect to any Mortgage Loan that became an REO Property
during the preceding calendar month, the loan number, the Principal
Balance of such Mortgage Loan as of the close of business on the last day
of the related Due Period and the date of acquisition thereof;
(xiii) the total number and principal balance of any REO Properties
as of the close of business on the last day of the preceding Due Period;
(xiv) the aggregate amount of Realized Losses incurred during the
preceding calendar month;
(xv) the cumulative amount of Realized Losses;
(xvi) any Overcollateralization Deficiency Amount after giving effect
to the distribution of principal on such Distribution Date;
(xvii) the Allocable Loss Amounts, if any, allocated to the Mezzanine
and Subordinate Certificates and the Loss Reimbursement Entitlement owing
to the Mezzanine and Subordinate Certificates outstanding after giving
effect to distributions thereof on such Distribution Date;
(xviii) whether a Trigger Event or Overcollateralization Stepdown
Trigger Event has occurred and is continuing;
(xix) the amount of the Extra Principal Distribution Amount;
(xx) the Pass-Through Rate for the Class A, the Class M and Class B
Certificates for such Distribution Date; and
(xxi) the amount on deposit in the Excess Reserve Fund Account on
such Distribution Date and the Basis Risk Shortfall Amount owing to each
Class of Offered Certificates after giving effect to distributions
thereof on such Distribution Date.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each holder of a
Certificate of record during the previous calendar year a statement containing
information necessary to enable holders of the Certificates to prepare their
tax returns. Such statements will not have been examined and reported upon by
an independent public accountant.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The yield to maturity of the Offered Certificates, and particularly the
Subordinate Certificates, will be sensitive to defaults on the Mortgage Loans.
If a purchaser of an Offered Certificate calculates its anticipated yield
based on an assumed rate of default and amount of losses that is lower than
the default rate and amount of losses actually incurred, its actual yield to
maturity will be lower than that so calculated. Certificateholders of the
Offered Certificates may not receive reimbursement for Realized Losses in the
month following the occurrence of such losses. In general, the earlier a loss
occurs, the greater is the effect on an investor's yield to maturity. There
can be no assurance as to the delinquency, foreclosure or loss experience with
respect to the Mortgage Loans. Because the Mortgage Loans were underwritten in
accordance with standards less stringent than those generally acceptable to
FNMA and FHLMC with regard to a borrower's credit standing and repayment
ability, the risk of delinquencies with respect to, and losses on, the
Mortgage Loans will be greater than that of mortgage loans underwritten in
accordance with FNMA and FHLMC standards.
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yields to maturity
of the Offered Certificates will be related to the rate and timing of payments
of principal on the Mortgage Loans. The rate of principal payments on the
Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans and by the rate of principal prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the Mortgage
Loans due to defaults, casualties or condemnations and repurchases by the
Seller or Master Servicer). [Because certain of the Mortgage Loans contain
prepayment penalties, the rate of principal payments may be less than the rate
of principal payments for mortgage loans which did not have prepayment
penalties.] The Mortgage Loans are subject to the "due-on-sale" provisions
included therein. See "The Mortgage Pool" herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
any optional purchase) will result in distributions on the Offered
Certificates of principal amounts which would otherwise be distributed over
the remaining terms of the Mortgage Loans. Since the rate of payment of
principal on the Mortgage Loans will depend on future events and a variety of
other factors, no assurance can be given as to such rate or the rate of
principal prepayments. The extent to which the yield to maturity of a Class of
Offered Certificates may vary from the anticipated yield will depend upon the
degree to which such Offered Certificate is purchased at a discount or
premium, and the degree to which the timing of payments thereon is sensitive
to prepayments, liquidations and purchases of the Mortgage Loans. Further, an
investor should consider the risk that, in the case of any Offered Certificate
purchased at a discount, a slower than anticipated rate of principal payments
(including prepayments) on the Mortgage Loans could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Offered Certificate purchased at a premium, a faster than anticipated rate
of principal payments on the Mortgage Loans could result in an actual yield to
such investor that is lower than the anticipated yield.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes
in borrowers' housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions. In general, if
prevailing interest rates were to fall significantly below the Loan Rates on
the Fixed Rate Mortgage Loans, such Mortgage Loans could be subject to higher
prepayment rates than if prevailing interest rates were to remain at or above
the Loan Rates on such Mortgage Loans. Conversely, if prevailing interest
rates were to rise significantly, the rate of prepayments on such Mortgage
Loans would generally be expected to decrease. As is the case with the Fixed
Rate Mortgage Loans, the Adjustable Rate Mortgage Loans may be subject to a
greater rate of principal prepayments in a low interest rate environment. For
example, if prevailing interest rates were to fall, borrowers with Adjustable
Rate Mortgage Loans may be inclined to refinance their Adjustable Rate
Mortgage Loans with a fixed rate loan to "lock in" a lower interest rate. The
existence of the applicable Periodic Rate Cap and Maximum Rate also may affect
the likelihood of prepayments resulting from refinancings. No assurances can
be given as to the rate of prepayments on the Mortgage Loans in stable or
changing interest rate environments. In addition, the delinquency and loss
experience of the Adjustable Rate Mortgage Loans may differ from that on the
Fixed Rate Mortgage Loans because the amount of the monthly payments on the
Adjustable Rate Mortgage Loans are subject to adjustment on each Adjustment
Date. [In addition, many of the Adjustable Rate Mortgage Loans will not have
their initial Adjustment Date for [__________] after the origination thereof.
The prepayment experience of the Delayed First Adjustment Mortgage Loans may
differ from that of the other Adjustable Rate Mortgage Loans. The Delayed
First Adjustment Mortgage Loans may be subject to greater rates of prepayments
as they approach their initial Adjustment Dates even if market interest rates
are only slightly higher or lower than the Loan Rates on the Delayed First
Adjustment Mortgage Loans as borrowers seek to avoid changes in their monthly
payments.]
Overcollateralization Provisions
The operation of the overcollateralization provisions of the Pooling and
Servicing Agreement will affect the weighted average lives of the Offered
Certificates and consequently the yields to maturity of such Certificates.
Unless and until the Overcollateralized Amount equals the
Overcollateralization Target Amount, the General Excess Available Spread will
be applied as distributions of principal of the Class or Classes of
Certificates then entitled to distributions of principal, thereby reducing the
weighted average lives thereof. The actual Overcollateralized Amount may
change from Distribution Date to Distribution Date producing uneven
distributions of the General Excess Available Spread. There can be no
assurance as to when or whether the Overcollateralized Amount will equal the
Overcollateralization Target Amount.
The General Excess Available Spread generally is equal to the excess of
(x) interest collected or advanced on the Mortgage Loans over (y) the sum of
required interest on the Offered Certificates plus the Trustee Fee, the
Servicing Fee Rate and, if applicable, the Excess Servicing Fee. Mortgage
Loans with higher Loan Rates will contribute more interest to the General
Excess Available Spread. Mortgage Loans with higher Loan Rates may prepay
faster than Mortgage Loans with relatively lower Loan Rates in response to a
given change in market interest rates. Any such disproportionate prepayments
of Mortgage Loans with higher Loan Rates may adversely affect the amount of
the General Excess Available Spread available to make accelerated payments of
principal of the Offered Certificates.
As a result of the interaction of the foregoing factors, the effect of
the overcollateralization provisions on the weighted average lives of the
Offered Certificates may vary significantly over time and from Class to Class.
[Additional Information
The Depositor has filed certain yield tables and other computational
materials with respect to certain Classes of the Offered Certificates with the
Commission in a report on Form 8-K and may file certain additional yield
tables and other computational materials with respect to one or more Classes
of Offered Certificates with the Commission in a report on Form 8-K. Such
tables and materials were prepared by the Underwriter at the request of
certain prospective investors, based on assumptions provided by, and
satisfying the special requirements of, such prospective investors. Such
tables and assumptions may be based on assumptions that differ from the
Structuring Assumptions. Accordingly, such tables and other materials may not
be relevant to or appropriate for investors other than those specifically
requesting them.]
Weighted Average Lives
The timing of changes in the rate of Principal Prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of Principal Prepayments is consistent with
such investor's expectation. In general, the earlier a Principal Prepayment on
the Mortgage Loans occurs, the greater the effect of such Principal Prepayment
on an investor's yield to maturity. The effect on an investor's yield of
Principal Prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Offered Certificates may not be offset by a subsequent like
decrease (or increase) in the rate of Principal Prepayments.
The projected weighted average life of any Class of Offered Certificates
is the average amount of time that will elapse from __________ __, 2000 (the
"Closing Date") until each dollar of principal is scheduled to be repaid to
the investors in such Class of Offered Certificates. Because it is expected
that there will be prepayments and defaults on the Mortgage Loans, the actual
weighted average lives of the Classes of Offered Certificates are expected to
vary substantially from the weighted average remaining terms to stated
maturity of the Mortgage Pool as set forth herein under "The Mortgage
Pool--Mortgage Loan Statistics".
The "Assumed Final Maturity Date" for each Class of Offered Certificates
is as set forth herein under "Description of the Certificates--General". The
Assumed Final Maturity Date for each Class of Offered Certificates is the __th
Distribution Date following the Due Period in which the Principal Balances of
all the Mortgage Loans have been reduced to zero, assuming that the Mortgage
Loans pay in accordance with their terms. The weighted average life of each
Class of Offered Certificates is likely to be shorter than would be the case
if payments actually made on the Mortgage Loans conformed to the foregoing
assumptions, and the final Distribution Date with respect to the Offered
Certificates could occur significantly earlier than the related Assumed Final
Maturity Date because (i) prepayments are likely to occur, (ii) excess
cashflow, if any, will be applied as principal of the Offered Certificates as
described herein, (iii) the Overcollateralization Target Amount is as defined
herein and (iv) the Majority Residual Interestholder or the Master Servicer
may cause a termination of the Trust Fund as provided herein.
The model used in this Prospectus Supplement (the "Prepayment
Assumption") represents an assumed rate of prepayment each month relative to
the then outstanding principal balance of a pool of mortgage loans for the
life of such mortgage loans. The Prepayment Assumption does not purport to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
Each of the Prepayment Scenarios in the table on page S-[____] assumes
the respective percentages of the applicable Prepayment Assumption described
thereunder.
The tables on pages S-[____] through S-[____] were prepared on the basis
of the assumptions in the following paragraph and the tables set forth below.
There are certain differences between the loan characteristics included in
such assumptions and the characteristics of the actual Mortgage Loans. Any
such discrepancy may have an effect upon the percentages of Original
Certificate Principal Balances outstanding and weighted average lives of the
Offered Certificates set forth in the tables on pages S-[____] through
S-[____]. In addition, since the actual Mortgage Loans in the Trust Fund will
have characteristics that differ from those assumed in preparing the tables
set forth below, the distributions of principal of the Offered Certificates
may be made earlier or later than indicated in the tables.
The percentages and weighted average lives in the tables on pages
S-[____] through S-[____] were determined on the basis of the following
structuring assumptions (the "Structuring Assumptions"):
[list of structuring assumptions]
Nothing contained in the foregoing assumptions should be construed as a
representation that the Mortgage Loans will not experience delinquencies or
losses.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each Class of Offered Certificates, and
set forth the percentages of the Original Certificate Principal Balance of
each such Class that would be outstanding after each of the dates shown, at
various Prepayment Scenarios.
[TABULAR INFORMATION]
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates against the purchase price of the Mortgage Loans transferred to
the Trust Fund.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Pooling and Servicing Agreement provides that the Trust Fund[,
exclusive of the assets held in the Excess Reserve Fund Account, ]will
comprise [several Subsidiary REMICs and] a [Master] REMIC organized in a
[tiered] "real estate mortgage investment conduit" ("REMIC") structure. [Each
Subsidiary REMIC will issue uncertificated regular interests and those
interests will be held entirely by the REMIC immediately above it in the
tiered structure. Each of the Subsidiary REMICs and] the [Master] REMIC will
designate a single class of interests as the residual interest in that REMIC.
The Class R Certificates will represent ownership of the residual interests in
[each of] the REMIC[s]. Election[s] will be made to treat [each Subsidiary
REMIC and] the [Master] REMIC as a REMIC for federal income tax purposes.
Each Class of Offered Certificates will represent beneficial ownership of
regular interests issued by the [Master] REMIC. [In addition, each of the
Offered Certificates will represent a beneficial interest in the right to
receive payments from the Excess Reserve Fund Account.]
Upon the issuance of the Offered Certificates, Brown & Wood LLP ("Tax
Counsel"), will deliver its opinion concluding, assuming compliance with the
Pooling and Servicing Agreement, that for federal income tax purposes [each
Subsidiary REMIC and] the [Master] REMIC will qualify as a REMIC within the
meaning of section 860D of the Internal Revenue Code of 1986, as amended (the
"Code"). [In addition, Tax Counsel will deliver an opinion concluding that the
Excess Reserve Fund Account is an "outside reserve fund" that is beneficially
owned by the Certificateholders of the Class [__] Certificates]. [Moreover,
Tax Counsel will deliver an opinion concluding that the rights of the
Certificateholders of the Offered Certificates to receive payments from the
Excess Reserve Fund Account represent, for federal income tax purposes,
interests in an interest rate cap contract.]
Taxation of Regular Interests
A Certificateholder of a Class of Offered Certificates will be treated
for federal income tax purposes as owning an interest in regular interests in
the [Master] REMIC
Upon the sale, exchange, or other disposition of an Offered Certificate,
assuming that an Offered Certificate is held as a "capital asset" within the
meaning of section 1221 of the Code, gain or loss on the disposition of an
Offered Certificate should, subject to the limitation described below, be
capital gain or loss. However, gain attributable to an Offered Certificate
will be treated as ordinary income to the extent such gain does not exceed the
excess, if any, of (i) the amount that would have been includible in the
Certificateholder's gross income with respect to the regular interest
component had income thereon accrued at a rate equal to 110% of the applicable
federal rate as defined in section 1274(d) of the Code determined as of the
date of purchase of the Offered Certificate over (ii) the amount actually
included in such Certificateholder's income.
Interest on a REMIC regular interest must be included in income by a
Certificateholder under the accrual method of accounting, regardless of the
Certificateholder's regular method of accounting. In addition, a regular
interest could be considered to have been issued with original issue discount
("OID"). See "Certain Federal Income Tax Considerations --REMIC
Certificates--Regular Certificates--Original Issue Discount and Premium" in
the Prospectus. The prepayment assumption that will be used to in determining
the accrual of any OID, market discount, or bond premium, if any, will equal
the rate described above under "Yield, Prepayment and Maturity
Considerations--Weighted Average Lives" for Scenario [___]. No representation
is made that the Mortgage Loans will prepay at such a rate or at any other
rate. OID must be included in income as it accrues on a constant yield method,
regardless of whether the Certificateholder receives currently the cash
attributable to such OID.
Status of the Offered Certificates
The regular interest component of the Offered Certificates will be
treated as assets described in section 7701(a)(19)(C) of the Code, and as
"real estate assets" under section 856(c)(5)(B) of the Code, generally, in the
same proportion that the assets of the Trust Fund[, exclusive of the Excess
Reserve Fund Account,] would be so treated. In addition, to the extent a
regular interest represents real estate assets under section 856(c)(5)(B) of
the Code, the interest derived from that component would be interest on
obligations secured by interests in real property for purposes of section
856(c)(3) of the Code.
Non-U.S. Persons
Interest paid to or accrued by a Certificateholder who is a Non-U.S.
Person will be considered "portfolio interest", and will not be subject to
U.S. federal income tax and withholding tax, if the interest is not
effectively connected with the conduct of a trade or business within the
United States by the Non-U.S. Person and the Non-U.S. Person (i) is not
actually or constructively a "10 percent shareholder" of the Trust Fund or a
"controlled foreign corporation" with respect to which the Trust Fund is a
"related person" within the meaning of the Code and (ii) provides the Trust
Fund or other person who is otherwise required to withhold U.S. tax with
respect to the Offered Certificates with an appropriate statement (on Form W-8
or a similar form), signed under penalties of perjury, certifying that the
beneficial owner of the Offered Certificate is a Non-U.S. Person and providing
the Non-U.S. Person's name and address. If an Offered Certificate is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant signed
statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8 or substitute form provided by the
Non-U.S. Person that owns the Certificate.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of an Offered Certificate by a Non-U.S. Person will be
exempt from United States federal income and withholding tax, provided that
(i) such gain is not effectively connected with the conduct of a trade or
business in the United States by the Non-U.S. Person and (ii) in the case of
an individual, the individual is not present in the United States for 183 days
or more in the taxable year.
For purposes of the foregoing discussion, the term "Non-U.S. Person"
means any person other than (i) a citizen or resident of the United States;
(ii) a corporation (or entity treated as a corporation for tax purposes)
created or organized in the United States or under the laws of the United
States or of any state thereof, including, for this purpose, the District of
Columbia; (iii) a partnership (or entity treated as a partnership for tax
purposes) organized in the United States or under the laws of the United
States or of any state thereof, including, for this purpose, the District of
Columbia (unless provided otherwise by future Treasury regulations); (iv) an
estate whose income is includible in gross income for United States income tax
purposes regardless of its source; or (v) a trust, if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more U.S. Persons have authority to control all
substantial decisions of the trust. Notwithstanding the last clause of the
preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as U.S. Persons prior to
such date, may elect to continue to be U.S. Persons.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a Mortgage Loan, the receipt of income from a source
other than a Mortgage Loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset
purchased with the payments on the Mortgage Loans for temporary investment
pending distribution on the Certificates. It is not anticipated that the Trust
Fund will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which such trust fund issues all of
its interests could result in the imposition of a tax on the trust fund equal
to 100% of the value of the contributed property (the "Contributions Tax").
The Trust Fund will not accept contributions that would subject it to such
tax.
In addition, a trust fund that elects to be treated as a REMIC may also
be subject to federal income tax at the highest corporate rate on "net income
from foreclosure property," determined by reference to the rules applicable to
real estate investment trusts. "Net income from foreclosure property"
generally means gain from the sale of a foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust. It is not anticipated that the Trust Fund will recognize net income
from foreclosure property subject to federal income tax.
Backup Withholding
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Offered Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the Trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The Trustee will be required to report annually to the Internal Revenue
Service (the "IRS"), and to each Certificateholder of record, the amount of
interest paid (and OID accrued, if any) on the Offered Certificates (and the
amount of interest withheld for federal income taxes, if any) for each
calendar year, except as to exempt holders (generally, holders that are
corporations, certain tax-exempt organizations or nonresident aliens who
provide certification as to their status as nonresidents). As long as the only
holder of record of a Class of Offered Certificates is Cede, as nominee of
DTC, the IRS and Certificate Owners of such Class will receive tax and other
information, including the amount of interest paid on such Certificates owned,
from Participants and Financial Intermediaries rather than from the Trustee.
(The Trustee, however, will respond to requests for necessary information to
enable Participants, Financial Intermediaries and certain other persons to
complete their reports.) Each non-exempt Certificate Owner will be required to
provide, under penalty of perjury, a certificate on IRS form W-9 containing
his or her name, address, correct federal taxpayer identification number and a
statement that he or she is not subject to backup withholding. Should a
nonexempt Certificate Owner fail to provide the required certification, the
Participants or Financial Intermediaries (or the Paying Agent) will be
required to withhold 31% of the interest (and principal) otherwise payable to
the holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Such amounts will be deemed distributed to the affected Certificate Owner
for all purposes of the related Certificates and the Pooling and Servicing
Agreement.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits "parties in interest" with respect to an employee
benefit plan subject to ERISA and/or a plan or other arrangement subject to
the excise tax provisions set forth under section 4975 of the Code (each of
the foregoing, a "Plan") from engaging in certain transactions involving such
Plan and its assets unless a statutory, regulatory or administrative exemption
applies to the transaction. section 4975 of the Code imposes certain excise
taxes on prohibited transactions involving plans described under that section;
ERISA authorizes the imposition of civil penalties for prohibited transactions
involving plans not covered under Section 4975 of the Code. Any Plan fiduciary
which proposes to cause a Plan to acquire any of the Offered Certificates
should consult with its counsel with respect to the potential consequences
under ERISA and the Code of the Plan's acquisition and ownership of such
Certificates. See "ERISA Considerations" in the Prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Offered Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under sections 401(a) and 501(a) of the
Code may nonetheless be subject to the prohibited transaction rules set forth
in section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a Plan's investments be
made in accordance with the documents governing the Plan. A fiduciary which
decides to invest the assets of a Plan in the Offered Certificates should
consider, among other factors, the extreme sensitivity of the investments to
the rate of principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor (the "DOL") has granted to Greenwich Capital
Markets, Inc. an administrative exemption (Prohibited Transaction Exemption
90-59; Exemption Application No. D-8374) (the "Exemption") from certain of the
prohibited transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Code with respect to the initial purchase, the holding and
the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The Exemption applies to
mortgage loans such as the Mortgage Loans in the Trust Fund.
Among the conditions that must be satisfied for the Exemption to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) the rights and interest evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Rating Co. ("DCR") or Fitch IBCA, Inc. ("Fitch" and, together with S&P,
Moody's and DCR, the "Exemption Rating Agencies");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not more than
reasonable compensation for underwriting the certificates; the sum of all
payments made to and retained by the seller pursuant to the assignment of the
loans to the trust fund represents not more than the fair market value of such
loans; the sum of all payments made to and retained by the servicer and any
other servicer represents not more than reasonable compensation for such
person's services under the agreement pursuant to which the loans are pooled
and reimbursements of such person's reasonable expenses in connection
therewith; and
(6) the Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest generic rating categories by an
Exception Rating Agency for at least one year prior to the Plan's
acquisition of certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at least
one year prior to any Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust holding
receivables as to which the fiduciary (or its affiliate) is an obligor
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent
(50%) of each class of certificates in which Plans have invested is acquired
by persons independent of the Restricted Group; (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) or less of the fair
market value of the obligations contained in the trust; (iii) the Plan's
investment in certificates of any class does not exceed twenty-five percent
(25%) of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of any Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Underwriter, the Trustee,
the Master Servicer, any obligor with respect to Mortgage Loans included in
the Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any
affiliate of such parties (the "Restricted Group").
On July 21, 1997, the DOL published in the Federal Register an amendment
to the Exemption, which extends exemptive relief to certain mortgage-backed
and asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. The amendment generally allows mortgage
loans or other secured receivables supporting payments to certificateholders,
and having a value equal to no more than twenty-five percent (25%) of the
total principal amount of the certificates being offered by the trust, to be
transferred to the trust within a 90-day or three-month period following the
closing date, instead of requiring that all such loans or receivables be
either identified or transferred on or before the closing date. The relief is
available when certain conditions are met.
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the Senior Certificates and that all conditions of the
Exemption other than those within the control of the investors will be met.
Because the characteristics of the Class M and the Class B Certificates
may not meet the requirements of PTCE 83-1, the Exemption or any other issued
exemption under ERISA, the purchase and holding of Class M and Class B
Certificates by a Plan or by individual retirement accounts or other plans
subject to section 4975 of the Code may result in prohibited transactions or
the imposition of excise taxes or civil penalties. Consequently, initial
acquisitions and transfers of the Class M and Class B Certificates will not be
registered by the Trustee unless the Trustee receives: (i) a representation
from the acquiror or transferee of such Certificate, to the effect that such
transferee is not an employee benefit plan subject to section 406 of ERISA or
a plan or arrangement subject to section 4975 of the Code, nor a person acting
on behalf of any such plan or arrangement nor using the assets of any such
plan or arrangement to effect such transfer or (ii) if the purchaser is an
insurance company, a representation that the purchaser is an insurance company
which is purchasing such Certificates with funds contained in an "insurance
company general account" (as such term is defined in Section V(e) of
Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificates are covered under Section I and III
of PTCE 95-60. Such representation as described above shall be deemed to have
been made to the Trustee by the acquiror or transferee's acceptance of a Class
M or Class B Certificate that is in book-entry form. In the event that such
representation is violated, such attempted transfer or acquisition shall be
void and of no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences
in their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Offered Certificates is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition of
the Plan's investment portfolio.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates and the Class M Certificates will constitute
"mortgage related securities" for the purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") so long as they are rated in one of
the two highest rating categories by at least one nationally recognized
statistical rating organization and, as such, are legal investments for
certain entities to the extent provided for in SMMEA. The Class B Certificates
will not constitute "mortgage related securities" under SMMEA. Accordingly,
many institutions with legal authority to invest in "mortgage related
securities" may not be legally authorized to invest in the Class B
Certificates.
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase the Certificates or to purchase
Certificates representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors. See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, between the Depositor and the Underwriter (an affiliate of the
Depositor), the Depositor has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Depositor, the Offered
Certificates.
Distribution of the Offered Certificates will be made by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The Underwriter may effect such
transactions by selling Offered Certificates to or through dealers and such
dealers may receive from the Underwriter, for which they act as agent,
compensation in the form of underwriting discounts, concessions or
commissions. The Underwriter and any dealers that participate with the
Underwriter in the distribution of such Offered Certificates may be deemed to
be underwriters, and any discounts, commissions or concessions received by
them, and any profits on resale of the Certificates purchased by them, may be
deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended (the "Act").
The Depositor has been advised by the Underwriter that it intends to make
a market in the Offered Certificates but has no obligation to do so. There can
be no assurance that a secondary market for the Offered Certificates will
develop or, if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Offered
Certificates will be passed upon for the Depositor and for the Underwriter by
Brown & Wood LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that (i)
the Class A Certificates be rated "___" by __________ and ______ (each, a
"Rating Agency"" and, together, the "Rating Agencies"), (ii) the M
Certificates be rated "__" by ___ and "___" by _______, and the Class B
Certificates be rated "___" by ___ .
The ratings assigned by the Rating Agencies to mortgage pass-through
certificates address the likelihood of the receipt of all distributions on the
mortgage loans by the related certificateholders under the agreements pursuant
to which such certificates are issued. The Rating Agencies' ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on the mortgage pool
is adequate to make the payments required by such certificates. The Rating
Agencies' ratings on such certificates do not, however, constitute a statement
regarding frequency of prepayments of the mortgage loans.
The ratings on the Offered Certificates address the likelihood of the
receipt by the holders of the Offered Certificates of all distributions on the
Mortgage Loans to which they are entitled. The ratings on the Offered
Certificates also address the structural, legal and issuer-related aspects of
the Offered Certificates, including the nature of the Mortgage Loans. In
general, the ratings on the Offered Certificates address credit risk and not
prepayment risk. The ratings on the Offered Certificates do not represent any
assessment of the likelihood that principal prepayments of the Mortgage Loans
will be made by borrowers or the degree to which the rate of such prepayments
might differ from that originally anticipated. [The ratings on the Offered
Certificates do not address the likelihood of the payment of any Basis Risk
Shortfall Amount.] As a result, the initial ratings assigned to the Offered
Certificates do not address the possibility that holders of the Offered
Certificates might suffer a lower than anticipated yield in the event of
principal payments on the Offered Certificates resulting from rapid
prepayments of the Mortgage Loans or the application of the General Excess
Available Amount as described herein, or in the event that the Trust Fund is
terminated prior to the Assumed Final Maturity Date of the Classes of Offered
Certificates.
The Depositor has not engaged any rating agency other than the Rating
Agencies to provide ratings on the Offered Certificates. However, there can be
no assurance as to whether any other rating agency will rate the Offered
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. Any rating on the Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Offered
Certificates by the Rating Agencies.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating. In the event that the ratings initially assigned to
any of the Offered Certificates by the Rating Agencies are subsequently
lowered for any reason, no person or entity is obligated to provide any
additional support or credit enhancement with respect to such Offered
Certificates.
<PAGE>
INDEX OF DEFINED TERMS
Accrual Period............................................................S-46
Act.......................................................................S-67
Adjustable Rate Mortgage Loans............................................S-15
Adjustment Date...........................................................S-22
Advance...................................................................S-34
Allocable Loss Amount.....................................................S-47
Assumed Final Maturity Date...............................................S-59
Available Funds...........................................................S-44
Available Funds Cap.......................................................S-52
Balloon Loan..............................................................S-16
Balloon Payment...........................................................S-16
Basic Principal Distribution Amount.......................................S-47
Basis Risk Shortfall Amount...............................................S-52
Book-Entry Certificates...................................................S-39
Call Option Date..........................................................S-47
Cede......................................................................S-39
Certificate Owners........................................................S-39
Certificate Principal Balance.............................................S-47
Certificateholder.........................................................S-39
Certificates..............................................................S-38
Class A Principal Distribution Amount.....................................S-47
Class B Principal Distribution Amount.....................................S-48
Class M Principal Distribution Amount.....................................S-47
Clearstream................................................................S-3
Clearstream Participants..................................................S-41
Closing Date..............................................................S-59
Code......................................................................S-60
Collection Account........................................................S-33
Compensating Interest.....................................................S-36
Contributions Tax.........................................................S-62
Cooperative...............................................................S-42
Cumulative Loss Trigger...................................................S-51
Cut-off Date..............................................................S-15
Cut-off Date Principal Balance............................................S-15
DCR.......................................................................S-65
Defective Mortgage Loans..................................................S-33
Definitive Certificate....................................................S-39
Delayed First Adjustment Mortgage Loan....................................S-16
Delinquency Percentage....................................................S-48
Delinquent................................................................S-48
Depositor.................................................................S-15
Determination Date........................................................S-36
Distribution Account......................................................S-33
Distribution Date.........................................................S-39
DOL.......................................................................S-64
DTC.......................................................................-, 1
Due Date..................................................................S-16
Due Period................................................................S-48
Eligible Account..........................................................S-33
Eligible Substitute Mortgage Loan.........................................S-32
ERISA.....................................................................S-64
Euroclear Operator........................................................S-42
Euroclear Participants....................................................S-42
European Depositaries.....................................................S-39
Excess Reserve Fund Account...............................................S-54
Excess Servicing Fee......................................................S-35
Exemption.................................................................S-64
Exemption Rating Agencies.................................................S-65
Extra Principal Distribution Amount.......................................S-48
Financial Intermediary....................................................S-39
Fitch.....................................................................S-65
Fixed Rate Mortgage Loans.................................................S-15
Foreclosure Ratio.........................................................S-30
General Excess Available Amount...........................................S-49
Global Securities..........................................................A-1
Gross Margin..............................................................S-22
Index.....................................................................S-16
Interest Distributable Amount.............................................S-49
IRS.......................................................................S-63
LIBOR Business Day........................................................S-53
LIBOR Determination Date..................................................S-52
Liquidated Mortgage Loan..................................................S-50
Loss Reimbursement Entitlement............................................S-49
Maximum Cap...............................................................S-52
Maximum Loan Rate.........................................................S-22
Mezzanine Certificates....................................................S-38
Minimum Loan Rate.........................................................S-22
Monthly Interest Distributable Amount.....................................S-49
Moody's...................................................................S-65
Mortgage..................................................................S-16
Mortgage Loan Schedule....................................................S-31
Mortgage Loans............................................................S-15
Mortgage Pool.............................................................S-15
Mortgage Rates............................................................S-15
Mortgaged Property........................................................S-15
Net Gains/(Losses)........................................................S-30
Net Liquidation Proceeds..................................................S-50
Non-U.S. Person...........................................................S-62
Offered Certificates......................................................S-38
OID.......................................................................S-61
One-Month LIBOR...........................................................S-53
Original Certificate Principal Balance....................................S-47
Overcollateralization Deficiency Amount...................................S-49
Overcollateralization Release Amount......................................S-49
Overcollateralization Stepdown Trigger Event..............................S-51
Overcollateralization Target Amount.......................................S-49
Overcollateralized Amount.................................................S-50
Pass-Through Margin.......................................................S-52
Pass-Through Rate.........................................................S-52
Periodic Rate Cap.........................................................S-22
Plan......................................................................S-64
Pooling and Servicing Agreement...........................................S-31
Prepayment Assumption.....................................................S-59
Prepayment Interest Shortfall.............................................S-36
Prepayment Period.........................................................S-45
Principal Distribution Amount.............................................S-50
Principal Prepayment......................................................S-50
Principal Remittance Amount...............................................S-50
Prohibited Transactions Tax...............................................S-62
PTCE 95-60................................................................S-66
Purchase Price............................................................S-32
Rating Agencies...........................................................S-68
Rating Agency.............................................................S-68
Realized Loss.............................................................S-50
Record Date...............................................................S-39
Reference Banks...........................................................S-53
Related Documents.........................................................S-31
Relevant Depositary.......................................................S-39
Relief Act................................................................S-34
REMIC.....................................................................S-60
Required Reserve Amount...................................................S-54
Reserve Interest Rate.....................................................S-53
Residual Certificates.....................................................S-38
Restricted Group..........................................................S-66
Rolling Delinquency Percentage............................................S-51
Rules.....................................................................S-40
S&P.......................................................................S-65
Scoring Company...........................................................S-28
Seller....................................................................S-28
Senior Certificates.......................................................S-38
Senior Credit Enhancement Percentage......................................S-51
Senior Specified Enhancement Percentage...................................S-51
Servicing Advance.........................................................S-35
Servicing Fee.............................................................S-35
Servicing Fee Rate........................................................S-35
SMMEA.....................................................................S-67
Stepdown Date.............................................................S-51
Structuring Assumptions...................................................S-59
Subordinate Certificates..................................................S-38
Substitution Adjustment...................................................S-32
Tax Counsel...............................................................S-60
Telerate Page 3750........................................................S-53
Terms and Conditions......................................................S-42
Total Portfolio...........................................................S-30
Trigger Event.............................................................S-51
Trust Fund................................................................S-15
Trustee...................................................................S-35
Trustee Fee...............................................................S-35
U.S. Person................................................................S-4
Unpaid Interest Shortfall Amount..........................................S-51
Voting Rights.............................................................S-36
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
[____________________] Certificates (the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through [any] of The Depository Trust Company ("DTC"),
[Clearstream or Euroclear]. The Global Securities will be tradable as home
market instruments in [both] the [European and] U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
[Secondary market trading between investors holding Global Securities
through Clearstream and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).]
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
[Secondary cross-market trading between Clearstream or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream and Euroclear (in such capacity) and as DTC Participants.]
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. [As a result, Clearstream and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.]
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
[Investors electing to hold their Global Securities through Clearstream
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no `lock-up' or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.]
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset backed certificates issues in same-day funds.
[Trading between Clearstream and/or Euroclear Participants. Secondary
market trading between Clearstream Participants or Euroclear Participants will
be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Clearstream Participant or a Euroclear Participant, the purchaser
will send instructions to Clearstream or Euroclear through a Clearstream
Participant or Euroclear Participant at least one business day prior to
settlement. Clearstream or Euroclear will instruct the respective Depositary,
as the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, on the basis of
the actual number of days in such accrual period and a year assumed to consist
of 360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following
month. Payment will then be made by the respective Depositary of the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be system and by the
clearing system, in accordance with its usual procedures, to the Clearstream
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the Clearstream or Euroclear cash debt will be valued instead as of
the actual settlement date.
Clearstream Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream Participants or Euroclear Participants can elect
not to preposition funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Clearstream Participants or
Euroclear Participants purchasing Global Securities would incur overdraft
charges for one day, assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period
may substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each Clearstream Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Clearstream
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two
DTC Participants.
Trading between Clearstream or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Clearstream Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Clearstream or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment to and excluding the
settlement date on the basis of the actual number of days in such accrual
period and a year assumed to consist of 360 days. For transactions settling on
the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. The payment will then be reflected in
the account of the Clearstream Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the Clearstream
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Clearstream Participant or Euroclear Participant have a line
of credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Clearstream Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Clearstream or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Clearstream
Participants or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Clearstream or Euroclear for one day (until
the purchase side of the day trade is reflected in their Clearstream or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their
Clearstream or Euroclear account in order to settle the sale side of the
trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is
at least one day prior to the value date for the sale to the Clearstream
Participant or Euroclear Participant.]
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities [through
Clearstream or Euroclear] (or through DTC if the holder has an address outside
the U.S.[)] will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a
corporation or partnership for United States federal income tax purposes
organized in or under the laws of the United States or any state thereof or
the District of Columbia or (iii) an estate the income of which is includible
in gross income for United States tax purposes, regardless of its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors
are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
<S> <C>
You should rely only on the information contained or incorporated
by reference in this prospectus supplement and the accompanying $[____________________]
prospectus. We have not authorized anyone to provide you with (Approximate)
different information. We are not offering the certificates in
any state where the offer is not permitted.
Mortgage Backed Certificates
Dealers will deliver a prospectus supplement and prospectus when Series 200__-__
acting as underwriters of the certificates and with respect to
their unsold allotments or subscriptions. In addition, all
dealers selling the certificates will be required to deliver a $___________ Class A
prospectus supplement and prospectus until [_________ ___, 200__. [Variable Pass-Through Rate]
-------------------------
[$__________ Class M
TABLE OF CONTENTS [Variable Pass-Through Rate]
PAGE
PROSPECTUS SUPPLEMENT [$__________ Class B
[Variable Pass-Through Rate]
Table of Contents...........................................S-2
Summary of Terms............................................S-3
Risk Factors................................................S-8
The Mortgage Pool...........................................S-15 GREENWICH CAPITAL ACCEPTANCE, INC.
Underwriting Standards......................................S-28 (Depositor)
The Master Servicer.........................................S-29
The Pooling and Servicing Agreement.........................S-31 [__________________________]
Description of the Certificates.............................S-55 Seller and Master Servicer
Yield, Prepayment and Maturity Considerations...............S-58
Use of Proceeds.............................................S-59
Certain Material Federal Income Tax Consequences............S-62
State Taxes.................................................S-62
ERISA Considerations........................................S-65 GREENWICH CAPITAL
Legal Investment Considerations.............................S-65 MARKETS, INC.
Method of Distribution......................................S-66
Legal Matters...............................................S-66
Ratings.....................................................S-66
Index of Defined Terms......................................S-68
Annex I.....................................................A-1
PROSPECTUS SUPPLEMENT
PROSPECTUS [___________ ___, 2000]
Table of Contents............................................2
Important Notice about Information in this Prospectus
and Each Accompanying Prospectus Supplement................4
Risk Factors.................................................5
The Trust Fund..............................................12
Use of Proceeds.............................................22
The Depositor...............................................22
Mortgage Loan Program.......................................23
Description of the Certificates.............................25
Credit Enhancement..........................................31
Yield and Prepayment Considerations.........................38
Pooling and Servicing Agreement.............................39
Certain Legal Aspects of the Loans..........................50
Certain Federal Income Tax Consequences.....................86
State Tax Considerations....................................84
ERISA Considerations........................................84
Legal Investment............................................87
Method of Distribution......................................88
Legal Matters...............................................88
Financial Information.......................................89
Available Information.......................................89
Rating......................................................89
Index of Defined Terms......................................90
===========================================================================================================================
</TABLE>
SUBJECT TO COMPLETION, DATED APRIL 7, 2000
PROSPECTUS
Mortgage Pass-Through Certificates
(Issuable in Series)
GREENWICH CAPITAL ACCEPTANCE, INC.
Depositor
The Certificates
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.
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.
________________________, 2000
<PAGE>
TABLE OF CONTENTS
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
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 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
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about each series of certificates is contained in two separate
documents:
o this prospectus, which provides general information, some of which may
not apply to a particular series; and
o the accompanying prospectus supplement for a particular
series, which describes the specific terms of the certificates of
that series. If the prospectus supplement contains information about
a particular series that differs from the information contained in
this prospectus, you should rely on the information in the
prospectus supplement.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide
you with information that is different from that contained in this prospectus
and the accompanying prospectus supplement. The information in this prospectus
is accurate only as of the date of this prospectus.
