As filed with the Securities and Exchange Commission on January 5, 2001
Registration Statement No. 333-50248
===============================================================================
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 06-1199884
(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. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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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................ $1,000,000 100% $1,000,000 (2)
===========================================================================================================================
</TABLE>
(1) $287,080,741 aggregate principal amount of Mortgage Pass-Through
Certificates registered under Registration Statement No. 333-34330
referred to below and not previously sold is carried forward in this
Registration Statement pursuant to Rule 429. $2,000,000,000
aggregate principal amount of Mortgage Pass-Through Certificates was
filed for registration under Registration Statement No. 333-34330
and a registration fee of $528,000 was paid in connection with such
prior filing.
(2) Previously paid.
Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
prospectus and forms of prospectus supplement included in this Registration
Statement also relate to Registration Statement No. 333-34330, which was
previously filed by the Registrant on Form S-3 and declared effective on June
7, 2000. This amendment to the Registration Statement also constitutes
Post-Effective Amendment No. 2 to Registration Statement No. 333-34330 and
such Post-Effective Amendment No. 2 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.
==============================================================================
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 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 January 5, 2001
Prospectus Supplement
(To Prospectus dated __________, 200_)
Mortgage Loan Trust 200_-_
Mortgage Pass-Through Certificates, Series 200_-_
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]
The Trust
o The Trust will issue [___] classes of certificates, of which the
three classes listed above are offered by this prospectus supplement
and the accompanying prospectus.
o The Trust assets will consist primarily of single family mortgage
loans
The Certificates
o The certificates represent ownership interests in the trust assets.
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.
o Each class of offered certificates will have the benefit of credit
enhancement to the extent described in this prospectus supplement.
-------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page S-9 of this prospectus
supplement and on page 6 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.
-------------------------------------------------------------------------------
Neither the Securities and Exchange Commission 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.
_____________________ will offer the certificates listed above in negotiated
transactions. Proceeds to the depositor are expected to be approximately
$_____________, before deducting issuance expenses estimated to be
$_____________. See "Method of Distribution" in this prospectus supplement.
___________________
[Logos of Underwriters]
____________ __, 200_
<PAGE>
Table of Contents
Summary of Terms............................................................S-3
Risk Factors................................................................S-9
The Mortgage Pool..........................................................S-17
General.................................................................S-17
Mortgage Loan Statistics................................................S-17
Adjustable Rate Mortgage Loans..........................................S-23
The Loan Index..........................................................S-30
Underwriting Standards.....................................................S-30
The Master Servicer........................................................S-31
The Pooling and Servicing Agreement........................................S-33
General.................................................................S-33
Assignment of the Mortgage Loans........................................S-33
Payments on Mortgage Loans; Deposits to Collection Account
and Distribution Account..............................................S-35
Advances................................................................S-37
The Trustee.............................................................S-38
Servicing and Other Compensation and Payment of Expenses................S-39
Voting Rights...........................................................S-39
Amendment...............................................................S-40
Termination.............................................................S-40
[Optional Purchase of Defaulted Loans...................................S-41
Events of Default.......................................................S-41
Rights upon Event of Default............................................S-41
Description of the Certificates............................................S-42
General.................................................................S-42
Book-Entry Certificates.................................................S-43
Priority of Distributions Among Certificates............................S-48
Allocation of Available Funds...........................................S-48
Pass-Through Rates......................................................S-50
Calculation of [One-Month LIBOR]........................................S-50
Application of Allocable Loss Amounts...................................S-51
[Excess Reserve Fund Account............................................S-52
Reports to Certificateholders...........................................S-52
Yield, Prepayment and Maturity Considerations..............................S-54
Overcollateralization Provisions........................................S-55
[Additional Information.................................................S-56
Weighted Average Lives..................................................S-56
Use of Proceeds............................................................S-58
Material Federal Income Tax Consequences...................................S-58
Taxation of Regular Interests...........................................S-58
Status of the Offered Certificates......................................S-59
Non-U.S. Persons........................................................S-59
Prohibited Transactions Tax and Other Taxes.............................S-60
Backup Withholding......................................................S-61
State Taxes................................................................S-61
ERISA Considerations.......................................................S-62
Legal Investment Considerations............................................S-65
Method of Distribution.....................................................S-65
Legal Matters..............................................................S-66
Ratings....................................................................S-66
Glossary of Terms..........................................................S-68
Annex I.....................................................................A-1
<PAGE>
Summary of Terms
o This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of an offering
of the certificates, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flow
priorities and other information to aid your understanding and is
qualified by the full description of these calculations, cash flow
priorities and other information in this prospectus supplement and the
accompanying prospectus. Some of the information consists of
forward-looking statements relating to future economic performance or
projections and other financial items. Forward-looking statements are
subject to a variety of risks and uncertainties that could cause actual
results to differ from the projected results. Those risks and
uncertainties include, among others, general economic and business
conditions, regulatory initiatives and compliance with governmental
regulations, and various other matters, all of which are beyond our
control. Accordingly, what actually happens may be very different from
what we predict in our forward-looking statements.
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.
Each class of certificates that is being offered will be book-entry securities
in minimum denominations of $50,000 clearing through DTC [in the United States
or Clearstream or Euroclear (in Europe)].
Trust Fund
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.
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
balance.] The Class R Certificates will have an original 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
__________ __, 200_
Closing Date
On or about __________ __, 200_
The Depositor
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
Seller
[_____________________]
Master Servicer
[_____________________]
Trustee
[_____________________]
Originator(s)
[_____________________]
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 ___________ __, 200_ 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 _________ __, 200_. 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 these 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 these 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 it 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 will be applied to pay principal on the offered
certificates, which reduces the principal balance of the certificates at a
faster rate than the principal balance of 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.
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 be
applied first 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 these 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.
Material Federal Income Tax Consequences
In the opinion of Brown & Wood LLP, for federal income tax purposes the trust
will include [multiple segregated asset pools] each of which will qualify 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, in each case 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 "Material Federal Income Tax Consequences" in this prospectus supplement
and in the prospectus.
ERISA Considerations
It is expected that the Class A, [Class M and Class B] 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 Considerations
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 in the
prospectus.
Listing
The certificates are not listed, and no party to the transaction intends to
list the certificates on any stock exchange or to quote them in the automated
quotation system of a registered securities association.
Risk Factors
There are risks associated with an investment in the certificates. You should
consider carefully the material risks disclosed under the heading "Risk
Factors" beginning on page S-9.
Risk Factors
The following information, together with the information set forth under
"Risk Factors" in the prospectus which you should carefully consider, identify
the principal risk factors of an investment in the certificates.
Prepayments on the loans
may adversely affect the
average life of, and rate of
return on, your certificates............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 [The mortgage loans held in the
trust include "balloon loans."
Balloon loans generally provide for
scheduled monthly payments 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 up 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 overcollateral-
ization 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 are 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
may result in losses on
your certificates.......................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 may
not always generate the
amount of excess interest
needed to compensate for
losses on the mortgage loans............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 trust expenses. Any remaining
interest will then be used to
compensate for losses 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 as 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 of certain
classes of certificates may
reduce payments on those
certificates............................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. Thus, 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.
Certain features of adjustable
loan rates may adversely affect
the average life of, and rate of
return on, your certificates............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 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 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
following the date of origination.]
o It is possible that interest rates
on the adjustable rate mortgage
loans may decline while
pass-through 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
pass-through 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.]
Prepayments on the loans
may result in shortfalls
in interest collections and
reduce the yield on your
certificates............................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 period.]
Underwriting standards and
default risks may adversely
affect your investment in the
certificates............................The mortgage loans were originated by
[various originators], none of which
is affiliated with the depositor.
[Discussion of originators'
underwriting standards.]
Newly originated loans
are more likely to 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 the past year.]
Geographic concentration
of the trust's loans may
adversely affect your
certificates............................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
[___________] 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. This in turn could result in
an increased rate of prepayment of
the mortgage loans.
The certificates are
sophisticated investments
and may not be suitable
to you..................................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
require 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 applicable
pass-through rate. 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.
It may be difficult to
resell your certificates................[Underwriter] 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.
Furthermore, the certificates are not
listed, and the parties to the
transaction do not intend to list the
certificates on any stock exchange or
to quote them in the automated
quotation system of a registered
securities association. 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.
There is a Glossary of Terms beginning on page S-68 where you will find
definitions of the capitalized terms used in this prospectus supplement.
<PAGE>
The Mortgage Pool
General
The [____________] Trust will consist of a pool of closed-end, [fixed
rate and adjustable rate] mortgage loans secured by first liens on one- to
four-family residential properties. Unless specifically indicated to the
contrary, all statistics with respect to the mortgage loans in the pool are
based on their principal balances, interest rates, terms to maturity and
similar statistics as of the __________ ___, 200_ cut-off date. All weighted
averages specified in this prospectus supplement are weighted based on the
principal balances of the mortgage loans as of the cut-off date. References to
percentages of the mortgage loans mean percentages based on the aggregate
principal balance of the mortgage loans in the pool as of the cut-off date,
unless otherwise specified.
The description in this prospectus supplement of the mortgage pool and
the related mortgaged properties 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 that 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 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 those mortgage
loans would materially alter the characteristics of the mortgage pool as
described. The depositor believes that the information set forth in this
prospectus supplement 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 interest rates on the individual mortgage loans,
the range of maturities and certain other characteristics 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 mortgage loans have original terms to maturity
ranging from [___] years to 30 years. The mortgage pool consists of [___]
fixed rate mortgage loans having an aggregate principal balance as of the
cut-off date of approximately $[__________] and approximately [_____]
adjustable rate 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 a [semi-annual]
adjustment to the mortgage rate based on an Index [six-month London interbank
offered rates (LIBOR) for United States dollar deposits] and for corresponding
adjustments to the monthly payment amount, in each case subject to the
limitations described under "--Adjustable Rate Mortgage Loans" in this
prospectus supplement. However, [_____]% of the adjustable rate mortgage loans
are "delayed first adjustment mortgage loans" since the first interest rate
adjustment will occur after an initial period of [___] years.
The mortgage loans are secured by a "mortgage" by which we mean
mortgages, deeds of trust or other similar security instruments, creating
first liens on 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 due
date for the scheduled monthly payment on each mortgage loan is [the first day
of the month], [except for approximately [____]% of the mortgage loans which
have their 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 the loan. The amount of
the prepayment charge is set forth 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" loans which
amortize over [360] months but have a balloon payment due and payable on the
due date of the [____] 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 loan for the period prior to the due date of the balloon
payment.
Each mortgage loan had a loan rate of not less than [___]% per annum and
not more than [_____]% per annum. As of the cut-off date, the average
principal balance of the mortgage loans was approximately $[_______], the
weighted average loan rate of the mortgage loans was [___]% per annum. The
weighted average remaining term to maturity of the mortgage loans will be
approximately [___] months as of the cut-off date. [None of the mortgage loans
will have a first due date prior to __________ __, 19__ or after ___________
__, 20__ 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__].
No mortgage loan had a principal balance as of the cut-off date of
greater than approximately $[___] or less than approximately $[___].
The mortgage loans are expected to have the following characteristics as
of the cut-off date (the sum in any column may not equal the total indicated
due to rounding):
<PAGE>
Principal Balances of the Mortgage Loans as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Principal Balance % of Aggregate Principal
Mortgage Outstanding as of Balance Outstanding as of
Principal Balance ($) Loans the Cut-off Date the Cut-off Date
------------------------------------------ -------------- --------------------- ---------------------------
<S> <C> <C> <C>
$ %
-------------- --------------------- ---------------------------
Total................................ $ 100.00%
============== ===================== ===========================
</TABLE>
The weighted average principal balance of the mortgage loans as of the
cut-off date was $_____.
Original Terms to Maturity of the Mortgage Loans
<TABLE>
<CAPTION>
% 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%
=================== ======================== =======================
</TABLE>
The weighted average original term to maturity of the mortgage loans
was [___] months.
Property Types of the Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Property Type of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
2-4 Units.................... $ %
Condominium..................
Manufactured Housing.........
PUD..........................
Single Family Detached.......
Unknown......................
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
Occupancy Status of the Mortgage Loans
<TABLE>
<CAPTION>
% 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>
Purpose of the Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Purpose of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Purchase..................... $ %
Rate/Term Refinance..........
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
Loan Rates of the Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Loan Rate (%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
The weighted average loan rate of the mortgage loans as of the cut-off
date was [___]% per annum.
Loan Rates of the Fixed Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Fixed Rate
Principal Balance Mortgage Loans
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%
=================== ======================== =======================
</TABLE>
The weighted average loan rate of the fixed rate mortgage loans as of the
cut-off date was [___]% per annum.
Original Loan-to-Value Ratios of the Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance Principal Balance
Number Outstanding as of Outstanding as of
Original Loan-to-Value Ratio(%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
The weighted average original loan-to-value ratio of the mortgage loans
was [___]%.
Geographic Distribution of the Mortgaged Properties
<TABLE>
<CAPTION>
% 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>
Prepayment Charges
<TABLE>
<CAPTION>
% 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%
=================== ======================== =======================
</TABLE>
<PAGE>
Adjustable Rate Mortgage Loans
Each adjustable rate mortgage loan provides for [semi-annual] adjustment
to its loan rate and for corresponding adjustments to the monthly payment
amount due on the loan. These adjustments to the loan rate and monthly payment
amount will occur on each related adjustment date specified in the related
mortgage note. However, in the case of the delayed first adjustment mortgage
loans which represent approximately [__]% of adjustable rate loss by aggregate
principal balance as of the cut-off date, the first rate adjustment will occur
after an initial period of [__________]. On each rate adjustment date for an
adjustable rate mortgage loan, the loan rate will be adjusted to equal the
sum, [rounded to the nearest multiple of 0.125%,] of the [six-month LIBOR]
index and a fixed percentage amount known as the gross margin. However, the
loan rate on an adjustable rate mortgage loan generally will not increase or
decrease by more than its periodic rate cap of 1.50% per annum on any rate
adjustment date, except that the loan rate may increase or decrease by a
higher percentage per annum on the initial rate adjustment date.] The loan
rate on each adjustable rate mortgage loan will never exceed a specified
maximum loan rate over the life of the loan or be less than a specified
minimum loan rate over the life of the loan. 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 an
adjustable rate mortgage loan after the related rate adjustment date, the
monthly payment amount will be adjusted to an amount that will amortize fully
the outstanding principal balance of the 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
adjustable rate mortgage loan, as adjusted on any rate adjustment date, may be
less than the sum of the [six-month LIBOR] index and the related gross margin,
rounded as described above. 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.
As of the cut-off date, 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 adjustable rate mortgage loans that do not have a minimum loan rate)] and
the weighted average maximum loan rate was approximately [_____]% per annum.
The latest next rate adjustment date following the cut-off date on any
adjustable rate mortgage loan occurs in [_______ 200_] and the weighted
average next rate adjustment date for all of the adjustable rate mortgage
loans following the cut-off date is [_______ 200_].
The percentages set forth in the tables that follow are percentages of
the adjustable rate mortgage loans as of the cut-off date. The information set
forth in the table showing the initial adjustment rate caps relates solely to
the initial rate adjustments. The information set forth in the table showing
the subsequent periodic rate caps relates to all rate adjustments subsequent
to initial rate adjustments.
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):
Loan Rates of the Adjustable Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
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%
=================== ======================== =======================
</TABLE>
Maximum Loan Rates of the Adjustable Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number Outstanding as of Outstanding as of
Maximum Loan Rate (%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
Minimum Loan Rates of the Adjustable Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number Outstanding as of Outstanding as of
Minimum Loan Rate (%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
Gross Margins of the Adjustable Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number Outstanding as of Outstanding as of
Gross Margins (%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
Next Rate Adjustment Date for the Adjustable Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Next Rate Number Outstanding as of Outstanding as of
Adjustment Date of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
Initial Fixed Term/Subsequent Adjustable Rate Term of
the Adjustable Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Initial Fixed Term/Subsequent Number Outstanding as of Outstanding as of
Adjustable Rate Term of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
Initial Adjustment Rate Caps of the Adjustable Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number Outstanding as of Outstanding as of
Initial Periodic Rate Cap (%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
Subsequent Periodic Rate Caps of the Adjustable Rate Mortgage Loans
<TABLE>
<CAPTION>
% of Aggregate
Principal Balance
of Adjustable Rate
Principal Balance Mortgage Loans
Number Outstanding as of Outstanding as of
Periodic Rate Cap (%) of Mortgage Loans the Cut-off Date the Cut-off Date
------------------------------- ------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ %
------------------- ------------------------ -----------------------
Total..................... $ 100.00%
=================== ======================== =======================
</TABLE>
<PAGE>
The Loan Index
As of any adjustment date, the loan index used to calculate the loan rate
on each adjustable rate mortgage loan will be [________________].
In the event that the loan index becomes unavailable or otherwise
unpublished, the master servicer will select a comparable alternative loan
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], [__________] 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 mortgage loans has represented and warranted that each of the
mortgage loans that it sold was underwritten in accordance with standards
utilized during the period of origination by it or by the applicable
originator in originating mortgage loans generally comparable to the mortgage
loans sold to the depositor. As described under "The Pooling and Servicing
Agreement--Assignment of the Mortgage Loans" in this prospectus supplement,
the seller, in its capacity 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 the 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] any 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 _________, a consulting firm specializing
in creating evaluation predictive models through a high number of variables
components. Borrower scores generated by [the scoring company] 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 or 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 to be included in the trust, [_____]% have
credit scores for the borrowers with a weighted average [scoring company]
score of [____].
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 the 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 at the end of the indicated periods. The delinquency information
includes loans in foreclosure in the master servicer's servicing portfolio but
not loans that are subserviced by others. 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. The mortgage loans included under the heading "Loans in
Foreclosure" in the table below are also included under the heading "Total
Delinquent Loans".
<TABLE>
<CAPTION>
As of As of
December 31, 1997 December 31, 1998
---------------------------------------------- ----------------------------------------------
By No. Percent Percent By No. Percent Percent
of By Dollar By No. By Dollar of By Dollar By No. By Dollar
Loans Amount of Loans Amount Loans Amount of Loans Amount
------- --------- -------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio............... 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..........
(Table Continued)
As of
December 31, 1999
----------------------------------------------
By No. Percent Percent
of By Dollar By No. By Dollar
Loans Amount of Loans Amount
------- --------- -------- ---------
Total Portfolio............... 100.00% 100.00%
Period of Delinquency:
30-59 Days.................
60-89 Days.................
90 Days or more............
Total Delinquent Loans........
Loans in Foreclosure..........
</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. For purposes of these tables, the heading "Foreclosed Loans" refers
to the principal balance of mortgage loans secured by mortgaged properties,
the title to which the master servicer has acquired and the heading
"Foreclosure Ratio" refers to the aggregate principal balance or number of
foreclosed loans divided by the aggregate principal balance, or number, as
applicable, of mortgaged loans in the master servicer's portfolio at the end
of the indicated period. The tables do not include information relating to
mortgage loans in the master servicer's portfolio that are sub-serviced by
others.
<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...........
Foreclosure Ratio..........
</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 ........................
Net Gains/(Losses) .....................
Net Gains/(Losses) as a Percentage of
Total Portfolio.......................
</TABLE>
In the immediately preceding table, the heading "Total Portfolio" refers
to the principal balance of the mortgage loans outstanding on the last day of
the applicable period, and the heading "Net Gains/(Losses)" refers to actual
gains or losses incurred on liquidated properties and shortfall payoffs for
each respective period. Gains or losses on liquidated properties are
calculated at 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.
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 in this prospectus supplement. 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
Set forth below is a description of the material provisions of the
pooling and servicing agreement, which will govern the terms of the
certificates but are not described in the prospectus. The description of the
pooling and servicing agreement is subject to, and qualified in its entirety
by reference to, the provisions of the pooling and servicing agreement. Where
particular provisions or terms used in the pooling and servicing agreement are
referred to, the provisions or terms are as specified in the pooling and
servicing agreement
General
The certificates will be issued pursuant to a pooling and servicing
agreement, dated as of ____________ __, 2000_, among the depositor, the
seller, the master servicer and the trustee. The trust fund created under the
pooling and servicing agreement will consist of
o all of the depositor's right, title and interest in the mortgage
loans, the related mortgage notes, mortgages and other related
documents,
o all payments on or collections in respect of the mortgage loans due
after the cut-off date, together with any proceeds of the mortgage
loans,
o any mortgaged properties acquired on behalf of certificateholders by
foreclosure or by deed in lieu of foreclosure, and any revenues
received on the properties,
o the rights of the trustee under all insurance policies required to
be maintained pursuant to the pooling and servicing agreement, and
o 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 included in the
pool, the related mortgage notes, mortgages and other related documents,
including all scheduled payments with respect to each mortgage loan due after
the cut-off date. The trustee, concurrently with this transfer, will deliver
the certificates to the depositor. Each mortgage loan transferred to the trust
fund will be identified on the mortgage loan schedule delivered to the trustee
pursuant to the pooling and servicing agreement. This mortgage loan schedule
will include information such as the principal balance of each mortgage loan
as of the cut-off date, its loan rate and other information.
The pooling and servicing agreement will establish a specified period of
time in which the seller must deliver to the trustee (or a custodian, as the
trustee's agent for such purpose) the mortgage notes endorsed to the trustee
on behalf of the Certificateholders and the related documents. In lieu of
delivering an original mortgage, the seller may deliver a true and correct
copy of any original that is not available, 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. If any mortgage loan or related document is found to be defective
in any material respect and the defect is not cured within [___] days
following notification to the seller by the trustee, the seller will be
obligated to either
o substitute for the mortgage loan an eligible substitute mortgage
loan, if the substitution occurs within two years of the closing
date and the seller provides an opinion of counsel to the effect
that the substitution will not [disqualify the trust fund as a REMIC
or] result in a prohibited transaction tax under the Internal
Revenue Code; or
o purchase the mortgage loan at a purchase price equal to the
outstanding principal balance of the 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 the purchase 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.
An eligible substitute mortgage loan is a mortgage loan substituted by
the seller for a defective mortgage loan which, on the date of substitution
o has 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;
o has a loan rate not less than the loan rate of the defective
mortgage loan that has a fixed interest rate and not more than 1% in
excess of the loan rate of the defective mortgage loan, or has a
maximum loan rate and minimum loan rate not less than the respective
rate for the defective mortgage loan that has an adjustable rate and
has a gross margin equal to or greater than the gross margin of the
defective mortgage loan;
o has the same due date as the defective mortgage loan;
o has 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;
o complies 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
o satisfies certain other conditions specified in the pooling and
servicing agreement.
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 a
substitution adjustment amount equal to the excess of the principal balance of
the related defective mortgage loan over the principal balance of the eligible
substitute mortgage loan.
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., its principal balance and
the loan rate). In addition, the seller will represent and warrant on the
closing date that
o 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
o 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 representation and warranty which materially
and adversely affects the interests of the certificateholders in the mortgage
loan and the 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
o substitute an eligible substitute mortgage loan for the defective
mortgage loan or
o purchase the 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 will apply to the substitution or purchase of a defective
mortgage loan as a result of a breach of a representation or warranty in the
pooling and servicing agreement that materially and adversely affects the
interests of the certificateholders.
Payments on Mortgage Loans; Deposits to Collection Account and Distribution
Account
Collection Account. The master servicer shall establish and maintain a
collection account. 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 those amounts in the
collection account. Amounts 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 the distribution
date if approved by the Rating Agencies.
Distribution Account. The trustee will establish a distribution account.
Amounts on deposit in the distribution account may be invested in eligible
investments maturing on or before the business day prior to the related
distribution date unless the eligible investments are one of its managed or
advised by the trustee or one of its affiliates, in which case the eligible
investments may mature on the related distribution date.
Eligible Accounts. The collection account and the distribution account
must be eligible accounts. An eligible account is one or more segregated
accounts which
o are 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 which 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
named under "Ratings" in this prospectus supplement) at the time any
amounts are held on deposit;
o the deposits in which are fully insured by the Federal Deposit
Insurance Corporation (to the limits established by the FDIC), or
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
the eligible investments securing the funds that is superior to
claims of any other depositors or creditors of the depository
institution with which such account is maintained;
o which are maintained with the trust department of a federal or state
chartered depository institution, national banking association or
trust company acting in its fiduciary capacity; or
o which are otherwise acceptable to each rating agency named under
"Ratings" without reduction or withdrawal of their then current
ratings of the certificates as evidenced by a letter from that
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
named under "Ratings" from time to time as being consistent with their then
current ratings of the certificates.
An eligible account is one or more segregated accounts which
o are 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 which 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;
o the deposits in which are fully insured by the Federal Deposit
Insurance Corporation (to the limits established by the FDIC), or
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
the eligible investments securing the funds that is superior to
claims of any other depositors or creditors of the depository
institution with which such account is maintained;
o which are maintained with the trust department of a federal or state
chartered depository institution, national banking association or
trust company acting in its fiduciary capacity; or
o which are 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
On or before each distribution date, the master servicer generally will
be obligated to advance its own funds, or funds in the collection account not
included in the calculation of Available Funds for that distribution date, in
an amount equal to
o the aggregate of all payments of principal and interest on the
mortgage loans, other than balloon payments, that were due during
the related due period and delinquent on the related determination
date
plus
o assumed payments not covered by a current income on mortgaged
properties that were acquired by foreclosure or deed in lieu of
foreclosure
plus
o with respect to each balloon loan for which the required balloon
payment was not made when due, an assumed monthly payment that would
have been due on the related due date based on its original
amortization schedule.
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 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 Soldiers' and Sailors' Relief Act of 1940.
All advances will be reimbursable to the master servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage
loan as to which the 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 advance, the trustee, in its capacity as successor master servicer, will
be obligated to make the advance, to the extent required in the pooling and
servicing agreement.
In the course of performing its servicing obligations, the 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
o the preservation, restoration and protection of the mortgaged
properties,
o any enforcement or judicial proceedings, including foreclosures, and
o the management and liquidation of mortgaged properties acquired in
satisfaction of the related mortgage.
These expenditures are referred to as servicing advances.
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 these amounts are deemed to
be nonrecoverable by the master servicer. In that event, the master servicer
will be reimbursed from general funds in the collection account.
The Trustee
[__________], a [________], will be named trustee pursuant to the pooling
and servicing agreement. The trustee will initially serve as custodian of the
mortgage loans.
The principal compensation to be paid to the trustee in respect of its
obligations under the pooling and servicing agreement will be a trustee fee
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. However, if the loss, liability or expense
o constitutes a specific liability of the trustee under the pooling
and servicing agreement or
o is 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,
the trust fund will not provide indemnification.
Servicing and Other Compensation and Payment of Expenses
The master servicer will be paid a servicing fee at a rate of up to
[___]% per annum on the principal balance of each mortgage loan as its
principal compensation for servicing the mortgage loans. The excess servicing
fee represents the difference, if any, between the servicing fee rate for any
mortgage loan and [____]% per annum, and 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 by making compensating interest payments) 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 the distribution date occurs or, if
the [___]th day is not a business day, the business day immediately following
the [___]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 represents the
amount equal to interest at the applicable loan rate (net of the servicing
fee) on such principal prepayment for the period 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 allocated among holders of the offered certificates shall be the
fraction, expressed as a percentage, the numerator of which is the aggregate
principal balance of all the certificates of that class then outstanding and
the denominator of which is the aggregate 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 that class in
proportion to the outstanding principal balance of those 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 affected class of offered certificates 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. However, no
amendment may
o 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 the affected certificate;
o 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 the prior bullet, without the consent of the
holders of offered certificates of that class evidencing percentage
interests aggregating at least 66%; or
o reduce the affected percentage of the aggregate outstanding
principal amounts of offered certificates, the holders of which are
required to consent to any amendment, without the consent of the
holders of all the affected certificates.
Termination
The holder of the majority interest in the Residual Certificate (or if
the holder does not exercise its option, the master servicer) will have the
right to repurchase all remaining mortgage loans and REO properties and thus
effect the early retirement of the certificates, on any distribution date when
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 equal to par plus accrued interest at the
related loan rate for each mortgage loan to but not including the first day of
the month in which the repurchase price is distributed, plus the amount of any
unreimbursed advances and servicing advances made by the master servicer.
Proceeds from the repurchase will be included in Available Funds and will be
distributed to the holders of the certificates in accordance with the pooling
and servicing agreement.
[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 that loan from the
trust fund at its purchase price.]
Events of Default
Among other things the following will be deemed "events of default" under
the pooling and servicing agreement:
o any 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;
o any failure of the master servicer to make any advance or to cover
any prepayment interest shortfalls, to the extent described in this
prospectus supplement, which failure continues unremedied for one
Business Day;
o 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 the master servicer has knowledge
of such failure or written notice of such failure is given to the
master servicer;
o 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
o 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 acting at the direction of the holders of
offered certificates evidencing not less than 51% of the voting rights, may
terminate all of the master servicer's rights and obligations in its capacity
as servicer with respect to the mortgage loans, as provided in the pooling and
servicing agreement. At that time 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 mortgage loans, including the delinquency experience of
the loans.
No holder of an offered certificate, solely by virtue of the holder's
status as a holder of an offered certificate, will have any right under the
pooling and servicing agreement to institute any proceeding, unless the holder
previously has given to the trustee written notice of default and unless the
holders of offered certificates having not less than 51% of the voting rights
evidenced by the offered certificates agree to instate the proceeding and have
offered reasonable indemnity to the trustee.
Description of the Certificates
General
The offered certificates will be issued pursuant to the pooling and
servicing agreement. Set forth below is a description of the material terms
and provisions pursuant to which the offered certificates will be issued. The
following description is subject to, and are qualified in their entirety by
reference to, the actual provisions of the pooling and servicing agreement.
When particular provisions or terms used in the pooling and servicing
agreement are referred to, the provisions or terms are as specified in the
pooling and servicing agreement.
[Trust] will issue
-----
o senior certificates consisting of the Class A Certificates,
o mezzanine certificates consisting of the Class M Certificates,
o subordinate certificates consisting of the Class B Certificates, and
o residual certificates consisting of the Class R Certificate.
The residual certificates are not offered hereby. Only the senior
certificates, the mezzanine certificates and the subordinate certificates,
which collectively constitute the offered certificates, are offered by this
prospectus supplement.
The Class A, the Class M and the Class B Certificates will have the
respective aggregate original principal balances specified on the cover of
this prospectus supplement. The aggregate of the original principal balances
of the offered certificates is approximately $[_____________].
The Class R Certificates will have an original 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 $[_______] above that amount (except
that one certificate of each class may be issued in a denomination which is
not an integral multiple). The assumed final maturity date for each Class of
offered certificates is the distribution date occurring in [___________ 20__].
On each distribution date, the trustee will make monthly distributions on
the offered certificates to the persons in whose names the certificates are
registered at the close of business on the related record date which is the
business day immediately preceding that distribution date.
Book-Entry Certificates
The offered certificates will be book-entry certificates. Persons and
entities that acquire beneficial ownership in the offered certificates will be
deemed "certificate owners" and will hold their offered certificates through
DTC [in the United States, or Clearsteam Bank, societe anonyme, or Euroclear
(in Europe)] if they are participants in [that] [those] system[s], or
indirectly through organizations which are participants in [that] [those]
system[s]. The book-entry certificates will be issued in the form of 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., as
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. Investors may hold such beneficial interests in the
book-entry certificates in minimum denominations of $50,000. Except as
described below, no beneficial owner of a book-entry certificate will be
entitled to receive a definitive (i.e., physical) 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.
Beneficial owners of certificates will not be "Certificateholders" as that
term is used in the pooling and servicing agreement. Beneficial owners of
certificates are only permitted to exercise their rights indirectly through
DTC participants.
A 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 that maintains the beneficial owner's account for
such purpose. In turn, the financial intermediary's ownership of the
book-entry certificate will be recorded on the records of DTC (or of a
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]).
Beneficial 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), DTC rules (consisting of the rules,
regulations and procedures creating and affecting DTC and its operations)
require that DTC
o make book-entry transfers among participants on whose behalf it acts
with respect to the offered certificates and
o receive and transmit distributions of principal of, and interest on,
the offered certificates.
Participants and indirect participants with which beneficial 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 beneficial owners
of certificates will not possess physical certificates representing their
respective interests in the offered certificates, DTC rules provide a
mechanism by which certificate owners will receive distributions and will be
able to transfer their interests.