Beginning with the section titled "The Trust Fund", certain capitalized terms
are used in this prospectus to assist you in understanding the terms of the
certificates. The capitalized terms used in this prospectus are defined on the
pages indicated under the caption "Index of Defined Terms" beginning on page
90 of this prospectus.
-------------------------
If you require additional information, the mailing address of our principal
executive offices is 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.
<PAGE>
RISK FACTORS
You should carefully consider the following information, since it
identifies certain significant sources of risk associated with an investment
in the certificates.
Limited Liquidity.......................... No market will exist for the
certificates of any series before
they are issued. In addition,
there can be no assurance that a
resale market will develop
following the issuance and sale
of any series of the
certificates. Even if a resale
market does develop, it might not
provide investors with liquidity
of investment or continue for the
life of the certificates.
Limited Assets............................. Unless the applicable prospectus
supplement provides otherwise,
the certificates of each series
will be payable solely from the
assets of the related trust,
including any applicable credit
enhancement, and will not have a
claim against the assets of any
other trust. Moreover, at the
times specified in the related
prospectus supplement, certain
assets of the trust (and/or the
related security account) may be
released to the depositor, master
servicer, any servicer, credit
enhancement provider or other
specified person, if:
o all payments then due on the
related certificates have been
made;
o adequate provision for future
payments on certain classes of
the certificates has been made;
and
o any other payments specified in
the related prospectus
supplement have been made.
Once released, such assets will
no longer be available to make
payments to certificateholders.
There will be no recourse against
the depositor or the master
servicer if any required
distribution on the certificates
is not made.
The certificates will not
represent an interest in the
depositor, the master servicer,
any servicer or any of their
respective affiliates, nor will
the certificates represent an
obligation of any of them. The
only obligations of the depositor
with respect to the related trust
or the certificates would arise
from the representations and
warranties that the depositor may
make concerning the related trust
assets. The depositor does not
have significant assets and is
unlikely to have significant
assets in the future. If the
depositor should be required to
repurchase a loan from a trust
because of the breach of a
representation or warranty, the
depositor's sole source of funds
for the repurchase would be:
o funds obtained from enforcing
any similar obligation of the
seller or originator of the
loan, or
o funds from a reserve account or
similar credit enhancement
established to pay for loan
repurchases.
In addition, the master servicer
may be obligated to make certain
advances if loans are delinquent,
but only to the extent it deems
the advances to be recoverable
from amounts it expects to
receive on those loans.
Credit Enhancement......................... Credit enhancement is intended to
reduce the effect of delinquent
payments or loan losses on those
classes of certificates that have
the benefit of the credit
enhancement. Nevertheless, the
amount of any credit enhancement
is subject to the limits
described in the related
prospectus supplement. Moreover,
the amount of credit enhancement
may decline or be depleted under
certain circumstances before the
certificates are paid in full. As
a result, certificateholders may
suffer losses. In addition,
credit enhancement may not cover
all potential sources of risk of
loss, such as fraud or negligence
by a loan originator or other
parties.
financial Instruments...................... As described under "Credit
Enhancement--Financial
Instruments," a trust may include
financial instruments to protect
against certain risks or to
provide certain cash flow
characteristics for particular
classes of the certificates of a
series. If you invest in such a
class and the issuer of the
financial instruments fails to
perform its obligations, the
yield to maturity, market price
and liquidity of your
certificates could be materially
adversely affected. In addition,
if the issuer of the related
financial instruments experiences
a credit rating downgrade, the
market price and liquidity of
your certificates could be
reduced. Finally, if the
financial instruments are
intended to provide an
approximate or partial hedge for
certain risks or cashflow
characteristics, the yield to
maturity, market price and
liquidity of your certificates
could be adversely affected to
the extent that the financial
instruments do not provide a
perfect hedge.
Prepayment and Yield Considerations........ The timing of principal payments
on the certificates of a series
will be affected by a number of
factors, including the following:
o the extent of prepayments on
the underlying loans in the
trust or, if the trust is
comprised of underlying
securities, on the loans backing
the underlying securities;
o how payments of principal are
allocated among the classes of
certificates of that series as
specified in the related
prospectus supplement;
o if any party has an option to
terminate the related trust
early, the effect of the exercise
of the option;
o the rate and timing of defaults
and losses on the assets in the
related trust; and
o repurchases of assets
in the related trust as a result
of material breaches of
representations and warranties
made by the depositor or master
servicer.
The rate of prepayment of the
loans included in or underlying
the assets in each trust may
affect the yield to maturity of
the certificates.
Interest payable on the
certificates on any given
distribution date will include
all interest accrued during the
related interest accrual period.
The interest accrual period for
the certificates of each series
will be specified in the
applicable prospectus supplement.
If the interest accrual period
ends two or more days before the
related distribution date, your
effective yield will be less than
it would be if the interest
accrual period ended the day
before the distribution date. As
a result, your effective yield at
par would be less than the
indicated coupon rate.
Balloon Payments........................... Certain of the underlying loans
may not be fully amortizing and
may require a substantial
principal payment (i.e., a
"balloon" payment) at their
stated maturity. Loans of this
type involve a greater degree of
risk than fully amortizing loans
since the related borrower must
generally be able to refinance
the loan or sell the related
property prior to the loan's
maturity date. The borrower's
ability to do so will depend on
such factors as the level of
available mortgage rates at the
time of sale or refinancing, the
relative strength of the local
housing market, the borrower's
equity in the property, the
borrower's general financial
condition and tax laws.
Nature of Mortgages........................ The following factors, among
others, could adversely affect
property values in such a way
that the outstanding balance of
the related loans would equal or
exceed those values:
o an overall decline in the
residential real estate markets
where the properties are
located,
o failure of borrowers to
maintain their properties
adequately, and
o natural disasters that are not
necessarily covered by hazard
insurance, such as earthquakes
and floods.
If property values decline,
actual rates of delinquencies,
foreclosures and losses on the
underlying loans could be higher
than those currently experienced
by the mortgage lending industry
in general.
Even if you assume that the
properties provide adequate
security for the loans,
substantial delays could occur
before defaulted loans are
liquidated and the proceeds
forwarded to investors. Property
foreclosure actions are regulated
by state statutes and rules and
are subject to many of the delays
and expenses that characterize
other types of lawsuits if
defenses or counterclaims are
made. As a result, foreclosure
actions can sometimes take
several years to complete.
Moreover, some states prohibit a
mortgage lender from obtaining a
judgment against the borrower for
amounts not covered by property
proceeds if the property is sold
outside of a judicial proceeding.
As a result, if a borrower
defaults, these restrictions may
impede the servicer's ability to
dispose of the borrower's
property and obtain sufficient
proceeds to repay the loan in
full. In addition, the servicer
is entitled to deduct from
liquidation proceeds all the
expenses it reasonably incurs in
trying to recover on the
defaulted loan, including legal
fees and costs, real estate
taxes, and property preservation
and maintenance expenses.
State laws generally regulate
interest rates and other loan
charges, require certain
disclosures, and often require
licensing of loan originators and
servicers. In addition, most
states have other laws and public
policies for the protection of
consumers that prohibit unfair
and deceptive practices in the
origination, servicing and
collection of loans. Depending on
the provisions of the particular
law or policy and the specific
facts and circumstances involved,
violations may limit the ability
of the servicer to collect
interest or principal on the
loans. Also, the borrower may be
entitled to a refund of amounts
previously paid and the servicer
may be subject to damage claims
and administrative sanctions.
Environmental Risks........................ Federal, state and local laws and
regulations impose a wide range
of requirements on activities
that may affect the environment,
health and safety. In certain
circumstances, these laws and
regulations impose obligations on
owners or operators of
residential properties such as
those that secure the loans
included in a trust. Failure to
comply with these laws and
regulations can result in fines
and penalties that could be
assessed against the trust as
owner of the related property.
In some states, a lien on the
property due to contamination has
priority over the lien of an
existing mortgage. Further, a
mortgage lender may be held
liable as an "owner" or
"operator" for costs associated
with the release of petroleum
from an underground storage tank
under certain circumstances. If
the trust is considered the owner
or operator of a property, it
will suffer losses as a result of
any liability imposed for
environmental hazards on the
property.
Certain Other Legal Considerations
Regarding the Loans......................... The loans may also be subject to
federal laws relating to the
origination and underwriting.
These laws
o require certain disclosures to
the borrowers regarding the terms
of the loans;
o prohibit discrimination on the
basis of age, race, color, sex,
religion, marital status,
national origin, receipt of
public assistance or the exercise
of any right under the consumer
credit protection act, in the
extension of credit;
o regulate the use and reporting
of information related to the
borrower's credit experience; and
o require additional application
disclosures, limit changes that
may be made to the loan documents
without the borrower's consent
and restrict a lender's ability
to declare a default or to
suspend or reduce a borrower's
credit limit to certain
enumerated events.
Certain loans are also subject to
federal laws which impose
additional disclosure
requirements on creditors with
respect to non-purchase money
mortgage loans with high interest
rates or high up-front fees and
charges. These laws can impose
specific statutory liabilities
upon creditors that fail to
comply and may affect the
enforceability of the related
loans. In addition, any assignee
of the creditor (including the
trust) would generally be subject
to all claims and defenses that
the borrower could assert against
the creditor, including the right
to rescind the loan.
Certain loans relating to home
improvement contracts are subject
to federal laws that protect the
borrower from defective or
incomplete work by a contractor.
These laws permit the borrower to
withhold payment if the work does
not meet the quality and
durability standards agreed to
between the borrower and the
contractor. These laws have the
effect of subjecting any assignee
of the seller (including the
trust) to all claims and defenses
which the borrower in a sale
transaction could assert against
the seller of defective goods.
If certain provisions of these
federal laws are violated, the
master servicer may be unable to
collect all or part of the
principal or interest on the
loans. The trust also could be
subject to damages and
administrative enforcement.
Ratings of the Certificates................ Any class of certificates issued
under this prospectus and the
accompanying prospectus
supplement will be rated in one
of the four highest rating
categories of a nationally
recognized rating agency. A
rating is based on the adequacy
of the value of the trust assets
and any credit enhancement for
that class and reflects the
rating agency's assessment of how
likely it is that holders of the
class of certificates will
receive the payments to which
they are entitled. A rating does
not constitute an assessment of
how likely it is that principal
prepayments on the underlying
loans will be made, the degree to
which the rate of prepayments
might differ from that originally
anticipated or the likelihood of
early, optional termination of
the certificates. You must not
view a rating as a recommendation
to purchase, hold or sell
certificates because it does not
address the market price or
suitability of the certificates
for any particular investor.
There is no assurance that any
rating will remain in effect for
any given period of time or that
the rating agency will not lower
or withdraw it entirely in the
future. The rating agency could
lower or withdraw its rating due
to:
o any decrease in the adequacy of
the value of the trust assets or
any related credit enhancement,
o an adverse change in the
financial or other condition of
a credit enhancement provider or
o a change in the rating of the
credit enhancement provider's
long-term debt.
Book-Entry Registration.................... Limit on Liquidity of
Certificates. Certificates issued
in book-entry form may have only
limited liquidity in the resale
market, since investors may be
unwilling to purchase
certificates for which they
cannot obtain physical
instruments.
Limit on Ability to Transfer or
Pledge. Transactions in
book-entry certificates can be
effected only through The
Depository Trust Company ("DTC"),
its participating organizations,
its indirect participants and
certain banks. As a result, your
ability to transfer or pledge
certificates issued in book-entry
form may be limited.
Delays in Distributions. You may
experience some delay in the
receipt of distributions on
book-entry certificates since the
distributions will be forwarded
by the trustee to DTC for DTC to
credit the accounts of its
participants. In turn, these
participants will thereafter
credit the distributions to your
account either directly or
indirectly through indirect
participants.
Pre-Funding Accounts....................... The related prospectus supplement
may provide that the depositor
deposit a specified amount in a
pre-funding account on the date
the securities are issued. In
this case, the deposited funds
may only be used to acquire
additional assets for the trust
during a set period after the
initial issuance of the
certificates. Any amounts
remaining in the account at the
end of the period will be
distributed as a prepayment of
principal to the holders of the
related certificates.
Lower Credit Quality Trust Fund Assets..... Certain of the trust
assets may have been made to
lower credit quality borrowers
who fall into one of two
categories:
o customers with moderate income,
limited assets and other income
characteristics that cause
difficulty in borrowing from
banks and other traditional
lenders; and
o customers with a history of
irregular employment, previous
bankruptcy filings, repossession
of property, charged-off loans or
garnishment of wages.
The average interest rate charged
on loans made to these types of
borrowers is generally higher
than that charged by lenders that
typically impose more stringent
credit requirements. There is a
greater likelihood of late
payments on loans made to these
types of borrowers than on loans
to borrowers with a higher credit
quality. Payments from borrowers
with a lower credit quality are
more likely to be sensitive to
changes in the economic climate
in the areas in which they
reside.
Delinquent Trust Fund Assets............... No more than 20% (by principal
balance) of the trust assets for
any particular series of
certificates will be contractually
delinquent as of the related
cut-off date.
Other Considerations....................... There is no assurance that the
value of the trust assets for any
series of certificates at any
time will equal or exceed the
principal amount of the
outstanding certificates of the
series. If trust assets have to
be sold because of an event of
default or otherwise, providers
of services to the trust
(including the trustee, the
master servicer and the credit
enhancer, if any) generally will
be entitled to receive the
proceeds of the sale to the
extent of their unpaid fees and
other amounts due them before any
proceeds are paid to investors.
As a result, the proceeds of such
a sale may be insufficient to pay
the full amount of interest and
principal of the related
certificates.
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.
*...Whenever the terms "Mortgage Pool" and "Certificates" are used in
this Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Mortgage Pool and the Certificates
representing certain undivided interests, as described below, in a single
Trust Fund consisting primarily of the Mortgage Loans in such Mortgage Pool.
Similarly, the term "Pass-Through Rate" will refer to the Pass-Through Rate
borne by the Certificates of one specific Series and the term "Trust Fund"
will refer to one specific Trust Fund.
The Mortgage Loans and Agency Securities will be acquired by the
Depositor, either directly or through affiliates, from originators or sellers
which may be affiliates of the Depositor (the "Sellers"), and conveyed by the
Depositor to the related Trust Fund. Mortgage Loans acquired by the Depositor
will have been originated in accordance with the underwriting criteria
specified below under "Mortgage Loan Program--Underwriting Standards" or as
otherwise described in a related Prospectus Supplement. See "Mortgage Loan
Program--Underwriting Standards".
The following is a brief description of the Mortgage Assets expected to
be included in the Trust Funds. If specific information respecting the
Mortgage Assets is not known at the time the related Series of Certificates
initially is offered, more general information of the nature described below
will be provided in the related Prospectus Supplement, and specific
information will be set forth in a report on Form 8-K to be filed with the
Securities and Exchange Commission within fifteen days after the initial
issuance of such Certificates (the "Detailed Description"). A copy of the
Agreement with respect to each Series of Certificates will be attached to the
Form 8-K and will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. A schedule of the
Mortgage Assets relating to such Series will be attached to the Agreement
delivered to the Trustee upon delivery of the Certificates.
The Mortgage Loans--General
For purposes hereof, Single Family Loans, Multifamily Loans and Contracts
are collectively referred to as "Mortgage Loans", and the real property and
Manufactured Homes, as the case may be, which secure repayment of the Mortgage
Loans are collectively referred to as "Mortgaged Properties". The Mortgaged
Properties may be located in any one of the fifty states, the District of
Columbia, Guam, Puerto Rico or any other territory of the United States.
Mortgage Loans with certain Loan-to-Value Ratios and/or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Mortgage Insurance Policy"). The
existence, extent and duration of any such coverage will be described in the
applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans in a Mortgage Pool** will have monthly payments due on the
first day of each month. The payment terms of the Mortgage Loans to be
included in a Trust Fund will be described in the related Prospectus
Supplement and may include any of the following features or combination
thereof or other features described in the related Prospectus Supplement:
*...Whenever the terms "Mortgage Pool" and "Certificates" are used in
this Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Mortgage Pool and the Certificates
representing certain undivided interests, as described below, in a single
Trust Fund consisting primarily of the Mortgage Loans in such Mortgage Pool.
Similarly, the term "Pass-Through Rate" will refer to the Pass-Through Rate
borne by the Certificates of one specific Series and the term "Trust Fund"
will refer to one specific Trust Fund.
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an index (which will be
specified in the related Prospectus Supplement), a rate that is
fixed for a period of time or under certain circumstances and is
followed by an adjustable rate, a rate that otherwise varies from
time to time or a rate that is convertible from an adjustable rate
to a fixed rate. Changes to an adjustable rate may be subject to
periodic limitations, maximum rates, minimum rates or a combination
of such limitations. Accrued interest may be deferred and added to
the principal of a loan for such periods and under such
circumstances as may be specified in the related Prospectus
Supplement. Mortgage Loans may provide for the payment of interest
at a rate lower than the specified interest rate borne by such
Mortgage Loan (the "Mortgage Rate") for a period of time or for the
life of the loan, and the amount of any difference may be
contributed from funds supplied by the seller of the Mortgaged
Property or another source.
(b) Principal may be payable on a level debt service
basis to fully amortize the Mortgage Loan over its term, may be
calculated on the basis of an assumed amortization schedule that is
significantly longer than the original term to maturity or on an
interest rate that is different from the interest rate on the
Mortgage Loan or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the
principal may be due on maturity (a "balloon payment"). Principal
may include interest that has been deferred and added to the
principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be
fixed for the life of the Mortgage Loan, may increase over a
specified period of time or may change from period to period.
Mortgage Loans may include limits on periodic increases or decreases
in the amount of monthly payments and may include maximum or minimum
amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Mortgage Loan or may
decline over time, and may be prohibited for the life of the
Mortgage Loan or for certain periods ("lockout periods"). Certain
Mortgage Loans may permit prepayments after expiration of the
applicable lockout period and may require the payment of a
prepayment fee in connection with any such subsequent prepayment.
Other Mortgage Loans may permit prepayments without payment of a fee
unless the prepayment occurs during specified time periods. The
Mortgage Loans may include "due-on-sale" clauses which permit the
mortgagee to demand payment of the entire Mortgage Loan in
connection with the sale or certain transfers of the related
Mortgaged Property. Other Mortgage Loans may be assumable by persons
meeting the then applicable underwriting standards of the Seller.
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then specifically known to the
Depositor, with respect to the Mortgage Loans contained in the related
Mortgage Pool, including (i) the aggregate outstanding principal balance and
the average outstanding principal balance of the Mortgage Loans as of the
applicable Cut-off Date, (ii) the type of property securing each Mortgage Loan
(e.g., one- to four-family houses, individual units in condominium projects or
in buildings owned by cooperative housing corporations, vacation and second
homes, Manufactured Homes, multifamily apartments or other real property),
(iii) the original terms to maturity of the Mortgage Loans, (iv) the largest
principal balance and the smallest principal balance of any of the Mortgage
Loans, (v) the earliest origination date and latest maturity date of any of
the Mortgage Loans, (vi) the aggregate principal balance of Mortgage Loans
having Loan-to-Value Ratios at origination exceeding 80%, (vii) the Mortgage
Rates or APRs or range of Mortgage Rates or APRs borne by the Mortgage Loans,
and (viii) the geographical location of the related Mortgaged Properties on a
state-by-state basis. If specific information respecting the Mortgage Loans is
not known to the Depositor at the time the related Certificates are initially
offered, more general information of the nature described above will be
provided in the related Prospectus Supplement, and specific information will
be set forth in the Detailed Description.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio, expressed as a percentage, of the then outstanding principal balance of
the Mortgage Loan to the Collateral Value of the related Mortgaged Property.
Unless otherwise specified in the related Prospectus Supplement, the
"Collateral Value" of a Mortgaged Property, other than with respect to
Contracts and certain Mortgage Loans the proceeds of which were used to
refinance an existing mortgage loan ("Refinance Loans"), is the lesser of (a)
the appraised value determined in an appraisal obtained by the originator at
origination of such Mortgage Loan and (b) the sales price for such property.
In the case of Refinance Loans, the "Collateral Value" of the related
Mortgaged Property is the appraised value thereof determined in an appraisal
obtained at the time of refinancing. Unless otherwise specified in the related
Prospectus Supplement, for purposes of calculating the Loan-to-Value Ratio of
a Contract relating to a new Manufactured Home, the Collateral Value is no
greater than the sum of a fixed percentage of the list price of the unit
actually billed by the manufacturer to the dealer (exclusive of freight to the
dealer site) including "accessories" identified in the invoice (the
"Manufacturer Invoice Price"), plus the actual cost of any accessories
purchased from the dealer, a delivery and set-up allowance, depending on the
size of the unit), and the cost of state and local taxes, filing fees and up
to three years' prepaid hazard insurance premiums. Unless otherwise specified
in the related Prospectus Supplement, the Collateral Value of a used
Manufactured Home is the least of the sales price, appraised value, and
National Automobile Dealers' Association book value plus prepaid taxes and
hazard insurance premiums. The appraised value of a Manufactured Home is based
upon the age and condition of the manufactured housing unit and the quality
and condition of the mobile home park in which it is situated, if applicable.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should
experience an overall decline in property values such that the outstanding
principal balances of the Mortgage Loans, and any secondary financing on the
Mortgaged Properties, in a particular Mortgage Pool become equal to or greater
than the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced
in the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect
the timely payment by borrowers of scheduled payments of principal and
interest on the Mortgage Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Mortgage Pool. In
the case of Multifamily Loans, such other factors could include excessive
building resulting in an oversupply of rental housing stock or a decrease in
employment reducing the demand for rental units in an area; federal, state or
local regulations and controls affecting rents; prices of goods and energy;
environmental restrictions; increasing labor and material costs; and the
relative attractiveness to tenants of the Mortgaged Properties. To the extent
that such losses are not covered by subordination provisions or alternative
arrangements, such losses will be borne, at least in part, by the holders of
the Certificates of the related Series.
The Depositor will cause the Mortgage Loans comprising each Mortgage Pool
to be assigned to the Trustee named in the related Prospectus Supplement for
the benefit of the holders of the Certificates of the related Series. The
Master Servicer named in the related Prospectus Supplement will service the
Mortgage Loans, either directly or through other mortgage servicing
institutions (each, a "Sub-Servicer"), pursuant to a Pooling and Servicing
Agreement (each, an "Agreement") among the Depositor, the Master Servicer and
the Trustee, and will receive a fee for such services. See "Mortgage Loan
Program" and "The Pooling and Servicing Agreement". With respect to Mortgage
Loans serviced by the Master Servicer through a Sub-Servicer, the Master
Servicer will remain liable for its servicing obligations under the related
Agreement as if the Master Servicer alone were servicing such Mortgage Loans.
Unless otherwise specified in the related Prospectus Supplement, the only
obligations of the Depositor with respect to a Series of Certificates will be
to obtain certain representations and warranties from the Sellers and to
assign to the Trustee for such Series of Certificates the Depositor's rights
with respect to such representations and warranties. See "The Pooling and
Servicing Agreement--Assignment of Mortgage Assets". The obligations of the
Master Servicer with respect to the Mortgage Loans will consist principally of
its contractual servicing obligations under the related Agreement (including
its obligation to enforce the obligations of the Sub-Servicers or Sellers, or
both, as more fully described herein under "Mortgage Loan
Program--Representations by Sellers; Repurchases" and "The Pooling and
Servicing Agreement--Sub-Servicing by Sellers" and "--Assignment of Mortgage
Assets") and its obligation to make certain cash advances in the event of
delinquencies in payments on or with respect to the Mortgage Loans in the
amounts described herein under "Description of the Certificates--Advances".
The obligations of the Master Servicer to make advances may be subject to
limitations, to the extent provided herein and in the related Prospectus
Supplement.
Single Family Loans
Unless otherwise specified in the related Prospectus Supplement, Single
Family Loans will consist of mortgage loans, deeds of trust or participations
or other beneficial interests therein, secured by first liens on one- to
four-family residential properties. If so specified in the related Prospectus
Supplement, Single Family Loans may include cooperative apartment loans
("Cooperative Loans") secured by security interests in shares issued by
private, non-profit, cooperative housing corporations ("Cooperatives") and in
the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specific dwelling units in such Cooperatives' buildings. If
so specified in the related Prospectus Supplement, the Mortgage Assets of the
related Trust Fund may include mortgage participation certificates evidencing
interests in Single Family Loans. Such loans may be conventional loans (i.e.,
loans that are not insured or guaranteed by any governmental agency), loans
insured by the Federal Housing Administration (the "FHA") or partially
guaranteed by the Veterans Administration (the "VA"), as specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, Single Family Loans will all have individual principal
balances at origination of not less than $25,000 and not more than $1,000,000,
and original terms to stated maturity of from ten to 40 years.
The Mortgaged Properties relating to Single Family Loans will consist of
detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units,
individual units in planned unit developments, and certain other dwelling
units. Such Mortgaged Properties may include vacation and second homes,
investment properties and leasehold interests. In the case of leasehold
interests, the term of the leasehold will exceed the scheduled maturity of the
Mortgage Loan by at least five years, unless otherwise specified in the
related Prospectus Supplement.
Multifamily Loans
Multifamily Loans will consist of mortgage loans, deeds of trust or
participations or other beneficial interests therein, secured by first liens
on rental apartment buildings or projects containing five or more residential
units. If so specified in the related Prospectus Supplement, the Mortgage
Assets of the related Trust Fund may include mortgage participation
certificates evidencing interests in Multifamily Loans. Such loans may be
conventional loans or FHA-insured loans, as specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, Multifamily Loans will all have original terms to stated maturity
of not more than 40 years.
Mortgaged Properties which secure Multifamily Loans may include
high-rise, mid-rise and garden apartments. Certain of the Multifamily Loans
may be secured by apartment buildings owned by Cooperatives. A Cooperative
owns all the apartment units in its building and all common areas and is owned
by tenant-stockholders who, through ownership of stock, shares or membership
certificates in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific apartments or
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata
share of the Cooperative's payments for the Cooperative's mortgage loan, real
property taxes, maintenance expenses and other capital or ordinary expenses.
Those payments are in addition to any payments of principal and interest the
tenant-stockholder must make on any loans to the tenant-stockholder secured by
his shares in the Cooperative. The Cooperative will be directly responsible
for building management and, in most cases, payment of real estate taxes and
hazard and liability insurance. A Cooperative's ability to meet debt service
obligations on a Multifamily Loan, as well as all other operating expenses,
will be dependent in large part on the receipt of maintenance payments from
the tenant-stockholders, as well as any rental income from units or commercial
areas the Cooperative might control. Unanticipated expenditures may in some
cases have to be paid by special assessments on the tenant-stockholders.
Contracts
The Contracts will consist of manufactured housing conditional sales
contracts and installment sales or loan agreements each secured by a
Manufactured Home. Contracts may be conventional, insured by the FHA or
partially guaranteed by the VA, as specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
each Contract will be fully amortizing and will bear interest at a fixed
percentage rate ("APR"). Unless otherwise specified in the related Prospectus
Supplement, Contracts will all have individual principal balances at
origination of not less than $10,000 and not more than $1,000,000 and original
terms to stated maturity of from five to 30 years.
"Manufactured Homes" securing the Contracts will consist of manufactured
homes within the meaning of 42 U.S.C. ss. 5402(6) which defines a
"manufactured home" as "a structure, transportable in one or more sections
which, in the traveling mode, is eight body feet or more in width or forty
body feet or more in length or, when erected on site, is three hundred twenty
or more square feet, and which is built on a permanent chassis and designed to
be used as a dwelling with or without a permanent foundation when connected to
the required utilities, and includes the plumbing, heating, air conditioning,
and electrical systems contained therein; except that such term shall include
any structure which meets all the requirements of this paragraph except the
size requirements and with respect to which the manufacturer voluntarily files
a certification required by the Secretary of Housing and Urban Development and
complies with the standards established under this chapter."
The related Prospectus Supplement will specify for the Contracts
contained in the related Trust Fund, among other things, the dates of
origination of the Contracts, the APRs on the Contracts, the Loan-to-Value
Ratios of the Contracts, the minimum and maximum outstanding principal
balances as of the Cut-off Date and the average outstanding principal balance,
the outstanding principal balances of the Contracts included in the related
Trust Fund, and the original maturities of the Contracts and the last maturity
date of any Contract.
Agency Securities
Government National Mortgage Association. The Government National
Mortgage Association ("Ginnie Mae") is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and
Urban Development. Section 306(g) of Title II of the National Housing Act of
1934, as amended (the "Housing Act"), authorizes Ginnie Mae to guarantee the
timely payment of the principal of and interest on certificates which
represent an interest in a pool of mortgage loans insured by the FHA under the
Housing Act or under Title V of the Housing Act of 1949 ("FHA Loans"), or
partially guaranteed by the VA under the Servicemen's Readjustment Act of
1944, as amended, or Chapter 37 of Title 38 of the United States Code ("VA
Loans").
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guaranty under this subsection." In order to
meet its obligations under any such guarantee, Ginnie Mae may, under Section
306(d) of the Housing Act, borrow from the United States Treasury in an
unlimited amount which is at any time sufficient to enable Ginnie Mae to
perform its obligations under its guarantee.
Ginnie Mae Certificates. Each "Ginnie Mae Certificate" held in a Trust
Fund will be a "fully modified pass-through" mortgage-backed certificate
issued and serviced by a mortgage banking company or other financial concern
(a "Ginnie Mae Issuer") approved by Ginnie Mae or approved by Fannie Mae as a
seller-servicer of FHA Loans and/or VA Loans. The Ginnie Mae Certificates may
be issued under either the Ginnie Mae I program ("Ginnie Mae I Certificates")
or under the Ginnie Mae II program ("Ginnie Mae II Certificates"). The
mortgage loans underlying the Ginnie Mae Certificates will consist of FHA
Loans and/or VA Loans. Each such mortgage loan is secured by a one- to
four-family or multifamily residential property. Ginnie Mae will approve the
issuance of each such Ginnie Mae Certificate in accordance with a guaranty
agreement (each, a "Guaranty Agreement") between Ginnie Mae and the Ginnie Mae
Issuer. Pursuant to its Guaranty Agreement, a Ginnie Mae Issuer will be
required to advance its own funds in order to make timely payments of all
amounts due on each such Ginnie Mae Certificate, even if the payments received
by the Ginnie Mae Issuer on the FHA Loans or VA Loans underlying each such
Ginnie Mae Certificate are less than the amounts due on each such Ginnie Mae
Certificate.
The full and timely payment of principal of and interest on each Ginnie
Mae Certificate will be guaranteed by Ginnie Mae, which obligation is backed
by the full faith and credit of the United States. Each such Ginnie Mae
Certificate will have an original maturity of not more than 30 years (but may
have original maturities of substantially less than 30 years). Each such
Ginnie Mae Certificate will be based on and backed by a pool of FHA Loans or
VA Loans secured by one- to four-family residential properties and will
provide for the payment by or on behalf of the Ginnie Mae Issuer to the
registered holder of such Ginnie Mae Certificate scheduled monthly payments of
principal and interest equal to the registered holder's proportionate interest
in the aggregate amount of the monthly principal and interest payment on each
FHA Loan or VA Loan underlying such Ginnie Mae Certificate, less the
applicable servicing and guarantee fee which together equal the difference
between the interest on the FHA Loan or VA Loan and the pass-through rate on
the Ginnie Mae Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans or VA Loans underlying such Ginnie Mae Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans or VA Loans.
If a Ginnie Mae Issuer is unable to make the payments on a Ginnie Mae
Certificate as it becomes due, it must promptly notify Ginnie Mae and request
Ginnie Mae to make such payment. Upon notification and request, Ginnie Mae
will make such payments directly to the registered holder of such Ginnie Mae
Certificate. In the event no payment is made by a Ginnie Mae Issuer and the
Ginnie Mae Issuer fails to notify and request Ginnie Mae to make such payment,
the holder of such Ginnie Mae Certificate will have recourse only against
Ginnie Mae to obtain such payment. The Trustee or its nominee, as registered
holder of the Ginnie Mae Certificates held in a Trust Fund, will have the
right to proceed directly against Ginnie Mae under the terms of the Guaranty
Agreements relating to such Ginnie Mae Certificates for any amounts that are
not paid when due.
All mortgage loans underlying a particular Ginnie Mae I Certificate must
have the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on such
Ginnie Mae I Certificate will equal the interest rate on the mortgage loans
included in the pool of mortgage loans underlying such Ginnie Mae I
Certificate, less one-half percentage point per annum of the unpaid principal
balance of the mortgage loans.
Mortgage loans underlying a particular Ginnie Mae II Certificate may have
per annum interest rates that vary from each other by up to one percentage
point. The interest rate on each Ginnie Mae II Certificate will be between
one-half percentage point and one and one-half percentage points lower than
the highest interest rate on the mortgage loans included in the pool of
mortgage loans underlying such Ginnie Mae II Certificate (except for pools of
mortgage loans secured by manufactured homes).
Regular monthly installment payments on each Ginnie Mae Certificate held
in a Trust Fund will be comprised of interest due as specified on such Ginnie
Mae Certificate plus the scheduled principal payments on the FHA Loans or VA
Loans underlying such Ginnie Mae Certificate due on the first day of the month
in which the scheduled monthly installments on such Ginnie Mae Certificate are
due. Such regular monthly installments on each such Ginnie Mae Certificate are
required to be paid to the Trustee as registered holder by the 15th day of
each month in the case of a Ginnie Mae I Certificate and are required to be
mailed to the Trustee by the 20th day of each month in the case of a Ginnie
Mae II Certificate. Any principal prepayments on any FHA Loans or VA Loans
underlying a Ginnie Mae Certificate held in a Trust Fund or any other early
recovery of principal on such loan will be passed through to the Trustee as
the registered holder of such Ginnie Mae Certificate.
Ginnie Mae Certificates may be backed by graduated payment mortgage loans
or by "buydown" mortgage loans for which funds will have been provided (and
deposited into escrow accounts) for application to the payment of a portion of
the borrowers' monthly payments during the early years of such mortgage loans.
Payments due the registered holders of Ginnie Mae Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other Ginnie Mae Certificates and will include amounts
to be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest not so paid
will be added to the principal of such graduated payment mortgage loans and,
together with interest thereon, will be paid in subsequent years. The
obligations of Ginnie Mae and of a Ginnie Mae Issuer will be the same
irrespective of whether the Ginnie Mae Certificates are backed by graduated
payment mortgage loans or "buydown" mortgage loans. No statistics comparable
to the FHA's prepayment experience on level payment, non-"buydown" mortgage
loans are available in respect of graduated payment or "buydown" mortgages.
Ginnie Mae Certificates related to a Series of Certificates may be held in
book-entry form.
If specified in a Prospectus Supplement, Ginnie Mae Certificates may be
backed by multifamily mortgage loans having the characteristics specified in
such Prospectus Supplement.
Federal Home Loan Mortgage Corporation. The Federal Home Loan Mortgage
Corporation ("Freddie Mac") is a shareholder-owned, government sponsored
enterprise created pursuant to Title III of the Emergency Home Finance Act of
1970, as amended (the "Freddie Mac Act"). Freddie Mac was established
primarily for the purpose of increasing the availability of mortgage credit
for the financing of urgently needed housing. It seeks to provide an enhanced
degree of liquidity for residential mortgage investments primarily by
assisting in the development of secondary markets for conventional mortgages.
The principal activity of Freddie Mac currently consists of the purchase of
first lien conventional mortgage loans or participation interests in such
mortgage loans and the sale of the mortgage loans or participations so
purchased in the form of mortgage securities, primarily Freddie Mac
Certificates. Freddie Mac is confined to purchasing, so far as practicable,
mortgage loans that it deems to be of such quality, type and class as to meet
generally the purchase standards imposed by private institutional mortgage
investors.
Freddie Mac Certificates. Each Freddie Mac Certificate represents an
undivided interest in a pool of mortgage loans that may consist of first lien
conventional loans, FHA Loans or VA Loans (a "Freddie Mac Certificate Group"),
Freddie Mac Certificates are sold under the terms of a Mortgage Participation
Certificate Agreement. A Freddie Mac Certificate may be issued under either
Freddie Mac's Cash Program or its Guarantor Program.
Mortgage loans underlying the Freddie Mac Certificates held by a Trust
Fund will consist of mortgage loans with original terms to maturity of from
ten to 40 years. Each such mortgage loan must meet the applicable standards
set forth in the Freddie Mac Act. A Freddie Mac Certificate Group may include
whole loans, participation interests in whole loans and undivided interests in
whole loans and/or participations comprising another Freddie Mac Certificate
Group. Under the Guarantor Program, any such Freddie Mac Certificate Group may
include only whole loans or participation interests in whole loans.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest on the underlying mortgage loans to
the extent of the applicable Certificate rate on the registered holder's pro
rata share of the unpaid principal balance outstanding on the underlying
mortgage loans in the Freddie Mac Certificate Group represented by such
Freddie Mac Certificate, whether or not received. Freddie Mac also guarantees
to each registered holder of a Freddie Mac Certificate collection by such
holder of all principal on the underlying mortgage loans, without any offset
or deduction, to the extent of such holder's pro rata share thereof, but does
not, except if and to the extent specified in the related Prospectus
Supplement for a Series of Certificates, guarantee the timely payment of
scheduled principal. Under Freddie Mac's Gold PC Program, Freddie Mac
guarantees the timely payment of principal based on the difference between the
pool factor, published in the month preceding the month of distribution, and
the pool factor published in such month of distribution. Pursuant to its
guarantees, Freddie Mac indemnifies holders of Freddie Mac Certificates
against any diminution in principal by reason of charges for property repairs,
maintenance and foreclosure. Freddie Mac may remit the amount due on account
of its guaranty of collection of principal at any time after default on an
underlying mortgage loan, but not later than (i) 30 days following foreclosure
sale, (ii) 30 days following payment of the claim by any mortgage insurer or
(iii) 30 days following the expiration of any right of redemption, whichever
occurs later, but in any event no later than one year after demand has been
made upon the mortgagor for accelerated payment of principal. In taking
actions regarding the collection of principal after default on the mortgage
loans underlying Freddie Mac Certificates, including the timing of demand for
acceleration, Freddie Mac reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which
it has purchased but not sold. The length of time necessary for Freddie Mac to
determine that a mortgage loan should be accelerated varies with the
particular circumstances of each mortgagor, and Freddie Mac has not adopted
standards which require that the demand be made within any specified period.
Freddie Mac Certificates are not guaranteed by the United States or by
any Federal Home Loan Bank and do not constitute debts or obligations of the
United States or any Federal Home Loan Bank. The obligations of Freddie Mac
under its guarantee are obligations solely of Freddie Mac and are not backed
by, or entitled to, the full faith and credit of the United States. If Freddie
Mac were unable to satisfy such obligations, distributions to holders of
Freddie Mac Certificates would consist solely of payments and other recoveries
on the underlying mortgage loans and, accordingly, monthly distributions to
holders of Freddie Mac Certificates would be affected by delinquent payments
and defaults on such mortgage loans.
Registered holders of Freddie Mac Certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by Freddie Mac, including any scheduled principal
payments, full and partial repayments of principal and principal received by
Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by Freddie Mac or the seller thereof.
Freddie Mac is required to remit each registered Freddie Mac
Certificateholder's pro rata share of principal payments on the underlying
mortgage loans, interest at the Freddie Mac pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such
payments are deemed to have been received by Freddie Mac.
Under Freddie Mac's Cash Program, there is no limitation on the amount by
which interest rates on the mortgage loans underlying a Freddie Mac
Certificate may exceed the pass-through rate on the Freddie Mac Certificate.
Under such program, Freddie Mac purchases groups of whole mortgage loans from
sellers at specified percentages of their unpaid principal balances, adjusted
for accrued or prepaid interest, which, when applied to the interest rate of
the mortgage loans and participations purchased, results in the yield
(expressed as a percentage) required by Freddie Mac. The required yield, which
includes a minimum servicing fee retained by the servicer, is calculated using
the outstanding principal balance. The range of interest rates on the mortgage
loans and participations in a Freddie Mac Certificate Group under the Cash
Program will vary since mortgage loans and participations are purchased and
assigned to a Freddie Mac Certificate Group based upon their yield to Freddie
Mac rather than on the interest rate on the underlying mortgage loans. Under
Freddie Mac's Guarantor Program, the pass-through rate on a Freddie Mac
Certificate is established based upon the lowest interest rate on the
underlying mortgage loans, minus a minimum servicing fee and the amount of
Freddie Mac's management and guaranty income as agreed upon between the seller
and Freddie Mac.
Freddie Mac Certificates duly presented for registration of ownership on
or before the last business day of a month are registered effective as of the
first day of the month. The first remittance to a registered holder of a
Freddie Mac Certificate will be distributed so as to be received normally by
the 15th day of the second month following the month in which the purchaser
becomes a registered holder of the Freddie Mac Certificates. Thereafter, such
remittance will be distributed monthly to the registered holder so as to be
received normally by the 15th day of each month. The Federal Reserve Bank of
New York maintains book-entry accounts with respect to Freddie Mac
Certificates sold by Freddie Mac on or after January 2, 1985, and makes
payments of principal and interest each month to the registered holders
thereof in accordance with such holders' instructions.
Federal National Mortgage Association. The Federal National Mortgage
Association ("Fannie Mae") is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act, as amended (the "Charter Act"). Fannie Mae was
originally established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by legislation enacted in
1968.
Fannie Mae provides funds to the mortgage market primarily by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending. Fannie Mae acquires funds to purchase mortgage loans from many
capital market investors that may not ordinarily invest in mortgages, thereby
expanding the total amount of funds available for housing. Operating
nationwide, Fannie Mae helps to redistribute mortgage funds from
capital-surplus to capital-short areas.
Fannie Mae Certificates. Fannie Mae Certificates are Guaranteed Mortgage
Pass-Through Certificates representing fractional undivided interests in a
pool of mortgage loans formed by Fannie Mae. Each mortgage loan must meet the
applicable standards of the Fannie Mae purchase program. Mortgage loans
comprising a pool are either provided by Fannie Mae from its own portfolio or
purchased pursuant to the criteria of the Fannie Mae purchase program.
Mortgage loans underlying Fannie Mae Certificates held by a Trust Fund
will consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a Fannie Mae Certificate are expected to be from eight to 15
years or from 20 to 40 years. The original maturities of substantially all of
the fixed rate level payment FHA Loans or VA Loans are expected to be 30
years.
Mortgage loans underlying a Fannie Mae Certificate may have annual
interest rates that vary by as much as two percentage points from one another.
The rate of interest payable on a Fannie Mae Certificate is equal to the
lowest interest rate of any mortgage loan in the related pool, less a
specified minimum annual percentage representing servicing compensation and
Fannie Mae's guaranty fee. Under a regular servicing option (pursuant to which
the mortgagee or each other servicer assumes the entire risk of foreclosure
losses), the annual interest rates on the mortgage loans underlying a Fannie
Mae Certificate will be between 50 basis points and 250 basis points greater
than is its annual pass-through rate and under a special servicing option
(pursuant to which Fannie Mae assumes the entire risk for foreclosure losses),
the annual interest rates on the mortgage loans underlying a Fannie Mae
Certificate will generally be between 55 basis points and 255 basis points
greater than the annual Fannie Mae Certificate pass-through rate. If specified
in the related Prospectus Supplement, Fannie Mae Certificates may be backed by
adjustable rate mortgages.
Fannie Mae guarantees to each registered holder of a Fannie Mae
Certificate that it will distribute amounts representing such holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by such Fannie Mae Certificate on
the underlying mortgage loans, whether or not received, and such holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of Fannie Mae under its guarantees are
obligations solely of Fannie Mae and are not backed by, or entitled to, the
full faith and credit of the United States. Although the Secretary of the
Treasury of the United States has discretionary authority to lend Fannie Mae
up to $2.25 billion outstanding at any time, neither the United States nor any
agency thereof is obligated to finance Fannie Mae's operations or to assist
Fannie Mae in any other manner. If Fannie Mae were unable to satisfy its
obligations, distributions to holders of Fannie Mae Certificates would consist
solely of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of Fannie Mae Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
Fannie Mae Certificates evidencing interests in pools of mortgage loans
formed on or after May 1, 1985 (other than Fannie Mae Certificates backed by
pools containing graduated payment mortgage loans or mortgage loans secured by
multifamily projects) are available in book-entry form only. Distributions of
principal and interest on each Fannie Mae Certificate will be made by Fannie
Mae on the 25th day of each month to the persons in whose name the Fannie Mae
Certificate is entered in the books of the Federal Reserve Banks (or
registered on the Fannie Mae Certificate register in the case of fully
registered Fannie Mae Certificates) as of the close of business on the last
day of the preceding month. With respect to Fannie Mae Certificates issued in
book-entry form, distributions thereon will be made by wire and, with respect
to fully registered Fannie Mae Certificates, distributions thereon will be
made by check.
Stripped Mortgage-Backed Securities. Agency Securities may consist of one
or more stripped mortgage-backed securities, each as described herein and in
the related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of the principal distributions (but not the
interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain Freddie Mac,
Fannie Mae or Ginnie Mae Certificates. The underlying securities will be held
under a trust agreement by Freddie Mac, Fannie Mae or Ginnie Mae, each as
trustee, or by another trustee named in the related Prospectus Supplement.
Freddie Mac, Fannie Mae or Ginnie Mae will guaranty each stripped Agency
Security to the same extent as such entity guarantees the underlying
securities backing such stripped Agency Security, unless otherwise specified
in the related Prospectus Supplement.
Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae. The
characteristics of any such mortgage pass-through certificates will be
described in such Prospectus Supplement. If so specified, a combination of
different types of Agency Securities may be held in a Trust Fund.
Private Mortgage-Backed Securities
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates or participation certificates evidencing an
undivided interest in a pool of Mortgage Loans or (b) collateralized mortgage
obligations secured by Mortgage Loans. Private Mortgage-Backed Securities may
include stripped mortgage-backed securities representing an undivided interest
in all or a part of the principal distributions (but not the interest
distributions) or the interest distributions (but not the principal
distributions) or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain Mortgage Loans.
Private Mortgage-Backed Securities will have been issued pursuant to a pooling
and servicing agreement, an indenture or similar agreement (a "PMBS
Agreement"). Unless otherwise specified in the related Prospectus Supplement,
the seller/servicer of the underlying Mortgage Loans will have entered into
the PMBS Agreement with the trustee under such PMBS Agreement (the "PMBS
Trustee"). The PMBS Trustee or its agent, or a custodian, will possess the
Mortgage Loans underlying such Private Mortgage-Backed Security. Mortgage
Loans underlying a Private Mortgage-Backed Security will be serviced by a
servicer (the "PMBS Servicer") directly or by one or more subservicers which
may be subject to the supervision of the PMBS Servicer. Unless otherwise
specified in the related Prospectus Supplement, the PMBS Servicer will be a
Fannie Mae- or Freddie Mac-approved servicer and, if FHA Loans underlie the
Private Mortgage-Backed Securities, approved by HUD as an FHA mortgagee.
The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
will be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose corporation organized for
the purpose of, among other things, establishing trusts and acquiring and
selling housing loans to such trusts and selling beneficial interests in such
trusts. If so specified in the related Prospectus Supplement, the PMBS Issuer
may be an affiliate of the Depositor. The obligations of the PMBS Issuer will
generally be limited to certain representations and warranties with respect to
the assets conveyed by it to the related trust. Unless otherwise specified in
the related Prospectus Supplement, the PMBS Issuer will not have guaranteed
any of the assets conveyed to the related trust or any of the Private
Mortgage-Backed Securities issued under the PMBS Agreement. Additionally,
although the Mortgage Loans underlying the Private Mortgage-Backed Securities
may be guaranteed by an agency or instrumentality of the United States, the
Private Mortgage-Backed Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private
Mortgage-Backed Securities by the PMBS Trustee or the PMBS Servicer. The PMBS
Issuer or the PMBS Servicer may have the right to repurchase assets underlying
the Private Mortgage-Backed Securities after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Underlying Loans. The Mortgage Loans underlying the Private
Mortgage-Backed Securities may consist of fixed rate, level payment, fully
amortizing loans or graduated payment mortgage loans, buydown loans,
adjustable rate mortgage loans, or loans having balloon or other special
payment features. Such Mortgage Loans may be secured by single family
property, multifamily property, Manufactured Homes or by an assignment of the
proprietary lease or occupancy agreement relating to a specific dwelling
within a Cooperative and the related shares issued by such Cooperative. Except
as otherwise specified in the related Prospectus Supplement, (i) no Mortgage
Loan will have had a Loan-to-Value Ratio at origination in excess of 95%, (ii)
each Single Family Loan secured by a Mortgaged Property having a Loan-to-Value
Ratio in excess of 80% at origination will be covered by a primary mortgage
insurance policy, (iii) each Mortgage Loan will have had an original term to
stated maturity of not less than 5 years and not more than 40 years, (iv) no
Mortgage Loan that was more than 30 days delinquent as to the payment of
principal or interest will have been eligible for inclusion in the assets
under the related PMBS Agreement, (v) each Mortgage Loan (other than a
Cooperative Loan) will be required to be covered by a standard hazard
insurance policy (which may be a blanket policy), and (vi) each Mortgage Loan
(other than a Cooperative Loan or a Contract secured by a Manufactured Home)
will be covered by a title insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of reserve funds, subordination of other private mortgage
certificates issued under the PMBS Agreement, letters of credit, surety bonds,
insurance policies or other types of credit support may be provided with
respect to the Mortgage Loans underlying the Private Mortgage-Backed
Securities or with respect to the Private Mortgage-Backed Securities
themselves.
Additional Information. The Prospectus Supplement for a Series for which
the Trust Fund includes Private Mortgage-Backed Securities will specify (i)
the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Mortgage Loans which comprise the underlying assets for
the Private Mortgage-Backed Securities including (A) the payment features of
such Mortgage Loans, (B) the approximate aggregate principal balance, if
known, of underlying Mortgage Loans insured or guaranteed by a governmental
entity, (C) the servicing fee or range of servicing fees with respect to the
Mortgage Loans, and (D) the minimum and maximum stated maturities of the
underlying Mortgage Loans at origination, (iii) the maximum original
term-to-stated maturity of the Private Mortgage-Backed Securities, (iv) the
weighted average term-to-stated maturity of the Private Mortgage-Backed
Securities, (v) the pass-through or certificate rate of the Private
Mortgage-Backed Securities, (vi) the weighted average pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vii) the PMBS
Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS Trustee
for such Private Mortgage-Backed Securities, (viii) certain characteristics of
credit support, if any, such as reserve funds, insurance policies, surety
bonds, letters of credit or guaranties relating to the Mortgage Loans
underlying the Private Mortgage-Backed Securities or to such Private
Mortgage-Backed Securities themselves, (ix) the term on which the underlying
Mortgage Loans for such Private Mortgage-Backed Securities may, or are
required to, be purchased prior to their stated maturity or the stated
maturity of the Private Mortgage-Backed Securities and (x) the terms on which
Mortgage Loans may be substituted for those originally underlying the Private
Mortgage-Backed Securities.
Incorporation of Certain Information by Reference
There are incorporated herein by reference all documents and reports
filed or caused to be filed by Greenwich Capital Acceptance, Inc. ("GCA") with
respect to a Trust Fund pursuant to Section 13(a), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, prior to the termination of the
offering of Certificates evidencing interests therein. Upon request by any
person to whom this Prospectus is delivered in connection with the offering of
one or more classes of Certificates, GCA will provide or cause to be provided
without charge a copy of any such documents and/or reports incorporated herein
by reference, in each case to the extent such documents or reports relate to
such classes of Certificates, other than the exhibits to such documents
(unless such exhibits are specifically incorporated by reference in such
documents). Requests to GCA should be directed in writing to: Paul D.
Stevelman, Greenwich Capital Acceptance, Inc., 600 Steamboat Road, Greenwich,
Connecticut 06830, telephone number (203) 625-2700. GCA has determined that
its financial statements are not material to the offering of any Certificates.
Investors may read and copy the documents and/or reports incorporated
herein by reference at the Public Reference Room of the Securities and
Exchange Commission (the "SEC") at 450 Fifth Street, N.W., Washington, DC
20549. Investors may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains a website at http:\\www.sec.gov containing reports, proxy and
information statements and other information regarding issuers, including each
Trust Fund, that file electronically with the SEC.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Mortgage Assets or will be used by
the Depositor for general corporate purposes. The Depositor expects to sell
Certificates in Series from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest
rates, availability of funds and general market conditions.
THE DEPOSITOR
Greenwich Capital Acceptance, Inc., the Depositor, is a Delaware
corporation organized on April 23, 1987 for the limited purpose of acquiring,
owning and transferring Mortgage Assets and selling interests therein or bonds
secured thereby. It is an indirect, limited purpose finance subsidiary of
National Westminster Bank Plc and an affiliate of Greenwich Capital Markets,
Inc. Greenwich Capital Markets, Inc. is a registered broker-dealer engaged in
the U.S. government securities and related capital markets business. The
Depositor maintains its principal office at 600 Steamboat Road, Greenwich,
Connecticut 06830. Its telephone number is (203) 625-2700.
Neither the Depositor nor any of the Depositor's affiliates will ensure
or guarantee distributions on the Certificates of any Series.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor, either
directly or through affiliates, from Sellers. Unless otherwise specified in
the related Prospectus Supplement, the Mortgage Loans so acquired by the
Depositor will have been originated in accordance with the underwriting
criteria specified below under "Underwriting Standards".
Underwriting Standards
Unless otherwise specified in the related Prospectus Supplement, each
Seller will represent and warrant that all Mortgage Loans originated and/or
sold by it to the Depositor or one of its affiliates will have been
underwritten in accordance with standards consistent with those utilized by
mortgage lenders or manufactured home lenders generally during the period of
origination for similar types of loans. As to any Mortgage Loan insured by the
FHA or partially guaranteed by the VA, the Seller will represent that it has
complied with the underwriting policies of the FHA or the VA, as the case may
be.
Underwriting standards are applied by or on behalf of a lender to
evaluate a prospective borrower's credit standing and repayment ability, and
the value and adequacy of the Mortgaged Property as collateral. In general, a
prospective borrower applying for a Single Family Loan or for financing
secured by a Manufactured Home is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information.
As part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and
a statement of income and expenses, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an
employment verification is obtained from an independent source (typically the
borrower's employer) which verification reports the borrower's length of
employment with that organization, his current salary, and whether it is
expected that the borrower will continue such employment in the future. If a
prospective borrower is self-employed, the borrower may be required to submit
copies of signed tax returns. The borrower may also be required to authorize
verification of deposits at financial institutions where the borrower has
demand or savings accounts. Underwriting standards which pertain to the
creditworthiness of borrowers seeking Multifamily Loans will be described in
the related Prospectus Supplement.
In determining the adequacy of the Mortgaged Property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. In connection with a Single Family
Loan, the appraisal is based on the market value of comparable homes, the
estimated rental income (if considered applicable by the appraiser) and the
cost of replacing the subject home. In connection with a Contract, the
appraisal is based on recent sales of comparable Manufactured Homes and, when
deemed applicable, a replacement cost analysis based on the cost of a
comparable Manufactured Home. In connection with a Multifamily Loan, the
appraisal must specify whether an income analysis, a market analysis or a cost
analysis was used. An appraisal employing the income approach to value
analyzes a multifamily project's cashflow, expenses, capitalization and other
operational information in determining the property's value. The market
approach to value focuses its analysis on the prices paid for the purchase of
similar properties in the multifamily project's area, with adjustments made
for variations between these other properties and the multifamily project
being appraised. The cost approach calls for the appraiser to make an estimate
of land value and then determine the current cost of reproducing the building
less any accrued depreciation. In any case, the value of the property being
financed, as indicated by the appraisal, must be such that it currently
supports, and is anticipated to support in the future, the outstanding loan
balance.
In the case of Single Family Loans and Contracts, once all applicable
employment, credit and property information is received, a determination
generally is made as to whether the prospective borrower has sufficient
monthly income available (i) to meet the borrower's monthly obligations on the
proposed mortgage loan (generally determined on the basis of the monthly
payments due in the year of origination) and other expenses related to the
Mortgaged Property (such as property taxes and hazard insurance) and (ii) to
meet monthly housing expenses and other financial obligations and monthly
living expenses. The underwriting standards applied by Sellers, particularly
with respect to the level of loan documentation and the mortgagor's income and
credit history, may be varied in appropriate cases where factors such as low
Loan-to-Value Ratios or other favorable credit exist.
In the case of a Single Family or Multifamily Loan secured by a leasehold
interest in real property, the title to which is held by a third-party lessor,
the Seller will represent and warrant, among other things, that the remaining
term of the lease and any sublease is at least five years longer than the
remaining term of the Mortgage Note.
Certain of the types of Mortgage Loans which may be included in the
Mortgage Pools are recently developed and may involve additional uncertainties
not present in traditional types of loans. For example, certain of such
Mortgage Loans may provide for escalating or variable payments by the
mortgagor or obligor. These types of Mortgage Loans are generally underwritten
on the basis of a judgment that mortgagors or obligors will have the ability
to make the monthly payments required initially; in some instances, however,
their incomes may not be sufficient to permit continued loan payments as such
payments increase. These types of Mortgage Loans may also be underwritten
primarily upon the basis of Loan-to-Value Ratios or other favorable credit
factors.
Qualifications of Sellers
Unless otherwise specified in the related Prospectus Supplement, each
Seller will be required to satisfy the qualifications set forth herein. Each
Seller must be an institution experienced in originating and servicing
Mortgage Loans of the type contained in the related Mortgage Pool in
accordance with accepted practices and prudent guidelines and must maintain
satisfactory facilities to originate and service those Mortgage Loans. Each
Seller must be a seller/servicer approved by either Fannie Mae or Freddie Mac.
Each Seller must be a mortgagee approved by the FHA or an institution the
deposit accounts in which are insured by the Federal Deposit Insurance
Corporation (the "FDIC").
Representations by Sellers; Repurchases
Each Seller will have made representations and warranties in respect of
the Mortgage Loans sold by such Seller and evidenced by a Series of
Certificates. Such representations and warranties, unless otherwise provided
in the related Prospectus Supplement, generally include, among other things:
(i) that title insurance (or in the case of Mortgaged Properties located in
areas where such policies are generally not available, an attorney's
certificate of title) in the case of Single Family Loans and Multifamily Loans
(other than a Cooperative Loan or a contract secured by a Manufactured Home)
and any required hazard insurance policy and Primary Mortgage Insurance Policy
were effective at the origination of each Mortgage Loan (other than
Cooperative Loans), and that each policy (or certificate of title as
applicable) remained in effect on the date of purchase of the Mortgage Loan
from the Seller by or on behalf of the Depositor; (ii) that the Seller had
good title to each such Mortgage Loan and such Mortgage Loan was subject to no
offsets, defenses, counterclaims or rights of rescission except to the extent
that any buydown agreement described herein may forgive certain indebtedness
of a Mortgagor; (iii) that each Mortgage Loan constituted a valid first lien
on, or a first perfected security interest with respect to, the related
Mortgaged Property (subject only to permissible title insurance exceptions, if
applicable, and certain other exceptions described in the Agreement) and that
the Mortgaged Property was free from damage and was in good repair; (iv) that
there were no delinquent tax or assessment liens against the Mortgaged
Property; (v) that no required payment on a Mortgage Loan was delinquent more
than 30 days; and (vi) that each Mortgage Loan was made in compliance with,
and is enforceable under, all applicable local, state and federal laws and
regulations in all material respects.
If so specified in the related Prospectus Supplement, the representations
and warranties of a Seller in respect of a Mortgage Loan will be made not as
of the Cut-off Date but as of the date on which such Seller sold the Mortgage
Loan to the Depositor or one of its affiliates. Under such circumstances, a
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Certificates evidencing an interest in such
Mortgage Loan. Since the representations and warranties of a Seller do not
address events that may occur following the sale of a Mortgage Loan by such
Seller, its repurchase obligation described below will not arise if the
relevant event that would otherwise have given rise to such an obligation with
respect to a Mortgage Loan occurs after the date of sale of such Mortgage Loan
by such Seller to the Depositor or its affiliates. However, the Depositor will
not include any Mortgage Loan in the Trust Fund for any Series of Certificates
if anything has come to the Depositor's attention that would cause it to
believe that the representations and warranties of the related Seller will not
be accurate and complete in all material respects in respect of such Mortgage
Loan as of the date of initial issuance of the related Series of Certificates.
If the Master Servicer is also a Seller of Mortgage Loans with respect to a
particular Series, such representations will be in addition to the
representations and warranties made by the Master Servicer in its capacity as
a Master Servicer.
The Master Servicer, or the Trustee if the Master Servicer is the Seller,
will promptly notify the relevant Seller of any breach of any representation
or warranty made by such Seller in respect of a Mortgage Loan which materially
and adversely affects the interests of the Certificateholders in such Mortgage
Loan. Unless otherwise specified in the related Prospectus Supplement, if such
Seller cannot cure such breach within 90 days after notice from the Master
Servicer or the Trustee, as the case may be, then such Seller will be
obligated to repurchase such Mortgage Loan from the Trust Fund at a price (the
"Purchase Price") equal to 100% of the unpaid principal balance thereof as of
the date of the repurchase plus accrued interest thereon to the first day of
the month following the month of repurchase at the Mortgage Rate (less any
Advances or amount payable as related servicing compensation if the Seller is
the Master Servicer). If a REMIC election is to be made with respect to a
Trust Fund, unless otherwise provided in the related Prospectus Supplement,
the Master Servicer or a holder of the related residual certificate will be
obligated to pay any prohibited transaction tax which may arise in connection
with any such repurchase. The Master Servicer, unless otherwise specified in
the related Prospectus Supplement, will be entitled to reimbursement for any
such payment from the assets of the related Trust Fund or from any holder of
the related residual certificate. See "Description of the
Certificates--General". Except in those cases in which the Master Servicer is
the Seller, the Master Servicer will be required under the applicable
Agreement to enforce this obligation for the benefit of the Trustee and the
holders of the Certificates, following the practices it would employ in its
good faith business judgment were it the owner of such Mortgage Loan. This
repurchase obligation will constitute the sole remedy available to holders of
Certificates or the Trustee for a breach of representation by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master Servicer
is the Seller) will be obligated to purchase a Mortgage Loan if a Seller
defaults on its obligation to do so, and no assurance can be given that
Sellers will carry out their respective repurchase obligations with respect to
Mortgage Loans. However, to the extent that a breach of a representation and
warranty of a Seller may also constitute a breach of a representation made by
the Master Servicer, the Master Servicer may have a repurchase obligation as
described under "The Pooling and Servicing Agreement--Assignment of Mortgage
Assets".
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an Agreement,
dated as of the related Cut-off Date, among the Depositor, the Master Servicer
and the Trustee for the benefit of the holders of the Certificates of such
Series. The provisions of each Agreement will vary depending upon the nature
of the Certificates to be issued thereunder and the nature of the related
Trust Fund. A form of such Agreement is an exhibit to the Registration
Statement of which this Prospectus is a part. The following summaries describe
certain provisions which may appear in each Agreement. The Prospectus
Supplement for a Series of Certificates will describe any provision of the
Agreement relating to such Series that materially differs from the description
thereof contained in this Prospectus. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Agreement for each Series of Certificates and
the applicable Prospectus Supplement. The Depositor will provide a copy of the
Agreement (without exhibits) relating to any Series without charge upon
written request of a holder of record of a Certificate of such Series
addressed to Greenwich Capital Acceptance, Inc., 600 Steamboat Road,
Greenwich, Connecticut 06830, Attention: Asset Backed Finance Group.
General
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each Series will be issued in fully registered form only, in the authorized
denominations specified in the related Prospectus Supplement, will evidence
specified beneficial ownership interests in the related Trust Fund created
pursuant to each Agreement and will not be entitled to payments in respect of
the assets included in any other Trust Fund established by the Depositor. The
Certificates will not represent obligations of the Depositor or any affiliate
of the Depositor. The Mortgage Loans will not be insured or guaranteed by any
governmental entity or other person, unless otherwise specified in the related
Prospectus Supplement. To the extent provided in the Agreement, each Trust
Fund will consist of (i) the Mortgage Assets, as from time to time are subject
to the related Agreement (exclusive of any amounts specified in the related
Prospectus Supplement (the "Retained Interest")); (ii) such assets as from
time to time are required to be deposited in the related Certificate Account
as defined under "The Pooling and Servicing Agreement--Payments on Mortgage
Loans; Deposits to the Certificate Account"; (iii) property which secured a
Mortgage Loan and which is acquired on behalf of the Certificateholders by
foreclosure or deed in lieu of foreclosure and (iv) Primary Mortgage Insurance
Policies, FHA Insurance and VA Guarantees, if any, and any other insurance
policies or other forms of credit enhancement required to be maintained
pursuant to the Agreement. If so specified in the related Prospectus
Supplement, a Trust Fund may also include one or more of the following:
reinvestment income on payments received on the Mortgage Assets, a reserve
fund, a mortgage pool insurance policy, a special hazard insurance policy, a
bankruptcy bond, one or more letters of credit, a surety bond, guaranties or
similar instruments or other agreements.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified portion or percentage (which may be 0%) of future interest payments
and a specified portion or percentage (which may be 0%) of future principal
payments on the Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more classes that are senior in right to
payment to one or more other classes of Certificates of such Series. Certain
Series or classes of Certificates may be covered by insurance policies, surety
bonds or other forms of credit enhancement, in each case as described herein
and in the related Prospectus Supplement. One or more classes of Certificates
of a Series may be entitled to receive distributions of principal, interest or
any combination thereof. Distributions on one or more classes of a Series of
Certificates may be made prior to being made on one or more other classes,
after the occurrence of specified events, in accordance with a schedule or
formula, on the basis of collections from designated portions of the Mortgage
Assets in the related Trust Fund or on a different basis, in each case as
specified in the related Prospectus Supplement. The timing and amounts of such
distributions may vary among classes or over time as specified in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Certificates will be made by the Trustee
on each Distribution Date (i.e., monthly, quarterly, semi-annually or at such
other intervals and on the dates as are specified in the Prospectus
Supplement) in proportion to the percentages specified in the related
Prospectus Supplement. Distributions will be made to the persons in whose
names the Certificates are registered at the close of business on the dates
specified in the related Prospectus Supplement (each, a "Record Date").
Distributions will be made by check or money order mailed to the persons
entitled thereto at the address appearing in the register maintained for
holders of Certificates (the "Certificate Register") or, if specified in the
related Prospectus Supplement, in the case of Certificates that are of a
certain minimum denomination, upon written request by the Certificateholder,
by wire transfer or by such other means as are described therein; provided,
however, that the final distribution in retirement of the Certificates will be
made only upon presentation and surrender of the Certificates at the office or
agency of the Trustee or other person specified in the notice to
Certificateholders of such final distribution.
The Certificates will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Certificates of any Series but the Trustee may require payment of
a sum sufficient to cover any related tax or other governmental charge.
Under current law, in the case of a class of Certificates entitled only
to a specified percentage of payments of interest or principal or a notional
amount of either interest or principal on the related Mortgage Loans or a
class of Certificates entitled to receive payments of interest and principal
on the Mortgage Loans only after payments to other classes or after the
occurrence of certain specified events, the purchase and holding of such a
class of Certificates by or on behalf of any employee benefit plan or other
retirement arrangement (including individual retirement accounts and
annuities, Keogh plans and collective investment funds in which such plans,
accounts or arrangements are invested) subject to provisions of ERISA or the
Code may result in "prohibited transactions" within the meaning of ERISA and
the Code. See "ERlSA Considerations". Unless otherwise specified in the
related Prospectus Supplement, transfer of Certificates of such a class will
not be registered unless the transferee (i) represents that it is not, and is
not purchasing on behalf of, any such plan, account or arrangement or (ii)
provides an opinion of counsel satisfactory to the Trustee and the Depositor
that the purchase of Certificates of such a class by or on behalf of such
plan, account or arrangement is permissible under applicable law and will not
subject the Trustee, the Master Servicer or the Depositor to any obligation or
liability in addition to those undertaken in the Agreement.
As to each Series, an election may be made to treat the related Trust
Fund or designated portions thereof as a "real estate mortgage investment
conduit" ( each, a "REMIC") as defined in the Code. The related Prospectus
Supplement will specify whether a REMIC election is to be made. Alternatively,
the Agreement for a Series may provide that a REMIC election may be made at
the discretion of the Depositor or the Master Servicer and may only be made if
certain conditions are satisfied. As to any such Series, the terms and
provisions applicable to the making of a REMIC election, as well as any
material federal income tax consequences to Certificateholders not otherwise
described herein, will be set forth in the related Prospectus Supplement. If
such an election is made with respect to a Series, one of the classes will be
designated as evidencing the sole class of "residual interests" in the related
REMIC, as defined in the Code. All other classes of Certificates in such a
Series will constitute "regular interests" in the related REMIC, as defined in
the Code. As to each Series with respect to which a REMIC election is to be
made, the Master Servicer or a holder of the related residual certificate will
be obligated to take all actions required in order to comply with applicable
laws and regulations and will be obligated to pay any prohibited transaction
taxes. The Master Servicer, unless otherwise specified in the related
Prospectus Supplement, will be entitled to reimbursement for any such payment
from the assets of the Trust Fund or from any holder of the related residual
certificate.
Distributions on Certificates
General. In general, the method of determining the amount of
distributions on a particular Series of Certificates will depend on the type
of credit support, if any, that is used with respect to such Series. See
"Credit Enhancement". Set forth below are descriptions of various methods that
may be used to determine the amount of distributions on the Certificates of a
particular Series. The Prospectus Supplement for each Series of Certificates
will describe the method to be used in determining the amount of distributions
on the Certificates of such Series.
Distributions allocable to principal and interest on the Certificates
will be made by the Trustee out of, and only to the extent of, funds in the
related Certificate Account, including any funds transferred from any reserve
account (a "Reserve Account"). As between Certificates of different classes
and as between distributions of principal (and, if applicable, between
distributions of Principal Prepayments, as defined below, and scheduled
payments of principal) and interest, distributions made on any Distribution
Date will be applied as specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, distributions to any
class of Certificates will be made pro rata to all Certificateholders of that
class.
Available Funds. All distributions on the Certificates of each Series on
each Distribution Date will be made from the Available Funds described below
in accordance with the terms described in the related Prospectus Supplement
and specified in the Agreement. Unless otherwise provided in the related
Prospectus Supplement, the "Available Funds" for each Distribution Date will
equal the sum of the following amounts:
(i) the aggregate of all previously undistributed payments on
account of principal (including Principal Prepayments, if any, and prepayment
penalties, if so provided in the related Prospectus Supplement) and interest
on the Mortgage Loans in the related Trust Fund (including Liquidation
Proceeds and Insurance Proceeds and amounts drawn under letters of credit or
other credit enhancement instruments as permitted thereunder and as specified
in the related Agreement) received by the Master Servicer after the Cut-off
Date and on or prior to the day of the month of the related Distribution Date
specified in the related Prospectus Supplement (the "Determination Date")
except:
(a) all payments which were due on or before the Cut-off Date;
(b) all Liquidation Proceeds and all Insurance Proceeds, all
Principal Prepayments and all other proceeds of any Mortgage Loan
purchased by the Depositor, the Master Servicer, any Sub-Servicer or
any Seller pursuant to the Agreement that were received after the
prepayment period specified in the related Prospectus Supplement and
all related payments of interest representing interest for any
period after such prepayment period;
(c) all scheduled payments of principal and interest due on a date or
dates subsequent to the first day of the month of distribution;
(d) amounts received on particular Mortgage Loans as late
payments of principal or interest or other amounts required to be
paid by Mortgagors, but only to the extent of any unreimbursed
advance in respect thereof made by the Master Servicer (including
the related Sub-Servicers, Support Servicers or the Trustee);
(e) amounts representing reimbursement, to the extent permitted by the
Agreement and as described under "--Advances" below, for advances
made by the Master Servicer, Sub-Servicers, Support Servicers or the
Trustee that were deposited into the Certificate Account, and
amounts representing reimbursement for certain other losses and
expenses incurred by the Master Servicer or the Depositor and
described below;
(f) that portion of each collection of interest on a particular Mortgage
Loan in such Trust Fund which represents servicing compensation
payable to the Master Servicer or Retained Interest which is to be
retained from such collection or is permitted to be retained from
related Insurance Proceeds, Liquidation Proceeds or proceeds of
Mortgage Loans purchased pursuant to the Agreement;
(ii) the amount of any advance made by the Master Servicer, any
Sub-Servicer, Support Servicer or the Trustee as described under "--Advances"
below and deposited by it in the Certificate Account;
(iii) if applicable, amounts withdrawn from a Reserve Account; and
(iv) if applicable, the amount of prepayment interest shortfall.
Distributions of Interest. Unless otherwise specified in the related
Prospectus Supplement, interest will accrue on the aggregate principal balance
of each class of Certificates (with respect to each class, the "Certificate
Principal Balance") (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate notional principal balance)
entitled to interest from the date, at the Pass-Through Rate (which may be a
fixed rate or an adjustable rate adjustable as specified in such Prospectus
Supplement) and for the periods specified in such Prospectus Supplement. To
the extent funds are available therefor, interest accrued during each such
specified period on each class of Certificates entitled to interest (other
than a class of Certificates that provides for interest that accrues, but is
not currently payable, referred to hereafter as "Accrual Certificates") will
be distributable on the Distribution Dates specified in the related Prospectus
Supplement until the aggregate Certificate principal balance of the
Certificates of such class has been distributed in full or, in the case of
Certificates entitled only to distributions allocable to interest, until the
aggregate notional principal balance of such Certificates is reduced to zero
or for the period of time designated in the related Prospectus Supplement. The
original Certificate Principal Balance of each Certificate will equal the
aggregate distributions allocable to principal to which such Certificate is
entitled. Unless otherwise specified in the related Prospectus Supplement,
distributions allocable to interest on each Certificate that is not entitled
to distributions allocable to principal will be calculated based on the
notional principal balance of such Certificate. The notional principal balance
of a Certificate will not evidence an interest in or entitlement to
distributions allocable to principal but will be used solely for convenience
in expressing the calculation of interest and for certain other purposes.
With respect to any class of Accrual Certificates, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid
on any Distribution Date will be added to the aggregate Certificate Principal
Balance of such class of Certificates on such Distribution Date. Unless
otherwise specified in the related Prospectus Supplement, distributions of
interest on each class of Accrual Certificates will commence only after the
occurrence of the events specified in such Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, prior to such time
the beneficial ownership interest of such class of Accrual Certificates in the
Trust Fund, as reflected in the aggregate Certificate Principal Balance of
such class of Accrual Certificates, will increase on each Distribution Date by
the amount of interest that accrued on such class of Accrual Certificates
during the preceding interest accrual period but that was not required to be
distributed to such class on such Distribution Date. Any such class of Accrual
Certificates will thereafter accrue interest on its outstanding Certificate
Principal Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the related
Prospectus Supplement, the aggregate Certificate Principal Balance of any
class of Certificates entitled to distributions of principal will be the
aggregate original Certificate Principal Balance of such class of Certificates
specified in such Prospectus Supplement, reduced by all distributions reported
to the holders of such Certificates as allocable to principal and, (i) in the
case of Accrual Certificates, unless otherwise specified in the related
Prospectus Supplement, increased by all interest accrued but not then
distributable on such Accrual Certificates and (ii) in the case of adjustable
rate Certificates, unless otherwise specified in the related Prospectus
Supplement, subject to the effect of negative amortization. The related
Prospectus Supplement will specify the method by which the amount of principal
to be distributed on the Certificates on each Distribution Date will be
calculated and the manner in which such amount will be allocated among the
classes of Certificates entitled to distributions of principal.
If so provided in the related Prospectus Supplement, one or more classes
of Senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments of principal which are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or
for the periods specified in such Prospectus Supplement. Any such allocation
of Principal Prepayments to such class or classes of Certificates will have
the effect of accelerating the amortization of such Senior Certificates while
increasing the interests evidenced by the Subordinated Certificates in the
Trust Fund. Increasing the interests of the Subordinated Certificates relative
to that of the Senior Certificates is intended to preserve the availability of
the subordination provided by the Subordinated Certificates. See "Credit
Enhancement--Subordination" herein.
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Certificates will be subject to receipt of distributions
before the next scheduled Distribution Date under the circumstances and in the
manner described below and in such Prospectus Supplement. If applicable, the
Trustee will be required to make such unscheduled distributions on the day and
in the amount specified in the related Prospectus Supplement if, due to
substantial payments of principal (including Principal Prepayments) on the
Mortgage Assets, the Trustee or the Master Servicer determines that the funds
available or anticipated to be available from the Certificate Account and, if
applicable, from any Reserve Account may be insufficient to make required
distributions on the Certificates on such Distribution Date. Unless otherwise
specified in the related Prospectus Supplement, the amount of any such
unscheduled distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed as principal
on the Certificates on the next Distribution Date. Unless otherwise specified
in the related Prospectus Supplement, all unscheduled distributions will
include interest at the applicable Pass-Through Rate (if any) on the amount of
the unscheduled distribution allocable to principal for the period and to the
date specified in such Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all
distributions allocable to principal in any unscheduled distribution will be
made in the same priority and manner as distributions of principal on the
Certificates would have been made on the next Distribution Date, and with
respect to Certificates of the same class, unscheduled distributions of
principal will be made on a pro rata basis. Notice of any unscheduled
distribution will be given by the Trustee prior to the date of such
distribution.
Advances
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be required to advance on or before each Distribution
Date (from its own funds, funds advanced by Sub-Servicers or Support Servicers
or funds held in the Certificate Account for future distributions to the
holders of such Certificates) an amount equal to the aggregate of payments of
principal and interest that were delinquent on the related Determination Date
and were not advanced by any Sub-Servicer, subject to the Master Servicer's
determination that such Advances will be recoverable out of late payments by
Mortgagors, Liquidation Proceeds, Insurance Proceeds or otherwise. In the case
of Cooperative Loans, the Master Servicer also will be required to advance any
unpaid maintenance fees and other charges under the related proprietary leases
as specified in the related Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to holders of the
Certificates rather than to guarantee or insure against losses. If Advances
are made by the Master Servicer from cash being held for future distribution
to Certificateholders, the Master Servicer will replace such funds on or
before any future Distribution Date to the extent that funds in the applicable
Certificate Account on such Distribution Date would be less than the amount
required to be available for distributions to Certificateholders on such date.
Any Master Servicer funds advanced will be reimbursable to the Master Servicer
out of recoveries on the specific Mortgage Loans with respect to which such
Advances were made (e.g., late payments made by the related Mortgagor, any
related Insurance Proceeds, Liquidation Proceeds or proceeds of any Mortgage
Loan purchased by a Sub-Servicer or a Seller under the circumstances described
hereinabove). Advances by the Master Servicer (and any advances by a
Sub-Servicer or a Support Servicer) also will be reimbursable to the Master
Servicer (or Sub-Servicer or Support Servicer, as applicable) from cash
otherwise distributable to Certificateholders (including the holders of Senior
Certificates) to the extent that the Master Servicer determines that any such
Advances previously made are not ultimately recoverable as described above.