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 participants and
indirect participants to transfer offered certificates, by book-entry
transfer, through DTC for the account of the purchasers of the offered
certificates, which account is maintained with their respective participants.
Under DTC 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 or Euroclear participant
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
"Material 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 to this prospectus supplement.]
Transfers between DTC participants will occur in accordance with DTC
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 DTC rules on behalf of the relevant European international
clearing system by the relevant depositary. However, these cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that 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 is a New York-chartered limited purpose trust company, and 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
DTC rules as in effect from time to time.
[Clearstream Banking, societe anonyme, 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 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 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, Belgian
office of Morgan Guaranty Trust Company of New York, under contract with
Euroclear Clearance Systems, S.C., a Belgian cooperative corporation, which
establishes policy for Euroclear on behalf of the Euroclear participants. 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 with Euroclear Clearance Systems. 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 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 only on behalf of
Euroclear participants, and has no record of or relationship with persons
holding through Euroclear participants.]
Distributions on the book-entry certificates will be made on each
distribution date by the trustee to DTC. DTC will be responsible for crediting
these payment amounts to the accounts of the applicable DTC participants in
accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing the payments to the beneficial owners of the
book-entry certificates that it represents and to each financial intermediary
for which it acts as agent. In turn, each 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. Distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Material 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 book-entry certificates, may be
limited due to the lack of physical certificates. In addition, issuance of
certificates in book-entry form may reduce the liquidity of the 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 pooling and servicing
agreement only at the direction of one or more financial intermediaries to
whose DTC accounts the book-entry certificates are credited, to the extent
that such actions are taken on behalf of financial intermediaries whose
holdings include 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 pooling and servicing 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
o 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,
o [_________________], at its sole option, with the consent of the
trustee, elects to terminate a book-entry system through DTC or
o 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 any
successor) 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 the event and the availability through DTC of
definitive certificates. Upon surrender by DTC of the global certificate or
certificates representing the book-entry certificates and instructions for
re-registration, the trustee will issue definitive certificates, and
thereafter the trustee will recognize the holders of such definitive
certificates as "Certificateholders" under the pooling and servicing
agreement.
Although DTC [, Clearstream 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 those procedures, which 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 beneficial ownership interests.
Priority of Distributions Among Certificates
As more fully described in this prospectus supplement, 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) in the following order of priority:
first, to interest on each Class of offered certificates in the
priority and subject to the limitations described under
"--Allocations of Available Funds" below;
second, 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";
third, to principal of the classes of certificates then entitled to
receive distributions of principal in order to maintain the
Overcollateralization Target Amount;
fourth, to unpaid interest and the Loss Reimbursement Entitlement in
the order and subject to the priorities described under
"--Allocation of Available Funds";
fifth, 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
sixth, 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.
On each distribution date, the trustee will withdraw from the
distribution account all Available Funds then on deposit and will distribute
the Available Funds in the following order of priority (provided that 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 that class for that distribution date; and
(b) sequentially, to the Class M and Class B Certificates, in that
order, the related Monthly Interest Distributable Amount for
that 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 aggregate principal balance of
the Class A Certificates 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 aggregate principal balance of
the Class M Certificates 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 aggregate principal balance of
the Class B Certificates 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 that
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 that distribution date and then the
related Loss Reimbursement Entitlement, if any, for that
distribution date;
(c) to the Class B Certificateholders, the related Unpaid Interest
Shortfall Amount for that distribution date and then the
related Loss Reimbursement Entitlement, if any, for that
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, the 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.
Percentage of
the Pool Principal
Balance as of the
Distribution Date Cut-off Date
----------------- ------------------
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 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 that distribution date].
[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 for that purpose in the excess reserve fund account. The ratings on
the offered certificates do not address the likelihood of the payment of any
Basis Risk Shortfall Amount.]
Calculation of [One-Month LIBOR]
[On each LIBOR determination date, which is the second LIBOR business day
preceding the commencement of each Accrual Period following the initial
Accrual Period, the trustee (except for the first Accrual Period) will
determine one-month LIBOR (i.e., the London interbank offered rate for
one-month United States dollar deposits), for that 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 those rates appear on the
display page, currently designated on the Dow Jones Telerate Service as
Telerate Page 3750, as of 11:00 a.m. (London time) on that LIBOR determination
date. The reference banks to be used are 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 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. If Telerate Page 3750 is
no longer available, the page that replaces it on the Dow Jones Telerate
Service for displaying comparable rates will be used.
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 that LIBOR determination date two or more reference banks
provide offered quotations, one-month LIBOR for the related Accrual
Period will be the arithmetic mean of those offered quotations (rounded
upwards if necessary to the nearest whole multiple of 0.0625%).
(b) If on that LIBOR determination date fewer than two reference
banks provide 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) a reserve interest rate equal
to 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
aggregate principal balances of the Class B Certificates and the Class M
Certificates, in that order, until their respective aggregate principal
balances have been reduced to zero. The aggregate 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
aggregate principal balance of any applicable class of offered certificates by
the application of Allocable Loss Amounts entitles that class to reimbursement
in an amount equal to the Loss Reimbursement Entitlement. Each affected class
of offered certificates will be entitled to receive its Loss Reimbursement
Entitlement, or any portion thereof, in accordance with the payment priorities
specified in this prospectus supplement. Payment in respect of Loss
Reimbursement Entitlements will not reduce the aggregate principal balance of
the related class or classes.
[Excess Reserve Fund Account
The pooling and servicing agreement establishes 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 in an amount equal to any Basis Risk Shortfall Amount for that
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 required amount to be held
in the excess reserve fund account on any subsequent distribution date will
equal the greater of (i) [___]% of the outstanding aggregate principal 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 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 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 each rating agency named under "Ratings" in this prospectus
supplement 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 the distributions set forth in clause (i)
allocable to principal, separately identifying the aggregate amount of
any principal prepayments or other unscheduled recoveries of principal
included therein;
(iii) the amount of the distributions set forth in clause (i)
allocable to interest and now it was calculated;
(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 that distribution date;
(vi) the aggregate principal balance of each class of offered
certificates after giving effect to the distribution of principal on that
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 that 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 that loan as of the close of business on the last day of the
related due period and the date the loan became an REO property;
(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 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 that distribution date; and
(xxi) the amount on deposit in the excess reserve fund account on
that distribution date and the Basis Risk Shortfall Amount owing to each
class of offered certificates after giving effect to distributions
thereof on that 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 in particular 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 those 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
Fannie Mae and Freddie Mac 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 Fannie Mae and Freddie Mac 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" in this prospectus supplement.
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 the 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, the mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates were to remain at or above
the loan rates on those 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 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 of adjustable rate mortgage loans. 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 payment
adjustment date. [In addition, many of the adjustable rate mortgage loans will
not have their initial rate adjustment date for [__________] after
origination. 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 rate 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 the 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
their weighted average lives. 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
interest collected or advanced on the mortgage loans over 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
SEC 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. Those 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, those prospective investors.
Those tables and assumptions may be based on assumptions that differ from the
structuring assumptions described below under "--Weighted Average Lives" and
accordingly 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 the 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 the that closing date
until each dollar of principal is scheduled to be repaid to the investors in
that 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 under "The Mortgage Pool--Mortgage Loan
Statistics" in this prospectus supplement.
The Assumed Final Maturity Date for each class of offered certificates is
set forth under "Description of the Certificates--General" in this prospectus
supplement. 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
o prepayments are likely to occur,
o excess cashflow, if any, will be applied as principal of the offered
certificates as described in this prospectus supplement,
o the Overcollateralization Target Amount is as defined in this
prospectus supplement and
o the majority residual interestholder or the master servicer may
cause a termination of the trust fund.
The prepayment assumption model used in this prospectus supplement
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 model 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 included in the trust.
Each of the prepayment scenarios in the table on page S-[ _____ ] assumes
the respective percentages of the applicable prepayment assumption model
described.
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 those assumptions and the characteristics of the actual mortgage loans in
the trust fund. Any such discrepancy may have an effect upon the percentages
of original 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:
[list of structuring assumptions]
Nothing contained in the foregoing assumptions should be construed as a
representation that the mortgage loans in the trust fund 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 principal balance of each 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.
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.
Election[s] will be made to treat [each subsidiary REMIC and] the [master]
REMIC as a REMIC for federal income tax purposes.
Assuming compliance with the pooling and servicing agreement, in the
opinion of Brown & Wood LLP
o each subsidiary REMIC and] the [master] REMIC created pursuant to
the pooling and servicing agreement will be characterized as a REMIC
within the meaning of section 860D of the Internal Revenue Code of
1986, as amended;
o the Class R Certificates will represent beneficial ownership of the
residual interests in [each of] the REMIC[s];
o each class of offered certificates will represent beneficial
ownership of regular interests issued by the [master] REMIC; and
o the excess reserve fund account is an "outside reserve fund" that is
beneficially owned by the certificateholders of the Class [__]
Certificates].
[In addition, each of the offered certificates will represent a beneficial
interest in the right to receive payments from the excess reserve fund
account.]
Taxation of Regular Interests
A certificateholder of a class of offered certificates will be treated
for federal income tax purposes as owning a regular interest 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
includible in the certificateholder's gross income with respect to the offered
certificate.
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 "Material 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 that 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 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 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
For purposes of this discussion, a Non-U.S. Person is any person other
than
o a citizen or resident of the United States;
o 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;
o 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);
o an estate whose income is includible in gross income for United
States income tax purposes regardless of its source; or
o a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more U.S. Persons have authority to control all substantial
decisions of the trust. Notwithstanding the last clause of the
preceding sentence, to the extent provided in Treasury regulations,
certain trusts in existence on August 20, 1996, and treated as U.S.
Persons prior to such date, may elect to continue to be U.S.
Persons.
Interest paid to or accrued by a certificateholder of an offered
certificate 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
o 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
o 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-8BEN or a substantially similar
form), signed under penalties of perjury, certifying that the
beneficial owner of the offered certificate is a Non-U.S. Person and
providing the Non-U.S. Person's name and address.
If an offered certificate 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.
Prohibited Transactions Tax and Other Taxes
The Code imposes a prohibited transactions tax on REMICs equal to 100% of
the net income derived from "prohibited transactions". 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 contributions tax equal to
100% of the value of the contributed property. It is anticipated that the
trust fund will not accept contributions that would subject it to
contributions 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 beneficial owners of certificates may be subject to backup
withholding at the rate of 31% with respect to interest paid on the offered
certificates if the owners, upon issuance, fail to supply the trustee or their
broker with their taxpayer identification number, furnish an incorrect
taxpayer identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The trustee will be required to report annually to the IRS, and to each
certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the offered certificates (and the amount of interest withheld for
federal income taxes, if any) for each calendar year, except as to exempt
holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their
status as nonresidents). As long as the only holder of record of a class of
offered certificates is Cede & Co., as nominee of DTC, the IRS and the
beneficial owners of that class will receive tax and other information,
including the amount of interest paid on their certificates, from cleaning
system 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 beneficial 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 beneficial 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.
These amounts will be deemed distributed to the affected beneficial 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
ERISA and the Internal Revenue 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 plans,
accounts or arrangements are invested -- and on persons who are fiduciaries
with respect to these types of plans and arrangements. In this prospectus
supplement we refer to these types of plans and arrangements as "Plans."
ERISA prohibits "parties in interest" with respect to a Plan from
engaging in certain transactions involving the 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
those plans may be invested in the offered certificates without regard to the
ERISA considerations described in this prospectus supplement and in the
prospectus, subject to the provisions of other applicable federal and state
law. 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 that are subject to ERISA are
subject to ERISA's general fiduciary requirements, including the requirement
of investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan. A
fiduciary which decides to invest the assets of a Plan in the offered
certificates should consider, among other factors, the extreme sensitivity of
the investments to the rate of principal payments (including prepayments) on
the mortgage loans.
The U.S. Department of Labor has granted to Greenwich Capital Markets,
Inc. Prohibited Transaction Exemption (PTE) 90-59 (Exemption Application No.
D-8374), as amended by PTE 97-34 (Exemption Application No. D-10245 and
D-10246) and by PTE 2000-58 (Exemption Application No. D-10829), which exempts
from the application of the prohibited transaction rules transactions relating
to
o the acquisition, holding and sale by Plans of certain securities
representing an undivided interest in certain asset-backed
pass-through entities with respect to which Greenwich Capital
Markets, Inc. or any of its affiliates is the sole underwriter or
the manager or co-manager of the underwriting syndicate, and
o the servicing, operation and management of such asset-backed
pass-through entities,
provided that the general conditions and certain other requirements set forth
in the exemption are satisfied.
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 interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust fund, except when the trust holds
certain types of assets;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three (four, if the
trust holds certain types of assets) highest generic rating
categories from a rating agency, such as Standard & Poor's, Moody's,
or Fitch, Inc.;
(4) the trustee must not be an affiliate of any other member of the
"restricted group" as defined in the second following paragraph;
(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 trust assets to the trust fund represents
not more than the fair market value of those assets; 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;
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the SEC under the
Securities Act of 1933; and
(7) for certain types of issuers, the documents establishing the issuer
and governing the transaction must contain certain provisions to
ensure that the issuer's assets may not be received by creditors of
the sponsor in the event of the bankruptcy or insolvency of the
sponsor.
The trust fund must also meet the following requirements:
o the investment pool must consist solely of assets of the type that
have been included in other investment pools;
o certificates evidencing interests in such other investment pools
must have been rated in one of the three highest generic rating
categories (four, if the investment pool contains certain types of
assets) by a rating agency for at least one year prior to the Plan's
acquisition of certificates; and
o 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 and at least 50% of the
aggregate interests in the trust 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 issuers
containing assets sold or serviced by the same entity. The exemption does not
apply to Plans sponsored by the "restricted group" consisting of 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, [any issuers,] or any affiliate of these parties.
It is expected that the Exemption will apply to the acquisition and
holding by Plans of the offered certificates and that all conditions of the
Exemption other than those within the control of the investors will be met.
The rating of a security may change. If the rating of a security declines
below BBB- or Baa3, the security will no longer be eligible for relief under
the exemption, and consequently may not be purchased by or sold to a Plan
(although a Plan that had purchased the security when it had an
investment-grade rating would not be required by the exemption to dispose of
it).
[Because the characteristics of the Class [M and the Class B]
Certificates may not meet the requirements of the exemption discussed above or
any other issued exemption under ERISA including Prohibited Transaction Class
Exemption (PTCE) 83-1 discussed under "ERISA Considerations" in the
prospectus, 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 a Class [M or Class B] 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 a Class [M or Class B] Certificates with
funds contained in an "insurance company general account" (as such term is
defined in Section V(e) of PTCE 95-60 and that the purchase and holding of the
certificates are covered under Section I and III of PTCE 95-60. The
representation 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 the representation
is violated, the attempted transfer or acquisition shall be void and of no
effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the
exemption described above and PTCE 83-1 described in the prospectus, 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
them. See "Legal Investment Considerations" 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 transactions by
selling offered certificates to or through dealers and the dealers may receive
from the underwriter, for which they act as agent, compensation in the form of
underwriting discounts, concessions or commissions. The underwriter and any
dealers that participate with the underwriter in the distribution of the
offered certificates may be deemed to be statutory 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 depositor has been advised by the underwriter that it intends to make
a market in the offered certificates but has no obligation to do so. There can
be no assurance that a secondary market for the offered certificates will
develop or, if it does develop, that it will continue.
The depositor has agreed to indemnify the underwriter against, or make
contributions to the underwriter with respect to, certain liabilities,
including liabilities under the Securities Act.
Legal Matters
Certain legal matters in connection with the issuance of the offered
certificates will be passed upon 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 ______, (ii) the M
Certificates be rated "__" by ___ and "___" by _______, and the Class B
Certificates be rated "___" by ___ .
The ratings assigned by the rating agencies named above 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 named above 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 named above.
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 the offered
certificates.
<PAGE>
Glossary of Terms
"Accrual Period" relates to the offered certificates for a given
distribution date and is 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 ________ __, 200_.
"Allocable Loss Amount" means, with respect to each distribution date,
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.
"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.
"Available Funds" for any distribution date is equal to the sum, net of
amounts reimbursable therefrom to the master servicer, of
o 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,
o certain unscheduled payments in respect of the mortgage loans,
including prepayments, insurance proceeds, Net Liquidation Proceeds
and proceeds from repurchases of and substitutions for mortgage
loans occurring during the related Prepayment Period [,excluding
prepayment penalties] and
o all advances with respect to the related mortgage loans received by
the trustee for such distribution date.
"Available Funds Cap" means, as to any distribution date, the 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.
"Basic Principal Distribution Amount" means, with respect to any
distribution date, the excess of (i) the Principal Remittance Amount for that
distribution date over (ii) the Overcollateralization Release Amount, if any,
for that distribution date.
["Basis Risk Shortfall Amount" means, for any class of offered
certificates, if, on any distribution date, the pass-through rate for that
class of offered certificates is based upon the Available Funds Cap, the
excess of (i) the amount of interest that class of certificates would have
been entitled to receive on such distribution date had its pass-through rate
not been subject to the Available Funds Cap, up to the Maximum Cap, over (ii)
the amount of interest that 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 that class of offered
certificates, without giving effect to the Available Funds Cap).]
"Call Option Date" means 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.
"Certificate Principal Balance" for any class of offered certificates, as
of any distribution date, will be equal to the original principal balance of
that class reduced by the sum of (i) all amounts actually distributed in
respect of principal of that 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 those
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 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 Certificate Principal
Balance of the Class A Certificates immediately prior to that 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 Certificate Principal Balance of the Class A Certificates (after taking
into account the payment of the Class A Principal Distribution Amount on that
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 that distribution date) and (iii) the Certificate
Principal Balance of the Class B Certificates immediately prior to that
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 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
Certificate Principal Balance of the Class A Certificates (after taking into
account the payment of the Class A Principal Distribution Amount on that
distribution date) and (ii) the Certificate Principal Balance of the Class M
Certificates immediately prior to that 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 $[__________].
"Compensating Interest" means payments the master servicer makes in
satisfaction of the master servicer's obligation to offset any Prepayment
Interest Shortfall on any distribution date.
"Cumulative Loss Trigger" occurs on a distribution date if cumulative
Realized Losses as of that distribution date exceed the percentages of the
pool principal balance as of the cut-off date set forth below with respect to
that distribution date.
"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 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 for purposes
of this definition if any monthly payment due on the loan is not made by the
close of business on the day the monthly payment is scheduled to be due. A
mortgage loan is "30 days delinquent" if the 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.
"Due Period" means, with respect to the any distribution date, the period
commencing on the [second] day of the month preceding the month in which that
distribution date occurs and ending on the [first] day of the month in which
that distribution date occurs.
["Excess Reserve Fund Account" means an account created under the terms
of the pooling and servicing agreement, which the trustee holds in trust as
part of the trust fund, on behalf of the Offered Certificateholders. The
Excess Reserve Fund Account will not be an asset of any REMIC. For a more
detailed description, see the explanation as set forth under "Description of
the Certificates - Excess Reserve Fund Account".]
"Excess Servicing Fee" means 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].
"Exemption" means Prohibited Transaction Exemption 90-59 (Exemption
Application No. D-8374), as amended, that the U.S. Department of Labor granted
to Greenwich Capital Markets, Inc. For a further explanation of what the
Exemption entails, see the explanation as set forth under "ERISA
Considerations".
"Extra Principal Distribution Amount" means, for any distribution date,
the lesser of (x) the General Excess Available Amount for such distribution
date and (y) Overcollateralization Deficiency Amount for that distribution
date.
"General Excess Available Amount" means, with respect to each
distribution date, 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).
"Interest Distributable Amount" means, for any distribution date, and for
and each class of offered certificates, the sum of (i) the Monthly Interest
Distributable Amount for the class for that distribution date and (ii) the
Unpaid Interest Shortfall Amount for the class for that 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 the related class and not reimbursed pursuant to "--Allocation of
Available Funds" above as of that distribution date.
"Monthly Interest Distributable Amount" means, for any distribution date,
and for each class of offered certificates, the amount of interest accrued
during the related Accrual Period at the related pass-through rate on the
Certificate Principal Balance of the class immediately prior to that
distribution date (or, in the case of the first distribution date, from the
closing date).
"Net Liquidation Proceeds" means 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.
"Overcollateralization Deficiency Amount" means, with respect to any
distribution date, the amount, if any, by which the Overcollateralization
Target Amount exceeds the related Overcollateralized Amount on that
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 that 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 that 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 that distribution date over
(ii) the Overcollateralization Target Amount for that distribution date.
"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.
"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.
"Overcollateralized Amount" means for any distribution date, 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 that distribution date
after giving effect to distributions to be made on the certificates on that
distribution date.
"Pass-Through Rate" means, for each of the Class A Certificates, the
Class M Certificates and the Class B Certificates, for a particular
distribution date, a per annum rate equal to [the lesser of (a) the sum of (i)
One-Month LIBOR on the related LIBOR Determination Date and (ii) the related
Pass-Through margin and (b) the Available Funds Cap].
"Prepayment Period" means, with respect to any distribution date, the
period commencing on the determination date in the month preceding the month
in which that 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 that distribution date.
"Principal Distribution Amount" means, for any distribution date, the sum
of (i) the Basic Principal Distribution Amount and (ii) the Extra Principal
Distribution Amount for such distribution date.
"Principal Prepayment" means, with respect to any distribution date, 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.
"Principal Remittance Amount" means, with respect to any distribution
date, the sum of
o each scheduled payment of principal collected on the mortgage loans
by the master servicer in the related Due Period,
o the principal portion of all partial and full principal prepayments
of the mortgage loans applied by the master servicer during that Due
Period,
o the principal portion of all Net Liquidation Proceeds and Insurance
Proceeds received during that Due Period,
o that portion of the Purchase Price, representing principal of any
repurchased mortgage loan, required to be deposited to the
collection account during that Due Period,
o the principal portion of any substitution adjustments required to be
deposited in the collection account during that Due Period, and
o 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 which is in respect of principal.
"Realized Loss" means, with respect to any defaulted mortgage loan that
is finally liquidated, (i) Net Liquidation Proceeds in respect of the 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 the 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.
"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.
"Senior Credit Enhancement Percentage" means, with respect to any
distribution date, 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 that
distribution date, by (ii) the pool principal balance as of the end of the
related Due Period.
"Senior Specified Enhancement Percentage" means, on any date of
determination thereof, [_____]%.
"Stepdown Date" means the earlier of (A) the distribution date on which
the aggregate 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.
"Trigger Event" means an event that has occurred on any distribution
date, if the Rolling Delinquency Percentage exceeds [__]% of the Senior Credit
Enhancement Percentage for such distribution date.
<PAGE>
Annex I
Annex I forms an integral part of this prospectus supplement.
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
[____________________] Certificates will be available only in book-entry form.
Investors in these Global Securities may hold such Global Securities through
[any] of 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-8BEN). 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-8BEN Certificate of Foreign Status).
If the information shown on Form W-8BEN changes, a new Form W-8BEN must be
filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
W-8ECI). 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 W-8ECI (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 W-8BEN). 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
W-8BEN (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-8BEN. Form W-8BEN 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 W-8BEN or a Form W-8ECI 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-BEN and Form W-8ECI are effective for
three calendar years.
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>
Until 90 days after the date of this prospectus $[____________________]
supplement, all dealers effecting transactions in (Approximate)
the Certificates offered by this prospectus
supplement, whether or not participating in this Mortgage Loan Trust 200_-_
distribution, may be required to deliver this
prospectus supplement and the prospectus. This is Mortgage Pass-Through Certificates
in addition to the obligation of dealers to deliver Series 200_-_
this prospectus supplement and the prospectus when
acting as underwriters and with respect to their
unsold allotments or subscriptions. $___________ Class A
_________________________ [Variable Pass-Through Rate]
[$__________ Class M
You should rely on the information contained or [Variable Pass-Through Rate]
incorporated by reference in this prospectus
supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different
information. [$__________ Class B
[Variable Pass-Through Rate]
We are not offering the certificates in any state
where the offer is not permitted.
We do not claim that the information in this Greenwich Capital Acceptance, Inc.
prospectus supplement and the accompanying (Depositor)
prospectus is accurate as of any date other
than the dates stated on their respective covers. [__________________________]
Seller and Master Servicer
Prospectus Supplement
[____________ __, 200_]
[Logo of Underwriter]
===================================================================== ==============================================================
</TABLE>
Subject to Completion, Dated January 5, 2001
Prospectus Supplement
(To Prospectus dated ___________, 200_)
$[_____________] (Approximate)
Resecuritization Mortgage Trust 200_-_
Resecuritization Mortgage Trust Certificates, Series 200_
Greenwich Capital Acceptance, Inc.
Depositor
$ [___________] Class [_], [___]% Certificates
---------------
The Trust
o The Trust will issue [_______] classes of certificates of which the
[_______] classes listed above are being offered by this prospectus
supplement and the accompanying prospectus.
o The trust assets consist primarily of [_______] previously issued
mortgage pass-through securities representing senior ownership
interests in [_______] the related underlying trust funds.
The Certificates
o The certificates represent ownership interests in the trust assets.
o The certificates will have the benefit of credit enhancement to the
extent described in this prospectus supplement
Consider carefully the risk factors beginning on page S-[_] in this prospectus
supplement and on page 5 in the prospectus.
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of 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.
Neither the Securities and Exchange Commission 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.
[___________________] will offer the certificates listed above in negotiated
transactions. Proceeds to the depositor are expected to be approximately
$[_______], before deducting issuance expenses, estimated to be approximately
$[_______]. See "Method of Distribution" in this prospectus supplement.
--------------------
[Logo(s) of Underwriter(s)]
_______________, 2000_
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Prospectus Supplement
Page
----
<S> <C>
Summary of Terms.............................................................................................S-4
Risk Factors.................................................................................................S-7
Description of the Certificates.............................................................................S-15
General..................................................................................................S-15
Assignment of the Underlying Securities..................................................................S-15
Distributions - General..................................................................................S-16
Deposits to the Certificate Account......................................................................S-16
Withdrawals from the Certificate Account.................................................................S-17
Allocation of Available Funds............................................................................S-17
Allocation of Losses.....................................................................................S-19
Statements to Certificateholders.........................................................................S-19
Representations and Warranties...........................................................................S-20
Termination of the Trust.................................................................................S-20
The Trustee..............................................................................................S-21
Amendment of the Trust Agreement.........................................................................S-21
Voting Under the Underlying Agreements...................................................................S-22
Book-Entry Registration and Definitive Certificates......................................................S-22
Description of the Underlying Securities....................................................................S-28
General..................................................................................................S-28
Distributions on the Underlying Securities...............................................................S-29
Subordinated Interests...................................................................................S-30
Allocation of Losses to the Underlying Securities........................................................S-30
Adjustment to the Servicing Fee in Each Underlying Trust Fund in Connection with Prepaid Underlying
Mortgage Loans........................................................................................S-30
Advances.................................................................................................S-31
Optional Termination of the Underlying Trust Funds.......................................................S-31
Description of the Underlying Mortgage Loans.....S-32
The Depositor...............................................................................................S-37
Yield, Prepayment And Maturity Considerations....S-37
Yield Considerations.....................................................................................S-37
Factors Affecting Prepayments on the Underlying Mortgage Loans...........................................S-38
Early Termination of the Underlying Trust Funds..........................................................S-39
Weighted Average Lives of the Certificates...............................................................S-39
Assumed Final Distribution Dates.........................................................................S-39
Modeling Assumptions.....................................................................................S-40
Use of Proceeds.............................................................................................S-44
Material Federal Income Tax Consequences....................................................................S-44
Special Tax Attributes of the Offered Certificates.......................................................S-44
Original Issue Discount..................................................................................S-44
Prohibited Transactions Tax and Other Taxes..............................................................S-45
The Residual Certificate.................................................................................S-45
Erisa Considerations........................................................................................S-47
Legal Investment Considerations.............................................................................S-50
Method of Distribution......................................................................................S-51
Legal Matters...............................................................................................S-51
Ratings.....................................................................................................S-51
Glossary of Terms...........................................................................................S-53
Appendix I......................................................................................................I-1
Appendix II....................................................................................................II-1
Exhibit A - Excerpts from the Underlying Supplement.............................................................A-1
Exhibit B - Remittance Date Statements .........................................................................B-1
Exhibit C - Global Clearance, Settlement and Tax Documentation Procedures.......................................C-1
Prospectus
Page
----
Important Notice About Information in This Prospectus and Each Accompanying Prospectus Supplement.................5
Risk Factors......................................................................................................6
The Trust Fund...................................................................................................15
Use of Proceeds..................................................................................................27
The Depositor....................................................................................................27
Mortgage Loan Program............................................................................................27
Description of the Certificates..................................................................................27
Credit Enhancement...............................................................................................27
Yield and Prepayment Considerations..............................................................................27
The Pooling and Servicing Agreement..............................................................................27
Material Legal Aspects of the Mortgage Loans.....................................................................27
Material Federal Income Tax Consequences.........................................................................27
State Tax Considerations.........................................................................................27
ERISA Considerations.............................................................................................27
Legal Investment Considerations..................................................................................27
Method of Distribution...........................................................................................27
Legal Matters....................................................................................................27
Financial Information............................................................................................27
Available Information............................................................................................27
Ratings..........................................................................................................27
Glossary of Terms................................................................................................27
</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 offered certificates, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flow
priorities and other information to aid your understanding and is
qualified by the full description of these calculations, cash flow
priorities and other information in this prospectus supplement and the
accompanying prospectus. Some of the information consists of
forward-looking statements relating to future economic performance or
projections and other financial items. Forward-looking statements are
subject to a variety of risks and uncertainties that could cause actual
results to differ from the projected results. Those risks and
uncertainties include, among others, general economic and business
conditions, regulatory initiatives and compliance with governmental
regulations, and various other matters, all of which are beyond our
control. Accordingly, what actually happens may be very different from
what we project in our forward-looking statements.
Offered Certificates
On the closing date, [__________ Trust] will issue [________] classes of
certificates, [___] of which are being offered pursuant to this prospectus
supplement and the accompanying prospectus.
Each class of certificates that is being offered will be book-entry securities
in minimum denominations of $50,000 clearing through DTC [in the United States
or Clearstream or Euroclear in Europe].
Trust Fund
The assets of the trust that will support the certificates will consist
primarily of [___] previously issued mortgage pass-through securities. The
underlying mortgage pass-through securities represent senior ownership
interests in [___] respective underlying trust funds. The assets of the
underlying trust funds consist primarily of [fixed-rate, fully amortizing]
mortgage loans secured by first liens on one- to four-family residential
properties.
The following table identifies the mortgage pass-through securities held in
the trust and shows the approximate aggregate principal balances of the
mortgage loans in the related underlying trust funds as of __________, 200_.
Each of the underlying trust funds consist of multiple mortgage loan groups.
Class Principal
Designations Balances of
of Underlying Underlying
Mortgage Mortgage Principal Balances
Underlying Pass-Through Pass-Through of Underlying
Trust Funds Securities Securities Mortgage Loans
----------- ---------- ---------- --------------
[___] Class [___] $[___] $[___]
Trust Series
[---]
[___] Class [___] $[___] $[___]
Trust Series
[---]
[___] Class [___] $[___] $[___]
Trust Series
[---]
The Depositor
Greenwich Capital Acceptance, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
(203) 625-2700
The Servicer
[----------------]
The Trustee
[----------------]
The Originator(s)
[----------------]
Cut-off Date
______________, 200_
Closing Date
On or about ______________, 200_
Distribution Dates
The trustee will make distributions on the certificates on the [___] day of
each calendar month beginning in _________ 200_ to the holders of record of
the certificates as of the last business day of the preceding month. If the
[___] day is not a business day, then the distribution will be made on the
next business day.
Distributions on the Certificates
Interest Distributions
On each distribution date, interest payable on each class of offered
certificates will be calculated based on the pass-through rate specified on
the cover, subject to the limitations described under "Description of the
Certificates - Allocation of Available Funds" in this prospectus supplement.
Interest payable on the offered certificates on a distribution date will
accrue during the calendar month preceding the month in which that
distribution date occurs. Interest will be calculated on the basis of an
assumed 360-day year consisting of twelve 30-day months.
Principal Distributions
On each distribution date, principal of the classes of offered certificates
will be paid from available funds in the trust in the order of priority
described under "Description of the Certificates--Allocation of Available
Funds" in this prospectus supplement.
See "Description of the Certificates" in this prospectus supplement.
Advances
The servicer of the mortgage loans held in the underlying trust funds will
make cash advances to cover delinquent payments of principal and interest to
the extent it reasonably believes that the cash advances are recoverable from
future payments on the related mortgage loans.
See "Description of the Underlying Securities--Advances" in this prospectus
supplement.
Optional Termination of the Trust
The depositor may purchase the remaining assets of the trust when the
aggregate principal balance of the underlying mortgage pass-through securities
is less than [__]% of their aggregate principal balance as of the cut-off
date.
See "Description of the Certificates --Termination of the Trust" in this
prospectus supplement.
Optional Termination of the Underlying Trust Funds
The depositor of the mortgage loans held in any of the underlying trust funds
may terminate that trust fund on and after the distribution date for the
related underlying mortgage pass-through security on which the aggregate
outstanding principal amount of all mortgage loans in that trust fund is less
than [___]% of the aggregate principal amount of those mortgage loans as of
their cut-off date.
See "Description of the Underlying Securities --Optional Termination of the
Underlying Trust Funds" in this prospectus supplement.
Ratings
It is a condition of the issuance of the offered certificates that they be
assigned a rating of "[___]" by [_____________].
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.
Material Federal Income Tax Consequences
In the opinion of Brown & Wood LLP, for federal income tax purposes, the trust
will include [multiple segregated asset pools] each of which will qualify 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 REMIC. The Class [___] Certificate will
represent the sole class of "residual interests" in the REMIC. The holder of
the Class [__] Certificate will be subject to special federal income tax rules
that may significantly reduce the after-tax yield of that certificate.
See "Material Federal Income Tax Consequences" in this prospectus supplement
and in the prospectus.
ERISA Considerations
Assuming the accuracy of certain statements included in the disclosure
documentation prepared in connection with the public offering of the
underlying mortgage pass-through securities, it is expected that the Class [__
and Class __] 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 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 Considerations
Assuming the accuracy of certain representations contained in the agreements
under which the underlying trust funds were created (which information is not
subject to independent verification) and on the basis of certain assumptions
derived from statements included in the disclosure documentation prepared in
connection with the public offering of the underlying mortgage pass-through
securities, the Class [__ and Class __] Certificates will be "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 as long as they are rated in one of the two highest rating categories by
at least one nationally recognized statistical rating organization.
See Legal Investment Considerations" in this prospectus supplement" and in the
prospectus.
Listing
The certificates are not listed, and no party to the transaction intends to
list the certificates, on any stock exchange or to quote them in the automated
quotation system of a registered securities association.
Risk Factors
There are risks associated with an investment in the certificates. You should
consider carefully the material risks disclosed under the heading "Risk
Factors" beginning on page S-7.
<PAGE>
Risk Factors
The following information, together with the information set forth
under "Risk Factors" in the prospectus which you should carefully consider,
identify the principal risk factors of an investment in the certificates.
<TABLE>
<CAPTION>
<S> <C>
Only limited information is available
about the underlying mortgage
pass-through securities and underlying
mortgage loans.............................. The information about the underlying mortgage pass-through securities
and the related mortgage loans disclosed in this prospectus supplement
has been obtained from the disclosure documentation prepared in
connection with the initial offerings of those securities as well as
from reports and other information supplied by the trustees of the
related underlying trust funds. That information has not been
independently verified or represented to the trust as being accurate
and complete. Additionally, the agreements under which the underlying
mortgage pass-through securities were issued and the disclosure
documentation prepared in connection with those public offerings
contain information only as of the dates of those documents. You should
be aware, however, that material changes may have occurred since the
preparation of those documents. The composition of the related mortgage
pools may have changed significantly. As a result, there may be
considerable differences between the current mortgage loan
characteristics and the characteristics described in connection with
the issuance of the underlying mortgage pass-through securities, and
those securities may not have performed as originally anticipated. The
depositor did not prepare the underlying agreements or disclosure
documentation and neither the depositor nor the underwriter makes any
representation as to the accuracy or completeness of information
provided in those documents. Prospective investors are advised to
consider the limited nature of the available information when
evaluating the suitability of any investment in the offered
certificates.
Prepayments on the loans may adversely
affect the average life of, and rate of
return on, your certificates................ Borrowers may prepay their mortgage loans in whole or in part at any
time. However, the mortgage loans are subject to certain penalties for
prepayments generally during the first five years after origination.
For a description of the prepayment penalties, see "The Mortgage
Pool--General" on Exhibit A.
We cannot predict the rate at which borrowers will repay their
mortgage loans. A prepayment of a mortgage loan may result in a
prepayment on the related underlying mortgage pass-through security,
which in turn would result in a prepayment on the offered
certificates.
o If you purchase your certificates at a discount and principal is
repaid slower than you anticipate, then your yield may be lower
than you anticipate.
o If you purchase your certificates at a premium and principal is
repaid faster than you anticipate, then your yield may be lower
than you anticipate.
o The rate of prepayments on the mortgage loans will be sensitive to
prevailing interest rates. Generally, if interest rates decline
significantly below the interest rates on the mortgage loans, those
mortgage loans are more likely to prepay than if prevailing rates
remain above the interest rates on those mortgage loans.
Conversely, if interest rates rise significantly, the prepayments
on the mortgage loans are likely to decrease.
o The seller of a mortgage loan to an underlying trust fund may be
required to purchase that mortgage loan from the trust fund due to
certain breaches of representations and warranties made by the
seller that have not been cured. These purchases will have the same
effect on the related offered certificates as a prepayment of a
mortgage loan.
o So long as the subordinate interests in an underlying trust fund
are outstanding, liquidations of defaulted mortgage loans in that
trust fund generally will have the same effect on the offered
certificates as a prepayment of a mortgage loan.
o If the rate of default and the amount of losses on the mortgage
loans in an underlying trust fund are higher than you expect, then
your yield may be lower than you expect.
Although principal distributions on the
Class [___] Certificates generally are
expected to follow a schedule, the rate
of prepayments on the mortgage loans
may still affect the rate of principal
distributions on those certificates........ The Class [___] Certificates, which is a planned amortization class,
generally will be less affected by the rate of principal prepayments
than certain other classes of certificates because, on each
distribution date, the Class [___] Certificates receive principal
distributions according to the schedule set forth in Appendix II. The
schedule assumes that the rate of prepayment on the mortgage loans
remains at a constant rate of between [___]% and [___]% of a standard
prepayment assumption, as described in "Yield, Prepayment and Maturity
Considerations" in this prospectus supplement. However, there is no
guarantee that the rate of prepayment on the mortgage loans will stay
at a constant rate between these levels.
o If the mortgage loans prepay at a rate faster or slower than those
levels, or do not prepay at a constant rate, distributions of
principal on the Class [___] Certificates may no longer be made
according to schedule.
o Moreover, once the Class [___] Certificates have been paid in full,
the Class [___] Certificates will become very sensitive to the rate
of prepayments and will no longer be paid according to the
schedule.
See "Yield, Prepayment and Maturity Considerations" in this prospectus
supplement for tables showing the expected rate of return of principal
at different prepayment rates.
The Class [___] Certificates will be
very sensitive to the rate of
prepayments on the mortgage loans........... The Class [___] Certificates will be especially sensitive to the rate
of prepayment on the mortgage loans. The Class [___] Certificates act
as a prepayment cushion for the Class [___] Certificates as described
above, absorbing excess principal prepayments. On each distribution
date, the Class [___] Certificates receive principal only if the Class
[___] Certificates have been paid according to their schedule. If the
rate of prepayments on the mortgage loans on any distribution date is
slow enough so that the Class [___] Certificates are not paid to
schedule, then the Class [___] Certificates will receive no
distributions of principal from the mortgage loans on that distribution
date. However, if the rate of prepayments is high enough so that the
Class [___] Certificates are paid according to schedule, then the Class
[___] Certificates will receive all of the remaining principal
available for distribution. This may cause wide variations in the
amount of principal the Class [___] Certificates will receive from
distribution date to distribution date. See "Yield, Prepayment and
Maturity Considerations" for tables showing the expected rate of return
of principal at different rates of prepayment.
Prepayments on the loans may result in
shortfalls in interest collections and
may reduce the yield on your
certificates................................
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 related underlying mortgage pass-through
security. The servicer is required to cover the shortfall in interest
collections that are attributable to prepayments in full, but only up
to the amount of the servicer's fee for the related period. If the
aggregate amount of this shortfall is in excess of the servicing fee,
it may adversely affect the yield on your investment.
Potential inadequacy of credit
enhancement may result in losses on
your certificates........................... Credit enhancement is provided for the offered certificates, first, by
the right of the holders of the underlying mortgage pass-through
securities to receive certain payments prior to the related subordinate
interests. This form of credit enhancement is provided solely from
collections on the mortgage loans otherwise payable to the holders of
the related subordinate interests.
Credit enhancement also is provided by the allocation of realized
losses on mortgage loans, first, to the related subordinate interests.
Accordingly, if the aggregate principal balance of the subordinate
interests with respect to any underlying trust fund were to be reduced
to zero, delinquencies and defaults on the related mortgage loans would
reduce the funds available for payments to holders of the senior
interests in the related underlying trust fund, including the related
underlying mortgage pass-through security. This reduction in funds
available for payment to the underlying mortgage pass-through security
would reduce the funds available for distributions on the offered
certificates.
Geographic concentration of the trust's
loans may adversely affect your
certificates................................ 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.
o Economic conditions in [______]may affect the ability of borrowers
to repay their loans on time.
o Declines in the residential real estate markets in [______] may
reduce the values of properties located in [______], which would
result in an increase in the loan-to-value ratios.
o Any increase in the market values of properties located in [______]
would reduce the loan-to-value ratios and could, therefore, make
alternative sources of financing available to the borrowers at
lower interest rates. This in turn could result in an increased
rate of prepayment of the mortgage loans.]
Losses on mortgage loans in the
underlying trust funds, other than
those directly backing the underlying
mortgage pass-through securities, may
increase the risk of losses on the
offered certificates........................ Realized losses, other than any excess losses, experienced by mortgage
loans included in a particular mortgage loan group will be allocated,
first, to the subordinate interests in the related underlying trust
fund before being allocated to the senior interests directly backed by
that mortgage loan group. However, the underlying subordinate interests
provide protection against losses on mortgage loans in more than one
mortgage loan group. As a result, the subordinate interests could be
reduced or eliminated as a result of disproportionate realized losses
on the mortgage loans included in a mortgage loan group other than the
group directly backing an underlying mortgage pass-through security.
Although realized losses, other than excess losses, on the mortgage
loans in a mortgage loan group may be allocated only to the underlying
senior interest directly backed by that mortgage loan group, the
allocation to the subordinate interests of realized losses on the
underlying mortgage loans in another mortgage loan group will increase
the likelihood that losses ultimately may be allocated to an underlying
mortgage pass-through security and, in turn, to the offered
certificates. Generally, the characteristics of the mortgage loans
included in the mortgage loan group directly backing each underlying
mortgage pass-through security are substantially similar to those of
the other mortgage loan group whose losses are covered by the same
subordinate interests.
Excess losses on mortgage loans in the
underlying trust funds will reduce
yields on the offered certificates.......... Realized losses on mortgage loans in the underlying trust funds that
exceed the applicable coverage amounts for special hazard losses, fraud
losses and bankruptcy losses are referred to as "excess losses." Excess
losses on underlying mortgage loans included in the mortgage loan group
directly backing an underlying mortgage pass-through security or in the
other mortgage loan group held in the same underlying trust fund whose
losses are covered by the same subordinate interests will be allocated
on a pro rata basis to all senior interests relating to those mortgage
loans groups, including the applicable underlying mortgage pass-through
security. As a result, any excess losses on those mortgage loans will
have a direct effect on the offered certificates and will reduce their
yields.
Optional termination of the trust may
shorten the weighted average lives of
the offered certificates.................... The depositor may purchase the assets in the trust, in whole but not in
part, on and after the distribution date on which the aggregate
principal balance of the underlying mortgage pass-through securities is
less than [___]% of their aggregate principal balance as of the cut-off
date. The purchase of those assets will result in the receipt by you of
principal payments that could affect the yield to maturity on your
certificates and have the effect of shortening the weighted average
life of your certificates.
Optional termination of the underlying
trust funds may shorten the weighted
average lives of the offered
certificates................................ The depositor of the mortgage loans held in any of the underlying trust
funds may terminate the related trust fund on and after the
distribution date for that trust fund on which the aggregate
outstanding principal amount of all mortgage loans in that trust fund
is less than [___]% of their aggregate principal amount on their
cut-off date. As a result, it is possible for an underlying trust fund
to be terminated in this manner although the aggregate outstanding
principal amount of the mortgage loans in the mortgage loan group
directly backing the related underlying mortgage pass-through security
is greater than [___]% of the aggregate principal amount of those
mortgage loans as of their cut-off date. For the holder of an offered
certificate, any such termination of an underlying trust fund may
result in the receipt by the holder of principal payments that could
affect the yield to maturity on its certificates by shortening the
weighted average life of its certificates.
It may be difficult to
resell your certificates.................... [Underwriter] 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. Furthermore,
the certificates are not listed, and the parties to the transaction
do not intend to list the certificates on any stock exchange or to
quote them in the automated quotation system of a registered
securities association. 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.
</TABLE>
There is a Glossary of Terms beginning on page S-53 where you will find
definitions of the capitalized terms used in this prospectus supplement.
<PAGE>
Description of the Certificates
General
The certificates will be issued pursuant to the trust agreement dated as
of ________, 200_ between the depositor and the trustee and will represent the
entire beneficial ownership interest in the trust. Set forth below is a
description of the material terms and provisions pursuant to which the
certificates will be issued. The following description is subject to, and
qualified in its entirety by reference to, the provisions of the trust
agreement. When particular provisions or terms used in the trust agreement are
referred to, the provisions or terms are as specified in the trust agreement.
The assets of the trust will consist primarily of [___] previously issued
mortgage pass-through certificates representing [___] ownership interests in
[___]respective underlying trust funds. The certificates will consist of the
Class [___] Certificates, the Class [___] Certificates, the Class [___]
Certificates, and the Class [___] Certificate or residual certificate. The
offered certificates are the Class [___] Certificates, the Class [___]
Certificates, the Class [___] Certificates and the Class [___] Certificates.
The offered certificates and the Class [___] Certificate are collectively
referred to in this prospectus supplement as the certificates. Only the
offered certificates are offered by this prospectus supplement and the
accompanying prospectus.
The Class [___] Certificate represents the trustee's fee and has an
initial principal balance of $[___].
The offered certificates (other than the Class [__] Certificate) will be
issuable in denominations of not less than $[___] principal amount and in
integral multiples of $[___] in excess thereof, with the exception of one
certificate of each Class which may be issued in a lesser amount. The Class
[___] Certificate will be issued in fully registered certificated form as a
single certificate in a denomination of approximately $[___].
The offered certificates (other than the Class [___] Certificate)
initially will be book-entry certificates. Persons acquiring beneficial
ownership interests in the book-entry certificates will hold them through The
Depository Trust Company (DTC) in the United States, or Clearstream or
Euroclear in Europe, if they are participants of those systems, or indirectly
through organizations that are participants in those systems. The book-entry
certificates initially will be registered in the name of Cede & Co., as
nominee of DTC.
Assignment of the Underlying Securities
On the closing date, the depositor will deliver the underlying securities
to the trustee. The underlying securities will be registered in the name of
the trustee or its nominee, and all monthly distributions on each underlying
remittance date for each underlying security will be made to the trustee. The
underlying remittance date is the [ ] day of each month or, if the [ ] day is
not a business day, the next business day.
Distributions - General
Distributions on the offered certificates will be made by the trustee on
each distribution date. Distributions will be made to the persons in whose
names the certificates are registered at the close of business on the record
date, which is the last business day of the month preceding the month in which
the distribution date occurs.
Deposits to the Certificate Account
The trustee will establish and maintain a separate trust account called
the certificate account for the benefit of the holders of the certificates.
The certificate account will meet the criteria for an eligible account listed
in the following paragraph. Upon receipt by the trustee of amounts in respect
of the underlying securities, the trustee will deposit those amounts in the
certificate account. Amounts so deposited may be invested in permitted
investments (as described and defined in the trust agreement) maturing no
later than one business day prior to the distribution date unless the
permitted investments are invested in investments managed or advised by the
trustee or one of its affiliates, in which case the permitted investments may
mature on the related distribution date.
An eligible account is one or more segregated accounts that are
o 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 which holding company) are rated [__]
by [___________] and [__] by [_____________] at the time any amounts
are held on deposit;
o the deposits in which are fully insured by the Federal Deposit
Insurance Corporation (to the limits established by the FDIC), or
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
the account or a perfected first priority security interest against
the permitted investments securing the funds that is superior to
claims of any other depositors or creditors of the depository
institution with which the account is maintained;
o are maintained with the trust department of a federal or state
chartered depository institution, national banking association or
trust company acting in its fiduciary capacity; or
o which are otherwise acceptable to each rating agency without
reduction or withdrawal of their then current ratings of the
certificates as evidenced by a letter from each rating agency to the
trustee.
Permitted investments are specified in the trust agreement and are limited to
investments which meet the criteria of the rating agencies named under
"Ratings" from time to time as being consistent with their then current
ratings of the certificates.
Withdrawals from the Certificate Account
The trustee is permitted from time to time to withdraw funds from the
certificate account for the following purposes:
o to make payments to certificateholders in the amounts and in the
manner as described under "--Allocation of Available Funds" below;
o to reimburse the depositor for any expenses incurred by and
reimbursable to the depositor pursuant to the trust agreement;
o to pay any taxes imposed on the trust ; and
o to clear and terminate the certificate account upon termination of
the trust agreement.
Allocation of Available Funds
On each distribution date, the trustee will withdraw the Available Funds
from the certificate account and will distribute the Available Funds in the
following order of priority:
(i) to the holders of the classes of offered certificates and the Class
[____] Certificate, pro rata, interest accrued on the their respective
Certificate Principal Balances during the preceding Interest Accrual Period at
their respective pass-through rates (less any Net Prepayment Interest
Shortfalls allocated to those classes as provided below), together with any
accrued and unpaid interest thereon from prior distribution dates; provided,
however, that prior to the Class [____] Accretion Termination Date, the amount
of interest accrued on the Certificate Principal Balances of the Class [____]
Certificates during the preceding Interest Accrual Period will not be
distributed as interest thereon but instead will be distributed in reduction
of the Certificate Principal Balances of the Class [____] Certificates as set
forth in clause (iv) below; and provided, further, that prior to the Class
[____] Accretion Termination Date, the amount of interest accrued on the
Certificate Principal Balances of the Class [____] Certificates during the
preceding Interest Accrual Period will not be distributed as interest thereon
but instead will be distributed in reduction of the Certificate Principal
Balances of the Class [____] and Class [____] Certificates, in that order, as
set forth in clause (v) below;
(ii) as principal, to the holders of the Class [____] Certificate, the
Class [____] Pro Rata Distribution Amount;
(iii) as principal, to the holders of the Class [____] Certificates, the
Class [____] Priority Distribution Amount, until the Certificate Principal
Balances thereof are reduced to zero;
(iv) as principal, to the holders of the Class [____] Certificates, the
Class [____] Accrual Distribution Amount, until the Certificate Principal
Balances of the Class [____] Certificates have been reduced to zero, and then
to the holders of the Class [____] Certificates;
(v) as principal, sequentially, to the holders of the Class [____] and
Class [____] Certificates, in that order, the Class [____] Accrual
Distribution Amount, until the respective Certificate Principal Balances
thereof have been reduced to zero, and then to the holders of the Class [____]
Certificates;
(vi) as principal, to the holder of the Class [____] Certificate, until
the Certificate Principal Balance thereof has been reduced to zero;
(vii) as principal, to (A) the holders of the Class [____], Class [____]
and Class [____] Certificates according to the priorities set forth in clause
(x) below and (B) the holders of the Class [____] and Class [____]
Certificates according to the priorities set forth in clause (y) below, as
follows:
(x) [____]% of the remaining amount (after giving effect to the
distributions specified in clauses (i) through (vi) above):
first, to the holders of the Class [____] Certificates until
the Certificate Principal Balances thereof are reduced to the Class
[____] Planned Balance for that distribution date;
second, sequentially, to the holders of the Class [____] and
Class [____] Certificates, in that order, until the respective
Certificate Principal Balances thereof are reduced to zero; and
third, to the holders of the Class [____] Certificates, without
regard to the Class [____] Planned Balance for that distribution
date and until the Certificate Principal Balances thereof are
reduced to zero; and
(y) [____]% of the remaining amount (after giving effect to the
distributions specified in clauses (i) through (vi) above),
sequentially, to the holders of the Class [____] and Class [____]
Certificates, in that order, until their respective Certificate
Principal Balances have been reduced to zero; and
(viii) as principal, sequentially, to the holders of the Class [____],
Class [____], Class [____] and Class [____] Certificates, in that order, until
their respective Certificate Principal Balances have been reduced to zero.
On each distribution date, any Net Prepayment Interest Shortfalls will be
allocated, pro rata, to the certificates on the basis of their Certificate
Principal Balances.
On each distribution date preceding the Class [____] Accretion
Termination Date, the Class [____] Accrual Distribution Amount will be added
to the Certificate Principal Balances of the Class [____] Certificates on a
pro rata basis. On each distribution date preceding the Class [____] Accretion
Termination Date, the Class [____] Accrual Distribution Amount will be added
to the Certificate Principal Balances of the Class [____] Certificates on a
pro rata basis.
In the event that on any underlying remittance date, the trustee shall
not have received the cash distribution, if any, required to be made in
respect of an underlying security, the trustee shall effect the distribution
set forth above on the business day immediately following the date on which
the cash distribution so required shall have been received by the trustee.
Allocation of Losses
Losses allocated to any of the underlying securities will in turn be
allocated to the classes of offered certificates, pro rata, based upon their
respective Certificate Principal Balances.
Statements to Certificateholders
Concurrently with each distribution on a distribution date, the trustee
will forward to the holder of each certificate a statement generally setting
forth the following information:
(i) the Available Funds, the Class [____] Accrual Distribution
Amount, the Class [____] Accrual Distribution Amount and the Class [____]
Priority Distribution Amount for that distribution date;
(ii) with respect to that distribution date, the aggregate amount of
principal and interest, stated separately, distributed to holders of each
class of certificates;
(iii) with respect to that distribution date, the amount of any
interest shortfall (including any Net Prepayment Interest Shortfalls) for
each class of certificates, together with the amount of any unpaid
interest shortfall for that class immediately following that distribution
date;
(iv) with respect to that distribution date and each class of
certificates, the losses allocated to that class;
(v) the aggregate Certificate Principal Balance of each class of
certificates, after giving effect to (a) distributions of principal of
those certificates on that distribution date, (b) any losses allocated to
those certificates and (c) in the case of the Class [____] Certificates,
any addition to the aggregate Certificate Principal Balance of that
class; and
(vi) any additional amount distributed to the holder of the residual
certificate on that distribution date.
In addition, the trustee upon written request will furnish to
certificateholders copies of the statements received by the trustee for each
underlying remittance date as the holder of the underlying securities on
behalf of the trust .
Within a reasonable period of time after the end of each calendar year,
the trustee will prepare and deliver to each person who at any time during the
previous calendar year was a certificateholder of record a statement
containing the information required to satisfy any requirements of the
Internal Revenue Code and related regulations as from time to time are in
force.
Representations and Warranties
The depositor will represent and warrant to the trustee as of the closing
date that
o the depositor was the sole owner of the underlying securities free
and clear of any lien, pledge, charge or encumbrance of any kind;
o the depositor had not assigned any interest in the underlying
securities or any related distributions, except as contemplated in
the trust agreement; and
o the endorsements and other documents furnished to the trustee in
connection with the underlying securities are sufficient to effect
the transfer of the underlying securities to the trustee.
Upon discovery of a breach of any of the foregoing representations and
warranties which materially and adversely affects the interests of the
certificateholders in any of the underlying securities, the depositor or the
trustee shall give prompt written notice to the other and to the
certificateholders. On or prior to the distribution date in __________ 200_,
the depositor will be obligated to cure the breach in all material respects
or, if the breach cannot be cured, repurchase each affected underlying
security if so directed in writing by holders of the majority in interest of
each class of offered certificates.
Termination of the Trust
At its option, the depositor may purchase the underlying securities, in
whole but not in part, on and after the distribution date on which the
aggregate principal balance of the underlying securities is less than [____]%
of their aggregate principal balance as of the cut-off date. The purchase
price for each underlying security will be equal to the balance of the
underlying security (after giving effect to all distributions on that
distribution date). The obligations created by the trust agreement will
terminate upon the payment to certificateholders of all amounts held by the
trustee and required to be paid to them pursuant to the trust agreement after
the final payment or other liquidation of the underlying securities, including
any exercise of the optional purchase described above. In no event, however,
will the trust continue beyond the date specified in the trust agreement.
Written notice of termination of the trust agreement will be given to each
certificateholder, and the final distribution will be made only upon surrender
and cancellation of the certificates at an office or agency as specified in
the notice of termination.
The Trustee
________________________ will act as trustee for the certificates
pursuant to the trust agreement. The trustee's principal corporate trust
offices are located at [_________________________________]. The trustee's fee
is represented by the Class [____] Certificate.
Amendment of the Trust Agreement
Without the consent of any of the certificateholders, the trust agreement
may be amended by the depositor and the trustee
o to cure any error or ambiguity,
o to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein,
o to permit any other provisions with respect to matters or
questions arising under the trust agreement which are not inconsistent
with the provisions of the trust agreement,
o to comply with the Securities Act of 1933, as amended, or the
Investment Company Act of 1940, as amended,
o to amend any of the exhibits to the trust agreement pursuant to
the terms of the trust agreement or
o if the amendment is reasonably necessary, as evidenced by an
opinion of counsel, to comply with any requirements imposed by the
Internal Revenue Code or any successor or amendatory statute or any
temporary or final regulation, revenue ruling, revenue procedure or other
written official announcement or interpretation relating to federal
income tax laws or any proposed action which, if made effective, would
apply retroactively to the trust at least from the effective date of that
amendment;
provided, however, that the amendment (except any amendment described in (the
last bullet above) shall not, as evidenced by an opinion of counsel that shall
not be an expense of the trustee, delivered to the trustee, adversely affect
in any material respect the interests of any certificateholder; and provided,
further, that the amendment shall be deemed not to adversely affect in any
material respect the interests of any certificateholder of the offered
certificates if the person requesting the amendment obtains letters from the
rating agencies named under "Ratings" to the effect that the amendment would
not result in a downgrade or withdrawal of the ratings then assigned to the
offered certificates.
The trust agreement may also be amended by the depositor and the trustee
with the consent of the holders representing at least 51% of the ownership
interest of each class of certificates affected by the amendment for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the trust agreement or of modifying in any manner the
rights of the holders of certificates; provided, however, that no such
amendment may
o reduce in any manner the amount of, or delay the timing of,
distributions required to be made on any certificate without the consent
of the holder of that certificate,
o adversely affect in any material respect the interest of the
holders of the certificates of any class in a manner other than as
described in the immediately preceding bullet point above without the
consent of the holders of certificates of that class representing not
less than 66% of the ownership interest of that class or
o reduce the aforesaid percentages of certificates the holders of
which are required to consent to any such amendment without the consent
of the holders of all certificates then outstanding.
In no event will the trustee consent to any amendment unless the trustee shall
have obtained an opinion of counsel to the effect that the amendment will not
cause the trust to fail to qualify as a REMIC at any time that certificates
deemed to be "regular interests" are outstanding.
Voting Under the Underlying Agreements
In the event that there are any matters arising under any of the
underlying agreements governing the underlying trust funds which require the
vote or direction of the holder of the related underlying security, the
trustee, as holder of the underlying security on behalf of the trust, will
vote the underlying security in accordance with instructions received from the
holders of a Majority in Interest of each class of certificates. In the
absence of any instructions, the trustee will not vote the underlying
securities. However, notwithstanding the absence of instructions, in the event
a required distribution pursuant to the applicable underlying agreement shall
not have been made, the trustee shall, subject to the provisions of the trust
agreement, pursue the remedies that may be available to it as holder of the
underlying security in accordance with the terms of the applicable underlying
agreement.
Book-Entry Registration and Definitive Certificates
The offered certificates (other than the Class [____] Certificate)
initially will be book-entry certificates. Persons and entities that acquire
beneficial ownership in the offered certificates will be deemed "certificate
owners" and will hold their offered certificates through DTC [in the United
States, or Clearsteam Bank, societe anonyme, or Euroclear (in Europe)] if they
are participants in [that] [those] system[s], or indirectly through
organizations which are participants in [that] [those] system[s]. The
book-entry certificates will be issued in the form of 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., as 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. Investors may hold such beneficial interests in the book-entry
certificates in minimum denominations of $50,000. Except as described below,
no beneficial owner of a book-entry certificate will be entitled to receive a
definitive (i.e., physical) 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. Beneficial owners of
certificates will not be "Certificateholders" as that term is used in the
trust agreement. Beneficial owners of certificates are only permitted to
exercise their rights indirectly through DTC participants.
A 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 that maintains the beneficial owner's account for
such purpose. In turn, the financial intermediary's ownership of the
book-entry certificate will be recorded on the records of DTC (or of a
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]).
Beneficial 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), DTC rules (consisting of the rules,
regulations and procedures creating and affecting DTC and its operations)
require that DTC
o make book-entry transfers among participants on whose behalf it acts
with respect to the offered certificates and
o receive and transmit distributions of principal of, and interest on,
the offered certificates.
Participants and indirect participants with which beneficial 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 beneficial owners
of certificates will not possess physical certificates representing their
respective interests in the offered certificates, DTC rules provide a
mechanism by which certificate owners will receive distributions and will be
able to transfer their interests.
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 participants and
indirect participants to transfer offered certificates, by book-entry
transfer, through DTC for the account of the purchasers of the offered
certificates, which account is maintained with their respective participants.
Under DTC 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 or Euroclear participant
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
"Material 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 to this prospectus supplement.]
Transfers between DTC participants will occur in accordance with DTC
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 DTC rules on behalf of the relevant European international
clearing system by the relevant depositary. However, these cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that 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 is a New York-chartered limited purpose trust company, and 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
DTC rules as in effect from time to time.
[Clearstream Banking, societe anonyme, 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 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 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, Belgian
office of Morgan Guaranty Trust Company of New York, under contract with
Euroclear Clearance Systems, S.C., a Belgian cooperative corporation, which
establishes policy for Euroclear on behalf of the Euroclear participants. 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 with Euroclear Clearance Systems. 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 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 only on behalf of
Euroclear participants, and has no record of or relationship with persons
holding through Euroclear participants.]
Distributions on the book-entry certificates will be made on each
distribution date by the trustee to DTC. DTC will be responsible for crediting
these payment amounts to the accounts of the applicable DTC participants in
accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing the payments to the beneficial owners of the
book-entry certificates that it represents and to each financial intermediary
for which it acts as agent. In turn, each 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. Distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Material 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 book-entry certificates, may be
limited due to the lack of physical certificates. In addition, issuance of
certificates in book-entry form may reduce the liquidity of the 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 pooling and servicing
agreement only at the direction of one or more financial intermediaries to
whose DTC accounts the book-entry certificates are credited, to the extent
that such actions are taken on behalf of financial intermediaries whose
holdings include 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 pooling and servicing 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
o 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,
o [_________________], at its sole option, with the consent of the
trustee, elects to terminate a book-entry system through DTC or
o 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 any
successor) 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 the 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 trust 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 those procedures, which may be discontinued
at any time.
Neither the depositor nor 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 beneficial ownership interests.
Description of the Underlying Securities
All of the information contained herein with respect to the underlying
securities is based solely on (i) information contained in the underlying
agreements and (ii) information obtained from the monthly statements provided
by the underlying trustees in connection with the __________ 200_ underlying
remittance dates for the underlying securities. None of the depositor, the
underwriter or the trustee has the ability independently to verify the
accuracy of this information and, accordingly, none of the depositor, the
underwriter or the trustee will make any representation or warranty as to the
accuracy of the information. Prospective investors are advised to consider the
limited nature of the available information in evaluating the suitability of
any investment in the offered certificates.