The Master Servicer also will be obligated to make Advances, to the extent
recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise, in
respect of certain taxes and insurance premiums not paid by Mortgagors on a
timely basis. Funds so advanced are reimbursable to the Master Servicer to the
extent permitted by the Agreement. If specified in the related Prospectus
Supplement, the obligations of the Master Servicer to make advances may be
supported by a cash advance reserve fund, a surety bond or other arrangement,
in each case as described in such Prospectus Supplement.
The Master Servicer or Sub-Servicer may enter into an agreement (a
"Support Agreement") with a support servicer (each, a "Support Servicer")
pursuant to which the Support Servicer agrees to provide funds on behalf of
the Master Servicer or Sub-Servicer in connection with the obligation of the
Master Servicer or Sub-Servicer, as the case may be, to make Advances. The
Support Agreement will be delivered to the Trustee and the Trustee will be
authorized to accept a substitute Support Agreement in exchange for an
original Support Agreement, provided that such substitution of the Support
Agreement will not adversely affect the rating or ratings assigned to the
Certificates by such Rating Agency or Agencies.
Unless otherwise provided in the Prospectus Supplement, in the event the
Master Servicer, a Sub-Servicer or a Support Servicer fails to make an
Advance, the Trustee will be obligated to make such Advance in its capacity as
successor servicer. If the Trustee makes such an Advance, it will be entitled
to be reimbursed for such Advance to the same extent and degree as the Master
Servicer, a Sub-Servicer or a Support Servicer is entitled to be reimbursed
for Advances. See "--Distribution on Certificates" above.
Reports to Certificateholders
Prior to or concurrently with each distribution on a Distribution Date
and except as otherwise set forth in an applicable Prospectus Supplement, the
Master Servicer or the Trustee will furnish to each Certificateholder of
record of the related Series a statement setting forth, to the extent
applicable to such Series of Certificates, among other things:
(i) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any Principal Prepayments and,
if so specified in the related Prospectus Supplement, prepayment penalties
included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Certificateholders on such Distribution Date and (b) withdrawn from the
Reserve Fund, if any, that is included in the amounts distributed to the
Senior Certificateholders;
(v) the outstanding Certificate Principal Balance or notional principal
balance of such class after giving effect to the distribution of principal on
such Distribution Date;
(vi) the percentage of principal payments on the Mortgage Loans
(excluding prepayments), if any, which such class will be entitled to receive
on the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Mortgage Loans, if
any, which such class will be entitled to receive on the following
Distribution Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Certificate Account by the Master Servicer and the amount
of additional servicing compensation received by the Master Servicer
attributable to penalties, fees, excess Liquidation Proceeds and other similar
charges and items;
(ix) the number and aggregate principal balances of Mortgage Loans (A)
delinquent (exclusive of Mortgage Loans in foreclosure) (1) from one to 30
days, (2) from 31 to 60 days, (3) from 61 to 90 days and (4) 91 days or more
and (B) in foreclosure, as of the close of business on the last day of the
calendar month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure and, if such real estate secured a
Multifamily Loan, such additional information as may be specified in the
related Prospectus Supplement;
(xi) if a class is entitled only to a specified portion of payments of
interest on the Mortgage Loans in the related Mortgage Pool, the Pass-Through
Rate, if adjusted from the date of the last statement, of the Mortgage Loans
expected to be applicable to the next distribution to such class;
(xii) if applicable, the amount remaining in any Reserve Account at the
close of business on the Distribution Date;
(xiii) the Pass-Through Rate as of the day prior to the immediately
preceding Distribution Date; and
(xiv) any amounts remaining under letters of credit, pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Certificate of the relevant class having the percentage
interest specified in the related Prospectus Supplement. The report to
Certificateholders for any Series of Certificates may include additional or
other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Certificateholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to (i) and (ii) above for
such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion of
such year and (b) such other customary information as may be deemed necessary
or desirable for Certificateholders to prepare their tax returns.
CREDIT ENHANCEMENT
General
Credit enhancement may be provided with respect to one or more classes of
a Series of Certificates or with respect to the Mortgage Assets in the related
Trust Fund. Credit enhancement may be in the form of a limited financial
guaranty policy issued by an entity named in the related Prospectus
Supplement, the subordination of one or more classes of the Certificates of
such Series, the establishment of one or more reserve accounts, the use of a
cross-support feature, use of a mortgage pool insurance policy, bankruptcy
bond, special hazard insurance policy, surety bond, letter of credit,
guaranteed investment contract or another method of credit enhancement
described in the related Prospectus Supplement or any combination of the
foregoing. Unless otherwise specified in the related Prospectus Supplement,
any credit enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by credit enhancement or which are not covered by the credit
enhancement, Certificateholders will bear their allocable share of
deficiencies.
Subordination
If so specified in the related Prospectus Supplement, protection afforded
to holders of one or more classes of Certificates of a Series by means of the
subordination feature will be accomplished by the preferential right of
holders of one or more other classes of such Series (the "Senior
Certificates") to distributions in respect of scheduled principal, Principal
Prepayments, interest or any combination thereof that otherwise would have
been payable to holders of one or more other classes of Certificates (the
"Subordinated Certificates") under the circumstances and to the extent
specified in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, protection may also be afforded to the holders of the
Senior Certificates of a Series by: (i) reducing the ownership interest of the
holders of the related Subordinated Certificates; (ii) a combination of the
immediately preceding sentence and clause (i) above; or (iii) as otherwise
described in the related Prospectus Supplement. If specified in the related
Prospectus Supplement, delays in receipt of scheduled payments on the Mortgage
Loans and losses on defaulted Mortgage Loans will be borne first by the
various classes of Subordinated Certificates and thereafter by the various
classes of Senior Certificates, in each case under the circumstances and
subject to the limitations specified in such related Prospectus Supplement.
The aggregate distributions in respect of delinquent payments on the Mortgage
Loans over the lives of the Certificates or at any time, the aggregate losses
in respect of defaulted Mortgage Loans which must be borne by the Subordinated
Certificates by virtue of subordination and the amount of the distributions
otherwise distributable to the Subordinated Certificateholders that will be
distributable to Senior Certificateholders on any Distribution Date may be
limited as specified in the related Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Mortgage Loans or
aggregate losses in respect of such Mortgage Loans were to exceed an amount
specified in the related Prospectus Supplement, holders of the Senior
Certificates would experience losses on such Certificates.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of the Subordinated Certificates on any Distribution Date
may instead be deposited into one or more Reserve Accounts established with
the Trustee. If so specified in the related Prospectus Supplement, such
deposits may be made on each Distribution Date, for specified periods or until
the balance in the Reserve Account has reached a specified amount and,
following payments from the Reserve Account to holders of the Senior
Certificates or otherwise, thereafter to the extent necessary to restore the
balance in the Reserve Account to required levels, in each case as specified
in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, amounts on deposit in the Reserve Account may be
released to the holders of the class or classes of Certificates specified in
such Prospectus Supplement at the times and under the circumstances specified
in such Prospectus Supplement.
If specified in the related Prospectus Supplement, various classes of
Senior Certificates and Subordinated Certificates may themselves be
subordinate in their right to receive certain distributions to other classes
of Senior and Subordinated Certificates, respectively, through a cross support
mechanism or otherwise.
As among classes of Senior Certificates and as among classes of
Subordinated Certificates, distributions may be allocated among such classes
(i) in the order of their scheduled final distribution dates, (ii) in
accordance with a schedule or formula, (iii) in relation to the occurrence of
events or (iv) otherwise, in each case as specified in the related Prospectus
Supplement. As among classes of Subordinated Certificates, payments to holders
of the related Senior Certificates on account of delinquencies or losses and
payments to any Reserve Account will be allocated as specified in the related
Prospectus Supplement.
Mortgage Pool Insurance Policies
If specified in the related Prospectus Supplement related to a Mortgage
Pool of Single Family Loans, a separate mortgage pool insurance policy (a
"Mortgage Pool Insurance Policy") will be obtained for the Mortgage Pool and
issued by the insurer (the "Pool Insurer") named in such Prospectus
Supplement. Each Mortgage Pool Insurance Policy will, subject to the
limitations described below, cover loss by reason of default in payment on
Single Family Loans in the related Mortgage Pool in an amount equal to a
percentage (specified in such Prospectus Supplement) of the aggregate
principal balances of such Mortgage Loans on the Cut-off Date which are not
covered as to their entire outstanding principal balances by Primary Mortgage
Insurance Policies. As more fully described below, the Master Servicer will
present claims thereunder to the Pool Insurer on behalf of itself, the Trustee
and the holders of the Certificates. The Mortgage Pool Insurance Policies,
however, are not blanket policies against loss, since claims thereunder may
only be made respecting particular defaulted Mortgage Loans and only upon
satisfaction of certain conditions precedent described below. Unless otherwise
specified in the related Prospectus Supplement, no Mortgage Pool Insurance
Policy will cover losses due to a failure to pay or denial of a claim under a
Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Pool Insurance Policy will provide that no claims may be validly
presented unless (i) any required Primary Mortgage Insurance Policy is in
effect for the defaulted Mortgage Loan and a claim thereunder has been
submitted and settled; (ii) hazard insurance on the related Mortgaged Property
has been kept in force and real estate taxes and other protection and
preservation expenses have been paid; (iii) if there has been physical loss or
damage to the Mortgaged Property, it has been restored to its physical
condition (reasonable wear and tear excepted) at the time of issuance of the
policy; and (iv) the insured has acquired good and merchantable title to the
Mortgaged Property free and clear of liens except certain permitted
encumbrances. Upon satisfaction of these conditions, the Pool Insurer will
have the option either (a) to purchase the property securing the defaulted
Mortgage Loan at a price equal to the principal balance thereof plus accrued
and unpaid interest at the Mortgage Rate to the date of purchase and certain
expenses incurred by the Master Servicer on behalf of the Trustee and
Certificateholders or (b) to pay the amount by which the sum of the principal
balance of the defaulted Mortgage Loan plus accrued and unpaid interest at the
Mortgage Rate to the date of payment of the claim and the aforementioned
expenses exceeds the proceeds received from an approved sale of the Mortgaged
Property, in either case net of certain amounts paid or assumed to have been
paid under the related Primary Mortgage Insurance Policy. If any property
securing a defaulted Mortgage Loan is damaged and proceeds, if any, from the
related hazard insurance policy or any applicable Special Hazard Insurance
Policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the Mortgage Pool Insurance Policy, the
Master Servicer will not be required to expend its own funds to restore the
damaged property unless it determines that (i) such restoration will increase
the proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) such expenses
will be recoverable by it through proceeds of the sale of the property or
proceeds of such related Mortgage Pool Insurance Policy or any related Primary
Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, no
Mortgage Pool Insurance Policy will insure (and many Primary Mortgage
Insurance Policies do not insure) against loss sustained by reason of a
default arising from, among other things, (i) fraud or negligence in the
origination or servicing of a Mortgage Loan, including misrepresentation by
the mortgagor, the originator or persons involved in the origination thereof
or (ii) failure to construct a Mortgaged Property in accordance with plans and
specifications. A failure of coverage attributable to one of the foregoing
events might result in a breach of the related Seller's representations
described above and, in such event, might give rise to an obligation on the
part of such Seller to purchase the defaulted Mortgage Loan if the breach
cannot be cured by such Seller. No Mortgage Pool Insurance Policy will cover
(and many Primary Mortgage Insurance Policies do not cover) a claim in respect
of a defaulted Mortgage Loan occurring when the servicer of such Mortgage
Loan, at the time of default or thereafter, was not approved by the applicable
insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under the Mortgage Pool Insurance Policy will be
reduced over the life of the related Certificates by the aggregate dollar
amount of claims paid less the aggregate of the net amounts realized by the
Pool Insurer upon disposition of all foreclosed properties. The amount of
claims paid will include certain expenses incurred by the Master Servicer as
well as accrued interest on delinquent Mortgage Loans to the date of payment
of the claim, unless otherwise specified in the related Prospectus Supplement.
Accordingly, if aggregate net claims paid under any Mortgage Pool Insurance
Policy reach the original policy limit, coverage under that Mortgage Pool
Insurance Policy will be exhausted and any further losses will be borne by the
Certificateholders.
The terms of any pool insurance policy relating to a pool of Contracts
will be described in the related Prospectus Supplement.
FHA Insurance; VA Guarantees
Single Family Loans designated in the related Prospectus Supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1937, as amended. Such Mortgage Loans will be insured
under various FHA programs including the standard FHA 203(b) program to
finance the acquisition of one- to four-family housing units and the FHA 245
graduated payment mortgage program. These programs generally limit the
principal amount and interest rates of the mortgage loans insured. Single
Family Loans insured by the FHA generally require a minimum down payment of
approximately 5% of the original principal amount of the loan. No FHA-insured
Single Family Loan relating to a Series may have an interest rate or original
principal amount exceeding the applicable FHA limits at the time of
origination of such loan.
The insurance premiums for Single Family Loans insured by the FHA are
collected by lenders approved by the Department of Housing and Urban
Development ("HUD") or by the Master Servicer or any Sub-Servicers and are
paid to the FHA. The regulations governing FHA single-family mortgage
insurance programs provide that insurance benefits are payable either upon
foreclosure (or other acquisition of possession) and conveyance of the
mortgaged premises to HUD or upon assignment of the defaulted Mortgage Loan to
HUD. With respect to a defaulted FHA-insured Single Family Loan, the Master
Servicer or any Sub-Servicer is limited in its ability to initiate foreclosure
proceedings. When it is determined by the Master Servicer or any applicable
Sub-Servicer or HUD that the default was caused by circumstances beyond the
mortgagor's control, the Master Servicer or such Sub-Servicer is expected to
make an effort to avoid foreclosure by entering, if feasible, into one of a
number of available forms of forbearance plans with the mortgagor. Such plans
may involve the reduction or suspension of regular mortgage payments for a
specified period, with such payments to be made up on or before the maturity
date of the mortgage, or the recasting of payments due under the mortgage up
to or beyond the maturity date. In addition, when a default caused by such
circumstances is accompanied by certain other criteria, HUD may provide relief
by making payments to the Master Servicer or such Sub-Servicer in partial or
full satisfaction of amounts due under the Mortgage Loan (which payments are
to be repaid by the mortgagor to HUD) or by accepting assignment of the loan
from the Master Servicer or such Sub-Servicer. With certain exceptions, at
least three full monthly installments must be due and unpaid under the
Mortgage Loan, and HUD must have rejected any request for relief from the
mortgagor, before the Master Servicer or such Sub-Servicer may initiate
foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Currently, claims are being paid in cash and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debentures' interest rate. The Master Servicer or any Sub-Servicer of each
FHA-insured Single Family Loan will be obligated to purchase any such
debenture issued in satisfaction of such Mortgage Loan upon default for an
amount equal to the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to
the entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Master Servicer or Sub-Servicer for certain costs and expenses
and to deduct certain amounts received or retained by the Master Servicer or
Sub-Servicer after default. When entitlement to insurance benefits results
from foreclosure (or other acquisition of possession) and conveyance to HUD,
the Master Servicer or Sub-Servicer is compensated for no more than two-thirds
of its foreclosure costs, and is compensated for interest accrued and unpaid
prior to such date generally only to the extent allowed pursuant to the
related forbearance plan approved by HUD. When entitlement to insurance
benefits results from assignment of the Mortgage Loan to HUD, the insurance
payment includes full compensation for interest accrued and unpaid to the
assignment date. The insurance payment itself, upon foreclosure of an
FHA-insured Single Family Loan, bears interest from the date which is 30 days
after the mortgagor's first uncorrected failure to perform any obligation to
make any payment due under the Mortgage and, upon assignment, from the date of
assignment to the date of payment of the claim, in each case at the same
interest rate as the applicable HUD debenture interest rate described above.
Single Family Loans designated in the related Prospectus Supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended (a "VA Guaranty Policy"),
which permits a veteran (or in certain instances the spouse of a veteran) to
obtain a mortgage loan guaranteed by the VA covering mortgage financing of the
purchase of a one- to four-family dwelling unit at interest rates permitted by
the VA. The program has no mortgage loan limits, requires no down payment from
the purchaser and permits the guarantee of mortgage loans of up to 30 years'
duration. However, no Single Family Loan guaranteed by the VA will have an
original principal amount greater than five times the partial VA guarantee for
such Mortgage Loan.
The maximum guarantee that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 1803(a), as amended. As
of November 1, 1998 the maximum guarantee that may be issued by the VA under a
VA guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $50,570. The liability on
the guarantee is reduced or increased pro rata with any reduction or increase
in the amount of indebtedness, but in no event will the amount payable on the
guarantee exceed the amount of the original guarantee. The VA may, at its
option and without regard to the guarantee, make full payment to a mortgage
holder of unsatisfied indebtedness on a mortgage upon its assignment to the
VA.
With respect to a defaulted VA guaranteed Single Family Loan, the Master
Servicer or Sub-Servicer is, absent exceptional circumstances, authorized to
announce its intention to foreclose only when the default has continued for
three months. Generally, a claim for the guarantee is submitted after
liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the
VA-insured Single Family Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in the VA
regulations. Payments under the guarantee will be equal to the unpaid
principal amount of the loan, interest accrued on the unpaid balance of the
loan to the appropriate date of computation and limited expenses of the
mortgagee, but in each case only to the extent that such amounts have not been
recovered through liquidation of the Mortgaged Property. The amount payable
under the guarantee may in no event exceed the amount of the original
guarantee.
Special Hazard Insurance Policies
If specified in the related Prospectus Supplement, a separate special
hazard insurance policy (a "Special Hazard Insurance Policy") will be obtained
for the Mortgage Pool and will be issued by the insurer (a "Special Hazard
Insurer") named in such Prospectus Supplement. Each Special Hazard Insurance
Policy will, subject to limitations described below, protect holders of the
related Certificates from (i) loss by reason of damage to Mortgaged Properties
caused by certain hazards (including earthquakes and, to a limited extent,
tidal waves and related water damage or as otherwise specified in the related
Prospectus Supplement) not insured against under the standard form of hazard
insurance policy for the respective states in which the Mortgaged Properties
are located or under a flood insurance policy if the Mortgaged Property is
located in a federally designated flood area, and (ii) loss caused by reason
of the application of the coinsurance clause contained in hazard insurance
policies. See "The Pooling and Servicing Agreement--Hazard Insurance". No
Special Hazard Insurance Policy will cover losses occasioned by fraud or
conversion by the Trustee or Master Servicer, war, insurrection, civil war,
certain governmental action, errors in design, faulty workmanship or materials
(except under certain circumstances), nuclear or chemical reaction, flood (if
the Mortgaged Property is located in a federally designated flood area),
nuclear or chemical contamination and certain other risks. The amount of
coverage under any Special Hazard Insurance Policy will be specified in the
related Prospectus Supplement. Each Special Hazard Insurance Policy will
provide that no claim may be paid unless hazard insurance and, if applicable,
flood insurance on the related Mortgaged Property have been kept in force and
other protection and preservation expenses have been paid.
Subject to the foregoing limitations, and unless otherwise specified in
the related Prospectus Supplement, each Special Hazard Insurance Policy will
provide that where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the Master Servicer,
the Special Hazard Insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
Special Hazard Insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure plus accrued interest to the date of claim settlement and certain
expenses incurred by the Master Servicer with respect to such property. If the
unpaid principal balance of a Mortgage Loan plus accrued interest and certain
expenses is paid by the Special Hazard Insurer, the amount of further coverage
under the related Special Hazard Insurance Policy will be reduced by such
amount less any net proceeds from the sale of the property. Any amount paid as
the cost of repairing such property of the property will further reduce
coverage by such amount. So long as a Mortgage Pool Insurance Policy remains
in effect, the payment by the Special Hazard Insurer of the cost of repair or
of the unpaid principal balance of the related Mortgage Loan plus accrued
interest and certain expenses will not affect the total insurance proceeds
paid to Certificateholders, but will affect the relative amounts of coverage
remaining under the related Special Hazard Insurance Policy and such Mortgage
Pool Insurance Policy.
Since each Special Hazard Insurance Policy will be designed to permit
full recovery under the Mortgage Pool Insurance Policy in circumstances in
which such recoveries would otherwise be unavailable because property has been
damaged by a cause not insured against by a standard hazard policy and thus
would not be restored, each Agreement will provide that, if the related
Mortgage Pool Insurance Policy shall have been terminated or been exhausted
through payment of claims, unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be under no further obligation
to maintain such Special Hazard Insurance Policy.
To the extent specified in an applicable Prospectus Supplement, the
Master Servicer may deposit cash, an irrevocable letter of credit or any other
instrument acceptable to each nationally recognized rating agency rating the
Certificates of the related Series in a special trust account to provide
protection in lieu of or in addition to that provided by a Special Hazard
Insurance Policy. The amount of any Special Hazard Insurance Policy or of the
deposit to the special trust account relating to such Certificates in lieu
thereof may be reduced so long as any such reduction will not result in a
downgrading of the rating of such Certificates by any such rating agency.
The terms of any Special Hazard Insurance Policy relating to a pool of
Contracts will be described in the related Prospectus Supplement.
Bankruptcy Bonds
If specified in the related Prospectus Supplement, a bankruptcy bond
("Bankruptcy Bond") for proceedings under the Bankruptcy Code will be issued
by an insurer named in such Prospectus Supplement. Each Bankruptcy Bond will
cover certain losses resulting from a reduction by a bankruptcy court of
scheduled payments of principal and interest on a Mortgage Loan or a reduction
by such court of the principal amount of a Mortgage Loan and will cover
certain unpaid interest on the amount of such a principal reduction from the
date of the filing of a bankruptcy petition. The required amount of coverage
under a Bankruptcy Bond will be set forth in the related Prospectus
Supplement. Coverage under a Bankruptcy Bond may be cancelled or reduced by
the Master Servicer if such cancellation or reduction would not adversely
affect the then current rating or ratings of the related Certificates. See
"Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency Legislation and
Other Limitations on Lenders" herein.
To the extent specified in the related Prospectus Supplement, the Master
Servicer may deposit cash, an irrevocable letter of credit or any other
instrument acceptable to each nationally recognized rating agency rating the
Certificates of the related Series in a special trust account to provide
protection in lieu of or in addition to that provided by a Bankruptcy Bond.
The amount of any Bankruptcy Bond or of the deposit to the special trust
account relating to such Certificates in lieu thereof may be reduced so long
as any such reduction would not result in a downgrading of the then current
rating or ratings of such Certificates by any such rating agency.
The terms of any Bankruptcy Bond relating to a pool of Contracts will be
described in the related Prospectus Supplement.
FHA Insurance on Multifamily Loans
There are two primary FHA insurance programs that are available for
Multifamily Loans. Sections 221(d)(3) and (d)(4) of the Housing Act allow HUD
to insure mortgage loans that are secured by newly constructed and
substantially rehabilitated multifamily rental projects. Section 244 of the
Housing Act provides for co-insurance of such mortgage loans made under
Sections 221(d)(3) and (d)(4) by HUD/FHA and a HUD-approved co-insurer.
Generally the term of such a mortgage loan may be up to 40 years and the ratio
of loan amount to property replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are
at least three years old. Section 244 also provides for co-insurance of
mortgage loans made under Section 223(f). Under Section 223(f), the loan
proceeds cannot be used for substantial rehabilitation work but repairs may be
made for up to, in general, the greater of 15% of the value of the project or
a dollar amount per apartment unit established from time to time by HUD. In
general the loan term may not exceed 35 years and a loan-to-value ratio of no
more than 85% is required for the purchase of a project and 70% for the
refinancing of a project.
FHA insurance is generally payable in cash or, at the option of the
mortgagee, in debentures. Such insurance does not cover 100% of the mortgage
loan but is instead subject to certain deductions and certain losses of
interest from the date of the default.
Reserve Accounts
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance of one or more Reserve Accounts for such Series, in trust, with
the Trustee for such Series of Certificates. The related Prospectus Supplement
will specify whether or not such Reserve Accounts will be included in the
Trust Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit
therein of cash, U.S. Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the related Prospectus Supplement, (ii) by the deposit therein
from time to time of certain amounts, as specified in the related Prospectus
Supplement to which the Subordinate Certificateholders, if any, would
otherwise be entitled or (iii) in such other manner as may be specified in the
related Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
Permitted Investments which, unless otherwise specified in the related
Prospectus Supplement, will include obligations of the United States and
certain agencies thereof, certificates of deposit, certain commercial paper,
time deposits and bankers acceptances sold by eligible commercial banks and
certain repurchase agreements of United States government securities with
eligible commercial banks. If a letter of credit is deposited with the
Trustee, such letter of credit will be irrevocable. Unless otherwise specified
in the related Prospectus Supplement, any instrument deposited therein will
name the Trustee, in its capacity as trustee for the holders of the
Certificates, as beneficiary and will be issued by an entity acceptable to
each rating agency that rates the Certificates. Additional information with
respect to such instruments deposited in the Reserve Account will be set forth
in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Certificates for the purposes, in the manner and at the times
specified in the related Prospectus Supplement.
Cross Support
If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust Fund may be
evidenced by separate classes of the related Series of Certificates. In such
case, credit support may be provided by a cross support feature which requires
that distributions be made with respect to Certificates evidencing a
beneficial ownership interest in other asset groups within the same Trust
Fund. The related Prospectus Supplement for a Series which includes a cross
support feature will describe the manner and conditions for applying such
cross support feature.
If specified in the related Prospectus Supplement, the coverage provided
by one or more forms of credit support may apply concurrently to two or more
related Trust Funds. If applicable, the related Prospectus Supplement will
identify the Trust Funds to which such credit support relates and the manner
of determining the amount of the coverage provided thereby and of the
application of such coverage to the identified Trust Funds.
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar
Instruments or Agreements
If specified in the related Prospectus Supplement, a Trust Fund may also
include insurance, guaranties, surety bonds, letters of credit or similar
arrangements for the purpose of (i) maintaining timely payments or providing
additional protection against losses on the assets included in such Trust
Fund, (ii) paying administrative expenses or (iii) establishing a minimum
reinvestment rate on the payments made in respect of such assets or principal
payment rate on such assets. Such arrangements may include agreements under
which Certificateholders are entitled to receive amounts deposited in various
accounts held by the Trustee upon the terms specified in such Prospectus
Supplement.
Financial Instruments
If specified in the related Prospectus Supplement, the Trust Fund may
include one or more financial instruments that are intended to meet the
following goals: (i) to convert the payments on some or all of the related
Mortgage Assets from fixed to floating payments, or from floating to fixed, or
from floating based on a particular index to floating based on another index;
(ii) to provide payments if any index rises above or falls below specified
levels; or (iii) to provide protection against interest rate changes, certain
types of losses or other payment shortfalls to one or more Classes of the
related Series.
If a Trust Fund includes financial instruments of this type, the
instruments may be structured to be exempt from the registration requirements
of the Securities Act of 1933, as amended.
The related Prospectus Supplement will include, or incorporate by
reference, material financial and other information about the provider of the
financial instruments.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates
will be affected primarily by the amount and timing of principal payments
received on or in respect of the Mortgage Assets included in the related Trust
Fund. The original terms to maturity of the Mortgage Loans in a given Mortgage
Pool will vary depending upon the types of Mortgage Loans included therein.
Each Prospectus Supplement will contain information with respect to the types
and maturities of the Mortgage Loans in the related Mortgage Pool. Unless
otherwise specified in the related Prospectus Supplement, Single Family Loans
and Contracts may be prepaid without penalty in full or in part at any time.
Multifamily Loans may prohibit prepayment for a specified period after
origination, may prohibit partial prepayments entirely, and may require the
payment of a prepayment penalty upon prepayment in full or in part. The
prepayment experience on the Mortgage Loans in a Mortgage Pool will affect the
life of the related Series of Certificates.
A number of factors, including homeowner mobility, economic conditions,
the presence and enforceability of due-on-sale clauses, mortgage market
interest rates and the availability of mortgage funds may affect the
prepayment experience of Single Family Loans and Contracts. Some of these
factors, as well as other factors including limitations on prepayment and the
relative tax benefits associated with the ownership of income-producing real
property, may affect the prepayment of Multifamily Loans.
Unless otherwise provided in the related Prospectus Supplement, all
conventional Single Family Loans and Contracts will contain due-on-sale
provisions permitting the mortgagee or holder of the Contract to accelerate
the maturity of the loan or Contract upon sale or certain transfers by the
mortgagor or obligor of the underlying Mortgaged Property. As described in the
related Prospectus Supplement, conventional Multifamily Loans may contain
due-on-sale provisions, due-on-encumbrance provisions or both. Mortgage Loans
insured by the FHA, and Single Family Loans and Contracts partially guaranteed
by the VA, are assumable with the consent of the FHA and the VA, respectively.
Thus, the rate of prepayments of such Mortgage Loans may be lower than that of
conventional Mortgage Loans bearing comparable interest rates. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
generally will enforce any due-on-sale or due-on-encumbrance clause, to the
extent it has knowledge of the conveyance or further encumbrance or the
proposed conveyance or proposed further encumbrance of the Mortgaged Property
and reasonably believes that it is entitled to do so under applicable law;
provided, however, that the Master Servicer will not take any enforcement
action that would impair or threaten to impair any recovery under any related
insurance policy. See "The Pooling and Servicing Agreement--Collection
Procedures" and "Certain Legal Aspects of the Mortgage Loans" herein for a
description of certain provisions of each Agreement and certain legal
developments that may affect the prepayment experience of the Mortgage Loans.
The rate of prepayments of conventional mortgage loans has fluctuated
significantly in recent years. In general, if prevailing rates fall
significantly below the Mortgage Rates borne by the Mortgage Loans, such
Mortgage Loans are likely to be subject to higher prepayment rates than if
prevailing interest rates remain at or above such Mortgage Rates. Conversely,
if prevailing interest rates rise appreciably above the Mortgage Rates borne
by the Mortgage Loans, such Mortgage Loans are likely to experience a lower
prepayment rate than if prevailing rates remain at or below such Mortgage
Rates. However, there can be no assurance that such will be the case. The rate
of prepayment of Multifamily Loans may also be affected by other factors
including Mortgage Loan terms (e.g., the existence of lockout periods,
due-on-sale and due-on-encumbrance clauses and prepayment penalties), relative
economic conditions in the area where the Mortgaged Properties are located,
the quality of management of the Mortgaged Properties and possible changes in
tax laws.
When a prepayment in full is made with respect to a Single Family Loan,
the mortgagor is charged interest on the principal amount of the Loan so
prepaid only for the number of days in the month actually elapsed up to the
date of the prepayment rather than for a full month. Unless otherwise
specified in the related Prospectus Supplement, the effect of prepayments in
full will be to reduce the amount of interest passed through in the following
month to holders of Certificates because interest on the principal amount of
any Mortgage Loan so prepaid will be paid only to the date of prepayment.
Partial prepayments in a given month may be applied to the outstanding
principal balances of the Mortgage Loans so prepaid on the first day of the
month of receipt or of the month following receipt. In the latter case,
partial prepayments will not reduce the amount of interest passed through in
such month. Unless otherwise specified in the related Prospectus Supplement,
neither prepayments in full nor partial prepayments will be passed through
until the month following receipt. Prepayment penalties collected with respect
to Multifamily Loans will be distributed to the holders of Certificates, or to
other persons entitled thereto, as described in the related Prospectus
Supplement.
If the rate at which interest is passed through to the holders of
Certificates of a Series is calculated on a Mortgage Loan by Mortgage Loan
basis, disproportionate principal prepayments with respect to Mortgage Loans
bearing different Mortgage Rates will affect the yield on such Certificates.
In all cases, the effective yield to Certificateholders will be slightly lower
than the yield otherwise produced by the applicable Pass-Through Rate and
purchase price because, while interest will accrue on each Mortgage Loan from
the first day of the month (unless otherwise provided in the related
Prospectus Supplement), the distribution of such interest will not be made
earlier than the month following the month of accrual.
Under certain circumstances, the Master Servicer or the holders of the
residual interests in a REMIC may have the option to purchase the assets of a
Trust Fund thereby effecting earlier retirement of the related Series of
Certificates. See "The Pooling and Servicing Agreement--Termination; Optional
Termination".
Factors other than those identified herein and in the related Prospectus
Supplement could significantly affect principal prepayments at any time and
over the lives of the Certificates. The relative contribution of the various
factors affecting prepayment may also vary from time to time. There can be no
assurance as to the rate of payment of principal of the Mortgage Assets at any
time or over the lives of the Certificates.
The Prospectus Supplement relating to a Series of Certificates will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Certificates.
In the event that a receiver, bankruptcy trustee, debtor in possession or
similar entity (each, an "Insolvency Trustee") is appointed with respect to a
Seller due to its insolvency or a Seller becomes a debtor under Title 11 of
the United States Code (the "Bankruptcy Code") or any similar insolvency law,
such Insolvency Trustee may attempt to characterize the transfer of the
related Mortgage Loans from such Seller to the Depositor as a pledge to secure
a financing rather than as a sale. In the event that such attempt were
successful, such Insolvency Trustee might elect, among other remedies, to
accelerate payment of the related Certificates and liquidate such Mortgage
Loans, with each related Certificateholder being entitled to receive its
allocable share of the principal balance thereof, together with such
Certificateholder's allocable share of interest thereon at the applicable
Pass-Through Rate or weighted average Strip Rate (as defined in the related
Prospectus Supplement), as the case may be, to the date of payment. In any
such event, the related Certificateholders might incur reinvestment losses
with respect to principal received and investment losses attendant to the
liquidation of the Mortgage Loans (and the resulting early retirement of the
related Certificates). In addition, certain delays in distributions might be
experienced by such Certificateholders in connection with any such insolvency
proceedings.
THE POOLING AND SERVICING AGREEMENT
Set forth below is a summary of certain provisions of each Agreement
which are not described elsewhere in this Prospectus. This summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of such Agreement. Where particular provisions or
terms used in the Agreements are referred to, such provisions or terms are as
specified in the Agreements.
Assignment of Mortgage Assets
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Depositor will cause the Mortgage Loans
comprising the related Trust Fund to be assigned to the Trustee, together with
all principal and interest received by or on behalf of the Depositor with
respect to such Mortgage Loans after the Cut-off Date, other than principal
and interest due on or before the Cut-off Date and other than any Retained
Interest specified in the related Prospectus Supplement. The Trustee will,
concurrently with such assignment, deliver the Certificates to the Depositor
in exchange for the Mortgage Loans. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the related Agreement. Such schedule will
include information as to the outstanding principal balance of each Mortgage
Loan after application of payments due on the Cut-off Date, as well as
information regarding the Mortgage Rate or APR, the current scheduled monthly
payment of principal and interest, the maturity of the loan, the Loan-to-Value
Ratio at origination and certain other information.
In addition, the Depositor will deliver or cause to be delivered to the
Trustee (or to the custodian hereinafter referred to) as to each Mortgage
Loan, among other things, (i) the mortgage note or Contract endorsed without
recourse in blank or to the order of the Trustee, (ii) in the case of Single
Family Loans or Multifamily Loans, the mortgage, deed of trust or similar
instrument (each, a "Mortgage") with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in
which case the Depositor will deliver or cause to be delivered a copy of such
Mortgage together with a certificate stating that the original of such
Mortgage was delivered to such recording office), (iii) an assignment of the
Mortgage or Contract to the Trustee, which assignment will be in recordable
form in the case of a Mortgage assignment and (iv) such other security
documents as may be specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, (i) in the case of
Single Family Loans or Multifamily Loans, the Depositor will promptly cause
the assignments of the related loans to be recorded in the appropriate public
office for real property records, except in states in which, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect
the Trustee's interest in such loans against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the originator
of such loans, and (ii) in the case of Contracts, the Depositor will promptly
make or cause to be made an appropriate filing of a UCC-1 financing statement
in the appropriate states to give notice of the Trustee's ownership of the
Contracts.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee, the related original
cooperative note endorsed without recourse in blank or to the order of the
Trustee, the original security agreement, the proprietary lease or occupancy
agreement, the recognition agreement, an executed financing agreement and the
relevant stock certificate, related blank stock powers and any other document
specified in the related Prospectus Supplement. The Depositor will cause to be
filed in the appropriate office an assignment and a financing statement
evidencing the Trustee's security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will review such
Mortgage Loan documents within the time period specified in the related
Prospectus Supplement after receipt thereof and the Trustee will hold such
documents in trust for the benefit of the Certificateholders. Unless otherwise
specified in the related Prospectus Supplement, if any such document is found
to be missing or defective in any material respect, the Trustee (or such
custodian) will notify the Master Servicer and the Depositor, and the Master
Servicer will notify the related Seller. If the Seller cannot cure the
omission or defect within 45 days after receipt of such notice, the Seller
will be obligated to purchase the related Mortgage Loan from the Trustee at
the Purchase Price. There can be no assurance that a Seller will fulfill this
purchase obligation. Although the Master Servicer may be obligated to enforce
such obligation to the extent described under "Mortgage Loan
Program--Representations by Sellers; Repurchases" herein, neither the Master
Servicer nor the Depositor will be obligated to purchase such Mortgage Loan if
the Seller defaults on its purchase obligation, unless such breach also
constitutes a breach of the representations or warranties of the Master
Servicer or the Depositor, as the case may be. Unless otherwise specified in
the related Prospectus Supplement, this purchase obligation constitutes the
sole remedy available to the Certificateholders or the Trustee for the
omission of, or a material defect in, a constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review
the documents relating to the Mortgage Loans as agent of the Trustee.
The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Agreement. Upon a breach of any such representation of
the Master Servicer which materially and adversely affects the interests of
the Certificateholders in a Mortgage Loan, the Master Servicer will be
obligated either to cure the breach in all material respects or to purchase
the Mortgage Loan at the Purchase Price. Unless otherwise specified in the
related Prospectus Supplement, this obligation to cure or purchase constitutes
the sole remedy available to the Certificateholders or the Trustee for such a
breach of representation by the Master Servicer.
Notwithstanding the foregoing provisions, with respect to a Trust Fund
for which a REMIC election is to be made, unless the related Prospectus
Supplement otherwise provides, no purchase of a Mortgage Loan will be made if
such purchase would result in a prohibited transaction tax under the Code.
Assignment of Agency Securities. The Depositor will cause the Agency
Securities to be registered in the name of the Trustee or its nominee, and the
Trustee concurrently will execute, countersign and deliver the Certificates.
Each Agency Security will be identified in a schedule appearing as an exhibit
to the Agreement, which will specify as to each Agency Security the original
principal amount, the outstanding principal balance as of the Cut-off Date,
the annual pass-through rate (if any) and the maturity date.
Assignment of Private Mortgage-Backed Securities. The Depositor will
cause Private Mortgage-Backed Securities to be registered in the name of the
Trustee. The Trustee (or the custodian) will have possession of any
certificated Private Mortgage-Backed Securities. Unless otherwise specified in
the related Prospectus Supplement, the Trustee will not be in possession of or
be assignee of record of any underlying assets for a Private Mortgage-Backed
Security. See "The Trust Fund--Private Mortgage-Backed Securities". Each
Private Mortgage-Backed Security will be identified in a schedule appearing as
an exhibit to the related Agreement which will specify the original principal
amount, the outstanding principal balance as of the Cut-off Date, the annual
pass-through rate or interest rate, the maturity date and certain other
pertinent information for each Private Mortgage-Backed Security conveyed to
the Trustee.
Payments on Mortgage Loans; Deposits to Certificate Account
Each Sub-Servicer servicing a Mortgage Loan pursuant to a Sub-Servicing
Agreement (as defined under "--Sub-Servicing by Sellers" below) will establish
and maintain an account (the "Sub-Servicing Account") which meets the
following requirements and is otherwise acceptable to the Master Servicer. A
Sub-Servicing Account must be established with a Federal Home Loan Bank or
with a depository institution (including the Sub-Servicer itself) whose
accounts are insured by either the Bank Insurance Fund (the "BIF") of the FDIC
or the Savings Association Insurance Fund ("SAIF") of the FDIC. If a
Sub-Servicing Account is maintained at an institution that is a Federal Home
Loan Bank or an FDIC-insured institution and, in either case, the amount on
deposit in the Sub-Servicing Account exceeds the FDIC insurance coverage
amount, then such excess amount must be remitted to the Master Servicer within
one business day after receipt. In addition, the Sub-Servicer must maintain a
separate account for escrow and impound funds relating to the Mortgage Loans.
Each Sub-Servicer is required to deposit into its Sub-Servicing Account on a
daily basis all amounts described below under "--Sub-Servicing by Sellers"
that are received by it in respect of the Mortgage Loans, less its servicing
or other compensation. On or before the date specified in the Sub-Servicing
Agreement, the Sub-Servicer will remit or cause to be remitted to the Master
Servicer or the Trustee all funds held in the Sub-Servicing Account with
respect to the Mortgage Loans that are required to be so remitted. The
Sub-Servicer is also required to advance on the scheduled date of remittance
an amount corresponding to any monthly installment of principal and interest,
less its servicing or other compensation, on any Mortgage Loan for which
payment was not received from the mortgagor. Unless otherwise specified in the
related Prospectus Supplement, this obligation of the Sub-Servicer to advance
continues up to and including the first of the month following the date on
which the related Mortgaged Property is sold at a foreclosure sale or is
acquired on behalf of the Certificateholders by deed in lieu of foreclosure,
or until the related Mortgage Loan is liquidated.
The Master Servicer will establish and maintain or cause to be
established and maintained with respect to the related Trust Fund a separate
account or accounts for the collection of payments on the related Mortgage
Assets in the Trust Fund (collectively, with respect to such Trust Fund, the
"Certificate Account") which, unless otherwise specified in the related
Prospectus Supplement, must be (i) maintained with a depository institution
the debt obligations of which (or in the case of a depository institution that
is the principal subsidiary of a holding company, the obligations of which)
are rated in one of the two highest rating categories by the nationally
recognized statistical rating organization(s) that rated one or more classes
of the related Series of Certificates (each, a "Rating Agency"), (ii) an
account or accounts the deposits in which are fully insured by either BIF or
SAIF, (iii) an account or accounts the deposits in which are insured by BIF or
SAIF (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that, as evidenced by an opinion of counsel,
the Certificateholders have a claim with respect to the funds in the
Certificate Account or a perfected first priority security interest against
any collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the depository institution with which the
Certificate Account is maintained, or (iv) an account or accounts otherwise
acceptable to each Rating Agency. The collateral eligible to secure amounts in
the Certificate Account is limited to United States government securities and
other high-quality investments ("Permitted Investments"). A Certificate
Account may be maintained as an interest bearing account or the funds held
therein may be invested pending each succeeding Distribution Date in Permitted
Investments. Unless otherwise specified in the related Prospectus Supplement,
the Master Servicer or its designee will be entitled to receive any such
interest or other income earned on funds in the Certificate Account as
additional compensation and will be obligated to deposit in the Certificate
Account the amount of any loss immediately as realized. The Certificate
Account may be maintained with the Master Servicer or with a depository
institution that is an affiliate of the Master Servicer, provided that the
Master Servicer or such affiliate, as applicable, meets the standards set
forth above.
The Master Servicer will deposit or cause to be deposited in the
Certificate Account for each Trust Fund on a daily basis, to the extent
applicable and unless otherwise specified in the related Prospectus Supplement
and provided in the Agreement, the following payments and collections received
or Advances made by or on behalf of it subsequent to the Cut-off Date (other
than payments due on or before the Cut-off Date and exclusive of any amounts
representing Retained Interest):
(i) all payments on account of principal, including Principal Prepayments
and, if specified in the related Prospectus Supplement, prepayment penalties,
on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ("Insured Expenses") incurred, and
unreimbursed Advances made, by the related Sub-Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies, to the extent
such proceeds are not applied to the restoration of property or released to
mortgagors in accordance with the Master Servicer's normal servicing
procedures (collectively, "Insurance Proceeds") and all other cash amounts
(net of unreimbursed expenses in connection with liquidation or foreclosure
("Liquidation Expenses") incurred, and unreimbursed advances made, by the
related Sub-Servicer, if any) received and retained in connection with the
liquidation of defaulted Mortgage Loans, by foreclosure or otherwise
("Liquidation Proceeds"), together with any net proceeds received on a monthly
basis with respect to any properties acquired on behalf of the
Certificateholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect
thereof purchased by the Master Servicer, the Depositor, any Sub-Servicer or
any Seller as described under "Mortgage Loan Program--Representations by
Sellers; Repurchases" or "--Assignment of Mortgage Assets" above and all
proceeds of any Mortgage Loan repurchased as described under "--Termination;
Optional Termination" below;
(v) all payments required to be deposited in the Certificate
Account with respect to any deductible clause in any blanket insurance policy
described below under "--Hazard Insurance";
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the Master
Servicer of funds held in the Certificate Account; and
(vii) all other amounts required to be deposited in the Certificate
Account pursuant to the Agreement.
Sub-Servicing by Sellers
Each Seller of a Mortgage Loan or any other servicing entity may act as
the Sub-Servicer for such Mortgage Loan pursuant to an agreement (each, a
"Sub-Servicing Agreement"), which will not contain any terms inconsistent with
the related Agreement. While each Sub-Servicing Agreement will be a contract
solely between the Master Servicer and the related Sub-Servicer, the Agreement
pursuant to which a Series of Certificates is issued will provide that, if for
any reason the Master Servicer for such Series of Certificates is no longer
the Master Servicer of the related Mortgage Loans, the Trustee or any
successor Master Servicer must recognize the Sub-Servicer's rights and
obligations under such Sub-Servicing Agreement.
With the approval of the Master Servicer, a Sub-Servicer may delegate its
servicing obligations to third-party servicers, but such Sub-Servicer will
remain obligated under the related Sub-Servicing Agreement. Each Sub-Servicer
will be required to perform the customary functions of a servicer of mortgage
loans. Such functions generally include collecting payments from mortgagors or
obligors and remitting such collections to the Master Servicer; maintaining
hazard insurance policies as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder, subject in certain
cases to the right of the Master Servicer to approve in advance any such
settlement; maintaining escrow or impoundment accounts of mortgagors or
obligors for payment of taxes, insurance and other items required to be paid
by the mortgagor or obligor pursuant to the related Mortgage Loan; processing
assumptions or substitutions, although, unless otherwise specified in the
related Prospectus Supplement, the Master Servicer is generally required to
exercise due-on-sale clauses to the extent such exercise is permitted by law
and would not adversely affect insurance coverage; attempting to cure
delinquencies; supervising foreclosures; inspecting and managing Mortgaged
Properties under certain circumstances; maintaining accounting records
relating to the Mortgage Loans; and, to the extent specified in the related
Prospectus Supplement, maintaining additional insurance policies or credit
support instruments and filing and settling claims thereunder. A Sub-Servicer
will also be obligated to make advances in respect of delinquent installments
of principal and interest on Mortgage Loans, as described more fully above
under "--Payments on Mortgage Loans; Deposits to Certificate Account", and in
respect of certain taxes and insurance premiums not paid on a timely basis by
mortgagors or obligors.
As compensation for its servicing duties, each Sub-Servicer will be
entitled to a monthly servicing fee (to the extent the scheduled payment on
the related Mortgage Loan has been collected) in the amount set forth in the
related Prospectus Supplement. Each Sub-Servicer is also entitled to collect
and retain, as part of its servicing compensation, any prepayment or late
charges provided in the mortgage note or related instruments. Each
Sub-Servicer will be reimbursed by the Master Servicer for certain
expenditures which it makes, generally to the same extent the Master Servicer
would be reimbursed under the Agreement. The Master Servicer may purchase the
servicing of Mortgage Loans if the Sub-Servicer elects to release the
servicing of such Mortgage Loans to the Master Servicer. See "--Servicing and
Other Compensation and Payment of Expenses" below.
Each Sub-Servicer may be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Sub-Servicer in its servicing
capacity. Each Sub-Servicer will be required to maintain a fidelity bond and
an errors and omissions policy with respect to its officers, employees and
other persons acting on its behalf or on behalf of the Master Servicer.
Each Sub-Servicer will be required to service each Mortgage Loan pursuant
to the terms of the Sub-Servicing Agreement for the entire term of such
Mortgage Loan, unless the Sub-Servicing Agreement is earlier terminated by the
Master Servicer or unless servicing is released to the Master Servicer. The
Master Servicer may terminate a Sub-Servicing Agreement without cause, upon
written notice to the Sub-Servicer in the manner specified in such
Sub-Servicing Agreement.
The Master Servicer may agree with a Sub-Servicer to amend a
Sub-Servicing Agreement or, upon termination of the Sub-Servicing Agreement,
the Master Servicer may act as servicer of the related Mortgage Loans or enter
into new Sub-Servicing Agreements with other Sub-Servicers. If the Master
Servicer acts as servicer, it will not assume liability for the
representations and warranties of the Sub-Servicer which it replaces. Each
Sub-Servicer must be a Seller or meet the standards for becoming a Seller or
have such servicing experience as to be otherwise satisfactory to the Master
Servicer and the Depositor. The Master Servicer will make reasonable efforts
to have the new Sub-Servicer assume liability for the representations and
warranties of the terminated Sub-Servicer, but no assurance can be given that
such an assumption will occur. In the event of such an assumption, the Master
Servicer may in the exercise of its business judgment release the terminated
Sub-Servicer from liability in respect of such representations and warranties.
Any amendments to a Sub-Servicing Agreement or new Sub-Servicing Agreements
may contain provisions different from those which are in effect in the
original Sub-Servicing Agreement. However, each Agreement will provide that
any such amendment or new agreement may not be inconsistent with or violate
such Agreement.
Collection Procedures
The Master Servicer, directly or through one or more Sub-Servicers, will
make reasonable efforts to collect all payments called for under the Mortgage
Loans and will, consistent with each Agreement and any Mortgage Pool Insurance
Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty Policy
and Bankruptcy Bond or alternative arrangements, follow such collection
procedures as are customary with respect to mortgage loans that are comparable
to the Mortgage Loans. Consistent with the above, the Master Servicer may, in
its discretion, (i) waive any assumption fee, late payment or other charge in
connection with a Mortgage Loan and (ii) to the extent not inconsistent with
the coverage of such Mortgage Loan by a Mortgage Pool Insurance Policy,
Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty or Bankruptcy
Bond or alternative arrangements, if applicable, arrange with a mortgagor a
schedule for the liquidation of delinquencies running for no more than 125
days after the applicable due date for each payment. Both the Sub-Servicer and
the Master Servicer remain obligated to make Advances during any period of
such an arrangement.
Unless otherwise specified in the related Prospectus Supplement, in any
case in which property securing a conventional Mortgage Loan has been, or is
about to be, conveyed by the mortgagor or obligor, the Master Servicer will,
to the extent it has knowledge of such conveyance or proposed conveyance,
exercise or cause to be exercised its rights to accelerate the maturity of
such Mortgage Loan under any due-on-sale clause applicable thereto, but only
if the exercise of such rights is permitted by applicable law and will not
impair or threaten to impair any recovery under any related Primary Mortgage
Insurance Policy. If these conditions are not met or if the Master Servicer
reasonably believes it is unable under applicable law to enforce such
due-on-sale clause, or if such Mortgage Loan is insured by the FHA or
partially guaranteed by the VA the Master Servicer will enter into or cause to
be entered into an assumption and modification agreement with the person to
whom such property has been or is about to be conveyed, pursuant to which such
person becomes liable for repayment of the Mortgage Loan and, to the extent
permitted by applicable law, the mortgagor remains liable thereon. Any fee
collected by or on behalf of the Master Servicer for entering into an
assumption agreement will be retained by or on behalf of the Master Servicer
as additional servicing compensation. In the case of Multifamily Loans and
unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will agree to exercise any right it may have to accelerate the
maturity of a Multifamily Loan to the extent it has knowledge of any further
encumbrance of the related Mortgaged Property effected in violation of any
due-on-encumbrance clause applicable thereto. See "Certain Legal Aspects of
the Mortgage Loans--Due-on-Sale Clauses" herein. In connection with any such
assumption, the terms of the related Mortgage Loan may not be changed.
With respect to Cooperative Loans, any prospective purchaser will
generally have to obtain the approval of the board of directors of the
relevant Cooperative before purchasing the shares and acquiring rights under
the related proprietary lease or occupancy agreement. See "Certain Legal
Aspects of the Mortgage Loans" herein. This approval is usually based on the
purchaser's income and net worth and numerous other factors. Although the
Cooperative's approval is unlikely to be unreasonably withheld or delayed, the
necessity of acquiring such approval could limit the number of potential
purchasers for those shares and otherwise limit the Trust Fund's ability to
sell and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in section 216(b)(2) of
the Internal Revenue Code of 1986, as amended (the "Code")), of a corporation
that qualifies as a "cooperative housing corporation" within the meaning of
section 216(b)(1) of the Code is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under section 216(a) of the Code to the corporation
under sections 163 and 164 of the Code. In order for a corporation to qualify
under Section 216(b)(1) of the Code for the taxable year in which such items
are allowable as a deduction to the corporation, such Section requires, among
other things, that at least 80% of the gross income of the corporation be
derived from its tenant-stockholders (as defined in section 216(b)(2) of the
Code). By virtue of this requirement, the status of a corporation for purposes
of section 216(b)(1) of the Code must be determined on a year-to-year basis.
Consequently, there can be no assurance that Cooperatives relating to the
Cooperative Loans will qualify under such section for any particular year. In
the event that such a Cooperative fails to qualify for one or more years, the
value of the collateral securing any related Cooperative Loans could be
significantly impaired because no deduction would be allowable to
tenant-stockholders under section 216(a) of the Code with respect to those
years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue
over a period of years appears remote.
Hazard Insurance
The Master Servicer will require the mortgagor or obligor on each Single
Family Loan, Multifamily Loan or Contract to maintain a hazard insurance
policy providing for no less than the coverage of the standard form of fire
insurance policy with extended coverage customary for the type of Mortgaged
Property in the state in which such Mortgaged Property is located. Such
coverage will be in an amount not less than the replacement value of the
improvements or Manufactured Home securing such Mortgage Loan or the principal
balance owing on such Mortgage Loan, whichever is less. All amounts collected
by the Master Servicer under any hazard policy (except for amounts to be
applied to the restoration or repair of the Mortgaged Property or released to
the mortgagor or obligor in accordance with the Master Servicer's normal
servicing procedures) will be deposited in the related Certificate Account. In
the event that the Master Servicer maintains a blanket policy insuring against
hazard losses on all the Mortgage Loans comprising part of a Trust Fund, it
will conclusively be deemed to have satisfied its obligation relating to the
maintenance of hazard insurance. Such blanket policy may contain a deductible
clause, in which case the Master Servicer will be required to deposit from its
own funds into the related Certificate Account the amounts which would have
been deposited therein but for such clause. Any additional insurance coverage
for Mortgaged Properties in a Mortgage Pool of Multifamily Loans will be
specified in the related Prospectus Supplement.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements or Manufactured Home
securing a Mortgage Loan by fire, lightning, explosion, smoke, windstorm and
hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Although the policies relating to
the Mortgage Loans may have been underwritten by different insurers under
different state laws in accordance with different applicable forms and
therefore may not contain identical terms and conditions, the basic terms
thereof are dictated by respective state laws, and most such policies
typically do not cover any physical damage resulting from the following: war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mud flows), nuclear reactions,
wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in
certain cases, vandalism. The foregoing list is merely indicative of certain
kinds of uninsured risks and is not intended to be all inclusive. If the
Mortgaged Property securing a Mortgage Loan is located in a federally
designated special flood area at the time of origination, the Master Servicer
will require the mortgagor or obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Mortgage
Loans typically contain a clause which in effect requires the insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the insured property in order to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage, then the insurer's liability in the event of partial
loss will not exceed the larger of (i) the actual cash value (generally
defined as replacement cost at the time and place of loss, less physical
depreciation) of the improvements damaged or destroyed or (ii) such proportion
of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements. Since the amount
of hazard insurance the Master Servicer may cause to be maintained on the
improvements securing the Mortgage Loans declines as the principal balances
owing thereon decrease, and since improved real estate generally has
appreciated in value over time in the past, the effect of this requirement in
the event of partial loss may be that hazard insurance proceeds will be
insufficient to restore fully the damaged property. If specified in the
related Prospectus Supplement, a special hazard insurance policy will be
obtained to insure against certain of the uninsured risks described above. See
"Credit Enhancement--Special Hazard Insurance Policies" herein.
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of damaged property, any damage to such borrower's cooperative
dwelling or such Cooperative's building could significantly reduce the value
of the collateral securing such Cooperative Loan to the extent not covered by
other credit support.
Realization upon Defaulted Mortgage Loans
Primary Mortgage Insurance Policies. The Master Servicer will maintain or
cause each Sub-Servicer to maintain, as the case may be, in full force and
effect, to the extent specified in the related Prospectus Supplement, a
Primary Mortgage Insurance Policy with regard to each Single Family Loan for
which such coverage is required. The Master Servicer will not cancel or refuse
to renew any such Primary Mortgage Insurance Policy in effect at the time of
the initial issuance of a Series of Certificates that is required to be kept
in force under the applicable Agreement unless the replacement Primary
Mortgage Insurance Policy for such cancelled or nonrenewed policy is
maintained with an insurer whose claims-paying ability is sufficient to
maintain the current rating of the classes of Certificates of such Series that
have been rated.
Although the terms and conditions of primary mortgage insurance vary, the
amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan will consist of the insured percentage of the unpaid
principal amount of the covered Mortgage Loan and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the insured (other than the proceeds of
hazard insurance) that are derived from or in any way related to the Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore the Mortgaged Property and which have not been applied to the payment
of the Mortgage Loan, (iii) amounts expended but not approved by the issuer of
the related Primary Mortgage Insurance Policy (the "Primary Insurer"), (iv)
claim payments previously made by the Primary Insurer and (v) unpaid premiums.
Primary Mortgage Insurance Policies reimburse certain losses sustained by
reason of defaults in payments by borrowers. Primary Mortgage Insurance
Policies will not insure against, and exclude from coverage, a loss sustained
by reason of a default arising from or involving certain matters, including
(i) fraud or negligence in origination or servicing of the Mortgage Loan,
including misrepresentation by the originator, borrower or other persons
involved in the origination of the Mortgage Loan, (ii) failure to construct
the Mortgaged Property subject to the Mortgage Loan in accordance with
specified plans, (iii) physical damage to the Mortgaged Property and (iv) lack
of approval by the Primary Insurer of the related Servicer as a servicer.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a Primary Mortgage
Insurance Policy covering a Mortgage Loan, the insured will be required to (i)
advance or discharge (a) all hazard insurance policy premiums and (b) as
necessary and approved in advance by the Primary Insurer, (1) real estate
property taxes, (2) all expenses required to maintain the related Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
Mortgaged Property sales expenses, (4) any outstanding liens (as defined in
such Primary Mortgage Insurance Policy) on the Mortgaged Property and (5)
foreclosure costs, including court costs and reasonable attorneys' fees; (ii)
in the event of any physical loss or damage to the Mortgaged Property, to have
the Mortgaged Property restored and repaired to at least as good a condition
as existed at the effective date of such Primary Mortgage Insurance Policy,
ordinary wear and tear excepted; and (iii) tender to the Primary Insurer good
and merchantable title to and possession of the Mortgaged Property.
In those cases in which a Single Family Loan is serviced by a
Sub-Servicer, the Sub-Servicer, on behalf of itself, the Trustee and
Certificateholders, will present claims to the Primary Insurer, and all
collections thereunder will be deposited in the Sub-Servicing Account. In all
other cases, the Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the insurer under each Primary
Mortgage Insurance Policy and will take such reasonable steps as are necessary
to receive payment or to permit recovery thereunder with respect to defaulted
Mortgage Loans. As set forth above, all collections by or on behalf of the
Master Servicer under any Primary Mortgage Insurance Policy and, when the
Mortgaged Property has not been restored, the hazard insurance policy are to
be deposited in the Certificate Account, subject to withdrawal as heretofore
described.
If the Mortgaged Property securing a defaulted Mortgage Loan is damaged
and proceeds, if any, from the related hazard insurance policy are
insufficient to restore the damaged Mortgaged Property to a condition
sufficient to permit recovery under the related Primary Mortgage Insurance
Policy, if any, the Master Servicer is not required to expend its own funds to
restore the damaged Mortgaged Property unless it determines (i) that such
restoration will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan after reimbursement of the Master Servicer for its expenses
and (ii) that such expenses will be recoverable by it from related Insurance
Proceeds or Liquidation Proceeds.
If recovery on a defaulted Mortgage Loan under any related Primary
Mortgage Insurance Policy is not available for the reasons set forth in the
preceding paragraph, or if the defaulted Mortgage Loan is not covered by a
Primary Mortgage Insurance Policy, the Master Servicer will be obligated to
follow or cause to be followed such normal practices and procedures as it
deems necessary or advisable to realize upon the defaulted Mortgage Loan. If
the proceeds of any liquidation of the Mortgaged Property securing the
defaulted Mortgage Loan are less than the principal balance of such Mortgage
Loan plus interest accrued thereon that is payable to Certificateholders, the
Trust Fund will realize a loss in the amount of such difference plus the
aggregate of expenses incurred by the Master Servicer in connection with such
proceedings which are reimbursable under the Agreement. In the unlikely event
that any such proceedings result in a total recovery which is, after
reimbursement to the Master Servicer of its expenses, in excess of the
principal balance of such Mortgage Loan plus interest accrued thereon that is
payable to Certificateholders, the Master Servicer will be entitled to
withdraw or retain from the Certificate Account amounts representing its
normal servicing compensation with respect to such Mortgage Loan and, unless
otherwise specified in the related Prospectus Supplement, amounts representing
the balance of such excess, exclusive of any amount required by law to be
forwarded to the related mortgagor, as additional servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of
such Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
compensation with respect to such Mortgage Loan. In the event that the Master
Servicer has expended its own funds to restore the damaged Mortgaged Property
and such funds have not been reimbursed under the related hazard insurance
policy, it will be entitled to withdraw from the Certificate Account out of
related Liquidation Proceeds or Insurance Proceeds an amount equal to such
expenses incurred by it, in which event the Trust Fund may realize a loss up
to the amount so charged. Since Insurance Proceeds cannot exceed deficiency
claims and certain expenses incurred by the Master Servicer, no such payment
or recovery will result in a recovery to the Trust Fund which exceeds the
principal balance of the defaulted Mortgage Loan together with accrued
interest thereon. See "Credit Enhancement" herein.
Servicing and Other Compensation and Payment of Expenses
The Master Servicer's primary servicing compensation with respect to a
Series of Certificates will come from the monthly payment to it, out of each
interest payment on a Mortgage Loan, of an amount equal to the percentage per
annum specified in the related Prospectus Supplement of the outstanding
principal balance thereof. Since the Master Servicer's primary compensation is
a percentage of the outstanding principal balance of each Mortgage Loan, such
amounts will decrease as the Mortgage Loans amortize. In addition to primary
compensation, the Master Servicer or the Sub-Servicers will be entitled to
retain all assumption fees and late payment charges, to the extent collected
from Mortgagors, and, if so provided in the related Prospectus Supplement, any
prepayment penalties and any interest or other income which may be earned on
funds held in the Certificate Account or any Sub-Servicing Account. Unless
otherwise specified in the related Prospectus Supplement, any Sub-Servicer
will receive a portion of the Master Servicer's primary compensation as its
sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, the Master Servicer
will, unless otherwise specified in the related Prospectus Supplement, pay
from its servicing compensation certain expenses incurred in connection with
its servicing of the Mortgage Loans, including, without limitation, payment of
any premium for any insurance policy, guaranty, surety or other form of credit
enhancement as specified in the related Prospectus Supplement, payment of the
fees and disbursements of the Trustee and independent accountants, payment of
expenses incurred in connection with distributions and reports to
Certificateholders and payment of any other expenses described in the related
Prospectus Supplement.
Evidence as to Compliance
Each Agreement will provide that, on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Audit Program
for Mortgage Bankers or the Audit Program for Mortgages serviced for Freddie
Mac, the servicing by or on behalf of the Master Servicer of mortgage loans,
private mortgage-backed securities or agency securities, under pooling and
servicing agreements substantially similar to each other (including the
related Agreement), was conducted in compliance with such agreements except
for any significant exceptions or errors in records that, in the opinion of
the firm, the Audit Program for Mortgages serviced for Freddie Mac or the
Uniform Single Audit Program for Mortgage Bankers requires it to report. In
rendering its statement such firm may rely, as to matters relating to the
direct servicing of mortgage loans, private mortgage-backed securities or
agency securities by Sub-Servicers, upon comparable statements for
examinations conducted substantially in compliance with the Uniform Single
Audit Program for Mortgage Bankers or the Audit Program for Mortgages serviced
for Freddie Mac (rendered within one year of such statement) of firms of
independent public accountants with respect to the Sub-Servicers.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the Master Servicer may be obtained by Certificateholders of the related
Series without charge upon written request to the Master Servicer at the
address set forth in the related Prospectus Supplement.
Certain Matters Regarding the Master Servicer and the Depositor
The Master Servicer under each Agreement will be named in the related
Prospectus Supplement. The entity serving as Master Servicer may have normal
business relationships with the Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign from
its obligations and duties under the Agreement except upon a determination
that its duties thereunder are no longer permissible under applicable law. No
such resignation will become effective until the Trustee or a successor
servicer has assumed the Master Servicer's obligations and duties under the
Agreement.
Each Agreement will further provide that none of the Master Servicer, the
Depositor or any director, officer, employee or agent of the Master Servicer
or of the Depositor will be under any liability to the related Trust Fund or
the Certificateholders for any action taken or for refraining from the taking
of any action in good faith pursuant to the Agreement, or for errors in
judgment; provided, however, that none of the Master Servicer, the Depositor
any such person will be protected against any liability which would otherwise
be imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each Agreement will further provide that
the Master Servicer, the Depositor and any director, officer, employee or
agent of the Master Servicer or of the Depositor will be entitled to
indemnification by the related Trust Fund and will be held harmless against
any loss, liability or expense incurred in connection with any legal action
relating to the Agreement or the Certificates, other than any loss, liability
or expense related to any specific Mortgage Loan or the Mortgage Loans (except
any such loss, liability or expense otherwise reimbursable pursuant to the
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of duties thereunder
or by reason of reckless disregard of obligations and duties thereunder. In
addition, each Agreement will provide that neither the Master Servicer nor the
Depositor will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective responsibilities under
the Agreement and which in its opinion may involve it in any expense or
liability. The Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the
legal expenses and costs of such action and any liability resulting therefrom
will be expenses, costs and liabilities of the Trust Fund and the Master
Servicer or the Depositor, as the case may be, will be entitled to be
reimbursed therefor out of funds otherwise distributable to
Certificateholders.
Any person into which the Master Servicer may be merged or consolidated,
or any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under each Agreement,
provided that such person is qualified to sell mortgage loans to, and service
mortgage loans on behalf of, Fannie Mae or Freddie Mac and further provided
that such merger, consolidation or succession does not adversely affect the
then current rating or ratings of the class or classes of Certificates of such
Series that have been rated.
Events of Default
Unless otherwise specified in the related Prospectus Supplement, Events
of Default (each, an "Event of Default") under each Agreement will consist of
(i) any failure by the Master Servicer to distribute or cause to be
distributed to Certificateholders of any class any required payment (other
than an Advance) which continues unremedied for five business days after the
giving of written notice of such failure to the Master Servicer by the Trustee
or the Depositor, or to the Master Servicer, the Depositor and the Trustee by
the holders of Certificates of such class evidencing not less than 25% of the
aggregate percentage interests evidenced by such class; (ii) any failure by
the Master Servicer to make an Advance as required under the Agreement, unless
cured as specified therein; (iii) any failure by the Master Servicer duly to
observe or perform in any material respect any of its other covenants or
agreements in the Agreement which continues unremedied for 30 days after the
giving of written notice of such failure to the Master Servicer by the Trustee
or the Depositor, or to the Master Servicer, the Depositor and the Trustee by
the holders of Certificates of any class evidencing not less than 25% of the
aggregate percentage interests constituting such class; and (iv) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceeding and certain actions by or on behalf of the
Master Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Mortgage Assets and the other assets of the
Trust Fund in the event that payments in respect thereto are insufficient to
make payments required in the Agreement. The assets of the Trust Fund will be
sold only under the circumstances and in the manner specified in the related
Prospectus Supplement.
Rights upon Event of Default
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and, at the direction of holders of Certificates
of any class evidencing not less than 51% of the aggregate percentage
interests constituting such class and under such other circumstances as may be
specified in such Agreement, the Trustee shall, terminate all of the rights
and obligations of the Master Servicer under the Agreement relating to such
Trust Fund and in and to the Mortgage Loans, whereupon the Trustee will
succeed to all of the responsibilities, duties and liabilities of the Master
Servicer under the Agreement, including, if specified in the related
Prospectus Supplement, the obligation to make advances, and will be entitled
to similar compensation arrangements. In the event that the Trustee is
unwilling or unable so to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a mortgage loan servicing
institution with a net worth of at least $10,000,000 to act as successor to
the Master Servicer under the Agreement. Pending such appointment, the Trustee
is obligated to act in such capacity. The Trustee and any such successor may
agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation payable to the Master Servicer under the
Agreement.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless (i) such holder previously
has given to the Trustee written notice of default, (ii) the holders of
Certificates of any class of such Series evidencing not less than 25% of the
aggregate percentage interests constituting such class have made written
request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity, and
(iii) the Trustee for 60 days has neglected or refused to institute any such
proceeding.
Amendment
Unless otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the
Trustee, without the consent of any of the Certificateholders, (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein or (iii) to make
any other revisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions thereof; provided,
however, that such action will not adversely affect in any material respect
the interests of any Certificateholder. In addition, to the extent provided in
the related Agreement, an Agreement may be amended without the consent of any
of the Certificateholders to change the manner in which the Certificate
Account is maintained, provided, however, that any such change does not
adversely affect the then current rating on the class or classes of
Certificates of such Series that have been rated. In addition, if a REMIC
election is made with respect to a Trust Fund, the related Agreement may be
amended to modify, eliminate or add to any of its provisions to such extent as
may be necessary to maintain the qualification of the related Trust Fund as a
REMIC, provided, however, that the Trustee has received an opinion of counsel
to the effect that such action is necessary or helpful to maintain such
qualification. Unless otherwise specified in the related Prospectus
Supplement, each Agreement may also be amended by the Depositor, the Master
Servicer and the Trustee with consent of holders of Certificates of such
Series evidencing not less than 66% of the aggregate percentage interests of
each class affected thereby for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of the Agreement
or of modifying in any manner the rights of the holders of the related
Certificates; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the holder of such Certificate or (ii) reduce the aforesaid
percentage of Certificates of any class the holders of which are required to
consent to any such amendment without the consent of the holders of all
Certificates of such class covered by such Agreement then outstanding. If a
REMIC election is made with respect to a Trust Fund, the Trustee will not be
entitled to consent to an amendment to the related Agreement without having
first received an opinion of counsel to the effect that such amendment will
not cause such Trust Fund to fail to qualify as a REMIC.
Termination; Optional Termination
Unless otherwise specified in the related Agreement, the obligations
created by each Agreement for each Series of Certificates will terminate upon
the payment to the related Certificateholders of all amounts held in the
Certificate Account or by the Master Servicer and required to be paid to them
pursuant to such Agreement following the later of (i) the final payment or
other liquidation of the last of the Mortgage Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Mortgage
Assets remaining in the Trust Fund and (ii) the purchase from the related
Trust Fund by the Master Servicer or, if REMIC treatment has been elected and
if specified in the related Prospectus Supplement, by the holder of the
residual interest in the REMIC (see "Certain Federal Income Tax
Consequences"), of all of the remaining Mortgage Assets and all property
acquired in respect of such Mortgage Assets.
Unless otherwise specified in the related Prospectus Supplement, any such
purchase of Mortgage Assets and property acquired in respect of Mortgage
Assets evidenced by a Series of Certificates will be made at the option of the
Master Servicer or, if applicable, such holder of the REMIC residual interest,
at a price, and in accordance with the procedures, specified in the related
Prospectus Supplement. The exercise of such right will effect early retirement
of the Certificates of that Series, but the right of the Master Servicer or,
if applicable, such holder of the REMIC residual interest, to so purchase is
subject to the aggregate principal balance of the related Mortgage Assets as
of such date being less than the percentage specified in the related
Prospectus Supplement of the aggregate principal balances of the Mortgage
Assets as of the Cut-off Date for the Series; provided, however, that, if a
REMIC election is made with respect to a Trust Fund, any repurchase pursuant
to clause (ii) above will be made only in connection with a "qualified
liquidation" of the REMIC within the meaning of Section 860F(g)(4) of the
Code.
The Trustee
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as Trustee
may have normal banking relationships with the Depositor, the Master Servicer
and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Mortgage Loans. Because such legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete or to reflect the
laws of any particular state or to encompass the laws of all states in which
security for the Mortgage Loans may be situated. The summaries are qualified
in their entirety by reference to the appropriate laws of the states in which
Mortgage Loans may be originated.
General
Single Family Loans and Multifamily Loans. The Single Family Loans and
Multifamily Loans will be secured by deeds of trust, mortgages, security deeds
or deeds to secure debt, depending upon the prevailing practice in the state
in which the property subject to the loan is located. A mortgage creates a
lien upon the real property encumbered by the mortgage, which lien is
generally not prior to the lien for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally on the order
of recording with a state or county office. There are two parties to a
mortgage: the mortgagor, who is the borrower and owner of the mortgaged
property, and the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a note or bond and the mortgage.
Although a deed of trust is similar to a mortgage, a deed of trust formally
has three parties: the borrower-property owner called the trustor (similar to
a mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. A
security deed and a deed to secure debt are special types of deeds which
indicate on their face that they are granted to secure an underlying debt. By
executing a security deed or deed to secure debt, the grantor conveys to the
grantee title to, as opposed to merely creating a lien upon, the subject
property until such time as the underlying debt is repaid. The trustee's
authority under a deed of trust, the mortgagee's authority under a mortgage
and the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of
the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans. The
Cooperative owns all the real property that comprises the related project,
including the land, separate dwelling units and all common areas. The
Cooperative is directly responsible for project management and, in most cases,
payment of real estate taxes and hazard and liability insurance. If, as is
generally the case, there is a blanket mortgage on the Cooperative and/or
underlying land, the Cooperative, as project mortgagor, is also responsible
for meeting these mortgage obligations. A blanket mortgage is ordinarily
incurred by the Cooperative in connection with the construction or purchase of
the Cooperative's apartment building. The interest of the occupant under
proprietary leases or occupancy agreements to which the Cooperative is a party
are generally subordinate to the interest of the holder of the blanket
mortgage in that building. If the Cooperative is unable to meet the payment
obligations arising under its blanket mortgage, the mortgagee holding the
blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements. In addition, the
blanket mortgage on a Cooperative may provide financing in the form of a
mortgage that does not fully amortize with a significant portion of principal
being due in one lump sum at final maturity. The inability of the Cooperative
to refinance this mortgage and its consequent inability to make such final
payment could lead to foreclosure by the mortgagee providing the financing. A
foreclosure in either event by the holder of the blanket mortgage could
eliminate or significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual tenant-stockholder of
Cooperative shares or, in the case of a Trust Fund including Cooperative
Loans, the collateral securing the Cooperative Loans.
A Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a Cooperative must
make a monthly payment to the Cooperative representing such
tenant-stockholder's pro rata share of the Cooperative's payments for its
blanket mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. An ownership interest in a Cooperative and the
accompanying rights are financed through a Cooperative share loan evidenced by
a promissory note and secured by a security interest in the occupancy
agreement or proprietary lease and in the related Cooperative shares. The
lender takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering
the proprietary lease or occupancy agreement and the Cooperative shares is
filed in the appropriate state and local offices to perfect the lender's
interest in its collateral. Subject to the limitations discussed below, upon
default of the tenant-stockholder, the lender may sue for judgment on the
promissory note, dispose of the collateral at a public or private sale or
otherwise proceed against the collateral or against the tenant-stockholder as
an individual as provided in the security agreement covering the assignment of
the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
Contracts. Each Contract evidences both (a) the obligation of the obligor
to repay the loan evidenced thereby and (b) the grant of a security interest
in the Manufactured Home to secure repayment of such loan. The Contracts
generally are "chattel paper" as defined in the Uniform Commercial Code (the
"UCC") in effect in the states in which the Manufactured Homes initially were
registered. Pursuant to the UCC, the rules governing the sale of chattel paper
are similar to those governing the perfection of a security interest in
chattel paper. Under the Agreement, the Depositor will transfer or cause the
transfer of physical possession of the Contracts to the Trustee or its
custodian. In addition the Depositor will make or cause to be made an
appropriate filing of UCC-1 financing statements in the appropriate states to
give notice of the Trustee's ownership of the Contracts. Under the laws of
most states, manufactured housing constitutes personal property and is subject
to the motor vehicle registration laws of the state or other jurisdiction in
which the unit is located. In a few states, where certificates of title are
not required for Manufactured Homes, security interests are perfected by the
filing of a financing statement under Article 9 of the UCC which has been
adopted by all states except Louisiana. Such financing statements are
effective for five years and must be renewed at the end of each five years.
The certificate of title laws adopted by the majority of states provide that
ownership of motor vehicles and manufactured housing shall be evidenced by a
certificate of title issued by the motor vehicles department (or a similar
entity) of such state. In the states which have enacted certificate of title
laws, a security interest in a unit of manufactured housing, so long as it is
not attached to land in so permanent a fashion as to become a fixture, is
generally perfected by the recording of such interest on the certificate of
title to the unit in the appropriate motor vehicle registration office or by
delivery of the required documents and payment of a fee to such office,
depending on state law.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will be required to effect such notation or delivery of the
required documents and fees and to obtain possession of the certificate of
title, as appropriate under the laws of the state in which any Manufactured
Home is registered. If the Master Servicer fails to effect such notation or
delivery, due to clerical errors or otherwise, or files the security interest
under the wrong law (for example, under a motor vehicle title statute rather
than under the UCC, in a few states), the Trustee may not have a first
priority security interest in the Manufactured Home securing the affected
Contract. As Manufactured Homes have become larger and have often been
attached to their sites without any apparent intention to move them, courts in
many states have held that Manufactured Homes may, under certain
circumstances, become subject to real estate title and recording laws. As a
result, a security interest in a Manufactured Home could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security
interest in a Manufactured Home under real estate laws, the holder of the
security interest must file either a "fixture filing" under the provisions of
the UCC or a real estate mortgage under the real estate laws of the state
where the Manufactured Home is located. These filings must be made in the real
estate records office of the county where the Manufactured Home is located.
Generally, Contracts will contain provisions prohibiting the obligor from
permanently attaching the Manufactured Home to its site. So long as the
obligor does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the
UCC, and the notation of the security interest on the certificate of title or
the filing of a UCC financing statement will be effective to maintain the
priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the Manufactured Home which is prior to the security
interest originally retained by the Seller and transferred to the Depositor.