General
The trust assets will consist primarily of the following:
o approximately [____]% of the Series [____] underlying security,
issued pursuant to a pooling and servicing agreement dated as of
__________, 200_ among [_______________], as depositor,
[_______________], as seller and master servicer, and
[_______________], as trustee;
o approximately [____]% of the Series [____] underlying security,
issued pursuant to a pooling and servicing agreement dated as of
__________, 200_ among [_______________], as depositor,
[_______________], as seller and master servicer, and
[_______________], as trustee; and
o [____]% of the Series [____] underlying security, issued pursuant to
a pooling and servicing agreement dated as of __________, 200_ among
[_______________], as depositor, [_______________], as seller and
master servicer, and [_______________], as trustee.
Each of the [____] underlying securities evidences a senior interest in
one of [____] underlying trust funds established pursuant to the related
underlying agreement and was issued together with other [___] underlying
senior interests, certain related underlying subordinate interests and certain
residual interests. Each of the underlying trust funds consists primarily of
the related underlying mortgage loans secured by first liens on one- to
four-family residential properties. The mortgage pool principal balance of the
underlying mortgage loans included in the three mortgage loan groups directly
backing the underlying securities as of the underlying remittance date in
__________ 200_ were approximately $[__________], $[__________] and
$[__________], respectively.
The servicer is required to deposit, or cause to be deposited, in each
underlying security Account on a daily basis the payments and collections on
the underlying mortgage loans, except that the servicer will deduct its
servicing fee and any expenses of liquidating defaulted underlying mortgage
loans or the related REO property.
The underlying subordinate interests are subordinate to the related
underlying senior interests with respect to the right to receive distributions
from the related underlying trust fund and, accordingly, no distributions will
be made on the underlying subordinate interests with respect to any underlying
trust fund on an underlying remittance date until all required distributions
have been made on the related underlying senior interests for that date. In
addition, all losses (other than Excess Losses) on the underlying mortgage
loans included in any underlying trust fund will be borne first by the related
underlying subordinate interests before being borne by the related underlying
senior interests.
Based solely on the monthly statements provided by the underlying
trustees in connection with the __________ 200_ underlying remittance dates,
which statements have not been independently verified for accuracy, the Series
[____] underlying security, the Series [____] underlying security and the
Series [____] underlying security had principal balances of approximately
$[__________], $[__________] and $[__________], respectively, after giving
effect to the distributions on that date, representing approximately [____]%,
[____]% and [____]% of the related mortgage pool principal balances for the
respective underlying trust funds.
Distributions on the Underlying Securities
Distributions of principal and interest on the underlying securities will
be made on each underlying remittance date.
Scheduled principal received on the underlying mortgage loans held in
each underlying trust fund will be passed through monthly on the underlying
remittance date occurring in the month in which the related due date occurs.
The due date is the [____] day of each calendar month, being the day of the
month on which a payment of interest and principal is due for each underlying
mortgage loan, exclusive of any days of grace. With respect to the underlying
securities, principal prepayments received during the period from the [___]
day of any month to the [___] day of that month will be passed through on the
underlying remittance date occurring in the month following receipt.
Interest received on each underlying mortgage loan will be passed through
monthly on the underlying remittance date occurring in the month in which the
due date occurs, at the pass-through rate for that underlying mortgage loan.
On each underlying remittance date, there will be distributed from, and
to the extent of, available funds for each of the applicable mortgage loan
groups in the underlying trust funds, an amount up to the amount required to
be paid in respect of the related underlying security.
For a further description of the distribution of principal on the
underlying securities, see "Description of the Certificates" in the excerpts
from the underlying supplements attached hereto as Exhibit A.
Subordinated Interests
The underlying securities, which represent senior interests in the
underlying trust funds, evidence the right of the holders thereof to receive
distributions on the related underlying mortgage loans before any
distributions have been made to holders of the related underlying subordinate
interests. This subordination is intended to enhance the likelihood of regular
receipt by holders of the underlying senior interests of the full amount of
monthly distributions due them and to protect holders of the underlying senior
interests against losses and other cash flow shortfalls. If, on any underlying
remittance date, holders of the underlying senior interests are paid less than
the amount due to them on that date, the interest of the holders of the
underlying senior interests in the related underlying trust funds will vary so
as to preserve the entitlement of the underlying senior interests to unpaid
principal of the underlying mortgage loans and interest thereon.
If at any time the underlying subordinate interests with respect to any
of the underlying trust funds have been extinguished, all future losses or
shortfalls due to delinquent payments on the related underlying mortgage loans
for which no advance is made by the servicer will be borne by the related
underlying senior interests. Amounts actually paid at any time to the holder
of the related underlying security will not be subsequently recoverable from
that holder.
Allocation of Losses to the Underlying Securities
Realized Losses on the underlying mortgage loans in the underlying trust
funds (other than Excess Losses) will be allocated to the related underlying
subordinate interests before they are allocated to the related underlying
senior interests (including the underlying securities). If the aggregate
principal balance of the underlying subordinate interests with respect to any
underlying trust fund is reduced to zero, the amount of all such future losses
on the underlying mortgage loans held in that underlying trust fund will be
allocated to the related underlying senior interests (including the applicable
underlying security), pro rata, based on their respective outstanding
principal balances.
Excess Losses on underlying mortgage loans and on mortgage loans in the
other mortgage loan group held in the same underlying trust fund whose losses
are covered by the same underlying subordinate interests will be allocated to
all underlying senior interests relating to those mortgage loan groups,
including the applicable underlying security.
Adjustment to the Servicing Fee in Each Underlying Trust Fund in Connection
with Prepaid Underlying Mortgage Loans
When a mortgagor makes a full or partial principal prepayment of an
underlying mortgage loan between due dates, the mortgagor may be required to
pay interest on the principal balance thereof only to the date of prepayment.
In order to minimize any resulting shortfall in interest, the related portion
of the servicing fee owed to the servicer will be reduced to the extent
necessary to include an amount in payments in respect of the related
underlying security equal to a full month's interest payment at the underlying
pass-through rate with respect to that prepaid underlying mortgage loan. In
the event the aggregate amount of interest shortfalls exceeds the related
portions of the servicing fee, then the amount of the excess will be allocated
to the related underlying security, thereby reducing the interest
distributable thereon on the related underlying remittance date.
Advances
The servicer is obligated to make advances of cash each month for
distribution on each of the underlying securities equal to the difference
between the amount due on that underlying security and the amount in the
related underlying security account to be distributed to them pursuant to the
underlying agreement, but only to the extent the difference is attributable to
delinquent monthly payments due during the immediately preceding due period.
The servicer is not under any obligation to make an advance with respect to
any underlying mortgage loan if the servicer determines, in its sole
discretion, that the advance will not be recoverable from future payments and
collections on that underlying mortgage loan. Advances are intended to
maintain a regular flow of scheduled interest and principal payments on each
of the underlying securities, not to guarantee or insure against losses.
Accordingly, any funds so advanced are recoverable by the servicer out of
amounts received on the underlying mortgage loans.
Optional Termination of the Underlying Trust Funds
The underlying depositor may, on any underlying remittance date, purchase
from any of the underlying trust funds all mortgage loans (including the
related underlying mortgage loans) in that underlying trust fund remaining
outstanding if the aggregate unpaid principal balance of those mortgage loans
is less than [____]% of the aggregate unpaid principal balance thereof as of
the related cut-off date. The purchase price will be distributed on the
related underlying security in the month following the month of that purchase.
For additional information on the underlying securities, investors should
carefully review (i) the excerpts from the underlying supplements attached
hereto as Exhibit A and (ii) the underlying remittance date statements,
excerpts of which are attached hereto as Exhibit B. Information regarding the
underlying securities, including information regarding related payment
priorities and allocation of losses, is set forth in the attached Exhibits.
Any information contained in this prospectus supplement (including Appendix I
and the Exhibits hereto) with respect to the underlying securities or the
underlying mortgage loans has been obtained by the depositor from the
underlying supplements or underlying remittance date statements provided by
the underlying trustees or the servicer, and has not been independently
verified by the depositor, the underwriter or the trustee. The underlying
supplements and all other offering materials described above for the
underlying securities were prepared by the underlying depositor. None of the
depositor, the underwriter or the trustee makes any representation as to the
accuracy or completeness of the information in the underlying supplements, the
underlying remittance date statements or other related materials.
Description of the Underlying Mortgage Loans
All of the information contained herein with respect to the underlying
mortgage loans is based solely on (i) information contained in the related
underlying supplements and (ii) information obtained from the underlying
trustees in connection with the underlying remittance date statements. None of
the depositor, the underwriter or the trustee has the ability independently to
verify the accuracy of this information and, accordingly, none of the
depositor, the underwriter or the trustee will make any representation or
warranty as to the accuracy of that information. Prospective investors are
advised to consider the limited nature of the available information when
evaluating the suitability of any investment in the offered certificates.
Origination and Underwriting. Each underlying mortgage loan was
originated with credit, appraisal and underwriting guidelines applied by
[__________] to evaluate the prospective borrower's credit standing and
repayment ability and the value and adequacy of the mortgaged property as
collateral in accordance with applicable federal and state laws and
regulations. Certain of the underlying mortgage loans have been originated
under "reduced documentation" or "no documentation" programs which require
less documentation and verification than do traditional "full documentation"
programs. Generally, under a "reduced documentation" program, no verification
of a mortgagor's stated income is undertaken by the originator. Under a "no
documentation" program, no verification of a mortgagor's income or assets is
undertaken by the originator. The underwriting for the underlying mortgage
loans may have been based primarily on an appraisal of the underlying
mortgaged property and the loan-to-value ratio at origination. For a complete
description of the underwriting policies applied to the underlying mortgage
loans, see "The Mortgage Pool - Underwriting Standards" in the excerpts from
the underlying supplements attached hereto as Exhibit A.
Selected Underlying Mortgage Loan Data. The tables on pages I-[__]
through I-[__] summarize certain characteristics of the underlying mortgage
loans included in each underlying trust fund as the underlying mortgage loans
were constituted as of __________, 200_. It is expected that the information
set forth herein will be representative of the characteristics of the
underlying mortgage loans as of the date hereof, although prior to issuance of
the offered certificates, certain of the underlying mortgage loans may be (or
may have been) prepaid in full or in part or may be repurchased as described
herein.
Servicing of the Underlying Mortgage Loans. The servicer acts as servicer
and provides customary servicing functions with respect to the underlying
mortgage loans. The servicer is entitled to a servicing fee for its servicing
activities.
The following tables set forth certain delinquency information with
respect to the underlying mortgage loans with respect to each of the
underlying trust funds, substantially all of which has been obtained from the
monthly statements provided by the underlying trustees in connection with the
__________, 200_ underlying remittance date for the underlying securities.
The delinquency, foreclosure and REO percentages given in the following
tables are percentages of the related aggregate mortgage pool principal
balance as of _____, 200__, and the cumulative losses percentage is the
percentage of the related aggregate mortgage pool principal balance as of the
related original issue date of the underlying security.
The information contained in the following tables may not be indicative
of future delinquent payment rates of the underlying mortgage loans or
reductions in the principal balances of the underlying securities.
<PAGE>
<TABLE>
<CAPTION>
Underlying Mortgage Loan Delinquency Information as of __________, 200_
Relating to the Series [____] Underlying Security
Mortgage Pool Mortgage Pool
Principal Balance Principal Balance 30 - 59 Days 60 - 89 Days 90 + Days In
as of Original as of __________, Delinquent Delinquent Delinquent Foreclosure
Issue Date 200_ # Balance % # Balance(1) % # Balance % # Balance(1)
--------- ---- - ------- - - ---------- - - ------- - - ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$[__________] $[__________] [_] $[____] [__]% [_] $[____] [__]% [_] $[____] [__]% [_] $[___]
[Table Cont'd]
Mortgage Pool
Principal Balance
as of Original Cumulative Cumulative
Issue Date % # R.E.O. Balance % Losses Losses %
--------- - - ------- - ------ --------
<S> <C> <C> <C> <C> <C> <C>
$[__________] [__]% [_] $[____] [__]% $[____] [__]%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Underlying Mortgage Loan Delinquency Information as of __________, 200_
Relating to the Series [____] Underlying Security
Mortgage Pool
Principal Mortgage Pool 31 - 60 61- 90
Balance as of Principal Days Days 91 + Days In
Original Issue Balance as of Delinquent Delinquent Delinquent Foreclosure
Date __________, 200_ # Balance % # Balance % # Balance % # Balance %
---- ---------------- - ------- - - ------- - - ------- - - ------- -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$[_________] $[____________] [_] $[___] [__]% [_] $[________] [__]% [_] $[___] [__]% [_] $[________] [__]
[Table Cont'd]
Mortgage Pool
Principal
Balance as of
Original Issue R.E.O. Cumulative Cumulative
Date % # Balance % Losses Losses %
---- - - ------- - ------ --------
<S> <C> <C> <C> <C> <C> <C>
$[_________] [_]% [_] $[___] [__]% $[__-] [__]%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Underlying Mortgage Loan Delinquency Information as of ___________, 200_
Relating to the Series [____] Underlying Security
Mortgage Pool
Principal Mortgage Pool 31 - 60 61 - 90
Balance as of Principal Days Days 91 + Days In
Original Issue Balance as of Delinquent Delinquent Delinquent Foreclosure
Date __________, 200_ # Balance % # Balance % # Balance % # Balance %
---- ---------------- - ------- - - ------- - - ------- - - ------- -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$[_________] $[____________] [_] $[___] [__]% [_] $[___] [__]% [_] $[___] [__]% [_] $[___] [__]
[Table Cont'd]
Mortgage Pool
Principal
Balance as of
Original Issue Cumulative Cumulative
Date % # R.E.O. Balance % Losses Losses %
---- - - ------- - ------ --------
<S> <C> <C> <C> <C> <C> <C>
$[_________] [__]% [_] $[___] [__]% $[___] [__]%
</TABLE>
<PAGE>
The Depositor
The depositor, Greenwich Capital Acceptance, Inc., is a Delaware
corporation organized on April 23, 1987 for the limited purpose of acquiring,
owning and transferring certain mortgage-related assets and selling interests
therein or bonds secured thereby. It is 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 its affiliates will insure or guarantee
distributions on the certificates.
Yield, Prepayment and Maturity Considerations
Yield Considerations
If the purchaser of an offered certificate offered at a discount
calculates the anticipated yield to maturity of that offered certificate based
on an assumed rate of payment of principal that is faster than that actually
received on the underlying mortgage loans and, in turn, on the underlying
securities, the actual yield to maturity will be lower than that so
calculated. If the purchaser of an offered certificate offered at a premium
calculates the anticipated yield to maturity of that offered certificate based
on an assumed rate of payment of principal that is slower than that actually
received on the underlying mortgage loans and, in turn, on the underlying
securities, the actual yield to maturity will be lower than that so
calculated.
The yield to maturity of the offered certificates and the aggregate
amount of distributions on the offered certificates will be related to the
timing and amount of principal distributions on the underlying securities,
which will be related to the rate of payment of principal (including
prepayments) on the underlying mortgage loans and the allocation of principal
payments in accordance with the priorities discussed in the excerpts from the
underlying supplements contained in Exhibit A hereto. The rate of principal
payments on the underlying mortgage loans will be affected by the amortization
schedules of the underlying mortgage loans and by the timing and amount of
principal prepayments thereon (for this purpose, the term "prepayment" also
includes payments resulting from refinancings and liquidations of the
underlying mortgage loans due to defaults, casualties, condemnations and
purchases of the underlying mortgage loans).
The model used in this prospectus supplement is the "PSA," which
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
those mortgage loans. The PSA does not purport to be a historical description
of prepayment experience or a prediction of the anticipated rate of prepayment
of any pool of mortgage loans, including the underlying mortgage loans. A
[____]% PSA assumes constant prepayment rates of [____]% per annum of the then
outstanding principal balance of the underlying mortgage loans in the first
month of the life of the mortgage loans and an additional [____]% per annum in
each month thereafter until the thirtieth month. Beginning in the thirtieth
month and in each month thereafter during the life of the underlying mortgage
loans, [____]% PSA assumes a constant prepayment rate of [____]% per annum
each month. As used in the table below, [____]% PSA assumes prepayment rates
equal to [____]% of the [____]% PSA i.e., no prepayments. Correspondingly,
[____]% PSA assumes prepayment rates equal to [____]% of the [____]% PSA, and
so forth.
The decrement tables included in this prospectus supplement indicate the
weighted average lives of the offered certificates and set forth the
percentage of the original principal amount of the offered certificates that
would be outstanding after each of the distribution dates shown at various
percentages of PSA assuming that there is no optional termination of any of
the underlying trust funds. See "Yield and Prepayment Considerations" in the
prospectus.
Variations in actual prepayment experience (including prepayments
resulting from defaults) for the underlying mortgage loans will increase or
decrease the percentages of principal amounts (and weighted average lives)
shown in the decrement tables. There is no assurance that payments of the
underlying mortgage loans will conform to any of the percentages of PSA
described in the decrement tables. Among other things, the decrement tables
assume that the underlying mortgage loans prepay at the indicated constant
rates, notwithstanding the fact that the underlying mortgage loans may vary
substantially as to geography, interest rate and remaining terms.
Factors Affecting Prepayments on the Underlying Mortgage Loans
[____] of the underlying mortgage loans in the underlying trust funds are
fixed rate mortgage loans. The rate of payments (including prepayments) on
pools of mortgage loans are influenced by a variety of economic, geographic,
social, tax, legal and other factors. If prevailing mortgage rates fall
significantly below the then current fixed rate on the underlying mortgage
loans, the rate of prepayment resulting from refinancing would be expected to
increase, particularly because the availability of fixed or adjustable rate
mortgage loans at competitive interest rates may encourage borrowers to prepay
their underlying mortgage loans. Conversely, if prevailing mortgage rates rise
significantly above the then current fixed rates on the underlying mortgage
loans, the rate of prepayments on the underlying mortgage loans would be
expected to decrease. Other factors affecting prepayment of mortgage loans
include changes in borrowers' housing needs, job transfers, unemployment,
borrowers' net equity in the mortgaged premises and servicing decisions. The
underlying mortgage loans may be prepaid at any time by borrowers. Investors
are cautioned that past prepayment rates are unlikely to be indicative of
future prepayment rates. No assurance can be given as to the rate of principal
payments or prepayments on the underlying mortgage loans and, consequently, on
the offered certificates.
Substantially all of the underlying mortgage loans contain "due-on-sale"
clauses. However, the servicer may choose not to accelerate an underlying
mortgage loan upon conveyance of the related mortgaged premises if the
servicer would make a similar decision with respect to a comparable mortgage
loan held for its own account. The weighted average lives of the offered
certificates will be decreased to the extent that the sale of mortgaged
premises securing the underlying mortgage loans will result in the prepayment
of those loans.
Early Termination of the Underlying Trust Funds
As noted in "Description of the Underlying Securities--Optional
Termination of the Underlying Trust Funds" in this prospectus supplement, the
underlying depositor with respect to each underlying trust fund may redeem the
related underlying security on or after any underlying remittance date on
which, after taking into account payments of principal and allocations of
Realized Losses, if any, to be made on that date, the aggregate outstanding
principal amount of all mortgage loans held in the related underlying trust
fund (including the related underlying mortgage loans) is less than [____]% of
their aggregate principal amount as of the cut-off date for that underlying
trust fund. In that event, the related underlying trust fund may be
terminated. The termination of any underlying trust fund will result in the
receipt by holders of the applicable class or classes of offered certificates
of principal payments that could affect the yields to maturity on those
certificates and will have the effect of shortening the weighted average life
or lives of those certificates.
Weighted Average Lives of the Certificates
Weighted average life refers to the average amount of time that will
elapse from the date of delivery of a security until each dollar of principal
of that security will be repaid to the investor. The weighted average life of
each class of offered certificates will be influenced by
o rate at which principal of the underlying mortgage loans is paid,
which may be in the form of scheduled amortization or prepayments
(for this purpose, the term "prepayment" includes payments resulting
from refinancings, liquidations of the underlying mortgage loans due
to defaults, casualties, indemnifications and purchases by or on
behalf of the servicer),
o optional termination with respect to any of the underlying trust
funds, and
o any required repurchase by an underlying depositor of any of the
underlying securities as a result of a breach of certain
representations and warranties made by the underlying depositor.
Assumed Final Distribution Dates
The assumed final distribution date for each class of certificates (other
than the Class [____] Certificates and Class [____] Certificates) is
__________, 20__, which is the distribution date immediately following the
latest scheduled maturity date for any underlying mortgage loan. The assumed
final distribution dates for the Class [____] Certificates and Class [____]
Certificates are __________, 20__ and __________, 20__, respectively. The
assumed final distribution dates for the Class [____] Certificates and Class
[____] Certificates were calculated based on the structuring assumptions
contained in "--Modeling Assumptions" below and assuming a prepayment speed on
the underlying mortgage loans of [____]% PSA. No event of default, change in
the priorities for distribution among the various Classes or other provisions
under the trust agreement will arise or become applicable solely by reason of
the failure to retire the entire Certificate Principal Balance of any class of
certificates on or before its assumed final distribution date.
Modeling Assumptions
The decrement tables in this prospectus supplement have been prepared on
the basis of, among other things, the following modeling assumptions:
(i) all scheduled payments on the underlying mortgage loans are
timely received on the first day of each month, commencing in __________,
200_;
(ii) the underlying mortgage loans will prepay monthly at the
specified percentages of PSA;
(iii) all principal prepayments constitute prepayments in full of
the underlying mortgage loans, are received on the last day of each
month, commencing in __________, 200_, and include 30 days' interest
thereon;
(iv) there are no defaults, losses or interest shortfalls on the
underlying mortgage loans prior to or after the closing date;
(v) the closing date is __________, 200_, and cash distributions are
received by the certificateholders on the [____] day of each month,
commencing in __________, 200_ (distributions will not include any
distributions received on the underlying securities on or before the
__________, 200_ underlying remittance date);
(vi) the underlying mortgage loans have been amortized using the
respective scheduled payments, outstanding principal balances (prior to
giving effect to prepayments received during the related prepayment
period) and interest rates;
(vii) no optional termination of the trust or the underlying trust
funds occurs;
(viii) the classes of offered certificates have the initial
principal amounts specified on the cover page of this prospectus
supplement;
(ix) the outstanding principal amount of the underlying senior
interests and the underlying subordinate interests are as set forth in
the __________, 200_ underlying remittance date monthly statements;
(x) for each underlying trust fund and related underlying security,
the related underlying senior interests were aggregated as one security,
and the related underlying subordinate interests were aggregated as one
security calculated as the difference between (a) the related mortgage
pool principal balance as of the underlying remittance date in
__________, 200_ and (b) the aggregate of the related underlying senior
interests;
(xi) the aggregate underlying senior interests and aggregate
underlying subordinate interests described in clause (x) above are as
follows:
(a) [__________] Trust Series [____]: $[____] and $[____];
(b) [__________] Trust Series [____]: $[____] and $[____]; and
(c) [__________] Trust Series [____]: $[____] and $[____];
(xii) each underlying trust fund included only the mortgage loan
groups relating to the applicable underlying mortgage loans, and any
additional mortgage loan groups held in that underlying trust fund were
disregarded;
(xiii) for purposes of determining the amount of cash from the
underlying securities that will be allocated to the certificates, the
following percentages were used:
(a) Series [____] underlying security: [____]%;
(b) Series [____] underlying security: [____]%; and
(c) Series [____] underlying security: [____]%;
(xiv) except with respect to the modeling assumptions set forth in
clauses (x) - (xii) above, payments of principal with respect to the
underlying trust funds are made in accordance with the methodologies and
priorities set forth in the underlying supplements; and
(xv) the underlying mortgage loans held in the specified underlying
trust funds have the following characteristics:
<TABLE>
<CAPTION>
--------------------- ----------------------- --------------- ----------------- ------------------- --------------------
Principal Balance of
Underlying Trust Underlying Mortgage Remaining Term
Funds Loans ($) Gross Rate (%) Net Rate (%) (months) Loan Age (months)
--------------------- ----------------------- --------------- ----------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C>
[____] Trust Series [__________] [_____] [_____] [_____] [_____]
[----]
--------------------- ----------------------- --------------- ----------------- ------------------- --------------------
[____] Trust Series
[----] [----------] [-----] [-----] [-----] [-----]
--------------------- ----------------------- --------------- ----------------- ------------------- --------------------
[____] Trust Series [__________] [_____] [_____] [_____] [_____]
[----]
--------------------- ----------------------- --------------- ----------------- ------------------- --------------------
</TABLE>
<PAGE>
In the table that appears below, all percentages have been rounded to the
nearest whole percentage. The weighted average lives have been determined by
o multiplying the assumed net reduction, if any, in the principal
amount on each distribution date by the number of years from the
closing date to the related distribution date,
o summing the results, and
o dividing the sum by the aggregate amount of the assumed net
reductions in principal amount.
<TABLE>
<CAPTION>
Percent of Initial Certificate Principal Balance Outstanding of the
Class [____] Certificates at the Following Percentages of PSA
Distribution Date 0% 100% 175% 200% 225% 300% 400%
----------------- -- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percent 100 100 100 100 100 100 100
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
__________ 20__ [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years [___] [___] [___] [___] [___] [___] [___]
</TABLE>
<PAGE>
Use of Proceeds
The depositor will apply the proceeds of the sale of the offered
certificates towards the purchase price of the underlying securities, the
payment of expenses related to that purchase and other corporate purposes.
Material Federal Income Tax Consequences
Assuming compliance with all provisions of the trust agreement, in the
opinion of Brown & Wood LLP, counsel to the depositor, the trust will be
characterized as a REMIC within the meaning of section 860D of the Code of
1986, as amended.
The Class [____], Class [____] and Class [____] Certificates will
represent "regular interests" in the REMIC and the Class [____] Certificate
will constitute the sole class of "residual interests" in the REMIC. As REMIC
regular interests, those certificates will generally be treated as debt for
federal income tax purposes. Certificateholders will be required to include in
income, all interest and original issue discount on those certificates in
accordance with the accrual method of accounting regardless of the
certificateholders' usual methods of accounting.
Special Tax Attributes of the Offered Certificates
As is described more fully under "Material Federal Income Tax
Consequences" in the prospectus, the offered certificates (other than the
Class [____] Certificate) will represent qualifying assets under Section
856(c)(4)(A) and 7701(a)(19)(C)(v) of the Code, and net interest income
attributable to those Certificates will be "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code, to the extent the assets of the trust are assets described in those
sections. The offered certificates (other than the Class [____] Certificate)
will represent qualifying assets under section 860G(a)(3) of the Code if
acquired by a REMIC within the prescribed time periods of the Code.
Original Issue Discount
The offered certificates may be issued with original issue discount for
federal income tax purposes. For purposes of determining the amount and rate
of accrual of original issue discount and market discount, the depositor
intends to assume that there will be prepayments on the underlying mortgage
loans at a rate equal to [____]% PSA. See "Yield, Prepayment and Maturity
Considerations" in this prospectus supplement and "Material Federal Income Tax
Consequences" in the prospectus.
The offered certificates may be treated as being issued at a premium. In
that case, the certificateholders may elect under section 171 of the Code to
amortize the premium under the constant interest method and to treat the
amortizable premium as an offset to interest income on the certificates.
If the method for computing original issue discount described in the
prospectus results in a negative amount for any period with respect to a
certificateholder, the certificateholder will be permitted to offset those
amounts only against the future income, if any, from that certificate.
Although the tax treatment is uncertain, a certificateholder may be permitted
to deduct a loss to the extent that the certificateholder's remaining basis in
that certificate exceeds the maximum amount of future payments to which the
holder is entitled, assuming no further principal prepayments of the
underlying mortgage loans are received. Although the matter is not free from
doubt, any such loss might be treated as a capital loss.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions." In general, subject to certain specified
exceptions, a prohibited transaction means the disposition of an underlying
mortgage loan, the receipt of income from a source other than an underlying
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 underlying mortgage loans for temporary investment
pending distribution on the certificates. It is not anticipated that the trust
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which the trust fund issues all of
its interests could result in the imposition of a contributions tax on the
trust fund equal to 100% of the value of the contributed property. The trust
will not accept contributions that would subject it to that 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. The term "net income from foreclosure property"
generally means gain from the sale of a foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust. It is not anticipated that the trust will recognize net income from
foreclosure property subject to federal income tax.
In the event that any prohibited transactions tax, contributions tax, tax
on net income from foreclosure property or state or local income or franchise
tax is imposed on the trust, the tax will be paid with amounts otherwise
distributable to the certificateholderss. Pursuant to the trust agreement, the
holder of the Class [____] Certificate, as "tax matters" person, is obligated
to indemnify the trust for the amount of any taxes. There can be no assurance
that the holder of the Class [____] Certificate will have sufficient resources
to pay that indemnity to the trust. It is not anticipated that any material
state or local income or franchise tax will be imposed on the trust.
The Residual Certificate
The holder of the Class [____] Certificate must include the taxable
income of the REMIC in its federal taxable income. The resulting tax liability
of that holder may exceed cash distributions to that holder during certain
periods. All or a portion of the taxable income from the Class [____]
Certificate recognized by a holder may be treated as "excess inclusion"
income, which, with limited exceptions, is subject to U.S. federal income tax.
Proposed Treasury regulations issued on February 4, 2000 would modify the
safe harbor which, if satisfied, provides that transfers of non-economic
residual interests are not disregarded for federal income tax purposes. Under
these new proposed regulations, a transfer of a non-economic 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,
o expected 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 generally is calculated
using a discount rate equal to applicable federal rate. These new proposed
regulations indicate that the effective date of the modification to the safe
harbor requirements could be as early as February 4, 2000.
On December 8, 2000, the IRS issued Revenue Procedure 2001-12, effective
February 4, 2000 pending finalization of the proposed regulations, which
expands the safe harbor for transfers of noneconomic residual interests to
include transfers to certain taxable domestic corporations with significant
gross and net assets, provided that those corporations agree to transfer the
residual interests only to other taxable domestic corporations in transactions
qualifying for one of the safe harbor provisions. Eligibility for the expanded
safe harbor requires, among other things, that the transferor not know of any
facts or circumstances that reasonably indicate that the taxes associated with
the residual interest will not be paid. The Revenue Procedure provides that if
the amount of consideration given to the transferee to acquire the residual
interest is so low that under any set of reasonable assumptions a reasonable
person would conclude that the taxes associated with holding the residual
interest will not be paid, then the transferor will be deemed to know that the
transferee cannot or will not pay those taxes.
Also, purchasers of the Class [____] Certificate should consider
carefully the tax consequences of an investment in Residual Certificates
discussed in the Prospectus and should consult their own tax advisors with
respect to those consequences. See "Certain Federal Income Tax
Consequences--REMIC Certificates--b. Residual Certificates" in the Prospectus.
Specifically, prospective holders of the Class [____] Certificate should
consult their tax advisors regarding whether, at the time of acquisition, the
Class [____] Certificate will be treated as a "non-economic" residual
interest, a "non-significant value" residual interest and a "tax avoidance
potential" residential interest. See "Material Federal Income Tax
Considerations--REMIC Certificates--Tax-Related Restrictions on Transfer of
Residual Certificates--Noneconomic Residual Certificates" in the Prospectus.
Additionally, for information regarding prohibited transactions and treatment
of Realized Losses, see "Material Federal Income Tax Considerations--REMIC
Certificates--Prohibited Transactions and Other taxes" and "--REMIC
Certificates-- Regular Certificates--Treatment of Realized Losses" in the
prospectus.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see Material Federal Income Tax
Considerations--REMIC Certificates" in the Prospectus.
ERISA Considerations
ERISA and the Internal Revenue 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 plans,
accounts or arrangements are invested -- and on persons who are fiduciaries
with respect to these types of plans and arrangements. In this prospectus
supplement we refer to these types of plans and arrangements as "Plans."
ERISA prohibits "parties in interest" with respect to a Plan from
engaging in certain transactions involving the 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
those plans may be invested in the offered certificates without regard to the
ERISA considerations described in this prospectus supplement and in the
prospectus, subject to the provisions of other applicable federal and state
law. 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 that are subject to ERISA are
subject to ERISA's general fiduciary requirements, including the requirement
of investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan. A
fiduciary which decides to invest the assets of a Plan in the offered
certificates should consider, among other factors, the extreme sensitivity of
the investments to the rate of principal payments (including prepayments) on
the underlying mortgage loans.