The Depositor will assign or cause to be assigned to the Trustee, on
behalf of the Certificateholders, a security interest in the Manufactured
Homes. Unless otherwise specified in the related Prospectus Supplement, none
of the Depositor, the Master Servicer or the Trustee will amend the
certificates of title to identify the Trustee, on behalf of the
Certificateholders, as the new secured party and, accordingly, the Depositor
or the Seller will continue to be named as the secured party on the
certificates of title relating to the Manufactured Homes. In most states, such
assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificate of title and the new
secured party succeeds to the Depositor's rights as the secured party.
However, in some states there exists a risk that, in the absence of an
amendment to the certificate of title, such assignment of the security
interest might not be held effective against creditors of the Depositor or
Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or
administrative error by state recording officials, the notation of the lien of
the Trustee on the certificate of title or delivery of the required documents
and fees will be sufficient to protect the Trustee against the rights of
subsequent purchasers of a Manufactured Home or subsequent lenders who take a
security interest in the Manufactured Home. In the case of any Manufactured
Home as to which the security interest assigned to the Depositor and the
Trustee is not perfected, such security interest would be subordinate to,
among others, subsequent purchasers for value of Manufactured Home and holders
of perfected security interests therein. There also exists a risk that, in not
identifying the Trustee, on behalf of the Certificateholders, as the new
secured party on the certificate of title, the security interest of the
Trustee could be released through fraud or negligence.
If the owner of a Manufactured Home moves it to a state other than the
state in which such Manufactured Home initially is registered, under the laws
of most states the perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter until the owner
re-registers the Manufactured Home in such state. If the owner were to
relocate a Manufactured Home to another state and re-register the Manufactured
Home in such state, and if steps are not taken to re-perfect the Trustee's
security interest in such state, the security interest in the Manufactured
Home would cease to be perfected. A majority of states generally require
surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Trustee must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states which provide for notation of lien, the Master Servicer
would receive notice of surrender if the security interest in the Manufactured
Home is noted on the certificate of title. Accordingly, the Trustee would have
the opportunity to re-perfect its security interest in the Manufactured Home
in the state of relocation. In states which do not require a certificate of
title for registration of a Manufactured Home, re-registration could defeat
perfection. Similarly, when an obligor under Contract sells a Manufactured
Home, the obligee must surrender possession of the certificate of title or it
will receive notice as a result of its lien noted thereon and accordingly will
have an opportunity to require satisfaction of the related Contract before
release of the lien. The Master Servicer will be obligated to take such steps,
at the Master Servicer's expense, as are necessary to maintain perfection of
security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will obtain the representation of the Seller that it has no
knowledge of any such liens with respect to any Manufactured Home securing a
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises.
Foreclosure/Repossession
Single Family Loans and Multifamily Loans. Foreclosure of a deed of trust
is generally accomplished by a non-judicial sale under a specific provision in
the deed of trust which authorizes the trustee to sell the property at public
auction upon any default by the borrower under the terms of the note or deed
of trust. In some states, such as California, the trustee must record a notice
of default and send a copy to the borrower-trustor, to any person who has
recorded a request for a copy of any notice of default and notice of sale, to
any successor in interest to the borrower-trustor, to the beneficiary of any
junior deed of trust and to certain other persons. Before such non-judicial
sale takes place, typically a notice of sale must be posted in a public place
and published during a specific period of time in one or more newspapers,
posted on the property and sent to parties having an interest of record in the
property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of
the parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to
conduct the sale of the property. In general, the borrower, or any other
person having a junior encumbrance on the real estate, may, during a
statutorily prescribed reinstatement period, cure a monetary default by paying
the entire amount in arrears plus other designated costs and expenses incurred
in enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, which may be
recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the deed of trust is not reinstated, a notice
of sale must be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest in the real property.
Although foreclosure sales are typically public sales, frequently no
third-party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and
a requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the
trustee or referee for an amount equal to the principal amount outstanding
under the loan plus accrued and unpaid interest and the expenses of
foreclosure. Thereafter, the lender will assume the burden of ownership,
including obtaining hazard insurance and making such repairs at its own
expense as are necessary to render the property suitable for sale. The lender
will commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal
the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of
the borrower's defaults under the loan documents. Some courts have been faced
with the issue of whether federal or state constitutional provisions
reflecting due process concerns for fair notice require that borrowers under
deeds of trust receive notice longer than that prescribed by statute. For the
most part, these cases have upheld the notice provisions as being reasonable
or have found that the sale by a trustee under a deed of trust does not
involve sufficient state action to afford constitutional protection to the
borrower.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's articles of incorporation and
by-laws, as well as in the proprietary lease or occupancy agreement, and may
be cancelled by the Cooperative if the tenant-stockholder fails to pay rent or
other obligations or charges owed, including mechanics' liens against the
cooperative apartment building incurred by such tenant-stockholder. The
proprietary lease or occupancy agreement generally permits the Cooperative to
terminate such lease or agreement in the event an obligor fails to make
payments or defaults in the performance of covenants required thereunder.
Typically, the lender and the Cooperative enter into a recognition agreement
which establishes the rights and obligations of both parties in the event of a
default by the tenant-stockholder on its obligations under the proprietary
lease or occupancy agreement. A default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default
under the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides, that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such
proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the Cooperative Loan and accrued and
unpaid interest thereon.
Recognition agreements also provide that, in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, lenders are
not limited in any rights they may have to dispossess tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by
a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires
that a sale be conducted in a "commercially reasonable" manner. Whether a
foreclosure sale has been conducted in a "commercially reasonable" manner will
depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to
the usual practice of banks selling similar collateral will be considered
reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy
the indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the Cooperative to receive sums due
under the proprietary lease or occupancy agreement. If there are proceeds
remaining, the lender must account to the tenant-stockholder for the surplus.
Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency. See
"--Anti-Deficiency Legislation and Other Limitations on Lenders" below.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction
plan, some states require that a purchaser at a foreclosure sale take the
property subject to rent control and rent stabilization laws which apply to
certain tenants who elected to remain in the building but who did not purchase
shares in the Cooperative when the building was so converted.
Contracts. The Master Servicer, on behalf of the Trustee, to the extent
required by the related agreement, may take action to enforce the Trustee's
security interest with respect to Contracts in default by repossession and
resale of the Manufactured Homes securing such Contracts in default. So long
as a Manufactured Home has not become subject to the real estate law, a
creditor can repossess the Manufactured Home securing a Contract by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e., without
breach of the peace) or, in the absence of voluntary surrender and the ability
to repossess without breach of the peace, by judicial process. The holder of a
Contract must give the debtor a number of days' notice, which varies from ten
to 30 days depending on the state, prior to commencement of any repossession.
The UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states
also requires that the debtor be given notice of any sale prior to resale of
the unit so that the debtor may redeem at or before such resale. In the event
of such repossession and resale of a Manufactured Home, the Trustee would be
entitled to be paid out of the sale proceeds before such proceeds could be
applied to the payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the Manufactured Home securing such a debtor's loan. However,
some states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Environmental Risks
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to assure
the payment of the costs of clean-up. In several states such a lien has
priority over the lien of an existing mortgage against such property. In
addition, under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), the United States Environmental
Protection Agency ("EPA") may impose a lien on property where EPA has incurred
clean-up costs. However, a CERCLA lien is subordinate to pre-existing,
perfected security interests.
Under the laws of some states, and under CERCLA, there is a possibility
that a lender may be held liable as an "owner" or "operator" for costs of
addressing releases or threatened releases of hazardous substances at a
property, regardless of whether or not the environmental damage or threat was
caused by a current or prior owner or operator. CERCLA imposes liability for
such costs on any and all "responsible parties," including owners or
operators. However, CERCLA excludes from the definition of "owner or operator"
a secured creditor who holds indicia of ownership primarily to protect its
security interest but does not "participate in the management" of the property
(the "secured creditor exclusion"). Thus, if a lender's activities begin to
encroach on the actual management of a contaminated facility or property, the
lender may incur liability as an "owner or operator" under CERCLA. Similarly,
if a lender forecloses and takes title to a contaminated facility or property,
the lender may incur CERCLA liability in various circumstances, including, but
not limited to, when it holds the facility or property as an investment
(including leasing the facility or property to a third party), or fails to
market the property in a timely fashion.
Whether actions taken by a lender would constitute such participation in
the management of a property, so that the lender would lose the protection of
the secured creditor exclusion, has been a matter of judicial interpretation
of the statutory language, and court decisions have historically been
inconsistent. In 1990, the United States Court of Appeals for the Eleventh
Circuit suggested, in United States v. Fleet Factors Corp., that the mere
capacity of the lender to influence a borrower's decisions regarding disposal
of hazardous substances was sufficient participation in the management of the
borrower's business to deny the protection of the secured creditor exclusion
to the lender, regardless of whether the lender actually exercised such
influence. Other judicial decisions did not interpret the secured creditor
exclusion as narrowly as did the Eleventh Circuit.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liability and Deposit Insurance Protection Act of
1996 (the "Asset Conservation Act"), which took effect on September 30, 1996.
The Asset Conservation Act provides that in order to be deemed to have
participated in the management of a secured property, a lender must actually
participate in the operational affairs of the property or of the borrower. The
Asset Conservation Act also provides that participation in the management of
the property does not include "merely having the capacity to influence, or
unexercised right to control" operations. Rather, a lender will lose the
protection of the secured creditor exclusion only if it exercises
decision-making control over the borrower's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of all operational functions of the secured property.
If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or
operator, who crated the environmental hazard, but those persons or entities
may be bankrupt or otherwise judgment proof. The costs associated with
environmental cleanup may be substantial. It is conceivable that such costs
arising from the circumstances set forth above would result in a loss to
Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder
of a security interest in an underground storage tank or real property
containing an underground storage tank is not considered an operator of the
underground storage tank as long as petroleum is not added to, stored in or
dispensed from the tank. Moreover, under the Asset Conservation Act, the
protections accorded to lenders under CERCLA are also accorded to holders of
security interests in underground petroleum storage tanks. It should be noted,
however, that liability for cleanup of petroleum contamination may be governed
by state law, which may not provide for any specific protection for secured
creditors.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment or a
very limited environment assessment of the Mortgage Properties was conducted.
The Agreement will provide that the Master Servicer, acting on behalf of
the Trust Fund, may not acquire title to a multifamily residential property or
mixed residential/commercial property underlying a Mortgage Loan or take over
its operation unless the Master Servicer has previously determined, based upon
a report prepared by a person who regularly conducts environmental audits,
that the Mortgaged Property is in compliance with applicable environmental
laws and regulations or that such acquisition would not be more detrimental
than beneficial to the value of the Mortgaged Properties and the interests
therein of the Certificateholders.
Rights of Redemption
Single Family Loans and Multifamily Loans. In some states, after sale
pursuant to a deed of trust or foreclosure of a mortgage, the borrower and
foreclosed junior lienors are given a statutory period in which to redeem the
property from the foreclosure sale. In some states, redemption may occur only
upon payment of the entire principal balance of the loan plus accrued interest
and expenses of foreclosure. In other states, redemption may be authorized if
the former borrower pays only a portion of the sums due. The effect of a
statutory right of redemption would defeat the title of any purchaser from the
lender subsequent to foreclosure or sale under a deed of trust. Consequently,
the practical effect of the redemption right is to force the lender to retain
the property and pay the expenses of ownership until the redemption period has
run.
Contracts. While state laws do not usually require notice to be given
debtors prior to repossession, many states do require delivery of a notice of
default and of the debtor's right to cure defaults before repossession. The
law in most states also requires that the debtor be given notice of sale prior
to the resale of a Manufacture Home so that the owner may redeem at or before
resale. In addition, the sale must comply with the requirements of the UCC.
Manufactured Homes are most often resold through private sale.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states, including California, have adopted statutory prohibitions
restricting the right of the beneficiary or mortgagee to obtain a deficiency
judgment against borrowers financing the purchase of their residence or
following sale under a deed of trust or certain other foreclosure proceedings.
A deficiency judgment is a personal judgment against the borrower equal in
most cases to the difference between the amount due to the lender and the fair
market value of the real property sold at the foreclosure sale. As a result of
these prohibitions, it is anticipated that in many instances the Master
Servicer will not seek deficiency judgments against defaulting mortgagors.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment for any deficiency following possession and resale of a
Manufactured Home. However, some states impose prohibitions or limitations on
deficiency judgments in such cases.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the Bankruptcy Code, the
federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon its security. For example, in a
proceeding under the Bankruptcy Code, a lender may not foreclose on the
Mortgaged Property without the permission of the bankruptcy court. If the
Mortgaged Property is not the debtor's principal residence and the bankruptcy
court determines that the value of the Mortgaged Property is less than the
principal balance of the mortgage loan, the rehabilitation plan proposed by
the debtor may reduce the secured indebtedness to the value of the Mortgaged
Property as of the date of the commencement of the bankruptcy (rendering the
lender a general unsecured creditor for the difference), reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter
the mortgage loan repayment schedule. The effect of any such proceedings under
the Bankruptcy Code, including but not limited to any automatic stay, could
result in delays in receiving payments on the Mortgage Loans underlying a
Series of Certificates and possible reductions in the aggregate amount of such
payments.
The federal tax laws provide priority to certain tax liens over the lien
of a mortgage or secured party. Numerous federal and state consumer protection
laws impose substantive requirements upon mortgage lenders and manufactured
housing lenders in connection with the origination, servicing and enforcement
of Single Family Loans and Contracts. These laws include the federal Truth in
Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity
Act, Fair Credit Billing Act, Fair Credit Reporting Act and related statutes
and regulations. These federal and state laws impose specific statutory
liabilities upon lenders who fail to comply with the provisions of the law. In
some cases, this liability may affect assignees of the loans or contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting a seller (and certain related
creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the Contract, and the
holder of the Contract may also be unable to collect amounts still due
thereunder.
Most of the Contracts in a Mortgage Pool will be subject to the
requirements of the FTC Rule. Accordingly, the Trustee, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related Manufactured Home may assert against the seller of the Manufactured
Home, subject to a maximum liability equal to the amounts paid by the obligor
on the Contract. If an obligor is successful in asserting any such claim or
defense, and if the Seller had or should have had knowledge of such claim or
defense, the Master Servicer will have the right to require the Seller to
repurchase the Contract because of a breach of its representation and warranty
that no claims or defenses exist which would affect the obligor's obligation
to make the required payments under the Contract.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted Section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
Due-on-Sale Clauses
Unless otherwise provided in the related Prospectus Supplement, each
conventional Mortgage Loan will contain a due-on-sale clause which will
generally provide that, if the mortgagor or obligor sells, transfers or
conveys the Mortgaged Property, the loan or contract may be accelerated by the
mortgagee or secured party. The Garn-St Germain Depository Institutions Act of
1982 (the "Garn-St Germain Act"), subject to certain exceptions, pre-empts
state constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. With respect to loans secured by an owner-occupied
residence (which would include a Manufactured Home), the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Act may
not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Mortgaged Property to
an uncreditworthy person, which could increase the likelihood of default or
may result in a mortgage bearing an interest rate below the current market
rate being assumed by a new home buyer, which may affect the average life of
the Mortgage Loans and the number of Mortgage Loans which may extend to
maturity.
Prepayment Charges
Under certain state laws, prepayment charges with respect to prepayments
on loans secured by liens encumbering owner-occupied residential properties
may not be imposed after a certain period of time following the origination of
Single Family Loans or Contracts. Since many of the Mortgaged Properties will
be owner-occupied, it is anticipated that prepayment charges may not be
imposed with respect to many of the Single Family Loans and Contracts. The
absence of such a restraint on prepayment, particularly with respect to fixed
rate Single Family Loans or Contracts having higher Mortgage Rates or APRs,
may increase the likelihood of refinancing or other early retirement of such
Loans or Contracts. Legal restrictions, if any, on prepayment of Multifamily
Loans will be described in the related Prospectus Supplement.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply
to certain types of residential first mortgage loans originated by certain
lenders after March 31, 1980. The Office of Thrift Supervision, as successor
to the Federal Home Loan Bank Board, is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title
V. The statute authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized to adopt a
provision limiting discount points or other charges on loans covered by Title
V. No Contract secured by a Manufactured Home located in any state in which
application of Title V was expressly rejected or a provision limiting discount
points or other charges has been adopted will be included in any Trust File if
such Contract imposes finance charges or provides for discount points or
charges in excess of permitted levels.
Title V also provides that, subject to the following conditions, state
usury limitations will not apply to any loan which is secured by a first lien
on certain kinds of manufactured housing. The Contracts would be covered if
they satisfy certain conditions governing, among other things, the terms of
any prepayment, balloon payment, late charges and deferral fees and requiring
a 30-day notice period prior to instituting any action leading to repossession
of or foreclosure with respect to the related unit.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Mortgage Loan (including a borrower
who is a member of the National Guard or is in reserve status at the time of
the origination of the Mortgage Loan and is later called to active duty) may
not be charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such interest rate limitation
could have an effect, for an indeterminate period of time, on the ability of
the Master Servicer to collect full amounts of interest on affected Mortgage
Loans. Unless otherwise provided in the related Prospectus Supplement, any
shortfall in interest collections resulting from the application of the Relief
Act could result in losses to the holders of the Certificates. In addition,
the Relief Act imposes limitations which would impair the ability of the
Master Servicer to foreclose on an affected Mortgage Loan during the
borrower's period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the lender's inability to realize upon the mortgaged property in a timely
fashion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Certificates is
based on the advice of Brown & Wood llp, counsel to the Depositor. This
summary is based on laws, regulations, including the REMIC regulations
promulgated by the Treasury Department on December 23, 1992 and generally
effective for REMICs with start-up dates on or after November 12, 1991 (the
"REMIC Regulations"), rulings and decisions now in effect or (with respect to
regulations) proposed, all of which are subject to change either prospectively
or retroactively. This summary does not address the federal income tax
consequences of an investment in Certificates applicable to all categories of
investors, some of which (for example, banks and insurance companies) may be
subject to special rules. Prospective investors should consult their tax
advisors regarding the federal, state, local and any other tax consequences to
them of the purchase, ownership and disposition of Certificates.
General
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC
election will be made. In the discussion that follows, all references to a
"Section" or "Sections" shall be understood to refer, unless otherwise
specifically indicated, to a Section or Sections of the Code.
Non-REMIC Certificates
If a REMIC election is not made, Brown & Wood llp will deliver its
opinion that the Trust Fund will not be classified as an association taxable
as a corporation and that each such Trust Fund will be classified as a grantor
trust under subpart E, part I of subchapter J of the Code. In this case,
owners of Certificates will be treated for federal income tax purposes as
owners of a portion of the Trust Fund's assets as described below.
Single Class of Senior Certificates
Characterization. The Trust Fund may be created with one class of Senior
Certificates and one class of Subordinated Certificates. In this case, each
Senior Certificateholder will be treated as the owner of a pro rata undivided
interest in the interest and principal portions of the Trust Fund represented
by that Senior Certificate and will be considered the equitable owner of a pro
rata undivided interest in each of the Mortgage Loans in the Pool. Any amounts
received by a Senior Certificateholder in lieu of amounts due with respect to
any Mortgage Loan because of a default or delinquency in payment will be
treated for federal income tax purposes as having the same character as the
payments they replace.
Each holder of a Senior Certificate will be required to report on its
federal income tax return its pro rata share of the entire income from the
Mortgage Loans in the Trust Fund represented by that Senior Certificate,
including interest, original issue discount, if any, prepayment fees,
assumption fees, any gain recognized upon an assumption and late payment
charges received by the Master Servicer in accordance with such Senior
Certificateholder's method of accounting. Under section 162 or 212 of the
Code, each Senior Certificateholder will be entitled to deduct its pro rata
share of servicing fees, prepayment fees, assumption fees, any loss recognized
upon an assumption and late payment charges retained by the Master Servicer,
provided that such amounts are reasonable compensation for services rendered
to the Trust Fund. A Senior Certificateholder that is an individual, estate or
trust will be entitled to deduct its share of expenses only to the extent such
expenses, plus all other section 212 expenses, exceed 2% of such Senior
Certificateholder's adjusted gross income. A Senior Certificateholder using
the cash method of accounting must take into account its pro rata share of
income and deductions as and when collected by or paid to the Master Servicer.
A Senior Certificateholder using an accrual method of accounting must take
into account its pro rata share of income and deductions as they become due or
are paid to the Master Servicer, whichever is earlier. If the servicing fees
paid to the Master Servicer were deemed to exceed reasonable servicing
compensation, the amount of such excess could be considered as a retained
ownership interest by the Master Servicer (or any person to whom the Master
Servicer assigned for value all or a portion of the servicing fees) in a
portion of the interest payments on the Mortgage Loans. The Mortgage Loans
might then be subject to the "coupon stripping" rules of the Code discussed
below.
Unless otherwise specified in the related Prospectus Supplement, Brown &
Wood llp will have advised the Depositor with respect to each Series of
Certificates that:
(i) a Senior Certificate owned by a "domestic building and loan
association" within the meaning of section 7701(a)(19) of the Code
representing principal and interest payments on Mortgage Loans will be
considered to represent "loans . . . secured by an interest in real property
which is . . . residential property" within the meaning of section
7701(a)(19)(C)(v) of the Code to the extent that the Mortgage Loans
represented by that Senior Certificate are of a type described in such
section;
(ii) a Senior Certificate owned by a real estate investment trust
representing an interest in Mortgage Loans will be considered to represent
"real estate assets" within the meaning of section 856(c)(4)(A) of the Code
and interest income on the Mortgage Loans will be considered "interest on
obligations secured by mortgages on real property" within the meaning of
section 856(c)(3)(B) of the Code to the extent that the Mortgage Loans
represented by that Senior Certificate are of a type described in such
section; and
(iii) a Senior Certificate owned by a REMIC will be an "obligation .
. . which is principally secured by an interest in real property" within the
meaning of section 860G(a)(3)(A) of the Code.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of section 593(d) of the Code to any taxable year beginning after December 31,
1995.
The assets constituting certain Trust Funds may include "buydown"
Mortgage Loans. The characterization of any investment in "buydown" Mortgage
Loans will depend upon the precise terms of the related buydown agreement, but
to the extent that such "buydown" Mortgage Loans are secured in part by a bank
account or other personal property, they may not be treated in their entirety
as assets described in the foregoing sections of the Code. There are no
directly applicable precedents with respect to the federal income tax
treatment or the characterization of investments in "buydown" Mortgage Loans.
Accordingly, holders of Senior Certificates should consult their own tax
advisors with respect to characterization of investments in Senior
Certificates representing an interest in a Trust Fund that includes "buydown"
Mortgage Loans.
Premium. The price paid for a Senior Certificate by a holder will be
allocated to such holder's undivided interest in each Mortgage Loan based on
each Mortgage Loan's relative fair market value, so that such holder's
undivided interest in each Mortgage Loan will have its own tax basis. A Senior
Certificateholder that acquires an interest in Mortgage Loans at a premium may
elect to amortize such premium under a constant interest method, provided that
such Mortgage Loan was originated after September 27, 1985. Premium allocable
to a Mortgage Loan originated on or before September 27, 1985 should be
allocated among the principal payments on the Mortgage Loan and allowed as an
ordinary deduction as principal payments are made. Amortizable bond premium
will be treated as an offset to interest income on such Senior Certificate.
The basis for such Senior Certificate will be reduced to the extent that
amortizable premium is applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be used
in computing amortization of premium allowable under section 171 of the Code.
A Certificateholder that makes this election for a Certificate that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder acquires during the year of the election or
thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Senior Certificate acquired at a premium should
recognize a loss, if a Mortgage Loan prepays in full, equal to the difference
between the portion of the prepaid principal amount of the Mortgage Loan that
is allocable to the Senior Certificate and the portion of the adjusted basis
of the Senior Certificate that is allocable to the Mortgage Loan. If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is
not clear whether any other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate of
prepayments.
On December 30, 1997, the Internal Revenue Service (the "IRS") issued
final regulations (the "Amortizable Bond Premium Regulations") dealing with
amortizable bond premium. These regulations, which generally are effective for
bonds issued or acquired on or after March 2, 1998 (or, for holders making an
election for the taxable year that included March 2, 1998 or any subsequent
taxable year, shall apply to bonds held on or after the first day of the
taxable year of the election). The Amortizable Bond Premium Regulations
specifically do not apply to prepayable debt instruments or any pool of debt
instruments, such as the Trust Fund, the yield on which may be affected by
prepayments which are subject to section 1272(a)(6) of the Code. Absent
further guidance from the IRS and unless otherwise specified in the related
Prospectus Supplement, the Trustee will account for amortizable bond premium
in the manner described above. Prospective purchasers should consult their tax
advisors regarding amortizable bond premium and the Amortizable Bond Premium
Regulations.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described herein, the special rules of the Code
relating to "original issue discount" (currently sections 1271 through 1273
and section 1275) will be applicable to a Senior Certificateholder's interest
in those Mortgage Loans meeting the conditions necessary for these sections to
apply. Accordingly, the following discussion is based in part on Treasury
regulations issued on February 2, 1994 under sections 1271 through 1273 and
section 1275 of the Code (the "OID Regulations"). Certificateholders should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Certificates. Rules
regarding periodic inclusion of original issue discount income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1,
1982, and mortgages of individuals originated after March 2, 1984. Such
original issue discount could arise by the financing of points or other
charges by the originator of the mortgages in an amount greater than a
statutory de minimis exception to the extent that the points are not currently
deductible under applicable provisions of the Code or are not for services
provided by the lender. Original issue discount generally must be reported as
ordinary gross income as it accrues under a constant interest method. See
"--Multiple Classes of Senior Certificates--B. Senior Certificates
Representing Interests in Loans Other than ARM Loans--Accrual of Original
Issue Discount" below.
Market Discount. A Senior Certificateholder that acquires an undivided
interest in Mortgage Loans may be subject to the market discount rules of
sections 1276 through 1278 to the extent an undivided interest in a Mortgage
Loan is considered to have been purchased at a "market discount". Generally,
the excess of the portion of the principal amount of such Mortgage Loan
allocable to such holder's undivided interest over such holder's tax basis in
such interest. Market discount with respect to a Senior Certificate will be
considered to be zero if the amount allocable to the Senior Certificate is
less than 0.25% of the Senior Certificate's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date
of purchase. Treasury regulations implementing the market discount rules have
not yet been issued; therefore, investors should consult their own tax
advisors regarding the application of these rules and the advisability of
making any of the elections allowed under sections 1276 through 1278 of the
Code.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986 shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants to the Department of the Treasury (the "Treasury")
authority to issue regulations providing for the computation of accrued market
discount on debt instruments, the principal of which is payable in more than
one installment. Although the Treasury has not yet issued regulations, rules
described in the relevant legislative history will apply. Under those rules,
the holder of a market discount bond may elect to accrue market discount
either on the basis of a constant interest rate or according to one of the
following methods. If a Senior Certificate is issued with original issue
discount, the amount of market discount that accrues during any accrual period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the original issue discount accruing
during the period and the denominator of which is the total remaining original
issue discount at the beginning of the accrual period. For Senior Certificates
issued without original issue discount, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of
the accrual period. For purposes of calculating market discount under any of
the above methods in the case of instruments (such as the Senior Certificates)
which provide for payments which may be accelerated by reason of prepayments
of other obligations securing such instruments, the same prepayment assumption
applicable to calculating the accrual of original issue discount will apply.
Because the regulations described above have not been issued, it is impossible
to predict what effect those regulations might have on the tax treatment of a
Senior Certificate purchased at a discount or premium in the secondary market.
A holder who acquires a Senior Certificate at a market discount also may
be required to defer, until the maturity date of such Senior Certificate or
its earlier disposition in a taxable transaction, the deduction of a portion
of the amount of interest that the holder paid or accrued during the taxable
year on indebtedness incurred or maintained to purchase or carry the Senior
Certificate in excess of the aggregate amount of interest (including original
issue discount) includible in such holder's gross income for the taxable year
with respect to such Senior Certificate. The amount of such net interest
expense deferred in a taxable year may not exceed the amount of market
discount accrued on the Senior Certificate for the days during the taxable
year on which the holder held the Senior Certificate and, in general, would be
deductible when such market discount is includible in income. The amount of
any remaining deferred deduction is to be taken into account in the taxable
year in which the Senior Certificate matures or is disposed of in a taxable
transaction. In the case of a disposition in which gain or loss is not
recognized in whole or in part, any remaining deferred deduction will be
allowed to the extent of gain recognized on the disposition. This deferral
rule does not apply if the Senior Certificateholder elects to include such
market discount in income currently as it accrues on all market discount
obligations acquired by such Senior Certificateholder in that taxable year or
thereafter.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium
in income as interest, based on a constant yield method for Certificates
acquired on or after April 4, 1994. If such an election is made with respect
to a Mortgage Loan with market discount, the Certificateholder will be deemed
to have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "--Regular
Certificates--Original Issue Discount and Premium" below. The election to
accrue interest, discount and premium on a constant yield method with respect
to a Certificate is irrevocable.
Anti-abuse Rule. The IRS is permitted to apply or depart from the rules
contained in the OID Regulations as necessary or appropriate to achieve a
reasonable result where a principal purpose in structuring a Mortgage Asset,
Mortgage Loan or Senior Certificate, or the effect of applying the otherwise
applicable rules, is to achieve a result that is unreasonable in light of the
purposes of the applicable statutes (which generally are intended to achieve
the clear reflection of income for both issuers and holders of debt
instruments).
Multiple Classes of Senior Certificates
A. Stripped Bonds and Stripped Coupons
Pursuant to section 1286 of the Code, the separation of ownership of the
right to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments
results in the creation of "stripped bonds" with respect to principal payments
and "stripped coupons" with respect to interest payments. For purposes of
sections 1271 through 1288 of the Code, section 1286 treats a stripped bond or
a stripped coupon as an obligation issued on the date that such stripped
interest is created. If a Trust Fund is created with two classes of Senior
Certificates, one class of Senior Certificates will represent the right to
principal and interest, or principal only, on all or a portion of the Mortgage
Loans (the "Stripped Bond Certificates"), while the second class of Senior
Certificates will represent the right to some or all of the interest on such
portion (the "Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Loan principal balance) or the Certificates are initially sold with a de
minimis discount (assuming no prepayment assumption is required), any non-de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Loan by Mortgage Loan basis, which
could result in some Mortgage Loans being treated as having more than 100
basis points of interest stripped off.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as a single debt instrument issued on the day it is purchased for
purposes of calculating any original issue discount. Generally, if the
discount on a Stripped Bond Certificate is larger than a de minimis amount (as
calculated for purposes of the original issue discount rules), a purchaser of
such a certificate will be required to accrue the discount under the original
issue discount rules of the Code. See "--Single Class of Senior
Certificates--Original Issue Discount" above. However, a purchaser of a
Stripped Bond Certificate will be required to account for any discount on the
certificate as market discount rather than original issue discount if either
(i) the amount of original issue discount with respect to the certificate was
treated as zero under the original issue discount de minimis rule when the
certificate was stripped or (ii) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) are stripped off the
Trust Fund's Mortgage Loans. Pursuant to Revenue Procedure 91-49 issued on
August 8, 1991, purchasers of Stripped Bond Certificates using an inconsistent
method of accounting must change their method of accounting and request the
consent of the IRS to the change in their accounting method on a statement
attached to their first timely tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that
original issue discount computations be made on a Mortgage Loan by Mortgagee
Loan basis. However, based on recent IRS guidance, it appears that a Stripped
Coupon Certificate should be treated as a single installment obligation
subject to the original issue discount rules of the Code. As a result, all
payments on a Stripped Coupon Certificate would be included in the
certificate's stated redemption price at maturity for purposes of calculating
income on such certificate under the original issue discount rules of the
Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Loans will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account
in computing yield with respect to such Senior Certificate, it appears that no
loss may be available as a result of any particular prepayment unless
prepayments occur at a rate faster than the assumed prepayment rate. However,
if such Certificate is treated as an interest in discrete Mortgage Loans or if
no prepayment assumption is used, then, when a Mortgage Loan is prepaid, the
holder of such Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of such Certificate that is allocable to
such Mortgage Loan.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper
treatment of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several sections of the Code provide
beneficial treatment to certain taxpayers that invest in mortgage loans of the
type that make up the Trust Fund. With respect to these sections, no specific
legal authority exists regarding whether the character of the Senior
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Loans. While section 1286 treats a stripped obligation as
a separate obligation for purposes of the provisions of the Code addressing
original issue discount, it is not clear whether such characterization would
apply with regard to these other sections. Although the issue is not free from
doubt, based on policy considerations, each class of Senior Certificates
should be considered to represent "real estate assets" within the meaning of
section 856(c)(4)(A) of the Code and "loans . . . secured by, an interest in
real property which is . . . residential real property" within the meaning of
section 7701(a)(19)(C)(v) of the Code, and interest income attributable to
Senior Certificates should be considered to represent "interest on obligations
secured by mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code, provided that in each case the underlying Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment.
Prospective purchasers to which such characterization of an investment in
Senior Certificates is material should consult their own tax advisors
regarding the characterization of the Senior Certificates and the income
therefrom. Senior Certificates will be "obligations (including any
participation or certificate of beneficial ownership therein) which are
principally secured by an interest in real property" within the meaning of
section 860G(a)(3)(A) of the Code.
B. Senior Certificates Representing Interests in Loans Other than ARM
Loans
The original issue discount rules of sections 1271 through 1275 of the
Code will be applicable to a Senior Certificateholder's interest in those
Mortgage Loans as to which the conditions for the application of those
sections are met. Rules regarding periodic inclusion of original issue
discount in income are applicable to mortgages of corporations originated
after May 27, 1969, mortgages of noncorporate mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. Under the OID Regulations, such original issue
discount could arise by the charging of points by the originator of the
mortgage in an amount greater than the statutory de minimis exception,
including a payment of points that is currently deductible by the borrower
under applicable provisions of the Code, or, under certain circumstances, by
the presence of "teaser" rates on the Mortgage Loans. Original issue discount
on each Senior Certificate must be included in the owner's ordinary income for
federal income tax purposes as it accrues, in accordance with a constant
interest method that takes into account the compounding of interest, in
advance of receipt of the cash attributable to such income. The amount of
original issue discount required to be included in an owner's income in any
taxable year with respect to a Senior Certificate representing an interest in
Mortgage Loans other than Mortgage Loans with interest rates that adjust
periodically ("ARM Loans") likely will be computed as described under
"--Accrual of Original Issue Discount" below. The following discussion is
based in part on the OID Regulations and in part on the provisions of the Tax
Reform Act of 1986, as amended (the "1986 Act"). The OID Regulations generally
are effective for debt instruments issued on or after April 4, 1994, but may
be relied upon as authority with respect to debt instruments such as the
Senior Certificates issued after December 21, 1992. Alternatively, proposed
Treasury regulations issued December 21, 1992 may be treated as authority for
debt instruments issued after December 21, 1992 and prior to April 4, 1994,
and proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the Mortgage Loans should be used or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Senior Certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Loans underlying each Senior Certificate
will be treated as having been issued on the date they were originated with an
amount of original issue discount equal to the excess of such Mortgage Loan's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Loan is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Loan is the sum of all payments to
be made on such Mortgage Loan other than payments that are treated as
qualified stated interest payments. The accrual of this original issue
discount, as described under "--Accrual of Original Issue Discount" below,
will, unless otherwise specified in the related Prospectus Supplement, utilize
the original yield to maturity of the Senior Certificate calculated based on a
reasonable assumed prepayment rate for the Mortgage Loans underlying the
Senior Certificates (the "Prepayment Assumption") and will take into account
events that occur during the calculation period. The Prepayment Assumption
will be determined in the manner prescribed by regulations that have not yet
been issued. The legislative history of the 1986 Act (the "Legislative
History") provides, however, that the regulations will require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the offering price of such Certificate. No representation is made that any
Certificate will prepay at the Prepayment Assumption or at any other rate. The
prepayment assumption contained in the Code literally only applies to debt
instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments,
such as the Certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing original issue discount
on obligations that are subject to prepayment, and, until further guidance is
issued, the Master Servicer intends to calculate and report original issue
discount under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Senior
Certificate must include in gross income the sum of the "daily portions", as
defined below, of the original issue discount on such Senior Certificate for
each day on which it owns a Senior Certificate, including the date of purchase
but excluding the date of disposition. In the case of an original owner, the
daily portions of original issue discount with respect to each component
generally will be determined as follows under the Amendments. A calculation
will be made by the Master Servicer or such other entity specified in the
related Prospectus Supplement of the portion of original issue discount that
accrues during each successive monthly accrual period (or shorter period from
the date of original issue) that ends on the day in the calendar year
corresponding to each of the Distribution Dates on the Senior Certificate (or
the day prior to each such date). This will be done, in the case of each full
month accrual period, by adding (i) the present value at the end of the
accrual period (determined by using as a discount factor the original yield to
maturity of the respective component, under the Prepayment Assumption) of all
remaining payments to be received under the Prepayment Assumption on the
respective component, and (ii) any payments received during such accrual
period (other than a payment of qualified stated interest), and subtracting
from that total the "adjusted issue price" of the respective component at the
beginning of such accrual period. The "adjusted issue price" of a Senior
Certificate at the beginning of the first accrual period is its issue price;
the "adjusted issue price" of a Senior Certificate at the beginning of a
subsequent accrual period is the "adjusted issue price" at the beginning of
the immediately preceding accrual period plus the amount of original issue
discount allocable to that accrual period reduced by the amount of any payment
(other than a payment of qualified stated interest) made at the end of or
during that accrual period. The original issue discount accruing during such
accrual period will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
period. With respect to an initial accrual period shorter than a full monthly
accrual period, the daily portions of original issue discount must be
determined according to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of
an obligation is reduced when the obligation is acquired after its initial
issuance at a price greater than the sum of the original issue price and the
previously accrued original issue discount, less prior payments of principal.
Accordingly, if such Mortgage Loans acquired by a Certificateholder are
purchased at a price equal to the then unpaid principal amount of such
Mortgage Loan, no original issue discount attributable to the difference
between the issue price and the original principal amount of such Mortgage
Loan (i.e., points) will be includible by such holder. Other original issue
discount on the Mortgage Loans (e.g., that arising from a "teaser" rate) would
still need to be accrued.
C. Senior Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such
as the Senior Certificates (if the related Trust Fund includes ARM Loans),
which represent interests in ARM Loans. Additionally, the IRS has not issued
guidance under the coupon stripping rules of the Code with respect to such
instruments. In the absence of any authority, the Master Servicer will report
original issue discount on Senior Certificates attributable to ARM Loans
("Stripped ARM Obligations") to holders in a manner it believes to be
consistent with the rules described under the heading "--B. Senior
Certificates Representing Interests in Loans Other than ARM Loans" above and
with the OID Regulations. In general, application of these rules may require
inclusion of income on a Stripped ARM Obligation in advance of the receipt of
cash attributable to such income. Further, the addition of interest deferred
by reason of negative amortization ("Deferred Interest") to the principal
balance of an ARM Loan may require the inclusion of such amount in the income
of the Senior Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Senior Certificate's principal balance
will result in additional income (including possibly original issue discount
income) to the Senior Certificateholder over the remaining life of such Senior
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
Possible Application of Contingent Payment Regulations to Certain
Non-REMIC Certificates
Final regulations issued on June 11, 1996 with respect to original issue
discount under section 1275 include rules for obligations that provide for one
or more contingent payments (the "Contingent Payment Regulations"). Rights to
interest payments on a mortgage loan might be considered to be contingent
within the meaning of the Contingent Payment Regulations if such interest
would not be paid if the borrower exercised its right to prepay the mortgage
loan. However, in the case of an investor having a right to shares of the
interest and principal payments on such a mortgage loan when the share of
interest is not substantially greater than the share of principal, the
possibility of prepayment should not be considered to characterize otherwise
noncontingent interest payments as contingent payments. The absence of
interest payments following a prepayment would be the normal consequence of
the return of such investor's capital in the form of a principal payment. On
the other hand, a right to interest on such a mortgage loan is more likely to
be regarded as contingent if held by an investor that does not also hold a
right to the related principal. Such an investor would not recover its capital
through receipt of a principal payment at the time of the prepayment of the
mortgage loan.