The U.S. Department of Labor has granted to Greenwich Capital Markets,
Inc. Prohibited Transaction Exemption (PTE) 90-59 (Exemption Application No.
D-8374), as amended by PTE 97-34 (Exemption Application No. D-10245 and
D-10246) and by PTE 2000-58 (Exemption Application No. D-10829), which exempts
from the application of the prohibited transaction rules transactions relating
to
o the acquisition, holding and sale by Plans of certain securities
representing an undivided interest in certain asset-backed pass-through
entities with respect to which Greenwich Capital Markets, Inc. or any of
its affiliates is the sole underwriter or the manager or co-manager of
the underwriting syndicate, and
o the servicing, operation and management of such asset-backed
pass-through entities,
provided that the general conditions and certain other requirements set forth
in the exemption are satisfied.
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 interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund, except when the trust holds certain types of
assets;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three (four, if the trust holds
certain types of assets) highest generic rating categories from a rating
agency, such as Standard & Poor's, Moody's, or Fitch, Inc.;
(4) the trustee must not be an affiliate of any other member of the
"restricted group" (defined below in the second following paragraph);
(5) the sum of all payments made to and retained by the underwriter in
connection with the distribution of the certificates represents not more than
reasonable compensation for underwriting the certificates; the sum of all
payments made to and retained by the seller pursuant to the assignment of the
trust assets 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 any servicer
represents not more than reasonable compensation for the servicer's services
under the agreement pursuant to which the loans are pooled and reimbursements
of such person's reasonable expenses in connection therewith;
(6) the Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the SEC under the Securities Act
of 1933; and
(7) for certain types of issuers, the documents establishing the issuer
and governing the transaction must contain certain provisions to ensure that
the issuer's assets may not be received by creditors of the sponsor in the
event of the bankruptcy or insolvency of the sponsor.
The trust fund must also meet the following requirements:
o the investment pool must consist solely of assets of the type that
have been included in other investment pools;
o certificates evidencing interests in such other investment pools
must have been rated in one of the three highest generic rating
categories (four, if the investment pool contains certain types of
assets) by a rating agency for at least one year prior to the Plan's
acquisition of certificates; and
o 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 and at least
50% of the aggregate interests in the trust is acquired by persons independent
of the restricted rroup; (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 issuers
containing assets sold or serviced by the same entity. The exemption does not
apply to Plans sponsored by the "restricted group" consisting of 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, [any
issuers,] or any affiliate of these parties.
Assuming the accuracy of certain statements in the underlying
supplements, it is expected that the exemption will apply to the acquisition
and holding by Plans of the offered certificates and that all conditions of
the exemption other than those within the control of the investors will be
met.
The rating of a security may change. If the rating of a security declines
below BBB- or Baa3, the security will no longer be eligible for relief under
the exemption, and consequently may not be purchased by or sold to a Plan
(although a Plan that had purchased the security when it had an
investment-grade rating would not be required by the exemption to dispose of
it).
[Because the characteristics of the Class [___________] Certificates may
not meet the requirements of, the exemption discussed above or any other
issued exemption under ERISA including Prohibited Transaction Class Exemption
(PTCE) 83-1 discussed under "ERISA Considerations" in the prospectus, the
purchase and holding of Class [____________] 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 [_____________] 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 PTCE 95 and that the
purchase and holding of such Certificates are covered under Section I and III
of PTCE 95-60. The representation as described above shall be deemed to have
been made to the trustee by the acquiror or transferee's acceptance of a Class
[__________] Certificate that is in book-entry form. In the event that this
representation is violated, the attempted transfer or acquisition shall be
void and of no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the
exemption described above and PTCE 83-1 described in the prospectus, 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
Assuming the accuracy of certain representations contained in the
underlying agreements (which information is not subject to independent
certification) and on the basis of certain assumptions derived from statements
included in the underlying supplements, the offered certificates will
constitute "mortgage related securities" for the purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (SMMEA) so long as they are rated in
one of the two highest rating categories by at least one nationally recognized
statistical rating organization and, as such, are legal investments for
certain entities to the extent provided for in SMMEA.
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase the offered certificates or to
purchase offered certificates representing more than a specified percentage of
the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the offered certificates constitute
legal investments for them. See "Legal Investment Considerations" in the
prospectus.
Method of Distribution
Subject to the terms and conditions set forth in the underwriting
agreement between the depositor and the underwriter, the depositor has agreed
to sell to the underwriter, and the underwriter has agreed to purchase from
the depositor, all of the offered certificates.
Distribution of the offered certificates will be made by the underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The Underwriter may effect those
transactions by selling offered certificates to or through dealers and those
dealers may receive from the underwriter, for which they act as agent,
compensation in the form of underwriting discounts, concessions or
commissions. The underwriter and any dealers that participate with the
underwriter in the distribution of the offered certificates may be deemed to
be underwriters, and any discounts, commissions or concessions received by
them, and any profits on resale of the offered certificates purchased by them,
may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933.
The depositor has been advised by the underwriter that it intends to make
a market in the offered certificates but has no obligation to do so. There can
be no assurance that a secondary market for the offered certificates will
develop or, if it does develop, that it will continue.
The depositor has agreed to indemnify the underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act.
Legal Matters
Certain legal matters in connection with the issuance of the offered
certificates will be passed upon for the depositor and the underwriter by
Brown & Wood LLP, New York, New York.
Ratings
It is a condition to the issuance of the offered certificates that they
be rated "[____]" by [__________] and "[______]" by [_________].
The ratings assigned by the rating agencies named above to mortgage
pass-through certificates address the likelihood of the receipt of all
distributions by the related certificateholders under the agreements pursuant
to which the certificates are issued. The ratings by the rating agencies take
into consideration the credit quality of the related mortgage pool, including
any credit support providers, structural and legal aspects associated with the
certificates, and the extent to which the payment stream on the mortgage pool
is adequate to make the payments required by the certificates. The ratings by
the rating agencies on the certificates do not, however, constitute a
statement regarding frequency of prepayments of the mortgage loans.
The depositor has not engaged any rating agency other than the rating
agencies to provide ratings on the offered certificates. However, there can be
no assurance as to whether any other rating agency will rate the offered
certificates, or, if it does, what rating would be assigned by the other
rating agency. Any rating on the offered certificates by another rating
agency, if assigned at all, may be lower than the ratings assigned to the
certificates by the rating agencies. The rating on the Class [____]
Certificate only addresses the return of its Certificate Principal Balance and
interest thereon at the related pass-through rate.
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 the offered
certificates.
<PAGE>
Glossary of Terms
"Available Funds" means, with respect to each distribution date, an
amount equal to (a) the amount received by the trustee on and prior to that
distribution date as a distribution on the underlying security, reduced by (b)
the sum of any expenses reimbursable to the depositor and any taxes imposed
upon the trust.
"Basic Principal Distribution Amount" means, for any distribution date,
the portion of Available Funds attributable to principal received with respect
to the underlying mortgage loans.
"Certificate Principal Balance" means, with respect to any certificate
and any date of determination, the initial principal balance of that
certificate less all distributions made in respect of principal of that
certificate on all distribution dates preceding that date of determination and
further reduced by all losses allocated to that certificate on any such
distribution date.
"Class [____] Accretion Termination Date" means the distribution date
following the distribution date on which the Certificate Principal Balances of
the Class [__] Certificates are reduced to zero.
"Class [____] Accrual Distribution Amount" equals, for any distribution
date, the current interest allocated but not distributed with respect to the
Class [____] Certificates on that distribution date in accordance with clause
(i) of "Description of the Certificates--Allocation of Available Funds" in
this prospectus supplement.
"Class [____] Pro Rata Distribution Amount" means, for any distribution
date, the product of (a) the Class [____] Pro Rata Percentage and (b) the
Scheduled Principal Distribution Amount.
"Class [____] Pro Rata Percentage" equals, for any distribution date, a
fraction, the numerator of which is the aggregate of the Certificate Principal
Balances of the Class [__] Certificates on that distribution date and the
denominator of which is the aggregate of the Certificate Principal Balances of
all Classes of certificates on that distribution date.
"Class [____] Prepayment Distribution Amount" means, for any distribution
date, the product of (a) the Principal Prepayment Distribution Amount, (b) the
Class [____] Pro Rata Percentage and (c) the Shift Percentage.
"Class [____] Priority Distribution Amount" means, for any distribution
date, the sum of (i) the Class [____] Pro Rata Distribution Amount and (ii)
the Class [____] Prepayment Distribution Amount.
"Class [____] Accretion Termination Date" means the distribution date
following the distribution date on which the Certificate Principal Balances of
the Class [__] Certificates are reduced to zero.
"Class [____] Accrual Distribution Amount" equals, for any distribution
date, the current interest allocated but not distributed with respect to the
Class [____] Certificates on that distribution date in accordance with clause
(i) of "Description of the Certificates--Allocation of Available Funds" in
this prospectus supplement.
"Class [____] Planned Balance" means, for any distribution date, the
balance set forth in Appendix II attached hereto.
"Class [____] Pro Rata Distribution Amount" means, for any distribution
date, the product of (a) the Class [____] Pro Rata Percentage and (b) the
Basic Principal Distribution Amount.
"Class [____] Pro Rata Percentage" equals, for any distribution date, a
fraction, the numerator of which is the Certificate Principal Balance of the
Class [____] Certificate on that distribution date and the denominator of
which is the aggregate of the Certificate Principal Balances of all Classes of
Certificates on that distribution date.
"Excess Losses" means Realized Losses on mortgage loans in the underlying
trust funds (including the underlying mortgage loans) that exceed the
applicable coverage amounts for special hazard losses, fraud losses and
bankruptcy losses."
"Net Prepayment Interest Shortfall" means the amount of any interest
reduction with respect to any underlying security on any underlying remittance
date as described in this prospectus supplement under "Description of the
underlying securities - Adjustment to the Servicing Fee in each underlying
trust fund in Connection with Prepaid underlying mortgage loans."
"Principal Prepayment Distribution Amount" means, with respect to any
distribution date, the portion of Available Funds attributable to unscheduled
principal received with respect to the underlying mortgage loans.
"Scheduled Principal Distribution Amount" means, with respect to any
distribution date, the portion of Available Funds attributable to scheduled
principal received with respect to the underlying mortgage loans.
"Shift Percentage" for any distribution date will be the percentage
indicated below:
Distribution Date occurring in Shift Percentage
------------------------------ ----------------
_____ 200_ through _____ 200_ [____]%
_____ 200_ through _____ 200_ [____]%
_____ 200_ through _____ 200_ [____]%
_____ 200_ through _____ 200_ [____]%
_____ 200_ through _____ 200_ [____]%
_____ 200_ and thereafter [____]%
<PAGE>
<TABLE>
<CAPTION>
Appendix I
Characteristics of the Underlying Mortgage Loans for
[__________] Trust Series [____]
Current Principal Balances
Percentage of
Number of Mortgage Aggregate Unpaid Aggregate Unpaid
Range of Principal Balances ($) Loans Principal Balance ($) Principal Balance (%)
---------------------------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C>
-------------------- ----------------------- ------------------------
TOTAL $ %
==================== ======================= ========================
</TABLE>
<TABLE>
<CAPTION>
Mortgage Interest Rates
Percentage of
Range of Mortgage Interest Rates Number of Mortgage Aggregate Unpaid Aggregate Unpaid
(%) Loans Principal Balance ($) Principal Balance (%)
---------------------------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C>
-------------------- ----------------------- ------------------------
TOTAL $ %
==================== ======================= ========================
Due to rounding, certain percentages may not add up to 100.00%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of Mortgaged Properties
Percentage of
Number of Mortgage Aggregate Unpaid Aggregate Unpaid
State Loans Principal Balance ($) Principal Balance (%)
---------------------------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C>
-------------------- ----------------------- ------------------------
TOTAL $ %
==================== ======================= ========================
</TABLE>
No more than approximately [____]% of the related underlying mortgage
loans are secured by mortgaged properties located in any one postal ZIP
code.
<TABLE>
<CAPTION>
Loan Purpose
Percentage of
Number of Mortgage Aggregate Unpaid Aggregate Unpaid
Loan Purposes Loans Principal Balance ($) Principal Balance (%)
---------------------------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Rate/Term Refinance
Purchase
Cash Out Refinance
-------------------- ----------------------- ------------------------
TOTAL $ %
==================== ======================= ========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Types of Mortgaged Properties
Percentage of
Number of Mortgage Aggregate Unpaid Aggregate Unpaid
Type Loans Principal Balance ($) Principal Balance (%)
---------------------------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C>
[____] Units
Condominium
PUD
Single Family Detached
-------------------- ----------------------- ------------------------
TOTAL $ %
==================== ======================= ========================
</TABLE>
<TABLE>
<CAPTION>
Occupancy Status
Percentage of
Number of Aggregate Unpaid Aggregate Unpaid
Occupancy Mortgage Loans Principal Balance ($) Principal Balance (%)
---------------------------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Investor
Primary
Second Home
-------------------- ----------------------- ------------------------
TOTAL $ %
==================== ======================= ========================
</TABLE>
<TABLE>
<CAPTION>
Remaining Terms to Maturity
Percentage of
Number of Aggregate Unpaid Aggregate Unpaid
Remaining Term (Months) Mortgage Loans Principal Balance ($) Principal Balance (%)
---------------------------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C>
-------------------- ----------------------- ------------------------
TOTAL $ %
==================== ======================= ========================
</TABLE>
<TABLE>
<CAPTION>
Appendix II
Planned Principal Balance Tables
Distribution Date Principal Balance
----------------- -----------------
<S> <C> <C>
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
__________, 20__.............................................................. [__________]
</TABLE>
<PAGE>
Exhibit A
The information about the underlying securities and the underlying
mortgage loans contained in this Exhibit A has been obtained from the
underlying supplements, which were prepared in connection with the public
offerings of the underlying securities. Such information has not been
independently represented to the trust as being accurate and complete.
Additionally the underlying supplements contain information only as of the
respective dates of such documents. You should be aware, however, that
material changes may have occurred since the preparation of the underlying
supplements and the composition of the related mortgage pools may have changed
significantly. There may be considerable differences between the current
mortgage loan characteristics and the characteristics described in connection
with the issuance of the underlying securities.
All capitalized terms contained in the following excerpts that are
not defined therein have the meanings solely as specified in the underlying
supplements.
Excerpts From The Underlying Supplement Relating To
[__________] Trust Series [____]
The Mortgage Pool
General
Underwriting Standards
Voting Rights
Description of the Certificates
General
Distributions
Priority of Distributions Among Certificates
Distributions of Interest
Distributions of Principal
Allocation of Losses
<PAGE>
<TABLE>
<CAPTION>
distribution date: [_________]
Exhibit B
---------
REMITTANCE DATE STATEMENT FOR THE
[__________] TRUST SERIES [____]
__________, 200_ Distribution Date
[_______________] Trust
[_______________] Certificates, Series [____]
Certificateholder Monthly Distribution Summary
-------------------------------------------------------------------------------------------------------------------------
Certificate Pass
Class Rate Beginning Through Principal Interest
Class Cusip Description Type Balance Rate (%) Distribution Distribution
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Totals
---------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------
Current Ending Cumulative
Total Realized Ending Realized
Class Distribution Losses Balance Losses
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------
Totals
----------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
distribution date: [_________]
[_______________] Trust
[_______________] Certificates, Series [____]
Principal Distribution Detail
---------------- ---------------- ---------------- --------------- ---------------- ---------------- -----------------
Original Beginning Scheduled Unscheduled
Certificate Certificate Principal Accretion Principal
Class Cusip Balance Balance Distribution Principal Adjustments
---------------- ---------------- ---------------- --------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
---------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
Totals
---------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ---------------
Ending Ending
Current Certificate Certificate
Class Realized Losses Balance Factor
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
---------------- ---------------- ---------------- ---------------
Totals
---------------- ---------------- ---------------- ---------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
distribution date: [_________]
[_______________] Trust
[_______________] Certificates, Series [____]
Interest Distribution Detail
------------------ --------------- ---------------- ---------------- --------------- ---------------- ---------------
Beginning Pass Accrued Cumulative Total
Certificate Through Optimal Unpaid Deferred Interest
Class Balance Rate (%) Interest Interest Interest Due
------------------ --------------- ---------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
---------------------------------- --------------- ----------------
Totals
---------------------------------- --------------- ----------------
---------------------------------- --------------- ----------------
Unscheduled
Net Prepayment Interest Interest
Class Int Shortfall Adjustment Paid
---------------------------------- --------------- ----------------
<S> <C> <C> <C>
------------------ --------------- ---------------- ----------------
Totals
------------------ --------------- ---------------- ----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
distribution date: [_________]
[_______________] Trust
[_______________] Certificates, Series [____]
Current Payment Information Factors per $1,000
------------- ---------- ---------------- ------------------- ----------------- ---------------- ------------------- ------------
Original Pass
Certificate Beginning Cert. Principal Interest Ending Cert. Through
Class Cusip Balance Notional Balance Distribution Distribution Notional Balance Rate (%)
------------- ---------- ---------------- ------------------- ----------------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
------------- ---------- ---------------- ------------------- ----------------- ---------------- ------------------- ------------
Totals
------------- ---------- ---------------- ------------------- ----------------- ---------------- ------------------- ------------
</TABLE>
<PAGE>
---------------------------------------------------------------------------
RECONCILIATION REPORT
---------------------------------------------------------------------------
ISSUE DATE :
[_______________] Trust Series [_____] DISTRIBUTION DATE:
[_______________] Certificates, Series [_____] DETERMINATION DATE:
RUN DATE:
---------------------------------------------------------------------------
Pool Level Data
Distribution Date
Cut-off Date
Determination Date
Accrual Period Begin
End
Number of Days in
Accrual Period
Collateral Information
Group 1
Cut-off Date Balance
Beginning Aggregate Pool Stated Principal Balance
Ending Aggregate Pool Stated Principal Balance
Beginning Aggregate Certificate Stated Principal Balance
Ending Aggregate Certificate Stated Principal Balance
Beginning Aggregate Loan Count
Loans Paid Off or Otherwise Removed Pursuant to Pooling and Servicing
Agreement
Ending Aggregate Loan Count
Beginning Weighted Average Loan Rate (WAC)
Ending Weighted Average Loan Rate (WAC)
Beginning Net Weighted Average Loan Rate
Ending Net Weighted Average Loan Rate
Weighted Average Maturity (WAM) (Months)
Servicer Advances
Aggregate Pool Prepayment
Pool Prepayment Rate
Group 2
Cut-Off Date Balance
Beginning Aggregate Pool Stated Principal Balance
Ending Aggregate Pool Stated Principal Balance
Beginning Aggregate Certificate Stated Principal Balance
Ending Aggregate Certificated Stated Principal Balance
Beginning Aggregate Loan Count
Loans Paid Off or Otherwise Removed Pursuant to Pooling and
Servicing
Agreement
Ending Aggregate Loan Count
Group 2
Beginning Weighted Average Loan Rate (WAC)
Ending Weighted Average Loan Rate (WAC)
Beginning Net Weighted Average Loan Rate
Ending Net Weighted Loan Rate
Weighted Average Loan Rate (WAC) (Months)
Servicer Advances
Aggregate Pool Prepayment
Pool Prepayment Rate
Certificate Account
Beginning Balance
Deposit
Payments of Interest and Principal
Liquidation Proceeds
All Other Proceeds
Other Amounts
Total Deposits
Withdrawals
Reimbursement of Servicer Advances
Payment of Master Servicer Fees
Payment of Sub Servicer Fees
Payment of Other Fees
Payment of Insurances Premium(s)
Payment of Personal Mortgage Insurance
Other Permitted Withdrawal per the Pooling and Service Agreement
Payment of Principal and Interest
Total Withdrawals
Ending Balance
Prepayment Compensation
Total Gross Prepayment Interest Shortfall
Compensation for Gross PPIS from Servicing Fees
Other Gross PPIS Compensation
Total Net PPIS (Non-Supported PPIS)
Master Servicing Fees Paid
Sub Servicing Fees Paid
Insurance Premium(s) Paid
Personal Mortgage Insurance Fees Paid
Other Fees Paid
Total Fees
<TABLE>
<CAPTION>
Delinquency Information
Group 1
Delinquency 30-59 Days 60-89 Days 90+ Days Totals
<S> <C> <C> <C> <C>
Scheduled Principal Balance
Percentage of Total Pool Balance
Number of Loans
Percentage of Total Loans
Foreclosure
Scheduled Principal Balance
Percentage of Total Pool Balance
Number of Loans
Percentage of Total Loans
Bankruptcy
Scheduled Principal Balance
Percentage of total Pool Balance
Number of Loans
Percentage of Total Loans
REO
Scheduled Principal Balance
Percentage of Total Pool Balance
Number of Loans
Percentage of Total Loans
Book Value of all REO Loans
Percentage of Total Pool Balance
Current Realized Losses
Additional Gains
(Recoveries)/Losses
Total Realized Losses
Group 2
Delinquency 30-59 Days 60-89 Days 90+ Days Totals
----------- ---------- ---------- -------- ------
Scheduled Principal Balance
Percentage of Total Pool Balance
Number of Loans
Percentage of Total Loans
Foreclosure
Scheduled Principal Balance
Percentage of Total Pool Balance
Number of Loans
Percentage of Total Loans
Bankruptcy
Scheduled Principal Balance
Percentage of Total Pool Balance
Number of Loans
Percentage of Total Loans
REO
Scheduled Principal Balance
Percentage of Total Pool Balance
Number of Loans
Percentage of Total Loans
Book Value of all REO Loans
Percentage of Total Pool Balance
Current Realized Losses
Additional Gains
(Recoveries)/Losses
Total Realized Losses
</TABLE>
Subordinated/Credit Enhancement Information
Protection Original Current
Bankruptcy Loss
Bankruptcy Percentage
Credit/Fraud Loss
Credit/Fraud Loss Percentage
Special Hazard Loss
Special Hazard Loss Percentage
Credit Support Original Current
Class [____]
Class [____] Percentage
Class [____]
Class [____] Percentage
Class [____]
Class [____] Percentage
Class [____]
Class [____] Percentage
Class [____]
Class [____] Percentage
Class [____]
Class [____] Percentage
Class [____]
Class [____] Percentage
<PAGE>
Exhibit C
Global Clearance, Settlement and
Tax Documentation Procedures
Except in certain limited circumstances, the globally offered
Resecuritization Mortgage Trust Certificates, Series 200_-_ (the "Global
Securities"), will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through DTC, Clearstream or
Euroclear. The Global Securities will be traceable as home market instruments
in both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through 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 participants of Clearstream or
Euroclear and Participants holding certificates will be effected on a
delivery-against-payment basis through the Relevant Depositaries of
Clearstream and Euroclear (in such capacity) and as Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & 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 Relevant Depositaries, which in turn will hold such positions in
accounts as Participants.
Investors selecting to hold their Global Securities through DTC will
follow DTC settlement practice. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through
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 securities custody accounts on the settlement date against
payment in same-day funds.
Secondary Market Trading
Because the purchaser determines the place of delivery, it is
important to establish at the time of the trade where both the purchaser's and
seller's accounts are located to ensure that settlement can be made on the
desired value date.
Trading between Participants. Secondary market trading between
Participants will be settled using the procedures applicable to prior
asset-backed issues in same-day funds.
Trading between 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 Clearstream or Euroclear participants.
When Global Securities are to be transferred from the account of a 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 to the Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the 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 to
finance settlement. Under this procedure, Clearstream participants or
Euroclear participants purchasing Global Securities would incur overdraft
charges for one day, assuming they clear the overdraft when the Global
Securities are credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period
may substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each Clearstream participant's or
Euroclear participant's particular cost of funds.
Because the settlement is taking place during New York business
hours, Participants can employ their usual procedures for sending Global
Securities to the respective European Depositary for the benefit of
Clearstream participants or Euroclear participants. The sale proceeds will be
available to the DTC seller on the settlement date. Thus, to the Participants
a cross-market transaction will settle no differently than a trade between two
Participants.
Trading between 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 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
Relevant Depositary, as appropriate, to deliver the Global Securities to the
Participant's account against payment. Payment will include interest accrued
on the Global Securities from and including the last coupon payment to and
excluding the settlement date on the basis of the actual number of days in
such accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment
will then be reflected in the account of the 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 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 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 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:
Exemptions for non-U.S. Persons (Form W-8BEN). 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-8BEN (Certificate of Foreign Status). If the information shown on
Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days
of such change.
Exemptions for non-U.S. Persons with Effectively Connected
Income (Form W-8ECI). 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 W-8ECI (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade of Business in the
United States).
Exemption or Reduced Rate for Non-U.S. Persons Resident in
Treaty Countries (Form W-8BEN). Non-U.S. Persons residing in a
country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate depending on the treaty terms) by
filing Form W-8BEN (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-8BEN. Form W-8BEN may be filed by the
beneficial owners or their agents.
Exemptions for U.S. Persons (Form W-9). U.S. Persons can
obtain a complete exemption from the withholding tax by filing
Form W-9 (Payer's Request for Taxpayer Identification Number and
Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial
owner of a Global Security or, in the case of a Form W-8BEN or a Form
W-8ECI 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-8BEN is effective for [____] calendar years, and Form W-8ECI is
effective for [____] calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States, any state thereof or the District of Columbia, (iii) an
estate that is subject to United States federal income tax, regardless of the
source of its income or (iv) a trust if (a) a court in the United States is
able to exercise primary supervision over the administration of the trust, and
(b) one or more United States persons have the authority to control all
substantial decisions of the trust. The term "Non-U.S. Person means any person
who is not a U.S. Person. This summary does not deal with all aspects of U.S.
federal income tax withholding that may be relevant to foreign holders of
Global Securities or with the application of recently issued Treasury
Regulations relating to tax documentation requirements that are generally
effective with respect to payments made after December 31, 2000. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of Global Securities.
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
<S> <C>
$[----------]
Until the expiration of 90 days after the date of (Approximate)
this prospectus supplement, all dealers selling the
offered certificates, whether or not participating
in this distribution, will deliver a prospectus Resecuritization Mortgage Trust Certificates,
supplement and the prospectus to which it relates. Series 200_-_
This delivery requirement is in addition to the
obligation of dealers to deliver a prospectus
supplement and prospectus when acting as $ __________ Class [___] [___]% Certificates
underwriters and with respect to their unsold
allotment or subscriptions.
-------------------------
Greenwich Capital Acceptance, Inc.
Depositor
You should rely on the information contained or
incorporated by reference in this prospectus
supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different
information.
Prospectus Supplement
We are not offering the offered certificates in any [_____ __, 200_] state
where the offer is not permitted.
We do not claim that the information in this Logo of Underwriter]
prospectus supplement and the
accompanying prospectus is accurate as of any date
other than the dates dated on their respective covers. --------------------
==========================================================================================================
</TABLE>
Subject to Completion, Dated January 5, 2001
Prospectus
Mortgage Pass-Through Certificates
(Issuable in Series)
Greenwich Capital Acceptance, Inc.
Depositor
The Certificates
Each issue of certificates will have its own series designation and will
evidence the ownership of assets in the related trust.
o Each series of certificates will consist of one or more classes.
o Each class of certificates will represent the
entitlement to a specified portion of interest payments and a
specified portion of principal payments on the trust assets.
o A series may include classes of certificates that are
senior in right of payment to other classes. Classes of
certificates may be entitled to receive principal, interest or
both prior to other classes or before or after specified events.
o 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 for them will develop.
The Trust and Its Assets
As specified in the related prospectus supplement, the assets of a trust will
include one or more of the following:
o mortgage loans secured by senior liens on one- to four-family
residential properties,
o mortgage loans secured by senior liens on multifamily residential
properties,
o conditional sales contracts, installment sales agreements or loan
agreements secured by manufactured housing,
o mortgage pass-through securities issued or guaranteed by Ginnie Mae,
Fannie Mae or Freddie Mac, or o private mortgage-backed securities.
Offers of the Certificates
Offers of the certificates may be made through one or more different methods.
All certificates will be distributed by, or sold through underwriters managed
by, Greenwich Capital Markets, Inc.
------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page 6 of this prospectus.
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of the depositor, the seller, the master servicer
or any of their affiliates.
This prospectus may be used to offer and sell the certificates only if
accompanied by a prospectus supplement.
------------------------------------------------------------------------------
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.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Important Notice About Information in This Prospectus and Each Accompanying Prospectus Supplement................5
Risk Factors.....................................................................................................6
The Trust Fund..................................................................................................15
The Mortgage Loans--General............................................................................16
Single Family Loans....................................................................................20
Multifamily Loans......................................................................................21
Contracts..............................................................................................21
Agency Securities......................................................................................22
Private Mortgage-Backed Securities.....................................................................28
Incorporation of Certain Information by Reference......................................................31
Use of Proceeds.................................................................................................31
The Depositor...................................................................................................31
Mortgage Loan Program...........................................................................................32
Underwriting Standards.................................................................................32
Qualifications of Sellers..............................................................................33
Representations by Sellers; Repurchases................................................................34
Description of the Certificates.................................................................................35
General................................................................................................36
Distributions on Certificates..........................................................................38
Advances...............................................................................................42
Reports to Certificateholders..........................................................................43
Credit Enhancement..............................................................................................45
General................................................................................................45
Subordination..........................................................................................45
Mortgage Pool Insurance Policies.......................................................................47
FHA Insurance; VA Guarantees...........................................................................49
Special Hazard Insurance Policies......................................................................51
Bankruptcy Bonds.......................................................................................53
FHA Insurance on Multifamily Loans.....................................................................53
Reserve Accounts.......................................................................................54
Cross Support..........................................................................................54
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar Instruments or Agreements.....55
Financial Instruments..................................................................................55
Yield and Prepayment Considerations.............................................................................56
The Pooling and Servicing Agreement.............................................................................58
Assignment of Mortgage Assets..........................................................................58
Payments on Mortgage Loans; Deposits to Certificate Account............................................61
Sub-Servicing by Sellers...............................................................................63
Collection Procedures..................................................................................65
Hazard Insurance.......................................................................................66
Realization upon Defaulted Mortgage Loans..............................................................68
Servicing and Other Compensation and Payment of Expenses...............................................71
Evidence as to Compliance..............................................................................71
Certain Matters Regarding the Master Servicer and the Depositor........................................72
Events of Default......................................................................................73
Rights upon Event of Default...........................................................................74
Amendment..............................................................................................75
Termination; Optional Termination; Optional Calls......................................................76
The Trustee............................................................................................76
Material Legal Aspects of the Mortgage Loans....................................................................76
General................................................................................................76
Foreclosure/Repossession...............................................................................80
Environmental Risks....................................................................................83
Rights of Redemption...................................................................................85
Anti-Deficiency Legislation and Other Limitations on Lenders...........................................85
Due-on-Sale Clauses....................................................................................87
Prepayment Charges.....................................................................................87
Applicability of Usury Laws............................................................................87
Soldiers' and Sailors' Civil Relief Act................................................................88
Material Federal Income Tax Consequences........................................................................88
General................................................................................................88
Non-REMIC Certificates.................................................................................89
Single Class of Senior Certificates...............................................................89
Multiple Classes of Senior Certificates...........................................................94
Possible Application of Contingent Payment Regulations to Certain Non-REMIC Certificates..........98
Sale or Exchange of a Senior Certificate..........................................................99
Non-U.S. Persons.................................................................................100
Information Reporting and Backup Withholding.....................................................100
New Withholding Regulations......................................................................101
REMIC Certificates....................................................................................101
General..........................................................................................101
Tiered REMIC Structures..........................................................................102
Regular Certificates.............................................................................103
Residual Certificates............................................................................114
Prohibited Transactions and Other Taxes..........................................................120
Liquidation and Termination......................................................................120
Administrative Matters...........................................................................120
Tax-Exempt Investors.............................................................................121
Non-U.S. Persons.................................................................................121
Tax-Related Restrictions on Transfers of Residual Certificates...................................122
State Tax Considerations.......................................................................................125
ERISA Considerations...........................................................................................125
Legal Investment Considerations................................................................................130
Method of Distribution.........................................................................................131
Legal Matters..................................................................................................132
Financial Information..........................................................................................132
Available Information..........................................................................................133
Ratings........................................................................................................133
Glossary of Terms..............................................................................................134
</TABLE>
<PAGE>
Important Notice About Information in This Prospectus
and Each Accompanying Prospectus Supplement
Information about each series of certificates is contained in two separate
documents:
o this prospectus, which provides general information, some of which
may not apply to a particular series; and
o the accompanying prospectus supplement for a particular series, which
describes the specific terms of the certificates of that series.