Applying these principles to the Senior Certificates, because the
Mortgage Loans are subject to prepayment at any time, payments on a class of
Senior Certificates representing a right to interest on the Mortgage Loans
could be considered to be contingent within the meaning of the Contingent
Payment Regulations, at least if such Senior Certificate was issued at a
premium. The likelihood that such payments will be considered contingent
increases the greater the amount of such premium.
In the event that payments on a Senior Certificate in respect of interest
on the Mortgage Loans are considered contingent, then the holder would
generally report income or loss as described above under the heading "--A.
Stripped Bonds and Stripped Coupons"; provided, however, that the yield that
would be used in calculating interest income would not be the actual yield but
would instead equal the "applicable Federal rate" (the "AFR", generally, an
average of current yields of Treasury securities computed and published
monthly by the IRS), in effect at the time of purchase of such Senior
Certificate by such holder. In addition, once such Holder's adjusted basis in
such Senior Certificate has been reduced (by prior distributions or losses) to
an amount equal to the aggregate amount of the remaining noncontingent
payments of the Mortgage Loans that are allocable to such Senior Certificate
(or to zero if such Senior Certificate does not share in principal payments),
then such holder would recognize income in each subsequent month equal to the
full amount of interest on the Mortgage Loans that accrues in that month and
is allocable to such Senior Certificate. It is uncertain whether, under the
Contingent Payment regulations, any other adjustments would be made to take
account of prepayments of the Mortgage Loans.
Sale or Exchange of a Senior Certificate
Sale or exchange of a Senior Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the seller's adjusted basis in the Senior Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Senior
Certificate, increased by the original issue discount included in the seller's
gross income with respect to the Senior Certificate, and reduced by principal
payments on the Senior Certificate previously received by the seller. Such
gain or loss will be capital gain or loss to a seller for which a Senior
Certificate is a "capital asset" within the meaning of section 1221 of the
Code, and will be long-term or short-term depending on whether the Senior
Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
Non-corporate taxpayers are subject to reduced maximum rates on long-term
capital gains and are generally subject to tax at ordinary income rates on
short-term capital gains. The deductibility of capital losses is subject to
certain limitations. Prospective investors should consult their own tax
advisors concerning these tax law provisions.
It is possible that capital gain realized by holders of the Senior
Certificates could be considered gain realized upon the disposition of
property that was part of a "conversion transaction". A sale of a Senior
Certificate will be part of a conversion transaction if substantially all of
the holder's expected return is attributable to the time value of the holder's
net investment, and (i) the holder entered the contract to sell the Senior
Certificate substantially contemporaneously with acquiring the Senior
Certificate, (ii) the Senior Certificate is part of a straddle, (iii) the
Senior Certificate is marketed or sold as producing capital gain or (iv) other
transactions to be specified in Treasury regulations that have not yet been
issued. If the sale or other disposition of a Senior Certificate is part of a
conversion transaction, all or any portion of the gain realized upon the sale
or other disposition would be treated as ordinary income instead of capital
gain.
Senior Certificates will be "evidences of indebtedness" within the
meaning of section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a Senior Certificate by a bank or a thrift institution to which
such section applies will be ordinary income or loss.
Non-U.S. Persons
Generally, to the extent that a Senior Certificate evidences ownership in
Mortgage Loans that are issued on or before July 18, 1984, interest or
original issue discount paid by the person required to withhold tax under
section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Senior Certificateholder holding on behalf of an owner that
is not a U.S. Person, will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for
interest by an applicable tax treaty. Accrued original issue discount
recognized by the owner on the sale or exchange of such a Senior Certificate
also will be subject to federal income tax at the same rate. Generally, such
payments would not be subject to withholding to the extent that a Senior
Certificate evidences ownership in Mortgage Loans issued after July 18, 1984,
if (i) such Senior Certificateholder does not actually or constructively own
10% or more of the combined voting power of all classes of equity in the
issuer (which for purposes of this discussion may be defined as the Trust Fund
(the "issuer")); (ii) such Senior Certificateholder is not a controlled
foreign corporation (within the meaning of section 957 of the Code) related to
the issuer; and (iii) such Senior Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Senior Certificateholder under penalties of perjury, certifying that such
Senior Certificateholder is not a U.S. Person and providing the name and
address of such Senior Certificateholder).
For purposes of this discussion, a "U.S. Person" means a citizen or
resident of the United States, a corporation or a partnership (including an
entity treated as a corporation or partnership for U.S. federal income tax
purposes) organized in or under the laws of the United States, or any State
thereof or the District of Columbia (unless in the case of a partnership
Treasury regulations are adopted that provide otherwise) or an estate whose
income from sources outside the United States is includible in gross income
for federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States, or a trust if a court within
the United States is able to exercise primary supervision of the
administration of the trust and one or more U.S. Persons have the authority to
control all substantial decisions of the trust. In addition, certain trusts
that would not qualify as U.S. Persons under the foregoing definition but that
are eligible to and make an election to be treated as U.S. Persons will also
be treated as U.S. Persons.
Information Reporting and Backup Withholding
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each Certificateholder at any
time during such year, such information as may be deemed necessary or
desirable to assist Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to owners or
other financial intermediaries of holders that hold such Certificates as
nominees. If a holder, owner or other recipient of a payment on behalf of an
owner fails to supply a certified taxpayer identification number or if the
Secretary of the Treasury determines that such person has not reported all
interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments.
Any amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
New Withholding Regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations attempt
to unify certification requirements and modify reliance standards. Generally,
the New Regulations replace the IRS Form W-8, Form 1001 and Form 4224 with
various revised Forms W-8, and provide that the old Form W-8, Form 1001 and
Form 4224 will not be effective after December 31, 2000. The New Regulations
will generally be effective for payments made after December 31, 2000, subject
to certain transition rules. Prospective investors are urged to consult their
own tax advisors regarding the New Regulations.
REMIC CERTIFICATES
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal
income tax (see, however, "--Prohibited Transactions and Other Taxes") below,
if a Trust Fund with respect to which a REMIC election is made fails to comply
with one or more of the ongoing requirements of the Code for REMIC status
during any taxable year (including the implementation of restrictions on the
purchase and transfer of the residual interest in a REMIC as described under
"--Residual Certificates" below), the Code provides that a Trust Fund will not
be treated as a REMIC for such year and thereafter. In that event, such entity
may be taxable as a separate corporation, and the related REMIC Certificates
may not be accorded the status or given the tax treatment described below.
While the Code authorizes the Treasury to issue regulations providing relief
in the event of an inadvertent termination of status as a REMIC, no such
regulations have been issued. Moreover, any such relief may be accompanied by
sanctions such as the imposition of a corporate tax on all or a portion of the
REMIC's income for the period in which the requirements for such status are
not satisfied. With respect to each such Trust Fund that elects REMIC status,
Brown & Wood llp will deliver its opinion generally to the effect that, under
then existing law and assuming compliance with all provisions of the related
Agreement, such Trust Fund will qualify as a REMIC and the related
Certificates will be considered to be regular interests ("Regular
Certificates") or residual interests ("Residual Certificates") in the REMIC.
The related Prospectus Supplement for each Series of Certificates will
indicate whether the Trust Fund will make a REMIC election and whether a class
of Certificates will be treated as a regular or residual interest in the
REMIC.
In general, with respect to each Series of Certificates for which a REMIC
election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
section 7701(a)(19)(C) of the Code; (ii) Certificates held by a real estate
investment trust will constitute "real estate assets" within the meaning of
section 856(c)(4)(A) of the Code; and (iii) interest on Certificates held by a
real estate investment trust will be considered "interest on obligations
secured by mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code. If less than 95% of the REMIC's assets are assets
qualifying under any of the foregoing sections, the Certificates will be
qualifying assets only to the extent that the REMIC's assets are qualifying
assets. In addition, payments on Mortgage Loans held pending distribution on
the REMIC Certificates will be considered to be qualifying assets under the
foregoing sections.
In some instances, the Mortgage Loans may not be treated entirely as
assets described in the foregoing sections. See, in this regard, the
discussion of "buydown" Mortgage Loans contained in "--NON-REMIC
CERTIFICATES--Single Class of Senior Certificates" above. REMIC Certificates
held by a real estate investment trust will not constitute "Government
Securities" within the meaning of section 856(c)(5)(A) of the Code and REMIC
Certificates held by a regulated investment company will not constitute
"Government Securities" within the meaning of section 851(b)(4)(A)(ii) of the
Code. REMIC Certificates held by certain financial institutions will
constitute "evidences of indebtedness" within the meaning of section 582(c)(1)
of the Code.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally
secured by an interest in real property and that is transferred to the REMIC
within a prescribed time period in exchange for regular or residual interests
in the REMIC. The REMIC Regulations provide that manufactured housing or
mobile homes (not including recreational vehicles, campers or similar
vehicles) which are "single family residences" under section 25(e)(10) of the
Code will qualify as real property without regard to state law
classifications. Under section 25(e)(10), a single family residence includes
any manufactured home which has a minimum of 400 square feet of living space
and a minimum width in excess of 102 inches and which is of a kind customarily
used at a fixed location.
Tiered REMIC Structures
For certain Series of Certificates, two separate elections may be made to
treat designated portions of the related Trust Fund as REMICs (respectively,
the "Subsidiary REMIC" and the "Master REMIC") for federal income tax
purposes. Upon the issuance of any such Series of Certificates, Brown & Wood
llp, counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Agreement,
the Master REMIC as well as any Subsidiary REMIC will each qualify as a REMIC
and the REMIC Certificates issued by the Master REMIC and the Subsidiary
REMIC, respectively, will be considered to evidence ownership of Regular
Certificates or Residual Certificates in the related REMIC within the meaning
of the REMIC provisions.
Only REMIC Certificates issued by the Master REMIC will be offered
hereunder. The Subsidiary REMIC and the Master REMIC will be treated as one
REMIC solely for purposes of determining (a) whether the REMIC Certificates
will be (i) "real estate assets" within the meaning of section 856(c)(4)(A) of
the Code or (ii) "loans secured by an interest in real property" under section
7701(a)(19)(C) of the Code; and (b) whether the income on such Certificates is
interest described in section 856(c)(3)(B) of the Code.
Regular Certificates
General. Except as otherwise stated in this discussion, Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of Regular Certificates that otherwise report
income under a cash method of accounting will be required to report income
with respect to Regular Certificates under an accrual method.
Original Issue Discount and Premium. The Regular Certificates may be
issued with "original issue discount" within the meaning of section 1273(a) of
the Code. Generally, such original issue discount, if any, will equal the
difference between the "stated redemption price at maturity" of a Regular
Certificate and its "issue price". Holders of any class of Certificates issued
with original issue discount will be required to include such original issue
discount in gross income for federal income tax purposes as it accrues, in
accordance with a constant interest method based on the compounding of
interest, in advance of receipt of the cash attributable to such income. The
following discussion is based in part on the OID Regulations and in part on
the provisions of the 1986 Act. Holders of Regular Certificates (the "Regular
Certificateholders") should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities such as
the Regular Certificates.
Rules governing original issue discount are set forth in sections 1271
through 1273 and section 1275 of the Code. These rules require that the amount
and rate of accrual of original issue discount be calculated based on a
Prepayment Assumption and prescribe a method for adjusting the amount and rate
of accrual of such discount where the actual prepayment rate differs from the
Prepayment Assumption. Under the Code, the Prepayment Assumption must be
determined in the manner prescribed by regulations which have not yet been
issued. The Legislative History provides, however, that Congress intended the
regulations to require that the Prepayment Assumption be the prepayment
assumption that is used in determining the initial offering price of such
Regular Certificates. The Prospectus Supplement for each Series of Regular
Certificates will specify the Prepayment Assumption to be used for the purpose
of determining the amount and rate of accrual of original issue discount. No
representation is made that the Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each Regular Certificate will be treated as a single
installment obligation issued with an amount of original issue discount equal
to the excess of its "stated redemption price at maturity" over its "issue
price". The issue price of a Regular Certificate is the first price at which a
substantial amount of Regular Certificates of that class are sold to the
public (excluding bond houses, brokers, underwriters or wholesalers). If less
than a substantial amount of a particular class of Regular Certificates is
sold for cash on or prior to the date of their initial issuance (the "Closing
Date"), the issue price for such class will be treated as the fair market
value of such class on the Closing Date. The issue price of a Regular
Certificate also includes the amount paid by an initial Regular
Certificateholder for accrued interest that relates to a period prior to the
issue date of the Regular Certificate. The stated redemption price at maturity
of a Regular Certificate includes the original principal amount of the Regular
Certificate, but generally will not include distributions of interest if such
distributions constitute "qualified stated interest". Qualified stated
interest generally means interest payable at a single fixed rate or qualified
variable rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire
term of the Regular Certificate. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the interval
between payments. Distributions of interest on Regular Certificates with
respect to which deferred interest will accrue will not constitute qualified
stated interest payments, in which case the stated redemption price at
maturity of such Regular Certificates includes all distributions of interest
as well as principal thereon.
Where the interval between the issue date and the first Distribution Date
on a Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount (disregarding
the rate in the first period) and any interest foregone during the first
period is treated as the amount by which the stated redemption price at
maturity of the Certificate exceeds its issue price for purposes of the de
minimis rule described below. The OID Regulations suggest that all interest on
a long first period Regular Certificate that is issued with non-de minimis
original issue discount, as determined under the foregoing rule, will be
treated as original issue discount. Where the interval between the issue date
and the first Distribution Date on a Regular Certificate is shorter than the
interval between subsequent Distribution Dates, interest due on the first
Distribution Date in excess of the amount that accrued during the first period
would be added to the Certificates stated redemption price at maturity.
Regular Certificateholders should consult their own tax advisors to determine
the issue price and stated redemption price at maturity of a Regular
Certificate.
Under the de minimis rule, original issue discount on a Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate. For this purpose, the weighted average maturity of the Regular
Certificate is computed as the sum of the amounts determined by multiplying
the number of full years (i.e., rounding down partial years) from the issue
date until each distribution in reduction of stated redemption price at
maturity is scheduled to be made by a fraction, the numerator of which is the
amount of each distribution included in the stated redemption price at
maturity of the Regular Certificate and the denominator of which is the stated
redemption price at maturity of the Regular Certificate. Although currently
unclear, it appears that the schedule of such distributions should be
determined in accordance with the assumed rate of prepayment of the Mortgage
Loans and the anticipated reinvestment rate, if any, relating to the Regular
Certificates (the "Prepayment Assumption"). The Prepayment Assumption with
respect to a Series of Regular Certificates will be set forth in the related
Prospectus Supplement. Holders generally must report de minimis original issue
discount pro rata as principal payments are received and such income will be
capital gain if the Regular Certificate is held as a capital asset. However,
accrual method holders may elect to accrue all de minimis original issue
discount as well as market discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain Regular Certificates to be issued at prices significantly exceeding
their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such Regular Certificates is the sum of all payments to be made on
such Regular Certificates determined under the Prepayment Assumption, with the
result that such Regular Certificates would be issued with original issue
discount. The calculation of income in this manner could result in negative
original issue discount (which delays future accruals of original issue
discount rather than being immediately deductible) when prepayments on the
Mortgage Loans exceed those estimated under the Prepayment Assumption. The IRS
might contend, however, that the Contingent Payment Regulations should apply
to such Certificates.
Although the Contingent Payment Regulations are not applicable to
instruments governed by section 1272(a)(6) of the Code, they represent the
only guidance regarding the current view of the IRS with respect to contingent
payment instruments. In the alternative, the IRS could assert that the stated
redemption price at maturity of such Regular Certificates should be limited to
their principal amount (subject to the discussion under "--Accrued Interest
Certificates" below), so that such Regular Certificates would be considered
for U.S. federal income tax purposes to be issued at a premium. If such
position were to prevail, the rules described under "--Premium" below would
apply. It is unclear when a loss may be claimed for any unrecovered basis for
a Super-Premium Certificate. It is possible that a holder of a Super-Premium
Certificate may only claim a loss when its remaining basis exceeds the maximum
amount of future payments, assuming no further prepayments, or when the final
payment is received with respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a Regular Certificate
(other than Regular Certificate based on a notional amount) does not exceed
125% of its actual principal amount, the interest rate is not considered
disproportionately high. Accordingly, such Regular Certificate generally
should not be treated as a Super-Premium Certificate and the rules described
below under "--Premium" below should apply. However, it is possible that
holders of Regular Certificates issued at a premium, even if the premium is
less than 25% of such Certificate's actual principal balance, will be required
to amortize the premium under an original issue discount method or contingent
interest method even though no election under section 171 of the Code is made
to amortize such premium.
Generally, a Regular Certificateholder must include in gross income the
"daily portions," as determined below, of the original issue discount that
accrues on a Regular Certificate for each day the Regular Certificateholder
holds the Regular Certificate, including the purchase date but excluding the
disposition date. In the case of an original holder of a Regular Certificate,
a calculation will be made of the portion of the original issue discount that
accrues during each successive period ("an accrual period") that ends on the
day in the calendar year corresponding to a Distribution Date (or if
Distribution Dates are on the first day or first business day of the
immediately preceding month, interest may be treated as payable on the last
day of the immediately preceding month) and begins on the day after the end of
the immediately preceding accrual period (or on the issue date in the case of
the first accrual period). This will be done, in the case of each full accrual
period, by (i) adding (a) the present value at the end of the accrual period
(determined by using as a discount factor the original yield to maturity of
the Regular Certificates as calculated under the Prepayment Assumption) of all
remaining payments to be received on the Regular Certificate under the
Prepayment Assumption, and (b) any payments included in the stated redemption
price at maturity received during such accrual period, and (ii) subtracting
from that total the "adjusted issue price" of the Regular Certificates at the
beginning of such accrual period. The "adjusted issue price" of a Regular
Certificate at the beginning of the first accrual period is its issue price;
the "adjusted issue price" of a Regular Certificate at the beginning of a
subsequent accrual period is the "adjusted issue price" at the beginning of
the immediately preceding accrual period plus the amount of original issue
discount allocable to that accrual period and reduced by the accrual period.
The original issue discount accrued during an accrual period will then be
divided by the number of days in the period to determine the daily portion of
original issue discount for each day in the accrual period. The calculation of
original issue discount under the method described above will cause the
accrual of original issue discount to either increase or decrease (but never
below zero) in a given accrual period to reflect the fact that prepayments are
occurring faster or slower than under the Prepayment Assumption. With respect
to an initial accrual period shorter than a full accrual period, the daily
portions of original issue discount may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a Regular Certificate issued with original
issue discount who purchases the Regular Certificate at a cost less than the
remaining stated redemption price at maturity will also be required to include
in gross income the sum of the daily portions of original issue discount on
that Regular Certificate. In computing the daily portions of original issue
discount for such a purchaser (as well as an initial purchaser that purchases
at a price higher than the adjusted issue price but less than the stated
redemption price at maturity), however, the daily portion is reduced by the
amount that would be the daily portion for such day (computed in accordance
with the rules set forth above) multiplied by a fraction, the numerator of
which is the amount, if any, by which the price paid by such holder for that
Regular Certificate exceeds the following amount: (a) the sum of the issue
price plus the aggregate amount of original issue discount that would have
been includible in the gross income of an original Regular Certificateholder
(who purchased the Regular Certificate at its issue price), less (b) any prior
payments included in the stated redemption price at maturity, and the
denominator of which is the sum of the daily portions for that Regular
Certificate for all days beginning on the date after the purchase date and
ending on the maturity date computed under the Prepayment Assumption. A holder
who pays an acquisition premium instead may elect to accrue original issue
discount by treating the purchase as original issue.
Variable Rate Regular Certificate. Regular Certificates may provide for
interest based on a variable rate. Interest based on a variable rate will
constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually,
(ii) the issue price of the debt instrument does not exceed the total
noncontingent principal payments and (iii) interest is based on a "qualified
floating rate", an "objective rate", a combination of a single fixed rate and
one or more "qualified floating rates", one "qualified inverse floating rate",
or a combination of "qualified floating rates" that do not operate in a manner
that significantly accelerates or defers interest payments on such Regular
Certificate.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described under "--Original Issue Discount and Premium" above by assuming
generally that the index used for the variable rate will remain fixed
throughout the term of the Certificate. Appropriate adjustments are made for
the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on a
Regular Certificate that is a weighted average of the net interest rates on
Mortgage Loans as qualified stated interest. In such case, the weighted
average rate used to compute the initial pass-through rate on the Regular
Certificates will be deemed to be the index in effect through the life of the
Regular Certificates. It is possible, however, that the IRS may treat some or
all of the interest on Regular Certificates with a weighted average rate as
taxable under the rules relating to obligations providing for contingent
payments. Such treatment may effect the timing of income accruals on such
Regular Certificates.
Market Discount. A purchaser of a Regular Certificate may be subject to
the market discount provisions of sections 1276 through 1278 of the Code.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the Regular Certificate's stated principal amount or,
in the case of a Regular Certificate with original issue discount, the
adjusted issue price (determined for this purpose as if the purchaser had
purchased such Regular Certificate from an original holder) over (ii) the
price for such Regular Certificate paid by the purchaser. A Certificateholder
that purchases a Regular Certificate at a market discount will recognize
income upon receipt of each distribution representing stated redemption price.
In particular, under section 1276 of the Code such a holder generally will be
required to allocate each such principal distribution first to accrued market
discount not previously included in income and to recognize ordinary income to
that extent. A Certificateholder may elect to include market discount in
income currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder using the accrual method of accounting
to elect to accrue all interest, discount (including de minimis market or
original issue discount) and premium in income as interest, based on a
constant yield method. If such an election is made with respect to a Regular
Certificate with market discount, the Certificateholder will be deemed to have
made an election to include in income currently market discount with respect
to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "--Original Issues
Discount and Premium" above. The election to accrue interest, discount and
premium on a constant yield method with respect to a Certificate is
irrevocable.
Market discount with respect to a Regular Certificate will be considered
to be zero if the amount allocable to the Regular Certificate is less than
0.25% of the Regular Certificate's stated redemption price at maturity
multiplied by the Regular Certificate's weighted average maturity remaining
after the date of purchase. If market discount on a Regular Certificate is
considered to be zero under this rule, the actual amount of market discount
must be allocated to the remaining principal payments on the Regular
Certificate and gain equal to such allocated amount will be recognized when
the corresponding principal payment is made. Treasury regulations implementing
the market discount rules have not yet been issued; therefore, investors
should consult their own tax advisors regarding the application of these rules
and the advisability of making any of the elections allowed under Code
sections 1276 through 1278 of the Code.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants authority to the Treasury to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Until such
time as regulations are issued by the Treasury, rules described in the
Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest rate or according to one of the following methods. For
Regular Certificates issued with original issue discount, the amount of market
discount that accrues during a period is equal to the product of (i) the total
remaining market discount, multiplied by (ii) a fraction, the numerator of
which is the original issue discount accruing during the period and the
denominator of which is the total remaining original issue discount at the
beginning of the period. For Regular Certificates issued without original
issue discount, the amount of market discount that accrues during a period is
equal to the product of (a) the total remaining market discount and (b) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the period. For purposes of
calculating market discount under any of the above methods in the case of
instruments (such as the Regular Certificates) which provide for payments
which may be accelerated by reason of prepayments of other obligations
securing such instruments, the same Prepayment Assumption applicable to
calculating the accrual of original issue discount will apply.
A holder of a Regular Certificate that acquires such Regular Certificate
at a market discount also may be required to defer, until the maturity date of
such Regular Certificate or its earlier disposition in a taxable transaction,
the deduction of a portion of the amount of interest that the holder paid or
accrued during the taxable year on indebtedness incurred or maintained to
purchase or carry the Regular Certificate in excess of the aggregate amount of
interest (including original issue discount) includible in such holder's gross
income for the taxable year with respect to such Regular Certificate. The
amount of such net interest expense deferred in a taxable year may not exceed
the amount of market discount accrued on the Regular Certificate for the days
during the taxable year on which the holder held the Regular Certificate and,
in general, would be deductible when such market discount is includible in
income. The amount of any remaining deferred deduction is to be taken into
account in the taxable year in which the Regular Certificate matures or is
disposed of in a taxable transaction. In the case of a disposition in which
gain or loss is not recognized in whole or in part, any remaining deferred
deduction will be allowed to the extent of gain recognized on the disposition.
This deferral rule does not apply if the Regular Certificateholder elects to
include such market discount in income currently as it accrues on all market
discount obligations acquired by such Regular Certificateholder in that
taxable year or thereafter.
Premium. A purchaser of a Regular Certificate that purchases the Regular
Certificate at a cost (not including accrued qualified stated interest)
greater than its remaining stated redemption price at maturity will be
considered to have purchased the Regular Certificate at a premium and may
elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It
is not clear whether the Prepayment Assumption would be taken into account in
determining the life of the Regular Certificate for this purpose. However, the
Legislative History states that the same rules that apply to accrual of market
discount (which rules require use of a Prepayment Assumption in accruing
market discount with respect to Regular Certificates without regard to whether
such Certificates have original issue discount) will also apply in amortizing
bond premium under section 171 of the Code. The Code provides that amortizable
bond premium will be allocated among the interest payments on such Regular
Certificates and will be applied as an offset against such interest payment.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations on the amortization of bond premium. The foregoing discussion is
based in part on such proposed regulations. On December 30, 1997, the IRS
issued the Amortizable Bond Premium Regulations which generally are effective
for bonds acquired on or after March 2, 1998 or, for holders making an
election to amortize bond premium as described above, the taxable year that
includes March 2, 1998 or any subsequent taxable year, will apply to bonds
held on or after the first day of taxable year in which such election is made.
Neither the proposed regulations nor the final regulations, by their express
terms, apply to prepayable securities described in section 1272(a)(6) of the
Code such as the Regular Certificates. Holders of Regular Certificates should
consult their tax advisors regarding the possibility of making an election to
amortize any such bond premium.
Deferred Interest. Certain classes of Regular Certificates will provide
for the accrual of interest when one or more ARM Loans are adding interest to
their principal balance by reason of negative amortization ("Deferred
Interest"). Any Deferred Interest that accrues with respect to a class of
Regular Certificates will constitute income to the holders of such
Certificates prior to the time distributions of cash with respect to such
Deferred Interest are made. It is unclear, under the OID Regulations, whether
any of the interest on such Certificates will constitute qualified stated
interest or whether all or a portion of the interest payable on the
Certificates must be included in the stated redemption price at maturity of
the Certificates and accounted for as original issue discount (which could
accelerate such inclusion). Interest on Regular Certificates must in any event
be accounted for under an accrual method by the holders of such Certificates.
Applying the latter analysis therefore may result only in a slight difference
in the timing of the inclusion in income of interest on such Regular
Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates may
contain one or more classes of Subordinate Certificates and, in the event
there are defaults or delinquencies on the Mortgage Loans, amounts that would
otherwise be distributed on the Subordinate Certificates may instead be
distributed on the Senior Certificates. Holders of Subordinate Certificates
nevertheless will be required to report income with respect to such
Certificates under an accrual method without giving effect to delays and
reductions in distributions on such Subordinate Certificates attributable to
defaults and delinquencies on the Mortgage Loans, except to the extent that it
can be established that such amounts are uncollectible. As a result, the
amount of income reported by a holder of a Subordinate Certificate in any
period could significantly exceed the amount of cash distributed to such
holder in that period. The holder will eventually be allowed a loss (or will
be allowed to report a lesser amount of income) to the extent that the
aggregate amount of distributions on the Subordinate Certificate is reduced as
a result of defaults and delinquencies on the Mortgage Loans. However, the
timing and character of such losses or reductions in income are uncertain.
Accordingly, holders of Subordinate Certificates should consult their own tax
advisors on this point.
Sale, Exchange or Redemption. If a Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale, exchange,
redemption, or retirement and the seller's adjusted basis in the Regular
Certificate. Such adjusted basis generally will equal the cost of the Regular
Certificate to the seller, increased by any original issue discount and market
discount included in the seller's gross income with respect to the Regular
Certificate, and reduced (but not below zero) by payments included in the
stated redemption price at maturity previously received by the seller and by
any amortized premium. Similarly, a holder who receives a payment which is
part of the stated redemption price at maturity of a Regular Certificate will
recognize gain equal to the excess, if any, of the amount of the payment over
the holder's adjusted basis in the Regular Certificate. A holder of a Regular
Certificate that receives a final payment which is less than the holder's
adjusted basis in the Regular Certificate will generally recognize a loss.
Except as provided in the following paragraph and as provided under "--Market
Discount" above, any such gain or loss will be capital gain or loss, provided
that the Regular Certificate is held as a "capital asset" (generally, property
held for investment) within the meaning of section 1221 of the Code.
Non-corporate taxpayers are subject to reduced maximum rates on long-term
capital gains and are generally subject to tax at ordinary income rates on
short-term capital gains. The deductibility of capital losses is subject to
certain limitations. Prospective investors should consult their own tax
advisors concerning these tax law provisions.
Gain from the sale or other disposition of a Regular Certificate that
might otherwise be capital gain will be treated as ordinary income to the
extent that such gain does not exceed the excess, if any, of (i) the amount
that would have been includible in such holder's income with respect to the
Regular Certificate had income accrued thereon at a rate equal to 110% of the
AFR as defined in section 1274(d) of the Code determined as of the date of
purchase of such Regular Certificate, over (ii) the amount actually includible
in such holder's income.
Gain from the sale or other disposition of a Regular Certificate that
might otherwise be capital gain will be treated as ordinary income, (i) if the
Regular Certificate is held as part of a "conversion transaction" as defined
in section 1258(c) of the Code, up to the amount of interest that would have
accrued at the applicable federal rate under section 1274(d) of the Code in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as part of such transaction, or (ii) if the Regular
Certificate is held as part of a straddle. Potential investors should consult
their tax advisors with respect to the tax consequences of ownership and
disposition of an investment in Regular Certificates in their particular
circumstances.
Regular Certificates will be "evidences of indebtedness" within the
meaning of section 582(c)(1) of the Code so that gain or loss recognized from
the sale of a Regular Certificate by a bank or a thrift institution to which
such section applies will be ordinary income or loss.
The Regular Certificate information reports will include a statement of
the adjusted issue price of the Regular Certificate at the beginning of each
accrual period. In addition, the reports will include information necessary to
compute the accrual of any market discount that may arise upon secondary
trading of Regular Certificates. Because exact computation of the accrual of
market discount on a constant yield method would require information relating
to the holder's purchase price which the REMIC may not have, it appears that
the information reports will only require information pertaining to the
appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that
ends prior to each such Distribution Date. The period between the Closing Date
for Payment Lag Certificates and their first Distribution Date may or may not
exceed such interval. Purchasers of Payment Lag Certificates for which the
period between the Closing Date and the first Distribution Date does not
exceed such interval could pay upon purchase of the Regular Certificates
accrued interest in excess of the accrued interest that would be paid if the
interest paid on the Distribution Date were interest accrued from Distribution
Date to Distribution Date. If a portion of the initial purchase price of a
Regular Certificate is allocable to interest that has accrued prior to the
issue date ("pre-issuance accrued interest"), and the Regular Certificate
provides for a payment of stated interest on the first payment date (and the
first payment date, is within one year of the issue date) that equals or
exceeds the amount of the pre-issuance accrued interest, then the Regular
Certificate's issue price may be computed by subtracting from the issue price
the amount of pre-issuance accrued interest, rather than as an amount payable
on the Regular Certificate. However, it is unclear under this method how the
Proposed OID Regulations treat interest on Payment Lag Certificates as
described above. Therefore, in the case of a Payment Lag Certificate, the
REMIC intends to include accrued interest in the issue price and report
interest payments made on the first Distribution Date as interest only to the
extent such payments represent interest for the number of days that the
Certificateholder has held such Payment Lag Certificate during the first
accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC", a portion of the
REMIC's servicing, administrative and other noninterest expenses will be
allocated as a separate item to those Regular Certificateholders that are
"pass-through interest holders". Generally, a single-class REMIC is defined as
(i) a REMIC that would be treated as a fixed investment trust under Treasury
regulations but for its qualification as a REMIC or (ii) a REMIC that is
substantially similar to an investment trust but is structured with the
principal purpose of avoiding this allocation requirement imposed by the
temporary regulations. Such a pass-through interest holder would be required
to add its allocable share, if any, of such expenses to its gross income and
to treat the same amount as an item of investment expense. An individual
generally would be allowed a deduction for such expenses only as a
miscellaneous itemized deduction subject to the limitations under section 67
of the Code. That section allows such deductions only to the extent that in
the aggregate such expenses exceed 2% of the holder's adjusted gross income.
In addition, section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "Applicable Amount") will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
the Applicable Amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income recognized by Residual Certificateholders who are subject to the
limitations of either section 67 or section 68 may be substantial. The REMIC
is required to report to each pass-through interest holder and to the IRS such
holder's allocable share, if any, of the REMIC's non-interest expenses. The
term "pass-through interest holder" generally refers to individuals, entities
taxed as individuals and certain pass-through entities including regulated
investment companies, but does not include real estate investment trusts.
Certificateholders that are "pass-through interest holders" should consult
their own tax advisors about the impact of these rules on an investment in the
Regular Certificates.
Treatment of Realized Losses. Although not entirely clear, it appears
that holders of REMIC Regular Certificates that are corporations should in
general be allowed to deduct as an ordinary loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly or partially
worthless and that, in general, holders of Certificates that are not
corporations should be allowed to deduct as a short-term capital loss any loss
sustained during the taxable year on account of any such Certificates becoming
wholly worthless. Although the matter is not entirely clear, non-corporate
holders of Certificates may be allowed a bad debt deduction at such time that
the principal balance of any such Certificate is reduced to reflect realized
losses resulting from any liquidated Mortgage Loans. The IRS, however, could
take the position that non-corporate holders will be allowed a bad debt
deduction to reflect realized losses only after all Mortgage Loans remaining
in the related Trust Fund have been liquidated or the Certificates of the
related Series have been otherwise retired. Prospective investors in and
holders of the Certificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Certificates, including any loss resulting from the
failure to recover previously accrued interest or discount income. Special
loss rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued original issue discount) on the Regular Certificates
to a Regular Certificateholder who is a non-U.S. Person not engaged in a trade
or business within the United States will not be subject to federal
withholding tax if (i) such Regular Certificateholder does not actually or
constructively own 10% or more of the combined voting power of all classes of
equity in the issuer (which for purposes of this discussion may be defined as
the Trust Fund or the beneficial owners of the related Residual Certificates
(the "issuer")); (ii) such Regular Certificateholder is not a controlled
foreign corporation (within the meaning of section 957 of the Code) related to
the issuer; and (iii) such Regular Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Regular Certificateholder under penalties of perjury, certifying that such
Regular Certificateholder is a foreign person and providing the name and
address of such Regular Certificateholder). If a Regular Certificateholder is
not exempt from withholding, distributions of interest, including
distributions in respect of accrued original issue discount, such holder may
be subject to a 30% withholding tax, subject to reduction under any applicable
tax treaty.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a nonresident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning
this question.
Regular Certificateholders who are non-U.S. Persons and persons related
to such holders should not acquire any Residual Certificates, and Residual
Certificateholders and persons related to Residual Certificateholders should
not acquire any Regular Certificates without consulting their tax advisors as
to the possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each Regular Certificateholder at any time during such year,
such information as may be deemed necessary or desirable to assist Regular
Certificateholders in preparing their federal income tax returns or to enable
holders to make such information available to owners or other financial
intermediaries of holders that hold such Regular Certificates. If a holder,
owner or other recipient of a payment on behalf of an owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31 % backup withholding
may be required with respect to any payments. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax liability.
New Withholding Regulations. On October 6, 1997, the Treasury Department
issued the New Regulations which make certain modifications to the backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
Residual Certificates
Allocation of the Income of the REMIC to the Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See "--Prohibited
Transactions and Other Taxes" below. Instead, each original holder of a
Residual Certificate will report on its federal income tax return, as ordinary
income, its share of the taxable income of the REMIC for each day during the
taxable year on which such holder owns any Residual Certificates. The taxable
income of the REMIC for each day will be determined by allocating the taxable
income of the REMIC for each calendar quarter ratably to each day in the
quarter. Such holder's share of the taxable income of the REMIC for each day
will be based on the portion of the outstanding Residual Certificates that
such holder owns on that day. The taxable income of the REMIC will be
determined under an accrual method and will be taxable to the Residual
Certificateholders without regard to the timing or amounts of cash
distributions by the REMIC. Ordinary income derived from Residual Certificates
will be "portfolio income" for purposes of the taxation of taxpayers subject
to the limitations on the deductibility of "passive losses". As residual
interests, the Residual Certificates will be subject to tax rules, described
below, that differ from those that would apply if the Residual Certificates
were treated for federal income tax purposes as direct ownership interests in
the Certificates or as debt instruments issued by the REMIC.
A Residual Certificateholder may be required to include taxable income
from the Residual Certificate in excess of the cash distributed. For example,
a structure where principal distributions are made serially on regular
interests (i.e., a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (i.e., "phantom income"). This
mismatching may be caused by the use of certain required tax accounting
methods by the REMIC, variations in the prepayment rate of the underlying
Mortgage Loans and certain other factors. Depending upon the structure of a
particular transaction, the aforementioned factors may significantly reduce
the after-tax yield of a Residual Certificate to a Residual Certificateholder.
Investors should consult their own tax advisors concerning the federal income
tax treatment of a Residual Certificate and the impact of such tax treatment
on the after-tax yield of a Residual Certificate.
A subsequent Residual Certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the REMIC for each day that such Residual Certificateholder owns such Residual
Certificate. Those daily amounts generally would equal the amounts that would
have been reported for the same days by an original Residual
Certificateholder, as described above. The Legislative History indicates that
certain adjustments may be appropriate to reduce (or increase) the income of a
subsequent holder of a Residual Certificate that purchased such Residual
Certificate at a price greater than (or less than) the adjusted basis such
Residual Certificate would have in the hands of an original Residual
Certificateholder. See "--Sale or Exchange of Residual Certificates" below. It
is not clear, however, whether such adjustments will in fact be permitted or
required and, if so, how they would be made. The REMIC Regulations do not
provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Loans and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and original issue discount on the Regular Certificates
and, except as described under "--Non-Interest Expenses of the REMIC" below,
other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the Regular and Residual Certificates (or, if a class of Certificates is
not sold initially, their fair market values). Such aggregate basis will be
allocated among the Mortgage Loans and other assets of the REMIC in proportion
to their respective fair market values. A Mortgage Loan will be deemed to have
been acquired with discount or premium to the extent that the REMIC's basis
therein is less or greater, respectively than its principal balance. Any such
discount (whether market discount or original issue discount) will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to such income, under a method similar to the method
described above for accruing original issue discount on the Regular
Certificates. The REMIC expects to elect under section 171 of the Code to
amortize any premium on the Mortgage Loans. Premium on any Mortgage Loan to
which such election applies would be amortized under a constant yield method.