Although the accompanying prospectus supplement for a particular series of
certificates cannot contradict the information contained in this prospectus,
insofar as the prospectus supplement contains specific information about the
series that differs from the more general 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.
We include cross-references in this prospectus and each accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. There is a Glossary of Terms beginning on page 134 where
you will find definitions of certain capitalized terms used in this
prospectus. The preceding Table of Contents and the Table of Contents included
in each accompanying prospectus supplement provide the pages on which these
captions are located.
---------------------
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 31 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.
You may have difficulty
selling your certificates
or obtaining your
desired price................... No market will exist for the
certificates before they are issued. In
addition, there can be no assurance that
a secondary market will develop following
the issuance and sale of the
certificates. Even if a secondary market
does develop, you may not be able to sell
your certificates when you wish to or at
the price you want.
Only the assets of the related
trust are available to pay your
certificates..................... 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. If the assets of the related trust
are not sufficient, you may suffer a loss
on your certificates. Moreover, at the
times specified in the related prospectus
supplement, assets of the trust may be
released to the depositor, master
servicer, any servicer, credit
enhancement provider or other specified
person, if all payments then due on the
certificates have been made. Once
released, these assets will no longer be
available to make payments on your
certificates.
Credit enhancements may not be
adequate to protect against
delinquencies and losses......... 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. You may suffer losses on
your certificates in these situations. 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.
Any credit support provided
by financial instruments may
be insufficient to protect
against particular risks......... As described under "Credit Enhancement--
Financial Instruments" in this
prospectus, a trust may include financial
instruments to protect against particular
risks or to provide certain cash flow
characteristics for particular classes of
the certificates of a series. If you
invest in one of these classes and the
issuer of the financial instruments fails
to perform its obligations or if the
issuer of the financial instruments
experiences a credit rating downgrade,
the average life of your certificates, as
well as your ability to sell them for
your desired price, may be adversely
affected. If the financial instruments
are intended to provide an approximate or
partial hedge against particular risks or
cashflow characteristics, the average
life of your certificates, as well as
your ability to sell them for your
desired price, could be adversely
affected to the extent that the financial
instruments do not provide a perfect
hedge.
Principal prepayments on
the loans may adversely
affect the average life of,
and rate of return on, your
certificates.................... You may be unable to reinvest the
principal payments on your certificates
at a rate of return at least equal to the
rate on your certificates. 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
average life of the certificates.
The interest accrual period
may reduce the effective yield
on your certificates............ Interest payable on the certificates on
any 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.
Loans with balloon payments
may increase your
risk of loss.................... Certain underlying loans may not be fully
amortizing and may require a substantial
principal payment (a "balloon" payment)
at their stated maturity. Loans of this
type involve greater risk than fully
amortizing loans since the 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.
Multifamily loans generally
are riskier than single family
loans............................ Up to 10% of the underlying loans may be
secured by first liens on rental
apartment buildings or projects
containing five or more residential
units. Multifamily loans are generally
considered riskier than single-family
loans for the following reasons:
o Multifamily loans typically are
much larger in amount, which
increases the risk represented by
the default of a single borrower.
o Repayment of a multifamily loan
usually depends upon successful
management of the related mortgaged
property.
o Changing economic conditions in
particular markets can affect the
supply and demand of rental units
and the rents that those markets
will bear.
o Government regulations, including
rental control laws, may adversely
affect future income from mortgaged
properties that are subject to
those regulations.
In addition, because individual
multifamily loans often are relatively
large in amount, principal prepayments
resulting from defaults, casualties,
condemnations or breaches of
representations and warranties may
adversely affect your yield.
Economic, legal and other
factors could reduce the
amount and delay the timing
of recoveries on defaulted
mortgage loans.................. 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.
Mortgaged properties may
be subject to environmental
risks that could result in
losses.......................... 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.
Violations of applicable
federal laws may reduce
or delay mortgage loan
collections..................... 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.
Loans may also be subject to federal laws
that impose additional disclosure
requirements on creditors for
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.
Loans relating to home improvement
contracts may be 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
do not address all investment
risks and must be viewed with
caution......................... 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 may
limit your ability to sell
certificates and delay your
receipt of payments............ 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, 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.
If amounts in any pre-funding
account are not used to
purchase trust assets,
you will receive a prepayment
on the related certificates..... The related prospectus supplement may
provide that the depositor transfer a
specified amount into a pre-funding
account on the date the securities are
issued. In this case, the transferred
funds may be used only to acquire
additional assets for the trust during a
set period after the issuance. 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. The
resulting prepayment could adversely
affect the yield on those certificates.
Loans to lower credit quality
borrowers are more likely
to experience late payments
and defaults and increase your
risk of loss.................... 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; or
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. In particular, 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.
Up to 20% of trust fund assets
may be delinquent............... As much as 20% (by principal balance) of
the trust assets for any particular
series of certificates may be
contractually delinquent as of the
related cut-off date.
Proceeds of liquidated loans
generally are paid first to
providers of trust
services........................ 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.
There is a Glossary of Terms beginning on page 135 of this prospectus
where you will find definitions of the capitalized terms used in this
prospectus.
<PAGE>
The Trust Fund
The trust fund for each series of certificates will be held by the
trustee named in the related prospectus supplement for the benefit of the
related certificateholders. Each trust fund will consist of mortgage-related
assets. These mortgage assets will include the following:
(i) a pool of mortgage assets consisting of
o Single Family Loans,
o Multifamily Loans,
o Contracts,
o Agency Securities, or
o private mortgage-backed securities,
in each case as specified in the related prospectus
supplement; and
(ii) payments relating to the pool of mortgage assets and other
accounts, obligations or agreements, in each case as specified
in the related prospectus supplement.
Whenever the terms "certificates" and "mortgage pool" are used in
this prospectus, these terms will be deemed to apply, unless the context
indicates otherwise, to one specific mortgage pool and the certificates
representing undivided interests in a single trust fund consisting primarily
of the mortgage loans in that 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 the related trust
fund.
The certificates will be entitled to payment from the assets of the
related trust fund or other assets pledged for the benefit of the
certificateholders as specified in the related prospectus supplement. The
certificates will not be entitled to payments related to 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 of these types.
The mortgage loans and Agency Securities will be acquired by the
depositor, either directly or through affiliates, from sellers and conveyed by
the depositor to the related trust fund. Sellers may have originated or
purchased the mortgage assets. Mortgage loans acquired by the depositor will
have been originated in accordance with the underwriting criteria specified in
this prospectus under the heading "Mortgage Loan Program--Underwriting
Standards" and as more specifically described in a related prospectus
supplement.
The following sections contain 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 SEC within 15 days after the initial issuance of the certificates. A
copy of the pooling and servicing agreement with respect to the related 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
the series will be attached to the related pooling and servicing agreement
delivered to the trustee upon issuance of the certificates.
The Mortgage Loans--General
When we use the term "mortgage loans" in this prospectus, we include
Single Family Loans, Multifamily Loans and Contracts. Similarly, the term
"mortgaged properties" includes both the real property and the manufactured
homes that secure repayment of the mortgage loans. 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. If a mortgage loan
has a loan-to-value ratio or principal balance in excess of a particular
benchmark, it may be covered in whole or in part by a primary mortgage
insurance policy. If the mortgage loans in a mortgage pool are covered by this
type of policy, the related prospectus supplement will describe the existence,
extent and duration of the coverage.
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 one or more of the following features or other
features described in the related prospectus supplement:
o Interest may be payable at
- a fixed rate,
- a rate that adjusts from time to time in relation to an
index that 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 the periods and under the
circumstances as may be specified in the related prospectus
supplement. A mortgage loan may provide for the payment of
interest at a rate lower than the specified interest rate borne
by the loan 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 related mortgaged property or
another source.
o Principal may be
- payable on a level debt service basis to fully amortize
the mortgage loan over its term,
- 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
- nonamortizing during all or a portion of the original term.
Payment of all or a substantial portion of the principal may be
due on maturity in the form of a "balloon" payment. Principal
may include interest that has been deferred and added to the
principal balance of the mortgage loan.
o Monthly payments of principal and interest may
- be fixed for the life of the mortgage loan,
- increase over a specified period of time or
- 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.
o 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 during any lockout periods. Some 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 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 related seller.
Each prospectus supplement will contain information, as of the date of
the 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
o the aggregate outstanding principal balance and the average
outstanding principal balance of the mortgage loans as of the
applicable cut-off date,
o the type of property securing each mortgage loan, such
as 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,
o the original terms to maturity of the mortgage loans,
o the largest principal balance and the smallest principal balance
of the mortgage loans,
o the earliest origination date and latest maturity date of the
mortgage loans,
o the aggregate principal balance of mortgage loans having loan-to-
value ratios at origination exceeding 80%,
o the mortgage rates or fixed percentage rates (APRs) or range of
mortgage rates or APRs borne by the mortgage loans, and
o 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 in the immediately preceding
sentence will be provided in the related prospectus supplement, and specific
information will be set forth in the Form 8-K to be filed with the SEC within
15 days after issuance.
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 refinance loans the proceeds of which were used to refinance an existing
mortgage loan, is the lesser of (a) the appraised value determined in an
appraisal obtained by the originator at origination of the 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 of
the property 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
o a fixed percentage of the list price of the unit actually
billed by the manufacturer to the dealer, net of freight to the
dealer site but including any accessories identified in the
invoice (i.e., the "manufacturer invoice price"),
o the actual cost of any accessories depending on the size of the
unit, and
o 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 in a particular mortgage pool, and
any secondary financing on the mortgaged properties, 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, these other factors could
include
o excessive building resulting in an oversupply of rental housing
stock,
o a decrease in employment reducing the demand for rental units in
an area,
o federal, state or local regulations and controls affecting rents,
prices of goods and energy,
o environmental restrictions,
o increasing labor and material costs, and
o the relative attractiveness to tenants of the mortgaged
properties.
To the extent that losses are not covered by subordination provisions or
alternative arrangements, losses will be borne, at least in part, by the
certificateholders 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 certificateholders of the related series. The master
servicer named in the related prospectus supplement will service the mortgage
loans, either directly or through sub-servicers, pursuant to a pooling and
servicing agreement among the depositor, the master servicer and the trustee,
and will receive a fee for its services. See "Mortgage Loan Program" and "The
Pooling and Servicing Agreement" in this prospectus. 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 pooling
and servicing agreement as if the master servicer alone were servicing the
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 related
seller and to assign to the trustee for that series of certificates the
depositor's rights with respect to those representations and warranties. See
"The Pooling and Servicing Agreement--Assignment of Mortgage Assets" in this
prospectus. The obligations of the master servicer with respect to the
mortgage loans will consist principally of:
o its contractual servicing obligations under the related
pooling and servicing agreement, including its obligation to
enforce the obligations of the sub-servicers or sellers, or
both, as more fully described in this prospectus under the
headings "Mortgage Loan Program--Representations by Sellers;
Repurchases" and "The Pooling and Servicing
Agreement--Sub-Servicing by Sellers" and "--Assignment of
Mortgage Assets"; and
o its obligation to make certain cash advances in the
event of delinquencies in payments with respect to the mortgage
loans in the amounts described in this prospectus under the
heading "Description of the Certificates--Advances".
The obligations of the master servicer to make advances may be subject to
limitations, to the extent provided in this prospectus 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 in mortgage loans and deeds of
trust, secured by first liens on one- to four-family residential properties.
If specified in the related prospectus supplement, Single Family Loans may
include cooperative loans secured by security interests in shares issued by
private, non-profit, cooperative housing corporations and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the cooperatives' buildings. If 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. Single Family Loans may be conventional loans (loans that are
not insured or guaranteed by any governmental agency), loans insured by the
Federal Housing Administration (FHA) or partially guaranteed by the Veterans
Administration (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 securing the 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 other dwelling
units. The 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
related 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 in mortgage loans and deeds of
trust, which are secured by first liens on rental apartment buildings or
projects containing five or more residential units. If specified in the
related prospectus supplement, the mortgage assets of a trust fund may include
mortgage participation certificates evidencing interests in Multifamily Loans.
Multifamily Loans may be conventional loans or FHA-insured loans, as specified
in the related prospectus supplement. Unless otherwise specified in the
related prospectus supplement, all Multifamily Loans will have original terms
to stated maturity of not more than 40 years.
No more than 10% of any mortgage pool by principal balance will
consist of Multifamily Loans.
Mortgaged properties securing Multifamily Loans may include
high-rise, mid-rise and garden apartments. 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 or 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.
When we use the term "manufactured home" in this prospectus, we mean,
as stated in 42 U.S.C. ss. 5402(6), "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."
Each 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,
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates which represent an interest in a pool of FHA loans,
which are mortgage loans insured by the FHA under the National Housing Act or
under Title V of the Housing Act of 1949, or VA loans, which are mortgage
loans 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.
Section 306(g) of the National 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 National 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 Ginnie Mae issuer that is a mortgage banking company
or other financial concern 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 either Ginnie Mae I Certificates issued under the Ginnie Mae I program
or Ginnie Mae II Certificates issued under the Ginnie Mae II program. 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 Ginnie Mae Certificate in accordance with 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 Ginnie Mae
Certificate, even if the payments received by the Ginnie Mae issuer on the
underlying FHA loans or VA loans are less than the amounts due on the related
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 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 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
the 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 the 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 the 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 they become due, it must promptly notify Ginnie Mae and request
Ginnie Mae to make the payments. Upon notification and request, Ginnie Mae
will make payments directly to the registered holder of the 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 the payment,
the holder of the Ginnie Mae Certificate will have recourse only against
Ginnie Mae to obtain 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 those 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 a
Ginnie Mae I Certificate will equal the interest rate on the mortgage loans
included in the pool of mortgage loans underlying the 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 one another 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 the 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 the
Ginnie Mae Certificate plus the scheduled principal payments on the FHA loans
or VA loans underlying the Ginnie Mae Certificate due on the first day of the
month in which the scheduled monthly installments on the Ginnie Mae
Certificate are due. Regular monthly installments on each 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 the 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 the 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 the 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. 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 the 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. 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 legislation that established Freddie Mac. The pool
of loans backing a Freddie Mac Certificate may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and/or participations comprising another Freddie Mac pool. Under the Guarantor
Program, however, the pool of loans backing a Freddie Mac Certificate 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 represented by that Freddie Mac Certificate, whether or not
received. Freddie Mac also guarantees to each registered holder of a Freddie
Mac Certificate that the holder will collect 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 those
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 this 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 particular Freddie Mac pool under the Cash
Program will vary since mortgage loans and participations are purchased and
assigned to a Freddie Mac pool 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 related 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, and makes payments of principal and interest
each month to the registered Freddie Mac Certificateholders in accordance with
the 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. 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 25 basis points and 250 basis points greater
than is its annual pass-through rate. 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 30 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 the holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by the Fannie Mae Certificate on the
underlying mortgage loans, whether or not received, and the 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
of its agencies or instrumentalities 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 will be made by wire and, with
respect to fully registered Fannie Mae Certificates, distributions will be
made by check.
Stripped Mortgage-Backed Securities. Agency Securities may consist of
one or more stripped mortgage-backed securities as described in this
prospectus and in the related prospectus supplement. Each Agency Security of
this type 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 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 the 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 the related prospectus supplement. If specified in the related
prospectus supplement, a combination of different types of Agency Securities
may be held in a trust fund.
Private Mortgage-Backed Securities
General. Private mortgage-backed securities (PMBS) may consist of
o mortgage pass-through certificates or participation certificates
evidencing an undivided interest in a pool of mortgage loans or
o collateralized mortgage obligations secured by mortgage loans.
PMBS 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 on certain mortgage loans. The PMBS will have been issued
pursuant to a pooling and servicing agreement, an indenture or similar
agreement. Unless otherwise specified in the related prospectus supplement,
the seller/servicer of the underlying mortgage loans will have entered into a
PMBS agreement with a trustee under that agreement. The PMBS trustee or its
agent, or a custodian, will possess the mortgage loans underlying the PMBS.
Mortgage loans underlying the PMBS will be serviced by a 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 PMBS, approved by HUD as
an FHA mortgagee.
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 trusts and selling
beneficial interests in trusts. If 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 it conveys 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 PMBS issued under the PMBS
agreement. Additionally, although the mortgage loans underlying the PMBS may
be guaranteed by an agency or instrumentality of the United States, the PMBS
themselves will not be so guaranteed, unless the related prospectus supplement
specifies otherwise.
Distributions of principal and interest will be made on the PMBS on
the dates specified in the related prospectus supplement. The PMBS 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 PMBS by the PMBS trustee or the PMBS servicer. The PMBS issuer or the PMBS
servicer may have the right to repurchase assets underlying the PMBS after a
particular date or under other circumstances specified in the related
prospectus supplement.
Underlying Loans. The mortgage loans underlying the PMBS 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. The 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 the
cooperative. Except as otherwise specified in the related prospectus
supplement, the mortgage loans will have the following characteristics:
o no mortgage loan will have had a loan-to-value ratio at
origination in excess of 95%,
o 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,
o each mortgage loan will have had an original term to
stated maturity of not less than five years and not more than 40
years,
o 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,
o 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
o 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 PMBS or with respect to the PMBS
themselves.
Additional Information. If the trust fund for a series of
certificates includes PMBS, the related prospectus supplement will specify
o the aggregate approximate principal amount and type of the PMBS
to be included in the trust fund,
o the maximum original term-to-stated maturity of the PMBS,
o the weighted average term-to-stated maturity of the PMBS,
o the pass-through or certificate rate of the PMBS,
o the weighted average pass-through or certificate rate of the PMBS,
o the PMBS issuer, the PMBS servicer (if other than the PMBS issuer)
and the PMBS trustee,
o certain characteristics of any credit support such as
reserve funds, insurance policies, surety bonds, letters of
credit or guaranties relating to the mortgage loans underlying
the PMBS mortgage-backed securities themselves,
o the terms on which the mortgage loans underlying the
PMBS may, or are required to, be purchased prior to their stated
maturity or the stated maturity of the PMBS and
o the terms on which mortgage loans may be substituted for those
originally underlying the PMBS.
In addition, the related prospectus supplement will provide information
about the mortgage loans which comprise the underlying assets of the PMBS,
including
o the payment features of the mortgage loans,
o the approximate aggregate principal balance, if known, of
underlying mortgage loans insured or guaranteed by a governmental
entity,
o the servicing fee or range of servicing fees with respect to the
mortgage loans, and
o the minimum and maximum stated maturities of the underlying
mortgage loans at origination.
Incorporation of Certain Information by Reference
There are incorporated herein by reference all documents and reports
filed by the depositor, 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 in that trust fund. 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 without charge a copy of
any such documents and/or reports incorporated herein by reference, in each
case to the extent that the documents or reports relate to those classes of
certificates, other than the exhibits to the documents (unless the 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 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 in those assets
or bonds secured by those assets. It is an indirect, limited purpose finance
subsidiary of Royal Bank of Scotland Plc and an affiliate of Greenwich
Capital Markets, Inc. Greenwich Capital Markets, Inc. is a registered
broker-dealer engaged in the U.S. government securities and related capital
markets business. The depositor maintains its principal office at 600
Steamboat Road, Greenwich, Connecticut 06830. Its telephone number is (203)
625-2700.
Neither the depositor nor any of its affiliates will ensure or
guarantee distributions on the certificates of any series.
Mortgage Loan Program
The depositor will have purchased the mortgage loans, either directly
or through affiliates, from sellers. Unless otherwise specified in the related
prospectus supplement, the mortgage loans acquired by the depositor will have
been originated in accordance with the underwriting criteria specified
immediately below under the heading "-Underwriting Standards".
Underwriting Standards
Unless otherwise specified in the related prospectus supplement, each
seller will represent and warrant that all mortgage loans that it originated
and/or sold to the depositor or one of the depositor's 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 related 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, which is
typically the borrower's employer. The verification reports the borrower's
length of employment with its employer, current salary, and expectations of
continued employment. 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
o 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
o 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 related 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 related mortgage note.
Some 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, 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 in the
following sentence. Each seller must
o 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,
o maintain satisfactory facilities to originate and service the
mortgage loans,
o be a seller/servicer approved by either Fannie Mae or Freddie
Mac, and
o be a mortgagee approved by the FHA or an institution the
deposit accounts in which are insured by the Federal Deposit
Insurance Corporation (FDIC).
Representations by Sellers; Repurchases
Each seller will have made representations and warranties in respect
of the mortgage loans sold by that seller and evidenced by a series of
certificates. These representations and warranties, unless otherwise provided
in the related prospectus supplement, generally include the following:
o Except in the case of a cooperative loan or a Contract
secured by a manufactured home, each Single Family Loan or
Multifamily Loan has a title insurance policy, required hazard
insurance policy and any required primary mortgage insurance
policy, each of which was in effect at the origination of the
loan and remained in effect on the date that the loan was
purchased from the seller by or on behalf of the depositor. If
the related mortgaged property is located in an area where title
insurance policies are generally not available, an attorney's
certificate of title may be substituted.
o The seller had good title to each mortgage loan and no
mortgage loan was subject to offsets, defenses, counterclaims or
rights of rescission except to the extent that any specified
buydown agreement may forgive certain indebtedness of a
mortgagor.
o 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 related pooling and servicing
agreement.
o The mortgaged property was free from damage and was in
good repair.
o There were no delinquent tax or assessment liens against the
mortgaged property.
o No required payment on a mortgage loan was delinquent
more than 30 days.
o 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 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 related cut-off date but as of the date on which the
seller sold the mortgage loan to the depositor or one of the depositor's
affiliates. Under these circumstances, a substantial period of time may have
elapsed between that date and the date of initial issuance of the series of
certificates evidencing an interest in the 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 that seller, the repurchase
obligation described in the following paragraph will not arise if the relevant
event that would otherwise have given rise to the obligation occurs after the
date when the seller sold the mortgage loan to the depositor or one of the
depositor's affiliates. However, the depositor will not include any mortgage
loan in a trust fund 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 that mortgage loan as of the date when the related series of
certificates is issued. If the master servicer is also a seller of mortgage
loans with respect to a particular series, these representations will be in
addition to the representations and warranties made by the master servicer in
its capacity as 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 that seller in respect of a mortgage loan
which materially and adversely affects the interests of the certificateholders
in the mortgage loan. Unless otherwise specified in the related prospectus
supplement, if the seller cannot cure the breach within 90 days after notice
from the master servicer or the trustee, as the case may be, then the seller
will be obligated to repurchase that mortgage loan from the trust fund at a
purchase price equal to 100% of the unpaid principal balance of that mortgage
loan 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 related
mortgage interest rate, less any advances made by the seller 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. Unless
otherwise specified in the related prospectus supplement, the master servicer
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" in this prospectus. Except in those
cases in which the master servicer is the seller, the master servicer will be
required under the applicable pooling and servicing agreement to enforce this
obligation for the benefit of the trustee and the related certificateholders,
following the practices it would employ in its good faith business judgment
were it the owner of the mortgage loan. This repurchase obligation will
constitute the sole remedy available to certificateholders 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 the
seller defaults on its obligation to do so. No assurance can be given that
sellers will carry out their respective repurchase obligations with respect to
the 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 heading "The Pooling and Servicing
Agreement--Assignment of Mortgage Assets" in this prospectus.
Description of the Certificates
Each series of certificates will be issued pursuant to a pooling and
servicing 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 that series. The provisions of each pooling and
servicing agreement will vary depending upon the nature of the related
certificates and the related trust fund. Forms of pooling and servicing
agreement are exhibits to the Registration Statement of which this prospectus
forms a part. The following summaries describe the material provisions which
may appear in each pooling and servicing agreement. The prospectus supplement
for each series of certificates will describe any provision of the pooling and
servicing agreement relating to that series which materially differs from the
description 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 related pooling and servicing agreement and
prospectus supplement. The depositor will provide a copy of the pooling and
servicing agreement (without exhibits) relating to any series without charge,
upon written request of a holder of record of a certificate of the series,
addressed to Greenwich Capital Acceptance, Inc., 600 Steamboat Road,
Greenwich, Connecticut 06830, Attention: Asset Backed Finance Group.
General
Unless otherwise specified in the related prospectus supplement, the
certificates of each series will
o be issued in fully registered form only, in the authorized
denominations specified in the prospectus supplement,
o evidence specified beneficial ownership interests in the trust
fund created pursuant to the related pooling and servicing
agreement, and
o 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 of its
affiliates. 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 related pooling and servicing
agreement, each trust fund will consist of
o the mortgage assets as from time to time are subject to the
related pooling and servicing agreement, exclusive of any
amounts specified in the related prospectus supplement as
"retained interest";
o those assets as from time to time are required to be deposited
in the related certificate account as defined under the heading
"The Pooling and Servicing Agreement--Payments on Mortgage
Loans; Deposits to the Certificate Account" in this prospectus;
o property which secured a mortgage loan and which is acquired on
behalf of the certificateholders by foreclosure or deed in lieu
of foreclosure;
o 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 pooling and servicing agreement.
If specified in the related prospectus supplement, a trust fund may also
include one or more of the following:
o reinvestment income on payments received on the mortgage assets,
o a reserve fund,
o a mortgage pool insurance policy,
o a special hazard insurance policy,
o a bankruptcy bond,
o one or more letters of credit,
o a surety bond,
o guaranties, or
o 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 the series. A series
or classes of certificates may be covered by insurance policies, surety bonds
or other forms of credit enhancement, in each case as described in this
prospectus 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 of the two. 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 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. Distributions will be made 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
applicable record date specified in the related prospectus supplement.
Distributions will be made by check or money order mailed to the persons
entitled thereto at the address appearing in the register maintained for the
certificateholders or, if specified in the related prospectus supplement, in
the case of certificates that are of a certain minimum denomination and upon
written request by the certificateholder, by wire transfer or by such other
means as are described in the prospectus supplement. In the case of the final
distribution in retirement of the certificates, payment 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 the
final distribution.
The certificates will be freely transferable and exchangeable at the
corporate trust office of the trustee named 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.
As to each series of certificates, an election may be made to treat
the related trust fund, or designated portion of the trust fund, as a "real
estate mortgage investment conduit" (REMIC) as defined in the Internal Revenue
Code. The related prospectus supplement will specify whether a REMIC election
is to be made. Alternatively, the pooling and servicing 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 series of certificates for which a REMIC election
will be made, the terms and provisions applicable to the making of the REMIC
election, as well as any material federal income tax consequences to
certificateholders not otherwise described in this prospectus, will be set
forth in the related prospectus supplement. If a REMIC 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 that 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.
Unless otherwise specified in the related prospectus supplement, the master
servicer 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 that series. See
"Credit Enhancement" in this prospectus. 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 that series.
The trustee will make distributions allocable to principal and
interest on the certificates out of, and only to the extent of, funds in the
related certificate account, including any funds transferred from any reserve
account. As between certificates of different classes and as between
distributions of principal (and, if applicable, between distributions of
principal prepayments 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 Available Funds in accordance with
the terms described in the related prospectus supplement and specified in the
related pooling and servicing agreement. Unless otherwise provided in the
related prospectus supplement, the term "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 pooling and servicing agreement) received by the master servicer after
the cut-off date and on or prior to the related determination date specified
in the prospectus supplement except:
o all payments which were due on or before the cut-off date;
o 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 pooling and servicing
agreement that were received after the prepayment period
specified in the prospectus supplement and all related payments
of interest representing interest for any period after the
prepayment period;
o all scheduled payments of principal and interest due on a date
or dates subsequent to the first day of the month of
distribution;
o 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 of those loans made by the master servicer, the
related sub-servicers, support servicers or the trustee;
o amounts representing reimbursement, to the extent permitted by
the pooling and servicing agreement and as described under
"--Advances" immediately 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; and
o that portion of each collection of interest on a particular
mortgage loan in the 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
pooling and servicing agreement;
(ii) the amount of any advance made by the master servicer, any sub-
servicer, support servicer or the trustee as described under "--Advances"
immediately 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 any 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 or the aggregate notional principal balance of
each class of certificates entitled only to distributions allocable to
interest, at the pass-through rate and for the periods specified in the
prospectus supplement. Except in the case of a class of accrual certificates
that provides for interest that accrues but is not currently payable, the
pass-through rate may be a fixed rate or an adjustable rate that adjusts as
specified in the prospectus supplement. Interest accrued during each specified
period on each class of certificates entitled to interest will be
distributable on the distribution dates specified in the related prospectus
supplement, to the extent that funds are available, until the aggregate
principal balance of the certificates of that class has been distributed in
full or, in the case of a class of certificates entitled only to distributions
allocable to interest, until the aggregate notional principal balance of that
class is reduced to zero or for the period of time designated in the related
prospectus supplement. The original principal balance of each certificate will
equal the aggregate distributions allocable to principal to which that
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 that 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 principal balance
of that class on that 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 the prospectus supplement. Unless otherwise specified in the
related prospectus supplement, the beneficial ownership interest of a class of
accrual certificates in the trust fund will increase on each distribution
date, as reflected in the aggregate principal balance of that class, by the
amount of interest that accrued on that class during the preceding interest
accrual period but was not required to be distributed to the class on the
distribution date. Each class of accrual certificates will thereafter accrue
interest on the outstanding aggregate principal balance of that class as so
increased.
Distributions of Principal. Unless otherwise specified in the related
prospectus supplement, the aggregate principal balance of any class of
certificates entitled to distributions of principal will equal
o the original aggregate principal balance of that class as
specified in the related prospectus supplement
reduced by
o all distributions reported to certificateholders of that class
as allocable to principal
increased by
o in the case of a class of accrual certificates, all interest
accrued but not then distributable on that class and
subject to
o in the case of adjustable rate certificates, the effect of any
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 the 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 in the percentages and under the circumstances or for the periods
specified in the prospectus supplement. Any allocation of such principal
prepayments to a class or classes of senior certificates will have the effect
of accelerating the amortization of the senior certificates while increasing
the interests evidenced by the subordinated certificates in the related 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" in this prospectus.
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 in this paragraph and the following paragraph and in the
prospectus supplement. 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 that
distribution date. Unless otherwise specified in the related prospectus
supplement, the amount of any 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 the 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 distribution.
Advances
Unless otherwise provided in the related prospectus supplement, the
master servicer will be required to make advances, from its own funds, from
funds advanced by sub-servicers or support servicers or from funds held in the
certificate account for future distributions to the certificateholders. On
each distribution date, the amount of any advances will be 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 these advances will be recoverable
from 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 the
certificateholders 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 those
funds on or before any future distribution date to the extent that funds in
the applicable certificate account on a distribution date would be less than
the amount required to be available for distributions to certificateholders on
that date. Any funds advanced by the master servicer will be reimbursable to
the master servicer out of recoveries on the specific mortgage loans with
respect to which the 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 in this prospectus). 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 advances previously made are not ultimately recoverable as
described in this paragraph. 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 related
pooling and servicing 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 the related prospectus supplement.
The master servicer or sub-servicer may enter into a support
agreement with 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 the
substitution of the support agreement will not adversely affect the rating or
ratings assigned to the certificates by each rating agency named in the
related prospectus supplement.
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 the advance in its capacity as
successor servicer. If the trustee makes an advance, it will be entitled to be
reimbursed for that 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 "--Distributions on Certificates" above.
Reports to Certificateholders
Prior to or concurrently with each distribution on a distribution
date and except as otherwise set forth in the related 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 that series of certificates, among other things:
o the amount of the distribution that is allocable to
principal, separately identifying the aggregate amount of any
principal prepayments and, if specified in the prospectus
supplement, any prepayment penalties included in the
distribution;
o the amount of the distribution allocable to interest;
o the amount of any advances;
o the aggregate amount (a) otherwise allocable to the
subordinated certificateholders on that distribution date and
(b) withdrawn from the reserve fund, if any, that is included in
the amounts distributed to the senior certificateholders;
o the outstanding aggregate principal balance or notional
principal balance of each class after giving effect to the
distribution of principal on that distribution date;
o the percentage of principal payments on the mortgage
loans (excluding prepayments), if any, which each class will be
entitled to receive on the following distribution date;
o the percentage of principal prepayments on the mortgage loans,
if any, which each class will be entitled to receive on the
following distribution date;
o the 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;
o the number and aggregate principal balance of mortgage loans
delinquent, but not in foreclosure, (i) from one to 30 days,
(ii) from 31 to 60 days, (iii) from 61 to 90 days and (iv) 91
days or more, as of the close of business on the last day of the
calendar month preceding that distribution date;
o the number and aggregate principal balance of mortgage
loans in foreclosure as of the close of business on the last day
of the calendar month preceding that distribution date;
o the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure and, if
the real estate secured a Multifamily Loan, any additional
information specified in the prospectus supplement;
o if a class is entitled only to a specified portion of interest
payments 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 that class;
o if applicable, the amount remaining in any reserve account at
the close of business on that distribution date;
o the pass-through rate as of the day prior to the immediately
preceding distribution date; and
o the amounts remaining under any letters of credit, pool policies
or other forms of credit enhancement applicable to the
certificates.
Where applicable, any amount set forth in the above list may be
expressed as a dollar amount per single certificate of the relevant class
having the percentage interest specified in the prospectus supplement. The
report to certificateholders for any series of certificates may include
additional or other information of a similar nature to that specified in the
above list.
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
setting forth:
o the aggregate of the amounts for that calendar year
reported pursuant to the first two bullet points in the
immediately preceding list or, in the event that the recipient
was a certificateholder of record only during a portion of the
calendar year, for the applicable portion of the year, and
o other customary information as may be deemed necessary
or desirable for certificateholders to have in order 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 take the form of one or more of
the following:
o a limited financial guaranty policy issued by an entity named in
the related prospectus supplement,
o the subordination of one or more classes of the certificates of
that series,
o the establishment of one or more reserve accounts,
o the use of a cross-support feature,
o a mortgage pool insurance policy, bankruptcy bond, special
hazard insurance policy, surety bond, letter of credit,
guaranteed investment contract or
o any other method of credit enhancement described in the related
prospectus supplement.
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
payment interest. 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 specified in the related prospectus supplement, protection
afforded to holders of one or more classes of the senior certificates of a
series by means of the subordination feature will be accomplished by the
holders of one or more other classes of that series having a preferential
right to distributions in respect of scheduled principal, principal
prepayments, interest or any combination thereof that otherwise would have
been payable to the holders of one or more other subordinated classes of
certificates of that series under the circumstances and to the extent
specified in the prospectus supplement. If specified in the related prospectus
supplement, protection may also be afforded to the holders of the senior
certificates of a series by:
o reducing the ownership interest of the holders of the related
subordinated certificates;
o a combination of the subordination feature and reducing the
ownership interest of the subordinated certificateholders; or
o 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 that
prospectus supplement.
The related prospectus supplement may also limit the following:
o the aggregate distributions in respect of delinquent payments on
the mortgage loans over the lives of the certificates or at any
time,
o the aggregate losses in respect of defaulted mortgage loans
which must be borne by the subordinated certificates by virtue
of their subordination, and
o the amount of the distributions otherwise distributable to the
subordinated certificateholders that will be distributable to
senior certificateholders on any distribution date.
If aggregate distributions in respect of delinquent payments on the mortgage
loans or aggregate losses in respect of the mortgage loans were to exceed the
amount specified in the related prospectus supplement, holders of the senior
certificates would experience losses on their certificates.
In addition to or in lieu of the foregoing, if 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. The related prospectus supplement may specify that deposits in
any reserve account may be made
o on each distribution date,
o for specified periods, or
o 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 the specified level.
If 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 the prospectus supplement at the times and under the
circumstances specified in the 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 these classes
as follows:
o in the order of their scheduled final distribution dates,
o in accordance with a schedule or formula,
o in relation to the occurrence of events or otherwise,
in each case as specified in the related prospectus supplement. As among
classes of subordinated certificates, the related prospectus supplement will
specify the allocation of payments to holders of the related senior
certificates on account of delinquencies or losses and the allocation payments
to any reserve account.
Mortgage Pool Insurance Policies
In the case of a mortgage pool consisting of Single Family Loans, the
related prospectus supplement may specify that a separate mortgage pool
insurance policy will be obtained for the mortgage pool. This policy will be
issued by the pool insurer named in the prospectus supplement. Subject to the
limits described in this section, each mortgage pool insurance policy will
cover loss by reason of default in payment on Single Family Loans in the
related mortgage pool in an amount equal to a percentage, which is specified
in the related prospectus supplement, of the aggregate principal balances of
the 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 in the following paragraph, the master servicer will
present claims to the pool insurer on behalf of itself, the trustee and the
certificateholders. However, the mortgage pool insurance policies are not
blanket policies against loss, since claims under the policies may only be
made respecting particular defaulted mortgage loans and only upon satisfaction
of the conditions precedent described in the following paragraph. 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 the 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 the following conditions are satisfied:
o any required primary mortgage insurance policy is in effect for
the defaulted mortgage loan and a claim under that policy has
been submitted and settled;
o 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;
o if there has been physical loss or damage to the mortgaged
property, the property has been restored to its physical
condition, reasonable wear and tear excepted, at the time of
issuance of the policy; and
o 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
o to purchase the property securing the defaulted mortgage loan at
a price equal to the loan's principal balance plus accrued and
unpaid interest at the mortgage rate to the date of purchase
plus certain expenses incurred by the master servicer on behalf
of the trustee and certificateholders, or
o 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 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
o the restoration will increase the proceeds to certificateholders
on liquidation of the related mortgage loan after reimbursement
to the master servicer of its expenses, and
o the master servicer will be able to recover its expenses from
proceeds of the sale of the property or proceeds of the 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 against losses sustained by reason
of a default arising, among other things, from
o 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 of the loan or
o failure to construct a mortgaged property in accordance with
plans and specifications.
Many primary mortgage insurance policies also do not insure against these
types of losses. Nevertheless, a failure of coverage attributable to one of
the foregoing events might result in a breach of the related seller's
representations and, in that event, might give rise to an obligation on the
part of the seller to purchase the defaulted mortgage loan if the breach
cannot be cured. No mortgage pool insurance policy will cover a claim in
respect of a defaulted mortgage loan that occurs when the loan's servicer of
such mortgage loan, at the time of default or thereafter, was not approved by
the insurer. Many primary mortgage insurance policies also do not cover claims
in this case.
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. These 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 the loan was
originated.
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-servicer, 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 property
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 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. These 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 this type of default is accompanied by certain other
criteria, HUD may provide relief by making payments to the master servicer or
sub-servicer in partial or full satisfaction of amounts due under the mortgage
loan or by accepting assignment of the loan from the master servicer or
sub-servicer. Any payments made by HUD are to be repaid by the mortgagor to
HUD. 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 sub-servicer may
initiate foreclosure proceedings.
In most cases, HUD has the option to pay insurance claims in cash or
in debentures issued by HUD. Currently, claims are being paid in cash. 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 sub-servicer of each
FHA-insured Single Family Loan will be obligated to purchase any HUD debenture
issued in satisfaction of a mortgage loan upon default for an amount equal to
the debenture's principal amount.
The amount of insurance benefits paid by the FHA generally 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
of the mortgaged property 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 the conveyance 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 loan 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.
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, which permits a veteran,
the spouse of a veteran in certain cases, to obtain a mortgage loan guaranteed
by the VA covering 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 that 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 U.S.C. 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 under the guaranty exceed the amount of the original guaranty.
The VA may, at its option and without regard to the guaranty, make full
payment to a mortgage holder of unsatisfied indebtedness on a mortgage loan
upon the loan's 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 under the guaranty is submitted
after liquidation of the mortgaged property.
The amount payable under the guaranty will be the percentage of the
VA-guaranteed Single Family Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in VA
regulations. Payments under the guaranty 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 these amounts have not been recovered
through liquidation of the mortgaged property. The amount payable under the
guaranty may in no event exceed the amount of the original guaranty.
Special Hazard Insurance Policies
If specified in the related prospectus supplement, a separate special
hazard insurance policy will be obtained for the mortgage pool and will be
issued by the special hazard insurer named in the prospectus supplement.
Subject to the limitations described in the immediately following sentence,
each special hazard insurance policy will protect holders of the related
certificates from
o 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 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
o loss caused by reason of the application of the coinsurance
clause contained in hazard insurance policies.
See "The Pooling and Servicing Agreement--Hazard Insurance" in this
prospectus. 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 limitations set forth in the immediately preceding
paragraph, and unless otherwise specified in the related prospectus
supplement, each special hazard insurance policy will provide coverage where
there has been damage to property securing a foreclosed mortgage loan, and
title to the mortgaged property has been acquired by the insured, to the
extent that the damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the master servicer.
In this circumstance, the special hazard insurer will pay the lesser of
o the cost to repair or replace the mortgaged property or
o upon transfer of the property to the special hazard insurer, the
unpaid principal balance of the mortgage loan at the time the
property is acquired by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim
settlement, together with certain expenses incurred by the
master servicer with respect to the property.
If the unpaid principal balance of a mortgage loan plus accrued interest and
certain servicing expenses are paid by the special hazard insurer, the amount
of further coverage under the related special hazard insurance policy will be
reduced by that amount less any net proceeds from the sale of the property.
Any amount paid as the cost to repair the damaged property will also reduce
coverage by such amount. So long as a mortgage pool insurance policy remains
in effect, the payment by the special hazard insurer to cover the unpaid
principal balance of a mortgage loan plus accrued interest and certain
servicing expenses or to cover the cost to repair a mortgaged property will
not affect the total insurance proceeds paid to certificateholders, but will
affect the relative amounts of coverage remaining under the special hazard
insurance policy and the 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 recoveries would otherwise be unavailable because mortgaged properties
have been damaged by a cause not insured against by a standard hazard policy
and thus would not be restored, each pooling and servicing agreement will
provide that, unless otherwise specified in the related prospectus supplement,
the master servicer will be under no obligation to maintain the special hazard
insurance policy once the related mortgage pool insurance policy has been
terminated or been exhausted due to payment of claims.
To the extent specified in the related prospectus supplement, the
master servicer may deposit in a special trust account, cash, an irrevocable
letter of credit or any other instrument acceptable to each rating agency
named in the prospectus supplement, in order 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 certificates may be reduced so long as the reduction
will not result in a downgrading of the rating of the certificates by any
rating agency named in the prospectus supplement.
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
for proceedings under the federal Bankruptcy Code will be issued by an insurer
named in the 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 the court of
the principal amount of a mortgage loan. The bankruptcy bond will also cover
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 any
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 the cancellation or reduction would not adversely affect the then
current rating of the certificates by any rating agency named in the
prospectus supplement. See "Material Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" in this
prospectus.
To the extent specified in the related prospectus supplement, the
master servicer may deposit in a special trust account, cash, an irrevocable
letter of credit or any other instrument acceptable to each rating agency
named in the prospectus supplement, 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 the
certificates may be reduced so long as the reduction would not result in a
downgrading of the rating of the certificates by any rating agency named in
the prospectus supplement.
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 National 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 mortgage loans made under Sections
221(d)(3) and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the
term of 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 National 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, generally up to 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 a loan-to-value ratio of no more than 70% for the refinancing of a
project.
FHA insurance is generally payable in cash or, at the option of the
mortgagee, in debentures. The insurance does not cover 100% of the mortgage
loan but is subject to certain deductions and certain losses of interest from
the date of the default.
Reserve Accounts
If 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 that series, in trust,
with the related trustee. The prospectus supplement will specify whether or
not a reserve accounts will be included in the related trust fund.
The reserve account for a series of certificates will be funded in
one of the following ways:
o by a deposit of cash, U.S. Treasury securities, instruments
evidencing ownership of principal or interest payments on U.S.
Treasury securities, letters of credit, demand notes,
certificates of deposit or a combination of these, in the
aggregate amount specified in the related prospectus supplement,
o by deposit from time to time of amounts specified in the related
prospectus supplement to which the subordinated
certificateholders, if any, would otherwise be entitled, or
o in such other manner as the prospectus supplement may specify.
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. Unless otherwise specified in the related prospectus
supplement, "permitted investments" will include obligations of the United
States and certain of its agencies, 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, the letter of credit will be irrevocable. Unless otherwise
specified in the related prospectus supplement, any instrument deposited in a
reserve account will name the trustee, in its capacity as trustee for the
certificateholders, as beneficiary and will be issued by an entity acceptable
to each rating agency named in the prospectus supplement. Additional
information with respect to instruments deposited in the reserve account will
be set forth in the related prospectus supplement.
Any amounts deposited, and payments on instruments deposited, in a
reserve account will be available for withdrawal from the reserve account for
distribution to certificateholders, 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 certificates. In this 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 the 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 the credit support relates and the
manner of determining the amount of the coverage provided and the application
of the 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 following purposes:
o to maintain timely payments or provide additional protection
against losses on the assets included in the trust fund,
o to pay administrative expenses, or
o to establish a minimum reinvestment rate on the payments made in
respect of the assets included in the trust fund or principal
payment rate on the assets.
These 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 the 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:
o to convert the payments on some or all of the 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;
o to provide payments in the event that any index rises above or
falls below specified levels; or
o 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 of 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 experience 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 the sale or certain other transfers
of the related mortgaged property by the mortgagor or obligor. 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 these 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.
However, 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 "Material
Legal Aspects of the Mortgage Loans" in this prospectus for a description of
certain provisions of each pooling and servicing agreement and certain legal
matters 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 a mortgage loan, that mortgage
loans is likely to be subject to a higher prepayment rate than would be the
case if prevailing interest rates remain at or above its mortgage rates.
Conversely, if prevailing interest rates rise appreciably above the mortgage
rate borne by a mortgage loans, that mortgage loan is likely to experience a
lower prepayment rate than would be the case if prevailing rates remain at or
below its mortgage rate. However, there can be no assurance that these
generalities will hold true in particular cases. The rate of prepayment of
Multifamily Loans may also be affected by other factors including loan terms
including 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
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 a prepayment in full will be to
reduce the amount of interest passed through in the following month to
certificateholders, because interest on the principal balance of the prepaid
loan 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
prepaid mortgage loans either 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 that 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 certificateholders, or to other persons entitled to them, 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 the certificates. In
all cases, the effective yield to certificateholders will be slightly lower
than the yield otherwise produced by the applicable certificate pass-through
rate and purchase price because, while interest generally will accrue on each
mortgage loan from the first day of the month, the distribution of interest
generally 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 to effect early retirement of the related series of
certificates. See "The Pooling and Servicing Agreement--Termination; Optional
Termination" in the prospectus.
Factors other than those identified in this prospectus 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 the 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
the federal Bankruptcy Code or any similar insolvency law, the insolvency
trustee may attempt to characterize the transfer of the related mortgage loans
from the seller to the depositor as a pledge to secure a financing rather than
as a sale. In the event that this attempt were successful, the insolvency
trustee might elect, among other remedies, to accelerate payment of the
related certificates and liquidate the related mortgage loans, with each
certificateholder being entitled to receive its allocable share of the
principal balance of the mortgage loans, together with its allocable share of
interest on the mortgage loans 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 this 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 the material provisions of each
pooling and servicing 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 the pooling
and servicing agreement applicable to a particular series of certificates.
Where particular provisions or terms used in the agreements are referred to,
those provisions or terms are as specified in the agreements.
Assignment of Mortgage Assets
Assignment of the Mortgage Loans. When the certificates of a series
are issued, 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 those
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. Concurrently with this assignment, the
trustee will 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 pooling and servicing agreement. The 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, its
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 a custodian the following items in connection with each
mortgage loan in the related trust fund:
o the mortgage note or Contract, endorsed without recourse in
blank or to the order of the trustee;
o 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 on the
mortgage; however, in the case of any mortgage not returned from
the public recording office, the depositor will deliver or cause
to be delivered a copy of the mortgage together with a
certificate stating that the original mortgage was delivered to
the recording office;
o 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
o any other security documents as may be specified in the related
prospectus supplement.
Unless otherwise specified in the related prospectus supplement, the
depositor will promptly cause the assignments of any Single Family Loan and
Multifamily Loan 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, recording is not required to protect the trustee's
interest in the loans against the claim of any subsequent transferee or any
successor to, or creditor of, the depositor or the originator of the loans.
Unless otherwise specified in the related prospectus supplement, 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 deliver the following items to the trustee:
o the related original cooperative note endorsed, without
recourse, in blank or to the order of the trustee,
o the original security agreement,
o the proprietary lease or occupancy agreement,
o the recognition agreement,
o an executed financing agreement and the relevant stock
certificate,
o related blank stock powers and
o 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 custodian will review the mortgage loan documents,
upon receipt, within the time period specified in the related prospectus
supplement. The trustee will hold the documents in trust for the benefit of
the certificateholders. Unless otherwise specified in the related prospectus
supplement, if any of these documents are found to be missing or defective in
any material respect, the trustee or 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
notice, the seller will be obligated to purchase the mortgage loan from the
trustee at the purchase price. There can be no assurance that a seller will
fulfill its repurchase obligation. Although the master servicer may be
obligated to enforce this obligation to the extent described in this
prospectus under "Mortgage Loan Program--Representations by sellers;
Repurchases", neither the master servicer nor the depositor will be obligated
to purchase the mortgage loan if the seller defaults on its repurchase
obligation, unless the 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, the seller's
repurchase obligation constitutes the sole remedy available to the
certificateholders or the trustee for the omission of, or a material defect
in, a constituent mortgage loan 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 pooling and servicing agreement. Upon a breach of any
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 a breach of representation by the master servicer.
Notwithstanding the provisions of the foregoing two paragraphs, with
respect to a trust fund for which a REMIC election is to be made, unless the
related prospectus supplement otherwise provides, no purchase or repurchase of
a mortgage loan will be made if the purchase or repurchase would result in a
prohibited transaction tax under the Internal Revenue Code.
Assignment of Agency Securities. The depositor will cause any Agency
Securities included in a trust fund 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 related pooling and servicing
agreement, which will specify as to each Agency Security its original
principal amount, outstanding principal balance as of the cut-off date, annual
pass-through rate, if any, and the maturity date.
Assignment of Private Mortgage-Backed Securities. The depositor will
cause any PMBS included in a trust fund to be registered in the name of the
trustee. The trustee or custodian will have possession of any PMBS that are in
certificated form. Unless otherwise specified in the related prospectus
supplement, the trustee will not be in possession, or be assignee of record,
of any underlying assets for a PMBS. See "The Trust Fund--Private
Mortgage-Backed Securities". The PMBS will be identified in a schedule
appearing as an exhibit to the related pooling and servicing 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 other pertinent information for the PMBS 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 will establish and maintain a subservicing account
which meets the 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 if it is a
depository institution, the accounts in which are insured either by the Bank
Insurance Fund (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 that it receives in
respect of the mortgage loans described immediately below under
"--Sub-Servicing by sellers", 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 remitted. The sub-servicer is also required to
advance, on the scheduled remittance date, an amount corresponding to any
monthly installment of principal and interest, less its servicing or other
compensation, on any mortgage loan the payment of which was not received from
the mortgagor. Unless otherwise specified in the related prospectus
supplement, this obligation of each 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 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 (we refer to these
accounts, collectively, respect to each trust fund, as the "certificate
account"). Unless otherwise specified in the related prospectus supplement,
each certificate account
o must be 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 each rating agency rating(s) named in the
prospectus supplement,
o an account the deposits in which are fully insured by either BIF
or SAIF,
o 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 those 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
o an account otherwise acceptable to each rating agency named in
the prospectus supplement.
The collateral eligible to secure amounts in the certificate account is
limited to United States government securities and permitted investments . A
certificate account may be maintained as an interest-bearing account or the
funds held in the account 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 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 its affiliate, as applicable, meets the standards
set forth above.
The master servicer will deposit or cause to be deposited on a daily
basis in the certificate account for each trust fund, to the extent applicable
and unless otherwise specified in the related prospectus supplement and
provided in the pooling and servicing agreement, the following payments and
collections received, or advances made, by the master servicer or on its
behalf 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:
o all payments on account of principal, including principal
prepayments and, if specified in the related prospectus
supplement, prepayment penalties, on the mortgage loans;
o all payments on account of interest on the mortgage loans, net
of applicable servicing compensation;
o Insurance Proceeds;
o Liquidation Proceeds;
o 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;
o all proceeds of any mortgage loan or mortgaged property
purchased by the master servicer, the depositor, any
sub-servicer or any seller as described in this prospectus under
"Mortgage Loan Program--Representations by Sellers; Repurchases"
or "--Assignment of Mortgage Assets" above and all proceeds of
any mortgage loan repurchased as described in this prospectus
under "--Termination; Optional Termination" below;
o all payments required to be deposited in the certificate account
with respect to any deductible clause in any blanket insurance
policy described in this prospectus under "--Hazard Insurance"
below;
o any amount required to be deposited by the master servicer in
connection with losses realized on investments of funds held in
the certificate account made for the benefit of the master
servicer; and
o all other amounts required to be deposited in the certificate
account pursuant to the related pooling and servicing agreement.
Sub-Servicing by Sellers
Each seller of a mortgage loan or any other servicing entity may act
as the sub-servicer for that mortgage loan pursuant to a sub-servicing
agreement which will not contain any terms inconsistent with the related
pooling and servicing 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, the trustee or any successor master servicer must recognize the
sub-servicer's rights and obligations under the sub-servicing agreement, if
for any reason the master servicer for such series of certificates is no
longer the master servicer of the related mortgage loans.
With the approval of the master servicer, a sub-servicer may delegate
its servicing obligations to third-party servicers, but the sub-servicer will
remain obligated under its sub-servicing agreement. Each sub-servicer will be
required to perform the customary functions of a servicer of mortgage loans.
Such functions generally include
o collecting payments from mortgagors or obligors and remitting
collections to the master servicer;
o maintaining hazard insurance policies as described in this
prospectus and in any related prospectus supplement, and filing
and settling claims under those policies, subject in certain
cases to the master servicer's right to approve settlements in
advance;
o 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;
o 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 their exercise is permitted by law and
would not adversely affect insurance coverage;
o attempting to cure delinquencies;
o supervising foreclosures; inspecting and managing mortgaged
properties under certain circumstances;
o maintaining accounting records relating to the mortgage loans;
and
o to the extent specified in the related prospectus supplement,
maintaining additional insurance policies or credit support
instruments and filing and settling claims under these policies.
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 in this prospectus under "--Payments on Mortgage Loans;
Deposits to Certificate Account" above, 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 pooling and servicing agreement. The master
servicer may purchase the servicing of mortgage loans if the sub-servicer
elects to release the servicing of the 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 its sub-servicing agreement for the entire term of
the 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 that
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
an assumption of liability will occur. In the event of an assumption of
liability, 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
sub-servicing agreement will provide that any amendment or new agreement may
not be inconsistent with or violate the original sub-servicing 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 pooling and servicing agreement
and any mortgage pool insurance policy, primary mortgage insurance policy, FHA
insurance, VA guaranty 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 included in the related trust fund.
Consistent with the preceding sentence, the master servicer may, in its
discretion,
o waive any assumption fee, late payment or other charge in
connection with a mortgage loan and
o 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, 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 when an arrangement of this type is in effect.
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 the conveyance or proposed conveyance,
exercise or cause to be exercised its rights to accelerate the maturity of the
mortgage loan under any applicable due-on-sale clause, but only if the
exercise of its rights is permitted by applicable law and will not impair or
threaten to impair any recovery under any 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
the 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 the assumption agreement, the transferee of
the property becomes liable for repayment of the mortgage loan and, to the
extent permitted by applicable law, the mortgagor also remains liable on the
mortgage loan. 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 applicable due-on-encumbrance clause. See
"Material Legal Aspects of the Mortgage Loans--Due-on-Sale Clauses" in this
prospectus. In connection with any assumption, the terms of the related
mortgage loan may not be changed.
With respect to cooperative loans, any prospective purchaser of a
cooperative unit 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 "Material Legal Aspects of the Mortgage Loans" in this prospectus. 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 need to acquire 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 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 real estate taxes allowable as a deduction under section
216(a) of the Code to the cooperative 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 these items are allowable as a
deduction to the corporation, section 216(b)(1) requires, among other things,
that at least 80% of the gross income of the cooperative corporation be
derived from its tenant-stockholders. 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 particular cooperative loans will qualify under
this section for any given year. In the event that a cooperative fail to
qualify for one or more years, the value of the collateral securing the
related cooperative loan 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 where the property is located. This coverage
will be in an amount not less than the replacement value of the improvements
or manufactured home securing the 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 will be deposited in the related certificate
account, 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. 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 to maintain hazard insurance. A
blanket policy may contain a deductible clause, in which case the master
servicer will be required to deposit into the related certificate account from
its own funds the amounts which would have been deposited in the certificate
account but for the deductible 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 policy
terms are dictated by respective state laws. In addition, most 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 typically contain a
clause which have the effect of requiring the insured at all times to carry
insurance of a specified percentage -generally 80% to 90% - of the full
replacement value of the mortgaged 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
o 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, generally defined to equal
replacement cost at the true and place of the loss less physical
depreciation; and
o such proportion of the loss as the amount of insurance carried
bears to the specified percentage of the full replacement cost
of the improvements.
Since the amount of hazard insurance that the master servicer may cause to be
maintained on the improvements securing the mortgage loans will decline as the
principal balances owing on the mortgage loans decrease, and since improved
real estate generally has appreciated in value over time in the past, the
effect of this requirement may be that, in the event of a partial loss, hazard
insurance proceeds will be insufficient to restore the damaged property fully.
If specified in the related prospectus supplement, a special hazard insurance
policy will be obtained to insure against certain of the uninsured risks
described. See "Credit Enhancement--Special Hazard Insurance Policies" in this
prospectus.
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 the borrower's cooperative
dwelling or the cooperative's building could significantly reduce the value of
the collateral securing the cooperative loan to the extent not covered by
other credit support.
Realization upon Defaulted Mortgage Loans
Primary Mortgage Insurance Policies. To the extent specified in the
related prospectus supplement, the master servicer will maintain, or cause
each sub-servicer to maintain, in full force and effect, a primary mortgage
insurance policy with regard to each Single Family Loan for which coverage is
required. The master servicer will not cancel or refuse to renew any 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 pooling and servicing agreement unless the primary mortgage
insurance policy that replaces the 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 the series
related by each rating agency named in the prospectus supplement.
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, accrued and unpaid interest
thereon and reimbursement of certain expenses, less the following amounts:
o 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,
o 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,
o amounts expended but not approved by the issuer of the related
primary mortgage insurance policy,
o claim payments previously made by the primary insurer and
o unpaid premiums.
Primary mortgage insurance policies generally reimburse losses
sustained by reason of defaults in payments by borrowers. Primary mortgage
insurance policies do not insure against, and exclude from coverage, a loss
sustained by reason of a default arising from or involving the following
matters, among others:
o 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,
o failure to construct the mortgaged property subject to the
mortgage loan in accordance with specified plans,
o physical damage to the mortgaged property and
o lack of approval by the primary mortgage insurance policy
insurer of the master servicer or sub-servicer to act as
servicer of the mortgage loan.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing or payment of a claim under a primary mortgage
insurance policy covering a mortgage loan, the insured will be required
o to advance or discharge all hazard insurance policy premiums;
o to advance
- real estate property taxes,
- all expenses required to maintain the related
mortgaged property in at least as good a condition as
existed at the effective date of the policy, ordinary
wear and tear excepted,
- mortgaged property sales expenses,
- any outstanding liens on the mortgaged property
(as defined in the policy) and
- foreclosure costs, including court costs and reasonable
attorneys' fees, in each case as necessary and approved in
advance by the primary mortgage insurance policy insurer;
o 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 the policy, ordinary wear and tear excepted; and
o to tender to the primary mortgage insurance policy carrier 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 mortgage insurance
policy carrier, and all collections under the policy 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
carrier of each primary mortgage insurance policy and will take such
reasonable steps as are necessary to receive payment or to permit recovery
under the policy 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 any proceeds from the related hazard insurance policy are
insufficient to restore the damaged mortgaged property to a condition
sufficient to permit recovery under any related primary mortgage insurance
policy, the master servicer is not required to expend its own funds to restore
the damaged mortgaged property unless it determines that
o the restoration will increase the proceeds to certificateholders
upon liquidation of the mortgage loan after reimbursement of the
master servicer for its expenses and
o the master servicer will be able to recover its expenses from
related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted mortgage loan is not available under the
primary mortgage insurance policy 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 related mortgaged property are less than
the principal balance of the mortgage loan plus accrued interest that is
payable to certificateholders, the trust fund will realize a loss in the
amount of that difference plus the amount of expenses that it incurred in
connection with the liquidation and that are reimbursable under the pooling
and servicing agreement. In the unlikely event that proceedings result in a
total recovery which, after reimbursement to the master servicer of its
expenses, is in excess of the principal balance of the defaulted mortgage loan
plus accrued interest 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 that
mortgage loan and, unless otherwise specified in the related prospectus
supplement, amounts representing the balance of the excess amount, 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 the related mortgage loan plus accrued interest 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 that mortgage loan. In the event that the master
servicer has expended its own funds to restore the damaged mortgaged property
and these funds have not been reimbursed under the related hazard insurance
policy, the master servicer will be entitled to withdraw from the certificate
account, out of related Liquidation Proceeds or Insurance Proceeds, an amount
equal to the expenses that it incurred, in which event the trust fund may
realize a loss up to the amount of those expenses. Since Insurance Proceeds
cannot exceed deficiency claims and certain expenses incurred by the master
servicer, no payment or recovery will result in a recovery to the trust fund
that exceeds the principal balance of the defaulted mortgage loan together
with accrued interest. See "Credit Enhancement" in this prospectus supplement.
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 payment to it each month, out of
each interest payment on a mortgage loan, of an amount equal to the annual
percentage specified in the related prospectus supplement of the outstanding
principal balance of that loan. Since the master servicer's primary
compensation is a percentage of the outstanding principal balance of each
mortgage loan, this amount will decrease as the mortgage loans amortize. In
addition to this primary servicing 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.
Unless otherwise specified in the related prospectus supplement, the
master servicer will pay from its servicing compensation, in addition to
amounts payable to any sub-servicer, certain expenses incurred in connection
with its servicing of the mortgage loans, including, without limitation
o payment of any premium for any insurance policy, guaranty,
surety or other form of credit enhancement as specified in the
related prospectus supplement;
o payment of the fees and disbursements of the trustee and
independent accountants;
o payment of expenses incurred in connection with distributions
and reports to certificateholders; and
o payment of any other expenses described in the related
prospectus supplement.
Evidence as to Compliance
Each pooling and servicing agreement will provide that a firm of
independent public accountants will furnish a statement to the trustee, on or
before a specified date in each year, to the effect that, on the basis of the
examination by the 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, PMBS or Agency Securities, under pooling and servicing
agreements substantially similar to each other (including the governing
pooling and servicing agreement), was conducted in compliance with those
agreements except for any significant exceptions or errors in records that, in
the opinion of the firm, the Uniform Single Audit Program for Mortgage Bankers
or the Audit Program for Mortgages Serviced by Freddie Mac requires it to
report. In rendering this statement the accounting firm may rely, as to
matters relating to the direct servicing of mortgage loans, PMBS or Agency
Securities by sub-servicers, upon comparable statements of firms of
independent public accountants rendered within one year with respect to the
sub-servicers 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.
Each pooling and servicing agreement will also provide for delivery
to the related 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 pooling and servicing 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 pooling and servicing 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 under the agreement are no longer
permissible under applicable law. In no event will the master servicer's
resignation become effective until the trustee or a successor servicer has
assumed the master servicer's obligations and duties under the agreement.
Each pooling and servicing 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. However, none of the master servicer,
the depositor or any director, officer, employee or agent of the master
servicer or of the depositor 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 under the pooling and servicing
agreement or by reason of reckless disregard of obligations and duties under
the agreement. 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
o any loss, liability or expense related to any specific mortgage
loan in the trust fund or the mortgage loans in general except
for any loss, liability or expense otherwise reimbursable
pursuant to the agreement, and
o any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of
duties under the agreement or by reason of reckless disregard of
obligations and duties under the agreement.