It is likely that the yield of a Mortgage Loan would be calculated for this
purpose taking account of the Prepayment Assumption. However, such an election
would not apply to any Mortgage Loan originated on or before September 27,
1985. Instead, premium on such a Mortgage Loan would be allocated among the
principal payments thereon and would be deductible by the REMIC as those
payments become due.
The REMIC will be allowed a deduction for interest and original issue
discount on the Regular Certificates. The amount and method of accrual of
original issue discount will be calculated for this purpose in the same manner
as described above with respect to Regular Certificates except that the 0.25%
per annum de minimis rule and adjustments for subsequent holders described
therein will not apply.
A Residual Certificateholder will not be permitted to amortize the cost
of the Residual Certificate as an offset to its share of the REMIC's taxable
income. However, such taxable income will not include cash received by the
REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the Residual Certificates will be added to
the issue price of the Regular Certificates in determining the REMIC's initial
basis in its assets. See "--Sale or Exchange of Residual Certificates" below.
For a discussion of possible adjustments to income of a subsequent holder of a
Residual Certificate to reflect any difference between the actual cost of such
Residual Certificate to such holder and the adjusted basis such Residual
Certificate would have in the hands of an original Residual Certificateholder,
see "--Allocation of the Income of the REMIC to the Residual Certificates"
above.
Additional Taxable Income of Residual Interests. Any payment received by
a holder of a Residual Certificate in connection with the acquisition of such
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that
any such payment would be includible in income immediately upon its receipt or
accrual as ordinary income, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of Residual Certificates should consult
their tax advisors concerning the treatment of such payments for income tax
purposes.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would
be allocated among the Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any Residual Certificate
will not be deductible by the holder to the extent that such net loss exceeds
such holder's adjusted basis in such Residual Certificate. Any net loss that
is not currently deductible by reason of this limitation may only be used by
such Residual Certificateholder to offset its share of the REMIC's taxable
income in future periods (but not otherwise). The ability of Residual
Certificateholders that are individuals or closely held corporations to deduct
net losses may be subject to additional limitations under the Code.
Mark-to-Market Regulations. Prospective purchasers of a Residual
Certificate should be aware that the IRS finalized regulations (the
"Mark-to-Market Regulations") which provide that a Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest.
Non-Interest Expenses of the REMIC. The REMIC's taxable income will be
determined in the same manner as if the REMIC were an individual. However, all
or a portion of the REMIC's servicing, administrative and other non-interest
expenses will be allocated as a separate item to Residual Certificateholders
that are "pass-through interest holders". Such a holder would be required to
add an amount equal to its allocable share, if any, of such expenses to its
gross income and to treat the same amount as an item of investment expense.
Individuals are generally allowed a deduction for such an investment expense
only as a miscellaneous itemized deduction subject to the limitations under
section 67 of the Code which allows such deduction only to the extent that, in
the aggregate, all such expenses exceed 2% of an individual's adjusted gross
income. In addition, the personal exemptions and itemized deductions of
individuals with adjusted gross incomes above particular levels are subject to
certain limitations which reduce or eliminate the benefit of such items. The
REMIC is required to report to each pass-through interest holder and to the
IRS such holder's allocable share, if any, of the REMIC's non-interest
expenses. The term "pass-through interest holder" generally refers to
individuals, entities taxed as individuals and certain pass-through entities,
but does not include real estate investment trusts. Residual
Certificateholders that are "pass-through interest holders" should consult
their own tax advisors about the impact of these rules on an investment in the
Residual Certificates. See "--Regular Certificates--Non-Interest Expenses of
the REMIC" above.
Excess Inclusions. A portion of the income on a Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
will, with an exception discussed below for certain thrift institutions, be
subject to federal income tax in all events. Thus, for example, an excess
inclusion (i) may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a Residual Certificateholder; (ii)
will be treated as "unrelated business taxable income" within the meaning of
section 512 of the Code if the Residual Certificateholder is a pension fund or
any other organization that is subject to tax only on its unrelated business
taxable income (see "Tax-Exempt Investors" below); and (iii) is not eligible
for any reduction in the rate of withholding tax in the case of a Residual
Certificateholder that is a foreign investor. See "--Non-U.S. Persons" below.
The exception for thrift institutions is available only to the institution
holding the Residual Certificate and not to any affiliate of the institution,
unless the affiliate is a subsidiary all the stock of which, and substantially
all the indebtedness of which, is held by the institution, and which is
organized and operated exclusively in connection with the organization and
operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to any
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such Residual Certificateholder for
that calendar quarter from its Residual Certificate over (ii) the sum of the
"daily accruals" (as defined below) for all days during the calendar quarter
on which the Residual Certificateholder holds such Residual Certificate. For
this purpose, the daily accruals with respect to a Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable
portion of the product of the "adjusted issue price" (as defined below) of the
Residual Certificate at the beginning of the calendar quarter and 120% of the
"Federal long-term rate" in effect at the time the Residual Certificate is
issued. For this purpose, the "adjusted issue price" of a Residual Certificate
at the beginning of any calendar quarter equals the issue price of the
Residual Certificate, increased by the amount of daily accruals for all prior
quarters, and decreased (but not below zero) by the aggregate amount of
payments made on the Residual Certificate before the beginning of such
quarter. The "Federal long-term rate" is an average of current yields on
Treasury securities with a remaining term of greater than nine years, computed
and published monthly by the IRS.
In the case of any Residual Certificates held by a real estate investment
trust, the aggregate excess inclusions with respect to such Residual
Certificates, reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of section 857(b)(2) of the Code, excluding
any net capital gain), will be allocated among the shareholders of such trust
in proportion to the dividends received by such shareholders from such trust,
and any amount so allocated will be treated as an excess inclusion with
respect to a Residual Certificate as if held directly by such shareholder.
Regulated investment companies, common trust funds and certain cooperatives
are subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995 except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect of excess inclusions on the alternative
minimum taxable income of a Residual Certificateholder. First, the alternative
minimum taxable income for such Residual Certificateholder is determined
without regard to the special rule that taxable income cannot be less than
excess inclusion. Second, the amount of any alternative minimum tax net
operating loss deductions must be computed without regard to any excess
inclusions. Third, the Residual Certificateholder's alternative minimum
taxable income for a tax year cannot be less than excess inclusions for the
year. The effect of this last statutory amendment is to prevent the use of
nonrefundable tax credits to reduce a taxpayer's income tax below its
tentative minimum tax computed only on excess inclusions. These rules are
effective for tax years beginning after December 31, 1996, unless a residual
holder elects to have such rules apply only to tax years beginning after
August 20, 1996.
Payments. Any distribution made on a Residual Certificate to a Residual
Certificateholder will be treated as a non-taxable return of capital to the
extent it does not exceed the Residual Certificateholder's adjusted basis in
such Residual Certificate. To the extent a distribution exceeds such adjusted
basis, it will be treated as gain from the sale of the Residual Certificate.
Pass-Through of Miscellaneous Itemized Deductions . As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders
of the Residual Interests. In the case of a "single class REMIC", however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the holders of the Regular Certificates
and the holders of the Residual Certificates on a daily basis in proportion to
the relative amounts of income accruing to each Certificateholder on that day.
In the case of individuals (or trusts, estates or other persons who compute
their income in the same manner as individuals) who own an interest in a
Regular Certificate directly or through a pass-through entity which is
required to pass miscellaneous itemized deductions through to its owners or
beneficiaries (e.g., a partnership, an S corporation or a grantor trust), such
expenses will be deductible only to the extent that such expenses, plus other
"miscellaneous itemized deductions" of the individual, exceed 2% of such
individual's adjusted gross income. The reduction or disallowance of this
deduction coupled with the allocation of additional income may have a
significant impact on the yield of the Regular Certificate to such a holder.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. In general terms, a single class
REMIC is one that either (i) would qualify, under existing Treasury
regulations, as a grantor trust if it were not a REMIC (treating all interests
as ownership interests, even if they would be classified as debt for federal
income tax purposes) or (ii) is similar to such a trust and is structured with
the principal purpose of avoiding the single class REMIC rules. Unless
otherwise stated in the applicable Prospectus Supplement, the expenses of the
REMIC will be allocated to holders of the related Residual Certificates in
their entirety and not to holders of the related Regular Certificates.
Sale or Exchange of Residual Certificates. If a Residual Certificate is
sold or exchanged, the seller will generally recognize gain or loss equal to
the difference between the amount realized on the sale or exchange and its
adjusted basis in the Residual Certificate (except that the recognition of
loss may be limited under the "wash sale" rules described below). A holder's
adjusted basis in a Residual Certificate generally equals the cost of such
Residual Certificate to such Residual Certificateholder, increased by the
taxable income of the REMIC that was included in the income of such Residual
Certificateholder with respect to such Residual Certificate, and decreased
(but not below zero) by the net losses that have been allowed as deductions to
such Residual Certificateholder with respect to such Residual Certificate and
by the distributions received thereon by such Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the
Residual Certificate is held as a capital asset. However, Residual
Certificates will be "evidences of indebtedness" within the meaning of section
582(c)(1) of the Code, so that gain or loss recognized from sale of a Residual
Certificate by a bank or thrift institution to which such section applies
would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the
seller of a Residual Certificate reacquires such Residual Certificate or
acquires any other Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool" (as defined in section
7701(i)) of the Code during the period beginning six months before, and ending
six months after, the date of such sale, such sale will be subject to the
"wash sale" rules of section 1091 of the Code. In that event, any loss
realized by the Residual Certificateholder on the sale will not be deductible,
but instead will increase such Residual Certificateholder's adjusted basis in
the newly acquired asset.
Non-corporate taxpayers are subject to reduced maximum rates on long-term
capital gains and are generally subject to tax at ordinary income rates on
short-term capital gains. The deductibility of capital losses is subject to
certain limitations. Prospective investors should consult their own tax
advisors concerning these tax law provisions.
Prohibited Transactions and Other Taxes
The REMIC is subject to a tax at a rate equal to 100% of the net income
derived from "prohibited transactions". In general, a prohibited transaction
means the disposition of a Mortgage Loan other than pursuant to certain
specified exceptions, the receipt of investment income from a source other
than a Mortgage Loan or certain other permitted investments or the disposition
of an asset representing a temporary investment of payments on the Mortgage
Loans pending payment on the Residual Certificates or Regular Certificates. In
addition, the assumption of a Mortgage Loan by a subsequent purchaser could
cause the REMIC to recognize gain which would also be subject to the 100% tax
on prohibited transactions.
In addition, certain contributions to a REMIC made after the Closing Date
could result in the imposition of a tax on the REMIC equal to 100% of the
value of the contributed property.
It is not anticipated that the REMIC will engage in any prohibited
transactions or receive any contributions subject to the contributions tax.
However, in the event that the REMIC is subject to any such tax, unless
otherwise disclosed in the related Prospectus Supplement, such tax would be
borne first by the Residual Certificateholders, to the extent of amounts
distributable to them, and then by the Master Servicer.
Liquidation and Termination
If the REMIC adopts a plan of complete liquidation, within the meaning of
section 860F(a)(4)(A)(i) of the Code, which may be accomplished by designating
in the REMIC's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on such date, the REMIC will not be subject to any prohibited
transaction tax, provided that the REMIC credits or distributes in liquidation
all of the sale proceeds plus its cash (other than the amounts retained to
meet claims) to holders of Regular and Residual Certificates within the 90-day
period.
The REMIC will terminate shortly following the retirement of the Regular
Certificates. If a Residual Certificateholder's adjusted basis in the Residual
Certificate exceeds the amount of cash distributed to such Residual
Certificateholder in final liquidation of its interest, it would appear that
the Residual Certificateholder would be entitled to a loss equal to the amount
of such excess. It is unclear whether such a loss, if allowed, will be a
capital loss or an ordinary loss.
Administrative Matters
Solely for the purpose of the administrative provisions of the Code, the
REMIC will be treated as a partnership and the Residual Certificateholders
will be treated as the partners. Under Temporary Regulations, however, if
there is at no time during the taxable year more than one Residual
Certificateholder, a REMIC shall not be subject to the rules of subchapter C
of chapter 63 of the Code relating to the treatment of partnership items for a
taxable year. Accordingly, the REMIC will file an annual tax return on Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. In
addition, certain other information will be furnished quarterly to each
Residual Certificateholder who held such Residual Certificate on any day in
the previous calendar quarter.
Each Residual Certificateholder is required to treat items on its return
consistently with their treatment on the REMIC's return, unless the Residual
Certificateholder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from incorrect information
received from the REMIC. The IRS may assert a deficiency resulting from a
failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to section 6111 of the Code because it is
not anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a Residual Certificate
as a nominee for another person may be required to furnish the REMIC, in a
manner to be provided in Treasury regulations, with the name and address of
such person and other information.
Tax-Exempt Investors
Any Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of section 512 of the Code will be subject
to such tax on that portion of the distributions received on a Residual
Certificate that is considered an "excess inclusion." See "--Residual
Certificates--Excess Inclusions" above.
Non-U.S. Persons
Amounts paid to Residual ____ Certificateholders who are not U.S. Persons
(see "--Regular Certificates--Non-U.S. Persons" above) are treated as interest
for purposes of the 30% (or lower treaty rate) United States withholding tax.
Amounts distributed to Residual Certificateholders should qualify as
"portfolio interest", subject to the conditions described in "--Regular
Certificates" above, but only to the extent that the Mortgage Loans were
originated after July 18, 1984. Furthermore, the rate of withholding on any
income on a Residual Certificate that is excess inclusion income will not be
subject to reduction under any applicable tax treaties. See "--Residual
Certificates--Excess Inclusions" above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the Residual Certificate is disposed
of) under rules similar to those for withholding upon disposition of debt
instruments that have original issue discount. The Code, however, grants the
Treasury authority to issue regulations requiring that those amounts be taken
into account earlier than otherwise provided where necessary to prevent
avoidance of tax (e.g., where the Residual Certificates do not have
significant value). See "--Residual Certificates--Excess Inclusions" above. If
the amounts paid to Residual Certificateholders that are not U.S. Persons are
effectively connected with their conduct of a trade or business within the
United States, the 30% (or lower treaty rate) withholding tax will not apply.
Instead, the amounts paid to such non-U.S. Person will be subject to U. S.
federal income taxation at regular graduated rates. For special restrictions
on the transfer of Residual Certificates, see "--Tax-Related Restrictions on
Transfers of Residual Certificates" below.
Regular Certificateholders and persons related to such holders should not
acquire any Residual Certificates, and Residual Certificateholders and persons
related to Residual Certificateholders should not acquire any Regular
Certificates without consulting their tax advisors as to the possible adverse
tax consequences of such acquisition.
Tax-Related Restrictions on Transfers of Residual Certificates
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests
in such entity are not held by "disqualified organizations" (as defined
below). Further, a tax is imposed on the transfer of a residual interest in a
REMIC to a "disqualified organization". The amount of the tax equals the
product of (A) an amount (as determined under the REMIC Regulations) equal to
the present value of the total anticipated "excess inclusions" with respect to
such interest for periods after the transfer and (B) the highest marginal
federal income tax rate applicable to corporations. The tax is imposed on the
transferor unless the transfer is through an agent (including a broker or
other middlemen) for a disqualified organization, in which event the tax is
imposed on the agent. The person otherwise liable for the tax shall be
relieved of liability for the tax if the transferee furnished to such person
an affidavit that the transferee is not a disqualified organization and, at
the time of the transfer, such person does not have actual knowledge that the
affidavit is false. A "disqualified organization" means (A) the United States,
any state, possession, or political subdivision thereof, any foreign
government, any international organization, or any agency or instrumentality
of any of the foregoing (provided that such term does not include an
instrumentality if all its activities are subject to tax and, except for
Freddie Mac, a majority of its board of directors is not selected by any such
governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization
is the record holder of an interest in such entity, will be relieved of
liability for the tax if such record holder furnishes to such entity an
affidavit that such record holder is not a disqualified organization and, for
such period, the pass-through entity does not have actual knowledge that the
affidavit is false. For this purpose, a "pass-through entity" means (i) a
regulated investment company, real estate investment trust or common trust
fund, (ii) a partnership, trust or estate and (iii) certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any person
holding an interest in a pass-through entity as a nominee for another will,
with respect to such interest, be treated as a pass-through entity. The tax on
pass-through entities is generally effective for periods after March 31, 1988,
except that in the case of regulated investment companies, real estate
investment trusts, common trust funds and publicly-traded partnerships the tax
shall apply only to taxable years of such entities beginning after December
31, 1988. Under proposed legislation, large partnerships (generally with 250
or more partners) will be taxable on excess inclusion income as if all
partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a Residual Certificate may be,
directly or indirectly, purchased, transferred or sold without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the Residual Certificate as a
nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the Residual
Certificate.
Non-economic Residual Certificates. The REMIC Regulations disregard, for
federal income tax purposes, any transfer of a Non-economic Residual
Certificate to a "U.S. Person", as defined in the following section of this
discussion, unless no significant purpose of the transfer is to enable the
transferor to impede the assessment or collection of tax. A "Non-economic
Residual Certificate" is any Residual Certificate (including a Residual
Certificate with a positive value at issuance) unless at the time of transfer,
taking into account the Prepayment Assumption and any required or permitted
clean up calls or required liquidation provided for in the REMIC's
organizational documents, (i) the present value of the expected future
distributions on the Residual Certificate at least equals the product of the
present value of the anticipated excess inclusions and the highest corporate
income tax rate in effect for the year in which the transfer occurs and (ii)
the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. A significant purpose to impede the assessment or collection of tax
exists if the transferor, at the time of the transfer, either knew or should
have known that the transferee would be unwilling or unable to pay taxes due
on its share of the taxable income of the REMIC. A transferor is presumed not
to have such knowledge if (i) the transferor conducted a reasonable
investigation of the transferee and (ii) the transferee acknowledges to the
transferor that the residual interest may generate tax liabilities in excess
of the cash flow and the transferee represents that it intends to pay such
taxes associated with the residual interest as they become due.
The IRS has issued proposed Treasury regulations that would add to the
conditions necessary to ensure that a transfer of a noneconomic residual
interest would be respected. The proposed additional condition provides that
the transfer of a noneconomic residual interest will not qualify under this
safe harbor unless the present value of the anticipated tax liabilities
associated with holding the residual interest does not exceed the present
value of the sum of
o any consideration given to the transferee to acquire the interest
(the inducement payment),
o future distributions on the interest, and
o any anticipated tax savings associated with holding the interest as
the REMIC generates losses.
For purposes of this calculation, the present value is calculated using a
discount rate equal to the lesser of the applicable federal rate and the
transferee's cost of borrowing. The proposed effective date for the changes is
February 4, 2000.
If a transfer of a Non-economic Residual Certificate is disregarded, the
transferor would continue to be treated as the owner of the Residual
Certificate and would continue to be subject to tax on its allocable portion
of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a "U.S. Person", as defined below, unless
such transferee's income in respect of the Residual Certificate is effectively
connected with the conduct of a United States trade or business. A Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee amounts that will equal at least 30% of each excess inclusion
and that such amounts will be distributed at or after the time the excess
inclusion accrues and not later than the end of the calendar year following
the year of accrual. If the non-U.S. Person transfers the Residual Certificate
to a U.S. Person, the transfer will be disregarded and the foreign transferor
will continue to be treated as the owner, if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions. The
provisions in the REMIC Regulations regarding transfers to foreign persons of
Residual Certificates that have tax avoidance potential are effective for all
transfers after June 30, 1992. The Agreement will provide that no record or
beneficial ownership interest in a Residual Certificate may be, directly or
indirectly, transferred to a non-U.S. Person unless such person provides the
Trustee with a duly completed IRS Form 4224 or IRS Form W-8ECI and the Trustee
consents to such transfer in writing. IRS Form 4224 will not be valid after
December 31, 2000.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in Residual Certificates are advised to
consult their own tax advisors with respect to transfers of the Residual
Certificates and, in addition, passthrough entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Considerations", potential investors should consider the
state and local income tax consequences of the acquisition, ownership, and
disposition of the Certificates. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or
locality. Therefore, potential investors should consult their own tax advisors
with respect to the various tax consequences of investments in the
Certificates.
ERISA CONSIDERATIONS
The following describes certain considerations under the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code,
which apply only to Certificates of a Series that are not divided into
subclasses. If Certificates are divided into subclasses the related Prospectus
Supplement will contain information concerning considerations relating to
ERISA and the Code that are applicable to such Certificates.
ERISA and the Code impose requirements on certain employee benefit plans
(and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts in which such plans, accounts or arrangements are
invested) (collectively, "Plans") and on persons who are fiduciaries with
respect to such Plans. Generally, ERISA applies to investments made by Plans.
Among other things, ERISA requires that the assets of Plans be held in trust
and that the trustee, or other duly authorized fiduciary, have exclusive
authority and discretion to manage and control the assets of such Plans. ERISA
also imposes certain duties on persons who are fiduciaries of Plans. Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a Plan is considered to be a
fiduciary of such Plan (subject to certain exceptions not here relevant).
Certain employee benefit plans, such as governmental plans (as defined in
section 3(32) of ERISA) and, if no election has been made under section 410(d)
of the Code, church plans (as defined in section 3(33) of ERISA), are not
subject to ERISA requirements. Accordingly, assets of such plans may be
invested in Certificates without regard to the ERISA considerations described
above and below, subject to the provisions of applicable state law. Any such
plan which is qualified and exempt from taxation under sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules
set forth in section 503 of the Code.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain
other entities in which a Plan makes an "equity" investment could be deemed
for purposes of ERISA to be assets of the investing Plan in certain
circumstances. However, the regulation provides that, generally, the assets of
a corporation or partnership in which a Plan invests will not be deemed for
purposes of ERISA to be assets of such Plan if the equity interest acquired by
the investing Plan is a publicly-offered security. A publicly-offered
security, as defined in Labor Reg. Section 2510.3-101, is a security that is
widely held, freely transferable and registered under the Exchange Act.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA and the Code prohibit a broad
range of transactions involving Plan assets and persons ("Parties in
Interest") having certain specified relationships to a Plan and impose
additional prohibitions where Parties in Interest are fiduciaries with respect
to such Plan. Because the Mortgage Loans may be deemed Plan assets of each
Plan that purchases Certificates, an investment in the Certificates by a Plan
might be, or give rise to, a transaction prohibited under sections 406 and 407
of ERISA and subject to an excise tax under section 4975 of the Code unless a
statutory, regulatory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), the DOL exempted
from ERISA's prohibited transaction rules certain transactions relating to the
operation of residential mortgage pool investment trusts and the purchase,
sale and holding of "mortgage pool pass-through certificates" in the initial
issuance of such certificates. PTE 83-1 permits, subject to certain
conditions, transactions which might otherwise be prohibited between Plans and
Parties in Interest with respect to those Plans related to the origination,
maintenance and termination of mortgage pools consisting of mortgage loans
secured by first or second mortgages or deeds of trust on single-family
residential property, and the acquisition and holding of certain mortgage pool
pass-through certificates representing an interest in such mortgage pools by
Plans. If the general conditions (discussed below) of PTE 83-1 are satisfied,
investments by a Plan in Certificates that represent interests in a Mortgage
Pool consisting of Single Family Loans ("Single Family Certificates") will be
exempt from the prohibitions of sections 406(a) and 407 of ERISA (relating
generally to transactions with Parties in Interest who are not fiduciaries) if
the Plan purchases the Single Family Certificates at no more than fair market
value and will be exempt from the prohibitions of sections 406(b)(1) and (2)
of ERISA (relating generally to transactions with fiduciaries) if, in
addition, the purchase is approved by an independent fiduciary, no sales
commission is paid to the pool sponsor, the Plan does not purchase more than
25% of all Single Family Certificates, and at least 50% of all Single Family
Certificates are purchased by persons independent of the pool sponsor or pool
trustee. PTE 83-1 does not provide an exemption for transactions involving
Subordinate Certificates or for Certificates representing an interest in a
Mortgage Pool containing Multifamily Loans or Contracts or Cooperative Loans.
Accordingly, unless the related Prospectus Supplement indicates that an
exemption other than PTE 83-1 is available, no transfer of a Subordinate
Certificate or a Certificate which is not a Single Family Certificate may be
made to a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Certificates. The Depositor believes that, for purposes of PTE
83-1, the term "mortgage pass-through certificate" would include: (i)
Certificates issued in a Series consisting of only a single class of
Certificates; and (ii) Senior Certificates issued in a Series in which there
is only one class of Senior Certificates; provided that the Certificates in
the case of clause (i), or the Senior Certificates in the case of clause (ii),
evidence the beneficial ownership of both a specified percentage (greater than
0%) of future interest payments and a specified percentage (greater than 0%)
of future principal payments on the Mortgage Loans. It is not clear whether a
class of Certificates that evidences the beneficial ownership of a specified
percentage of interest payments only or principal payments only, or a notional
amount of either principal or interest payments would be a "mortgage
pass-through certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of the
aggregate principal balance of all covered pooled mortgage loans or the
principal balance of the largest covered pooled mortgage loan; (ii) the
existence of a pool trustee who is not an affiliate of the pool sponsor; and
(iii) a limitation on the amount of the payment retained by the pool sponsor,
together with other funds inuring to its benefit, to not more than adequate
consideration for selling the mortgage loans plus reasonable compensation for
services provided by the pool sponsor to the Mortgage Pool. The Depositor
believes that the first general condition referred to above will be satisfied
with respect to the Certificates in a Series issued without a subordination
feature, or the Senior Certificates only in a Series issued with a
subordination feature, provided that the subordination and Reserve Fund,
subordination by shifting of interests, the pool insurance or other form of
credit enhancement described herein (such subordination, pool insurance or
other form of credit enhancement being the system of insurance or other
protection referred to above) with respect to a Series of Certificates is
maintained in an amount not less than the greater of one percent of the
aggregate principal balance of the Mortgage Loans or the principal balance of
the largest Mortgage Loan. See "Description of the Certificates". In the
absence of a ruling that the system of insurance or other protection with
respect to a Series of Certificates satisfies the first general condition
referred to above, there can be no assurance that these features will be so
viewed by the DOL. The Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Single Family
Certificates must make its own determination as to whether the first and third
general conditions, and the specific conditions described briefly in the
preceding paragraph, of PTE 83-1 have been satisfied, or as to the
availability of any other prohibited transaction exemptions. Each Plan
fiduciary should also determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the Certificates
is appropriate for the Plan, taking into account the overall investment policy
of the Plan and the composition of the Plan's investment portfolio.
On September 6, 1990 the DOL issued to Greenwich Capital Markets, Inc. an
individual exemption (Prohibited Transaction Exemption 90-59, as amended;
Exemption Application No. D-8374, 55 Fed. Reg. 36724 (1990)) (the "Underwriter
Exemption") from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holdings and the subsequent resale by Plans of
"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.
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 modified by Letter to Credit Unions No. 108, which
includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities, and the NCUA's regulation
"Investment and Deposit Activities" (12 C.F.R. Part 703), which sets forth
certain restrictions on investment by federal credit unions in mortgage
related securities.
All depository institutions considering an investment in the Certificates
(whether or not the Class of Certificates under consideration for purchase
constitutes a "mortgage related security") should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators)
(the "Policy Statement"), setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including "mortgage related securities", which are
"high-risk mortgage securities" as defined in the Policy Statement. According
to the Policy Statement, such "high-risk mortgage securities" include
securities such as Certificates not entitled to distributions allocated to
principal or interest, or Subordinated Certificates. Under the Policy
Statement, it is the responsibility of each depository institution to
determine, prior to purchase (and at stated intervals thereafter), whether a
particular mortgage derivative product is a "high-risk mortgage security", and
whether the purchase (or retention) of such a product would be consistent with
the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits and
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplement will be
offered in Series. The distribution of the Certificates may be effected from
time to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices to be determined at the
time of sale or at the time of commitment therefor. If so specified in the
related Prospectus Supplement and subject to the receipt of any required
approvals from the Board of Governors of the Federal Reserve System, the
Certificates will be distributed in a firm commitment underwriting, subject to
the terms and conditions of the underwriting agreement, by Greenwich Capital
Markets, Inc. ("GCM") acting as underwriter with other underwriters, if any,
named therein. In such event, the related Prospectus Supplement may also
specify that the underwriters will not be obligated to pay for any
Certificates agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the Depositor. In connection with the sale of the
Certificates, underwriters may receive compensation from the Depositor or from
purchasers of the Certificates in the form of discounts, concessions or
commissions. The related Prospectus Supplement will describe any such
compensation paid by the Depositor.
Alternatively, the related Prospectus Supplement may specify that the
Certificates will be distributed by GCM acting as agent or in some cases as
principal with respect to Certificates that it has previously purchased or
agreed to purchase. If GCM acts as agent in the sale of Certificates, GCM will
receive a selling commission with respect to each Series of Certificates,
depending on market conditions, expressed as a percentage of the aggregate
principal balance of the related Mortgage Assets as of the Cut-off Date. The
exact percentage for each Series of Certificates will be disclosed in the
related Prospectus Supplement. To the extent that GCM elects to purchase
Certificates as principal, GCM may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any Series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of
Certificates of such Series.
The Depositor will indemnify GCM and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended, or will contribute to payments GCM and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, GCM and the Depositor may engage in
various securities and financing transactions, including repurchase agreements
to provide interim financing of the Depositor's mortgage loans pending the
sale of such mortgage loans or interests therein, including the Certificates.
The Depositor anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended,
in connection with reoffers and sales of Certificates by them. Holders of
Certificates should consult with their legal advisors in this regard prior to
any such reoffer or sale.
LEGAL MATTERS
The legality of the Certificates of each Series, including certain
federal income tax consequences with respect thereto, will be passed upon for
the Depositor by Brown & Wood llp, One World Trade Center, New York, New York
10048.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
AVAILABLE INFORMATION
The Depositor has filed with the SEC (the ("SEC") a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
Certificates. This Prospectus, which forms a part of the Registration
Statement, and the Prospectus Supplement relating to each Series of
Certificates contain summaries of the material terms of the documents referred
to herein and therein, but do not contain all of the information set forth in
the Registration Statement pursuant to the Rules and Regulations of the SEC.
For further information, reference is made to such Registration Statement and
the exhibits thereto. Such Registration Statement and exhibits can be
inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at its Public Reference Section, 450 Fifth Street, N.
W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and New York Regional Office, 7 World Trade Center, New
York, New York 10048. In addition, the SEC maintains a website at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Depositor, that file
electronically with the SEC.
RATINGS
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement that they shall have been
rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies specified in the related
Prospectus Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the credit enhancer or guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which
such prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped pass-through certificates in certain cases might
fail to recoup their underlying investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating.
INDEX OF DEFINED TERMS
Page
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
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
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
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
The following table sets forth the estimated expenses to be incurred in
connection with the offering of the Certificates, other than underwriting
discounts and commissions:
SEC Registration Fee.................................. $ 528,000**
Trustee's Fees and Expenses........................... 75,000
Printing and Engraving................................ 185,000
Legal Fees and Expenses............................... 565,000
Blue Sky Fees......................................... 100,000
Accounting Fees and Expenses.......................... 185,000
Rating Agency Fees.................................... 420,000
Miscellaneous......................................... 90,000
----------
Total................................................. $2,148,000
==========
---------
* All amounts, except the SEC Registration Fee, are estimates of
aggregate expenses incurred or to be incurred in connection with the issuance
and distribution of Certificates in an aggregate principal amount assumed for
these purposes to be equal to $2,125,542,241 of Certificates registered hereby.
** This amount relates to the $2,000,000,000 of additional Mortgage
Pass-Through Certificates registered hereby. The remaining $125,542,241 of
Mortgage Pass-Through Certificates relates to registration statement No.
333-90547, and the registration fee with respect thereto has been previously
paid.
---------
Item 15. Indemnification of Directors and Officers.
Under Section 8(b) of the proposed form of Underwriting Agreement, the
Underwriters are obligated under certain circumstances to indemnify certain
controlling persons of the Depositor against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act").
The Depositor's By-laws provide for indemnification of directors and
officers of the Depositor to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are
or were such directors, officers, employees or agents, against expenses
incurred in any such action, suit or proceeding.
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Depositor is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad
faith, gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements will provide
further that, with the exceptions stated above, a director, officer, employee
or agent of the Depositor is entitled to be indemnified against any loss,
liability or expenses incurred in connection with legal actions relating to
such Pooling and Servicing Agreements and the related Certificates, other than
such expenses relating to particular Mortgage Loans.
Item 16. Exhibits.
(a) Financial Statements:
None.
(b) Exhibits:
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of Depositor*
3.2 By-laws of Depositor*
4.1(a) Form of Pooling and Servicing Agreement with respect
to fixed-rate Mortgage Loans, including forms of
Certificates*
4.1(b) Form of Pooling and Servicing Agreement with respect
to adjustable-rate Mortgage Loans, including forms
of Certificates**
5.1 Opinion of Brown & Wood LLP as to legality of the
Certificates
8.1 Opinion of Brown & Wood LLP as to certain tax
matters
10.1 Form of Mortgage Sale Agreement between Seller and
Purchaser**
23.1 Consent of Brown & Wood LLP (included in Exhibits 5.1
and 8.1 hereto)
24.1 Powers of Attorney (included on Page II-4)
24.2 Statement of Eligibility and Qualification of
Trustee.***
---------
* Filed as an exhibit to Registration Statement No.
33-42443 on Form S-11 and incorporated herein by reference.
** Filed as an exhibit to Registration Statement No. 33-52720
on Form S-11 and incorporated herein by reference.
*** To be filed on Form 8-K.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934, as amended), that is
incorporated by reference in the registration statement shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933, as
amended, and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Greenwich, Connecticut, on the 7th
day of April, 2000.
GREENWICH CAPITAL ACCEPTANCE, INC.
By: /s/ Robert J. McGinnis*
-------------------------
Robert J. McGinnis
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President (Principal Executive May 30, 2000
/s/ Robert J. McGinnis* Officer
---------------------------
Robert J. McGinnis
Senior Vice President and May 30, 2000
/s/ John M. Ryan* Controller
--------------------------- (Principal Financial Officer and
John M. Ryan Principal Accounting Officer)
Senior Vice President, Secretary May 30, 2000
/s/ John C. Anderson* and Director
---------------------------
John C. Anderson
/s/ Jay N. Levine* Director May 30, 2000
---------------------------
Jay N. Levine
*By: /s/ John Paul Graham
---------------------------
John Paul Graham
Attorney-in-Fact pursuant
to a power of attorney
filed with the Registration
Statement
<PAGE>
EXHIBIT 5.1
May 31, 2000
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Re: Greenwich Capital Acceptance, Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Greenwich Capital Acceptance, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of
the registration statement on Form S-3 (the "Registration Statement") relating
to the Certificates (defined below) and with the authorization and issuance
from time to time in one or more series (each, a "Series") of up to
$2,000,000,000 aggregate principal amount of mortgage pass-through
certificates (the "Certificates"). As set forth in the Registration Statement,
each Series of Certificates will be issued under and pursuant to the terms of
a separate pooling and servicing agreement, master pooling and servicing
agreement, pooling agreement or trust agreement (each, an "Agreement") among
the Company, a trustee (the "Trustee") and, where appropriate, a servicer (the
"Servicer"), each to be identified in the prospectus supplement for such
Series of Certificates.
We have examined copies of the Company's Restated Certificate of
Incorporation, the Company's By-laws and forms of each Agreement, as filed or
incorporated by reference as exhibits to the Registration Statement, and the
forms of Certificates included in any Agreement so filed or incorporated by
reference in the Registration Statement and such other records, documents and
statutes as we have deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. When any Agreement relating to a Series of Certificates has been duly
and validly authorized by all necessary action on the part of the Company and
has been duly executed and delivered by the Company, the Servicer, if any, the
Trustee and any other party thereto, such Agreement will constitute a legal,
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting creditors'
rights generally or by general equity principles.
2. When a Series of Certificates has been duly authorized by all
necessary action on the part of the Company (subject to the terms thereof
being otherwise in compliance with applicable law at such time), duly executed
and authenticated by the Trustee for such Series in accordance with the terms
of the related Agreement and issued and delivered against payment therefor as
described in the Registration Statement, such Series of Certificates will be
legally and validly issued, fully paid and nonassessable, and the holders
thereof will be entitled to the benefits of the related Agreement.
In rendering the foregoing opinions, we express no opinion as to the laws
of any jurisdiction other than the laws of the State of New York (excluding
choice of law principles therein) and the federal laws of the United States of
America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in each Prospectus forming a part of the Registration
Statement, without admitting that we are "experts" within the meaning of the
Securities Act of 1933, as amended, or the Rules and Regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
/s/ BROWN & WOOD LLP
<PAGE>
EXHIBIT 8.1
May 31, 2000
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Re: Greenwich Capital Acceptance, Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel for Greenwich Capital Acceptance,
Inc., a Delaware corporation (the "Company"), in connection with the
preparation of the registration statement on Form S-3 (the "Registration
Statement") relating to the Certificates (defined below) and with the
authorization and issuance from time to time in one or more series (each, a
"Series") of up to $2,000,000,000 aggregate principal amount of mortgage
pass-through certificates (the "Certificates"). The Registration Statement is
being filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. As set forth in the Registration Statement, each
Series of Certificates will be issued under and pursuant to the terms of a
separate pooling and servicing agreement, master pooling and servicing
agreement, pooling agreement or trust agreement (each an "Agreement") among
the Company, a trustee (the "Trustee") and, where appropriate, a servicer (the
"Servicer"), each to be identified in the prospectus supplement for such
Series of Certificates.
We have examined the prospectus and forms of prospectus supplement
related thereto contained in the Registration Statement (each, a "Prospectus")
and such other documents, records and instruments as we have deemed necessary
for the purposes of this opinion.
In arriving at the opinion expressed below, we have assumed that each
Agreement will be duly authorized by all necessary corporate action on the
part of the Company, the Trustee, the Servicer (where applicable) and any
other party thereto for such Series of Certificates and will be duly executed
and delivered by the Company, the Trustee, the Servicer and any other party
thereto substantially in the applicable form filed or incorporated by
reference as an exhibit to the Registration Statement, that each Series of
Certificates will be duly executed and delivered in substantially the forms
set forth in the related Agreement filed or incorporated by reference as an
exhibit to the Registration Statement, and that Certificates will be sold as
described in the Registration Statement.
As special tax counsel to the Company, we have advised the Company with
respect to certain material federal income tax aspects of the proposed
issuance of each Series of Certificates pursuant to the related Agreement.
Such advice has formed the basis for the description of selected federal
income tax consequences for holders of such Certificates that appear under the
headings "Certain Material Federal Income Tax Consequences" in each Prospectus
forming a part of the Registration Statement. Such description does not
purport to discuss all possible federal income tax ramifications of the
proposed issuance of the Certificates, but with respect to those federal
income tax consequences described therein, such description is accurate in all
material respects.
This opinion is based on the facts and circumstances set forth in the
Registration Statement and in the other documents reviewed by us. Our opinion
as to the matters set forth herein could change with respect to a particular
Series of Certificates as a result of changes in facts or circumstances,
changes in the terms of the documents reviewed by us, or changes in the law
subsequent to the date hereof. Because the Prospectuses contemplate Series of
Certificates with numerous different characteristics, you should be aware that
the particular characteristics of each Series of Certificates must be
considered in determining the applicability of this opinion to a particular
Series of Certificates.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Certain Material Federal Income Tax Consequences" in each Prospectus forming
a part of the Registration Statement, without admitting that we are "experts"
within the meaning of the 1933 Act or the Rules and Regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours
/s/ BROWN & WOOD LLP