In addition, each pooling and servicing 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
responsibilities under the agreement and which, in its opinion, may involve it
in any expense or liability. However, the master servicer or the depositor
may, in its discretion, undertake any action which it may deem necessary or
desirable with respect to the agreement and the rights and duties of the
parties and the interests of the certificateholders. In that event, the legal
expenses and costs of the action and any resulting liability 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 reimbursement from funds
otherwise distributable to certificateholders.
Any entity into which the master servicer may be merged or
consolidated, or any entity resulting from any merger or consolidation to
which the master servicer is a party, or any entity succeeding to the business
of the master servicer, will be the successor of the master servicer under
each pooling and servicing agreement, provided that the successor entity is
qualified to sell mortgage loans to, and service mortgage loans on behalf of,
Fannie Mae or Freddie Mac and that the merger, consolidation or succession
does not adversely affect the then current rating of the certificates rated by
each rating agency named in the related prospectus supplement.
Events of Default
Unless otherwise specified in the related prospectus supplement, the
following will be deemed "events of default" under each pooling and servicing
agreement:
o 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 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 the class evidencing not less than 25% of the
aggregate percentage interests evidenced by the class;
o any failure by the master servicer to make an advance as
required under the pooling and servicing agreement, unless cured
as specified in the agreement;
o 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 failure 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 the class; and
o 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 pooling and
servicing agreement will permit the trustee to sell the mortgage assets and
the other assets of the trust fund in the event that payments are insufficient
to make the payments required in the pooling and servicing 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 the related pooling and
servicing 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 the class and
under such other circumstances as may be specified in the agreement, the
trustee shall, terminate all of the rights and obligations of the master
servicer relating to the trust fund and in and to the related mortgage loans.
Thereupon the trustee will succeed to all of the responsibilities, duties and
liabilities of the master servicer under the pooling and servicing agreement,
including, if specified in the related prospectus supplement, the obligation
to make advances, and the trustee will be entitled to similar compensation
arrangements. In the event that the trustee is unwilling or unable to act in
this way, it may appoint, or petition a court of competent jurisdiction to
appoint, 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 the appointment, the trustee is obligated to act in this capacity. The
trustee and any successor master servicer 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 pooling and servicing
agreement.
No certificateholder, solely by virtue of its status as a
certificateholder, will have any right under a pooling and servicing agreement
to institute any proceeding with respect to the agreement, unless
o the holder has previously given to the trustee written notice of
default;
o the holders of certificates of any class evidencing not less
than 25% of the aggregate percentage interests constituting the
class have made written request upon the trustee to institute
the proceeding in its own name as trustee and have offered a
reasonable indemnity to the trustee; and
o the trustee for 60 days has neglected or refused to institute
any such proceeding.
Amendment
Unless otherwise specified in the related prospectus supplement, each
pooling and servicing agreement may be amended by the depositor, the master
servicer and the trustee, without the consent of any of the
certificateholders, for the following purposes:
o to cure any ambiguity,
o to correct or supplement any provision in the agreement which
may be defective or inconsistent with any other provision, or
o to make any other revisions with respect to matters or questions
arising under the agreement which are not inconsistent with its
other provisions.
In no event, however, shall any amendment adversely affect in any material
respect the interests of any certificateholder. In addition, a pooling and
servicing agreement may be amended without the consent of any of the
certificateholders to change the manner in which the certificate account is
maintained, so long as the amendment does not adversely affect the then
current ratings of the certificates rated by each rating agency named in the
prospectus supplement. 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 trust fund as a REMIC, but the trustee shall have
first received an opinion of counsel to the effect that the action is
necessary or helpful to maintain the REMIC qualification.
Unless otherwise specified in the related prospectus supplement, each
pooling and servicing agreement may also be amended by the depositor, the
master servicer and the trustee with consent of holders of certificates
evidencing not less than 66% of the aggregate percentage interests of each
affected class 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. In no
event, however, shall any amendment
o 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 the certificate or
o reduce the percentage of the certificates of any class the
holders of which are required to consent to any amendment
without the consent of the holders of all certificates of that
class 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 pooling and servicing agreement
without having first received an opinion of counsel to the effect that the
amendment will not cause the trust fund to fail to qualify as a REMIC.
Termination; Optional Termination; Optional Calls
Unless otherwise specified in the related prospectus supplement, the
obligations created by the pooling and servicing agreement for the related
series of certificates will terminate upon the payment to the
certificateholders of all amounts held in the certificate account or held by
the master servicer, and required to be paid to the certificateholders
pursuant to the agreement, following the later to occur of the following:
o the final payment or other liquidation of the last of the
mortgage assets subject to the agreement or the disposition of
all property acquired upon foreclosure of any mortgage assets
remaining in the trust fund and
o the purchase from the trust fund by the master servicer or by
such other party as may be specified in the related prospectus
supplement, of all of the remaining mortgage assets and all
property acquired in respect of the mortgage assets.
See "Material Federal Income Tax Consequences" in this prospectus.
Unless otherwise specified in the related prospectus supplement, any
purchase of mortgage assets and property acquired in respect of mortgage
assets backing a series of certificates will be made at the option of the
related master servicer or, if applicable, such other designated party, at a
price, and in accordance with the procedures, specified in the related
prospectus supplement. The exercise of this right will effect early retirement
of the certificates of that series. However, this right can be exercised only
at the times and upon the conditions specified in the related prospectus
supplement. If a REMIC election has been made with respect to the trust fund,
any repurchase pursuant to the second bullet point in the immediately
preceding paragraph will be made only in connection with a "qualified
liquidation" of the REMIC within the meaning of section 860F(g)(4) of the
Internal Revenue Code.
One or more classes of certificates may be subject to an optional
call at the times and subject to the conditions specified in the related
prospectus supplement. In the event an optional call is exercised with respect
to one or more classes of certificates, holders of each affected class of
certificates will be required to receive the outstanding principal balance of
their certificates together with accrued and unpaid interest at the applicable
pass-through rate, subject to the terms specified in the related prospectus
supplement.
The Trustee
The trustee under each pooling and servicing agreement will be named
in the related 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.
Material Legal Aspects of the Mortgage Loans
The following discussion contains general summaries of material legal
matters relating to the mortgage loans. Because the legal matters are
determined primarily by applicable state law and because state laws may differ
substantially, the summaries do not purport to be complete, 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 applicable 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. The mortgage lien
generally is 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
o the obligation of the obligor to repay the loan it represents
and
o the grant of a security interest in a manufactured home to
secure repayment of the loan.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code 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 related pooling and servicing 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 generally issued by the motor
vehicles department of the state. In 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 that 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, the
assignment is an effective conveyance of the 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, 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 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 the 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,
the security interest would be subordinate to, among others, subsequent
purchasers for value of the manufactured home and holders of perfected
security interests in the home. 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 it initially is registered, the perfected security interest
in the manufactured home under the laws of most states would continue for four
months after relocation and thereafter until the owner re-registers the
manufactured home in the new state. If the owner were to relocate a
manufactured home to another state and re-register the manufactured home in
the new state, and if steps are not taken to re-perfect the trustee's security
interest in the new 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 the
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 new state. 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 a 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 the lien is released. The master
servicer will be obligated, at its own expense, to take all steps 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 repair liens with respect to any manufactured home securing a
Contract. However, repair 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 a repair 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. Cooperative shares owned by a tenant-stockholder
and pledged to a 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 the 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.
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. To the extent required by the related pooling and
servicing agreement, the master servicer may take action, on behalf of the
trustee, to enforce the trustee's security interest with respect to Contracts
in default by repossession and resale of the manufactured homes securing the
defaulted Contracts. 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 the repossession and resale of a
manufactured home, the trustee would be entitled to be paid out of the sale
proceeds before 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 the 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. 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 participation in
the management of a property so that the lender would lose the protection of
the secured creditor exclusion referred to in the preceding paragraph, 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 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 created 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 the
costs arising from the circumstances set forth above would result in a loss to
the related 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, which regulates underground petroleum storage tanks other than
heating oil tanks. The EPA has adopted a lender liability rule for underground
storage tanks under Subtitle I of the Resource Conservation Act. Under this
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 pooling and servicing 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 the
acquisition would not be more detrimental than beneficial to the value of the
mortgaged property and the interests of the related 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 manufactured 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 these 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
o reduce the secured indebtedness to the value of the mortgaged
property as of the date of the commencement of the bankruptcy
thereby rendering the lender a general unsecured creditor for
the difference,
o reduce the monthly payments due under the mortgage loan,
o change the rate of interest of the mortgage loan and
o alter the mortgage loan repayment schedule.
The effect of 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 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 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 this FTC Rule is
limited to the amounts paid by a debtor on Contract, and the holder of the
Contract may also be unable to collect amounts still due under the Contract.
Most of the Contracts in a mortgage pool will be subject to the
requirements of this 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, 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 including 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 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 a Single Family Loan or a Contract. 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 this type of 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 these 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 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 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 fund if
the Contract imposes finance charges or provides for discount points or
charges in excess of permitted levels.
Title V also provides that state usury limitations will not apply to
any loan or Contract which is secured by a first lien on certain kinds of
manufactured housing provided that certain conditions are satisfied. These
conditions relate to the terms of any prepayment, balloon payment, late
charges and deferral fees and the requirement of 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, borrowers who enter military service after the
origination of their mortgage loan may not be charged interest above an annual
rate of 6% during the period of active duty status, unless a court orders
otherwise upon application of the lender. The Relief Act also applies to
borrowers who are members of the National Guard or are on reserve status at
the time their mortgage is originated and are later called to active duty. It
is possible that the 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
related certificateholders. 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 a mortgage loan goes into default, the application of
the Relief Act could cause delays and losses occasioned by the lender's
inability to realize upon the mortgaged property in a timely fashion.
Material Federal Income Tax Consequences
The following summary of the 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, rulings and decisions now
in effect or proposed regulations, all of which are subject to change either
prospectively or retroactively. This summary does not address the material
federal income tax consequences of an investment in certificates applicable to
certain financial institutions, banks, insurance companies, tax exempt
organizations, dealers in options, currency or securities, traders in
securities that elect to mark to market, or persons who hold positions other
than certificates such that the certificates are treated as part of a hedging
transaction, straddle, conversion or other integrated transaction which are
subject to special rules. Because of the complexity of the tax issues
involved, we strongly suggest that prospective investors 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 Internal Revenue Code
of 1986, as amended. 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.
If a REMIC election is not made, in the opinion of Brown & Wood LLP:
o the trust fund will not be classified as an association taxable
as a corporation,
o the trust fund will be classified as a grantor trust under
subpart E, part I of subchapter J of the Code,
o as a grantor trust, the trust fund as such will not be subject
to federal income tax, and
o 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.
With respect to each trust fund that elects REMIC status, in the
opinion of Brown & Wood LLP, assuming compliance with all provisions of the
related Agreement, the trust fund will qualify as a REMIC and the related
certificates will be considered to be regular interests or residual interests
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.
Each opinion is an expression of an opinion only, is not a guarantee
of results and is not binding on the Internal Revenue Service or any third
party.
Non-REMIC Certificates
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
related mortgage 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 the 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 these 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 that 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 deliver its opinion to the depositor with respect to
each series of certificates that:
o 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 the section;
o 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 the section; and
o 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 the holder's undivided interest in each mortgage loan based on
each mortgage loan's relative fair market value, so that the 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 the premium under a constant interest method, provided that
the 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 a senior certificate. The
basis for a 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 the 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 the premium,
it appears that 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 issued final
amortizable bond premium regulations. 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 (currently sections 1271 through 1273 and section 1275) relating to
original issue discount (OID) 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 the Treasury's OID Regulations issued on February 2, 1994
under sections 1271 through 1273 and section 1275 of the Code.
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 OID 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. OID
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. OID
generally must be reported as ordinary gross income as it accrues under a
constant interest method. See "--Multiple Classes of Senior
Certificates--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 a mortgage
loan allocable to the holder's undivided interest over the 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 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 OID, the amount of
market discount that accrues during any accrual period is equal to the product
of
o the total remaining market discount
o times
o 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 OID, the amount of market discount that
accrues during a period is equal to the product of
o the total remaining market discount
o times
o 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 the 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 OID)
includible in such holder's gross income for the taxable year with respect to
the 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 the 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
Stripped Bonds and Stripped Coupons
General. 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 ("stripped bond certificates"), while the second class of
senior certificates will represent the right to some or all of the interest on
such portion ("stripped coupon certificates").
Servicing fees in excess of reasonable servicing fees will be treated
under the stripped bond rules. If such 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
o the amount of OID with respect to the certificate was treated as
zero under the OID de minimis rule when the certificate was
stripped or
o 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 a
senior 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 the 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 the senior 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 the certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the certificate that is allocable to
the mortgage loan.
Because of the complexity of these issues, we strongly suggest that
holders of stripped bond certificates and stripped coupon certificates 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, in the opinion of Brown & Wood LLP, 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 related income. 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.
Senior Certificates Representing Interests in Loans Other Than
ARM Loans
General. The OID 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, OID 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. OID 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 OID
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 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 when these 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 OID 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 OID, 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 and will take into account events
that occur during the calculation period. This prepayment assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. The legislative history of the Tax Reform Act provides, however, that
the regulations will require that this prepayment assumption be the prepayment
assumption that is used in determining the offering price of the 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 OID on obligations that are subject to prepayment, and,
until further guidance is issued, the master servicer intends to calculate and
report OID 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 OID on that senior certificate for each day on which it
owns the 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
o 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
o 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 OID 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 OID during the accrual period
will then be divided by the number of days in the period to determine the
daily portion of OID 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.
OID 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 OID
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 OID, less prior
payments of principal. Accordingly, if 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 OID on
the mortgage loans (e.g., that arising from a "teaser" rate) would still need
to be accrued.
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 these
instruments. In the absence of any authority, the master servicer will report
OID 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 "--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 deferred interest resulting from negative
amortization to the principal balance of an ARM loan may require the inclusion
of such amount in the income of the senior certificateholder when the amount
accrues. Furthermore, the addition of deferred interest to the senior
certificate's principal balance will result in additional income (including
possibly OID income) to the senior certificateholder over the remaining life
of the 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 these certificates.
Possible Application of Contingent Payment Regulations to Certain
Non-REMIC Certificates
Final regulations issued on June 11, 1996 with respect to OID under
section 1275 include "contingent payment regulations" covering obligations
that provide for one or more contingent payments. Rights to interest payments
on a mortgage loan might be considered to be contingent within the meaning of
the contingent payment regulations if the 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 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 the 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 the 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
"--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" (AFR), in effect
at the time of purchase of the senior certificate by the holder. The AFR
generally is an average of current yields on Treasury securities computed and
published monthly by the IRS. In addition, once the holder's adjusted basis in
the 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 the senior certificate
(or to zero if the senior certificate does not share in principal payments),
then the 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 the 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 OID 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 one of the following conditions is met:
o the holder entered the contract to sell the senior certificate
substantially contemporaneously with acquiring the senior
certificate,
o the senior certificate is part of a straddle,
o the senior certificate is marketed or sold as producing capital
gain or
o 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 OID paid by the person required to withhold tax under section 1441
or 1442 to (i) an owner that is not a U.S. Person 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 OID 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
o the 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);
o the senior certificateholder is not a controlled foreign
corporation within the meaning of section 957 of the Code
related to the issuer; and
o the senior certificateholder complies with certain
identification requirements, including delivery of a statement,
signed by the senior certificateholder under penalties of
perjury, certifying that it is not a U.S. Person and providing
its name and address.
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 the 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 the information available to owners or
other financial intermediaries of holders that hold the 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 the recipient's federal income tax liability.
New Withholding Regulations
On October 6, 1997, the Treasury Department issued 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
General
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 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 trust fund that elects REMIC status, in
the opinion of Brown & Wood LLP, assuming compliance with all provisions of
the related Agreement, the 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,
o 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;
o 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
o 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)(4)(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
pooling and servicing 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
under this prospectus. The subsidiary REMIC and the master REMIC will be
treated as one REMIC solely for purposes of determining
o 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
o whether the income on the 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 OID within the meaning of section 1273(a) of the Code. Generally,
the amount of OID, 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 OID will be required to
include such OID 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 Tax Reform Act. Holders of regular
certificates 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 OID 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 OID 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 the 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
OID. 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 OID 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 issue price for that class
will be treated as the fair market value of that class on the initial issue
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 initial 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 the 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 the regular certificates includes all
distributions of interest as well as principal thereon.
Where the interval between the initial issue date and the first
distribution date on a regular certificate is longer than the interval between
subsequent distribution dates, the greater of any OID (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 OID,
as determined under the foregoing rule, will be treated as OID. 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, OID on a regular certificate will be
considered to be zero if the amount of OID 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
o 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
times
o 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. This 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 OID 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 OID 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 as "super-premium" certificates
at prices significantly exceeding their principal amounts or based on notional
principal balances. The income tax treatment of these super-premium
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 the super-premium certificates is the sum of all payments to be
made on these certificates determined under the prepayment assumption set
forth in the related prospectus supplement, with the result that the
super-premium certificates would be treated as being issued with OID. The
calculation of income in this manner could result in negative OID (which
delays future accruals of OID 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 the super-premium 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 the 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, a 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 the certificate's actual principal balance, will be
required to amortize the premium under an OID 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 OID 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 OID that accrues during each
successive 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 adding
o 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
o any payments included in the stated redemption price at maturity
received during the accrual period,
and subtracting from that total the "adjusted issue price" of the regular
certificates at the beginning of the 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 OID allocable to that accrual period and reduced by
the accrual period. The OID accrued during an accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the accrual period. The calculation of OID under the
method described above will cause the accrual of OID 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 OID may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a regular certificate issued with OID 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 OID on that regular certificate. In computing
the daily portions of OID 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:
o the sum of the issue price plus the aggregate amount of OID that
would have been includible in the gross income of an original
regular certificateholder (who purchased the regular certificate
at its issue price), less
o 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 OID by treating
the purchase as original issue.
Variable Rate Regular Certificates. 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,
o the interest is unconditionally payable at least annually,
o the issue price of the debt instrument does not exceed the total
noncontingent principal payments, and
o 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 the regular certificate.
The amount of OID 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 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
o the regular certificate's stated principal amount or, in the
case of a regular certificate with OID, the adjusted issue price
(determined for this purpose as if the purchaser had purchased
the regular certificate from an original holder) over
o the price for the regular certificate paid by the purchaser.
A holder who 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 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 the certificateholder on or
after the first day of the first taxable year to which the 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 the
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 the 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 of the Tax Reform Act 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 OID, the amount of market
discount that accrues during a period is equal to the product of
o the total remaining market discount,
multiplied by
o a fraction, the numerator of which is the OID accruing during
the period and the denominator of which is the total remaining
OID at the beginning of the period.
For regular certificates issued without OID, the amount of market discount
that accrues during a period is equal to the product of
o the total remaining market discount,
multiplied by
o 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 OID will apply.
A holder of a regular certificate that acquires it at a market
discount also may be required to defer, until the maturity date of the 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 OID) includible in the holder's gross income for the taxable year
with respect to the 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 the regular certificateholder in that taxable year or
thereafter.
Premium. A purchaser of a regular certificate who 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 of the Tax Reform Act 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 the certificates have OID) 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 the
regular certificates and will be applied as an offset against the 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
deferred interest to their principal balance by reason of negative
amortization. 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 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 OID (which could accelerate such inclusion). Interest on
regular certificates must in any event be accounted for under an accrual
method by the holders of these certificates. Applying the latter analysis
therefore may result only in a slight difference in the timing of the
inclusion in income of interest on the regular certificates.
Effects of Defaults and Delinquencies. Certain series of certificates
may contain one or more classes of subordinated certificates and, in the event
there are defaults or delinquencies on the mortgage loans, amounts that would
otherwise be distributed on the subordinated certificates may instead be
distributed on the senior certificates. Holders of subordinated certificates
nevertheless will be required to report income with respect to these
certificates under an accrual method without giving effect to delays and
reductions in distributions on such subordinated 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 subordinated 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 subordinated 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 subordinated 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. The adjusted basis generally will equal the cost of the regular
certificate to the seller, increased by any OID 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. The 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:
o 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
o the amount actually includible in the 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. Regular certificates that are "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 distribution date. The period between the initial issue date of the
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 initial issue 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 the 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 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 regular 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 regular 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 regular 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 OID) 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
o the 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);
o the regular certificateholder is not a controlled foreign
corporation (within the meaning of section 957 of the Code)
related to the issuer; and
o the regular certificateholder complies with certain
identification requirements, including delivery of a statement,
signed by the regular certificateholder under penalties of
perjury, certifying that it is a foreign person and providing
its name and address.
If a regular certificateholder is not exempt from withholding, distributions
of interest, including distributions in respect of accrued OID, the holder may
be subject to a 30% withholding tax, subject to reduction under any applicable
tax treaty.
Further, it appears that a 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 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. The 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
the 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 the residual certificateholder owns the
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 of the Tax
Reform Act indicates that certain adjustments may be appropriate to reduce (or
increase) the income of a subsequent holder of a residual certificate that
purchased the residual certificate at a price greater than (or less than) the
adjusted basis the 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 Certificates.
The taxable income of the REMIC will reflect a netting of the income from the
mortgage loans and the REMIC's other assets and the deductions allowed to the
REMIC for interest and OID 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 OID) 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 OID 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 the 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, the 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 OID on the
regular certificates. The amount and method of accrual of OID 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 the residual certificate to such holder and the adjusted basis the
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
the 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. The 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 the residual certificate. Any net loss that is
not currently deductible by reason of this limitation may only be used by the
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 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 the 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
o may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a residual
certificateholder;
o 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
o 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
o the income of the residual certificateholder for that calendar
quarter from its residual certificate
over
o the sum of the "daily accruals" for all days during the calendar
quarter on which the residual certificateholder holds the
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" 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 the
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 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 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 the 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 the 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 certificates. 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 the
residual certificate to the residual certificateholder, increased by the
taxable income of the REMIC that was included in the income of the residual
certificateholder with respect to the residual certificate, and decreased (but
not below zero) by the net losses that have been allowed as deductions to the
residual certificateholder with respect to the residual certificate and by the
distributions received thereon by the 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 the 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 the 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 initial
issue date of the certificates 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 the 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 the 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
OID. 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". 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
o 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
multiplied by
o 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
o 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),
o 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
o a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" 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
o the amount of excess inclusions for the taxable year allocable
to the interest held by the disqualified organization and
o 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
o a regulated investment company, real estate investment trust or
common trust fund,
o a partnership, trust or estate and
o 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 pooling and servicing
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, 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,
o 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
o 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
o the transferor conducted a reasonable investigation of the
transferee and
o 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, 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 pooling and servicing 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 this
prospectus under "Material Federal Income Tax Considerations" above, 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, 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 those 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 plans, accounts or
arrangements are invested -- and on persons who are fiduciaries with respect
to these types of plans and arrangements. In this prospectus we refer to these
types of plans and arrangements as "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 (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 having certain
specified relationships to a Plan ("parties in interest") 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 may therefore give rise to an excise tax under section 4975 of
the Code unless a statutory, regulatory or administrative exemption applies.
In Prohibited Transaction Exemption (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 "single family certificates" that represent interests
in a mortgage pool consisting of Single Family Loans 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 subordinated
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 subordinated 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:
o certificates issued in a series consisting of only a single
class of certificates; and
o senior certificates issued in a series in which there is only
one class of senior certificates;
provided that the certificates in the case of the first bullet above, or the
senior certificates in the case of the second bullet above, 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:
o 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;
o the existence of a pool trustee who is not an affiliate of the
pool sponsor; and
o 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 this
prospectus. 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 of PTE 83-1, and the specific conditions described briefly
in the first paragraph discussing 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 underwriter exemption (PTE 90-59, Application No. D-8374, 55 Fed. Reg.
36724 (1990)) 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, holding and subsequent resale by Plans of "securities"
that are obligations of an issuer containing certain receivables, loans and
other obligations, with respect to which Greenwich Capital Markets, Inc. is
the underwriter, manager or co-manager of an underwriting syndicate. The
exemption, which was amended and expanded by PTE 97-34, Application Nos.
D-10245 and D-10246, 62 Fed. Reg. 39021 (1997) and PTE 2000-58, Application
No. D-10829, 65 Fed. Reg. 67765 (2000), provides relief which is generally
similar to that provided by PTE 83-1, but is broader in several respects.
The underwriter exemption contains a number of requirements. It does
not apply to any investment pool unless, among other things, the following
conditions are met:
o the investment pool consists only of assets of a type which have
been included in other investment pools,
o securities evidencing interests in such other investment pools
have been purchased by investors other than Plans for at least
one year prior to the Plan's acquisition of securities pursuant
to the exemption, and
o securities in such other investment pools have been rated in one
of the three (or four, if the investment pool contains certain
types of assets) highest generic rating categories by one of the
credit rating agencies noted below.
Generally, the underwriter exemption holds that the acquisition of the
securities by a Plan must be on terms (including the price for the securities)
that are at least as favorable to the Plan as they would be in an arm's length
transaction with an unrelated party. The exemption requires that the rights
and interests evidenced by the securities not be "subordinated" to the rights
and interests evidenced by other securities of the same trust, except when the
trust holds certain types of assets. The exemption requires that securities
acquired by a Plan have received a rating at the time of their acquisition
that is in one of the three (or four, if the trust holds certain types of
assets) highest generic rating categories of Standard & Poor's Ratings
Services, Moody's Investors Service, Inc. or Fitch, Inc. The exemption
specifies that the pool trustee must not be an affiliate of any other member
of the "restricted group" defined below. The exemption stipulates that any
Plan investing in the securities must be an "accredited investor" as defined
in Rule 501(a)(1) of Regulation D of the SEC under the Securities Act of 1933,
as amended. Finally, the exemption requires that, depending on the type of
issuer, the documents establishing the issuer and governing the transaction
contain certain provisions to protect the assets of the issuer, and that the
issuer receive certain legal opinions.
Moreover, the underwriter exemption generally provides relief from
certain self-dealing and conflict of interest prohibited transactions that may
occur when the Plan fiduciary causes a Plan to acquire securities of an issuer
holding receivables as to which the fiduciary (or its affiliate) is an
obligor, provided that, among other requirements:
o in the case of an acquisition in connection with the initial
issuance of securities, at least 50% of each class of securities
in which Plans have invested and at least 50% of the aggregate
interest in the issuer is acquired by persons independent of the
restricted group;
o the fiduciary (or its affiliate) is an obligor with respect to
5% or less of the fair market value of the obligations contained
in the issuer;
o the Plans' investment in securities of any class does not exceed
25% of all of the securities of that class outstanding at the
time of the acquisition; and
o immediately after the acquisition, no more than 25% of the
assets of any Plan with respect to which the person is a
fiduciary is invested in securities representing an interest in
one or more issuers containing assets sold or serviced by the
same entity.
The underwriter exemption generally does not apply to Plans sponsored
by the "restricted group" consisting of the seller, the underwriter, the
trustee, the master servicer, any servicer or any insurer with respect to the
mortgage loans, any obligor with respect to mortgage loans included in the
investment pool constituting more than five percent of the aggregate principal
balance of the assets in the investment pool, or any affiliate of those
parties.
The underwriter exemption generally allows mortgage loans or other
secured receivables supporting payments to securityholders, and having a value
equal to no more than twenty-five percent of the total principal amount of the
securities being offered by the issuer, to be transferred to the issuer within
a 90-day or three-month period following the closing date, instead of
requiring that all obligations be either identified or transferred on or
before the closing date. This relief is available when certain conditions are
met.
The rating of a security may change. If the rating of a security
declines below BBB- or Baa3, the security will no longer be eligible for
relief under the underwriter exemption, and consequently may not be purchased
by or sold to a Plan (although a Plan that had purchased the security when it
had an investment-grade rating would not be required by the Exemption to
dispose of it).
The prospectus supplement for each series of certificates will
indicate the classes of certificates, if any, offered thereby as to which it
is expected that the exemption will apply.
Any Plan fiduciary which proposes to cause a Plan to purchase
certificates should consult with their counsel concerning the impact of ERISA
and the Code, the applicability of PTE 83-1 and the 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 Considerations
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), 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 that 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 of those liabilities.
In the ordinary course of business, GCM and the depositor may engage
in various securities and financing transactions, including repurchase
agreements to provide interim financing of the depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
certificates.
The depositor anticipates that the certificates will be sold
primarily to institutional investors. Purchasers of certificates, including
dealers, may, depending on the facts and circumstances of such purchases, be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended, in connection with reoffers and sales of certificates by them.
Holders of certificates should consult with their legal advisors in this
regard prior to any such reoffer or sale.
Legal Matters
The legality of the certificates of each series, including certain
material federal income tax consequences with respect to the certificates,
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 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 the Registration Statement and the
exhibits thereto. The 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 by this prospectus and the accompanying prospectus supplement that
they shall have been rated in one of the four highest rating categories by the
nationally recognized statistical rating agency or agencies specified in the
related prospectus supplement.
Ratings on mortgage pass-through certificates address the likelihood
of receipt by certificateholders of all distributions on the underlying
mortgage loans. These ratings address the structural, legal and issuer-related
aspects associated with such certificates, the nature of the underlying
mortgage loans and the credit quality of the credit enhancer or guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by mortgagors or of the
degree by which such prepayments might differ from those originally
anticipated. As a result, certificateholders might suffer a lower than
anticipated yield, and, in addition, holders of stripped pass-through
certificates in certain cases might fail to recoup their underlying
investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
<PAGE>
Glossary of Terms
Agency Securities: Mortgage pass-through securities issued or
guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
Contracts: Conditional sales contracts and installment sales or loan
agreements secured by manufactured housing.
Insurance Proceeds: All proceeds of the related hazard insurance
policies and any primary mortgage insurance policies to the extent the
proceeds are not applied to property restoration or released to mortgagors in
accordance with the master servicer's normal servicing procedures, net of
insured expenses including unreimbursed payments of property taxes, insurance
premiums and other items incurred by any related sub-servicer and net of
reimbursed advances made by the sub-servicer.
Liquidation Proceeds: All cash amounts (other than Insurance
Proceeds) received and retained in connection with the liquidation of
defaulted mortgage loans, by foreclosure or otherwise, net of unreimbursed
liquidation and foreclosure expenses incurred by any related sub-servicer and
net of unreimbursed advances made by the sub-servicer.
REMIC Regulations: Regulations promulgated by the Department of the
Treasury on December 23, 1992 and generally effective for REMICs with start-up
dates on or after November 12, 1991.
Multifamily Loans: First lien mortgage loans, or participation
interests in the loans, secured by residential properties consisting of five
or more residential units, including cooperative apartment buildings.
Single Family Loans: First lien mortgage loans, or participation
interests in the loans, secured by one- to four-family residential properties.
U.S. Person: Any of the following:
o a citizen or resident of the United States;
o 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);
o 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
o 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 which would not qualify as U.S. Persons under the
above definition but which are eligible to and make an election to be treated
as U.S. Persons will also be treated as U.S. Persons.
<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...................................... $264
Trustee's Fees and Expenses............................... [o]
Printing and Engraving.................................... [o]
Legal Fees and Expenses................................... [o]
Blue Sky Fees............................................. [o]
Accounting Fees and Expenses.............................. [o]
Rating Agency Fees........................................ [o]
Miscellaneous............................................. [o]
-------
Total..................................................... $[o]
=======
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 Bylaws 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 Bylaws 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+
--------------------------
* 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 by amendment.
+ Previously filed as part of this Registration Statement.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934, as amended), that is
incorporated by reference in the registration statement shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933, as
amended, and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Greenwich, Connecticut, on the 5th
day of January, 2001.
GREENWICH CAPITAL ACCEPTANCE, INC.
By: /s/ John P. Graham
-------------------------------------
John P. Graham
Vice 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President (Principal Executive January 5, 2001
------------------- Officer)
Robert J. McGinnis
* Senior Vice President and Controller January 5, 2001
------------------- (Principal Financial Officer and
John M. Ryan Principal Accounting Officer)
* Senior Vice President, Secretary and January 5, 2001
--------------------- Director
John C. Anderson
* Director January 5, 2001
---------------------
Jay N. Levine
/s/ John P. Graham Vice President January 5, 2001
---------------------
John P. Graham
*By: /s/ John P. Graham Attorney-In-Fact Pursuant to a Power of January 5, 2001
-------------------- Attorney previously filed with the
John P. Graham Registration Statement
</TABLE>
