UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended September 30, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission file number 1-9819
RESOURCE MORTGAGE CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Virginia 52-1549373
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
2800 Parham Road, Richmond, Virginia 23228
(Address of principal executive offices) (Zip Code)
(804) 967-5800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days. [x] Yes [ ] No
On October 31, 1994, the registrant had 20,055,908 shares of common stock of
$.01 value outstanding, which is the registrant's only class of common stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RESOURCE MORTGAGE CAPITAL, INC.
By:
Thomas H. Potts,
President
(authorized officer of registrant)
Lynn K. Geurin,
Executive Vice
President and Chief Financial Officer
(principal accounting officer)
Dated: November 23, 1994
Exhibit Index
Exhibit 99.1 Analysis of Projected Yield
Exhibit 99.1
ANALYSIS OF PROJECTED YIELD
This presentation contains an analysis of the projected
yield on the Company's mortgage investments as of September
30, 1994, under the specific assumptions set forth herein.
This presentation does not seek to predict, nor should it be
interpreted as a prediction of, the actual present or future
yield on such investments since the actual interest rates
and prepayment rates in the future will be different than
those assumed in any of the projected scenarios.
Capitalized terms used herein and not defined herein shall
have the respective meanings assigned to them in the
Glossary.
Resource Mortgage invests a portion of its available capital in a
portfolio of mortgage investments. These investments
include mortgage loans and mortgage securities subject to
collateralized mortgage obligations (CMOs), adjustable-rate
mortgage securities, fixed-rate mortgage securities and other
mortgage securities.
The Company has pursued its investment strategy of
concentrating on its mortgage conduit activities in order to
create investments for its portfolio with attractive yields
and also to benefit from potential securitization income.
Through its single-family mortgage conduit activities the
Company purchases mortgage loans from approved mortgage
companies, savings and loan associations and commercial
banks, or originates the mortgage loans directly; in its
multi-family conduit activities, the Company originates the
loans directly. When a sufficient volume of loans is
accumulated, the Company securitizes these mortgage loans
through the issuance of mortgage-backed securities. The
mortgage-backed securities are structured so that
substantially all of the securities are rated in one of the
two highest categories (i.e. AA or AAA) by at least one of
the nationally recognized rating agencies.
The yield on the Company's investment portfolio is
influenced primarily by (i) prepayment rates on the
underlying mortgage loans, (ii) the level of short-term
interest rates and (iii) the relationship between short-term
financing rates and adjustable-rate mortgage yields. The
following analysis provides a projection of the yield of the
Company's investment portfolio in variety of interest rate
and prepayment rate environments. The Company's investment
strategy is to create a diversified portfolio of mortgage
securities that in the aggregate generate stable income in a
variety of interest rate and prepayment rate environments.
Rapid changes in either short-term or long-term interest rates can
negatively impact the income received on the portfolio.
For purposes of this analysis only, certain of the Company's
assets and liabilities have been excluded, and certain
liability balances have been reduced to better reflect the
Company's net investment in its investment portfolio.
Summary of Mortgage Investments
For purposes of calculating the projected yield, the
Company calculates its net investment in its mortgage
investments as of September 30, 1994 and December 31, 1993
and can be summarized as follows (amounts in thousands):
September 30, December 31,
1994 (2) 1993
Collateral for CMOs, net of CMO liabilities $ 3,896 $ 8,403
Adjustable-rate mortgage securities, net (1) 182,568 132,401
Fixed-rate mortgage securities, net (1) 20,097 14,520
Other mortgage securities:
Mortgage residual interests 39,895 22,900
Mortgage derivative securities 28,587 37,494
Other mortgage securities subtotal 68,482 60,394
Mortgage warehouse participations, net of related
liabilities - 9,393
Net investment $ 275,043 $ 225,111
(1) Net of repurchase borrowings and discounts recorded by
the Company to compensate for certain risks on mortgage
securities collateralized by mortgage loans purchased by the
Company for which mortgage pool insurance is used as the
primary source of credit enhancement. At September 30, 1994
the discount totaled $15.0 million on adjustable-rate
mortgage securities and $1.6 million on fixed-rate mortgage
securities. Amounts also exclude $2.6 million of first-loss class
securities retained by the Company from mortgage securities
for which a senior/subordinated security structure is used
as the primary source of credit enhancement.
(2) Amounts exclude adjustments related to unrealized
gains and losses on available-for-sale mortgage investments
in accordance with Statement of Financial Accounting
Standards No. 115.
The following tables list the Company's various
investments (and related information) as of September 30,
1994 that were used in the calculation of the projected
yield.
Collateral Pledged to Secure CMOs
(Dollars in thousands)
Type of Weighted
Mortgage Average Net
Series Collateral Coupon Rate (1) Investment (2)
MCA1, Series 1 Loans (3) 8.97 (3,399 )
PWMO, Series B FNMA Certificates 9.27 1,294
PWMO, Series C FHLMC & FNMA Certificates 9.59 226
RAC Four, Series 77 Loans 9.55 1,668
RMSC Series 89-1 Loans 11.47 434
RMSC Series 89-3 Loans 11.43 327
RMSC Series 89-4A Loans 10.60 72
RMSC Series 89-5 Loans 10.59 (69 )
RMSC Series 91-2 Loans 9.81 668
RMSC Series 92-12 Loans 8.10 1,204
RAC Four, 26 Misc. Series Various 9.90 1,471
Total $ 3,896
(1) Based on the weighted average coupons of the underlying
mortgage loans or mortgage certificates when the CMOs were
issued and the current principal balances of such mortgage
collateral. This information is presented as of December
31, 1993 or as of the date acquired if acquired in 1994.
(2) Equal to the outstanding principal balance of the
mortgage collateral plus unamortized discounts, premiums,
accrued interest receivable and deferred issuance costs, and
net of bond principal, discounts, premiums and accrued
interest payable as of September 30, 1994.
(3) Multi-family loans.
Adjustable-Rate Mortgage Securities
(Dollars in thousands)
Remaining
Principal Interest Net
Description (1) Balance (2) Rate (3) Investment (4)
FNMA Pools, various $ 377,433 4.90-7.13%(A) $ 23,050
FNMA and FHLMC Pools, various 127,113 4.16-6.61 (B) 7,628
FNMA and FHLMC Pools, various 5,316 5.34-7.34 (C) 325
FAI2 1993-E M 17,175 6.09 (A) 934
GNMA Pools, various 200,716 6.00 (B) 11,943
LIBOR ARM Trust 1991-19, Class B 40,018 5.90 (A) 2,435
LIBOR ARM Trust 1992-1, Class B 40,351 6.46 (A) 2,356
LIBOR ARM Trust 1992-4, Class B 59,940 6.41 (A) 3,613
LIBOR ARM Trust 1992-6, Class B 70,109 5.89 (A) 4,233
LIBOR ARM Trust 1992-8, Class B 105,148 5.92 (A) 6,376
LIBOR ARM Trust 1992-10, Class B 63,945 6.40 (A) 1,996
RMSC, AHF 1989-1 Trust, Class A-2 7,051 5.72 (B) 423
RMSC, Series 1991-5 45,370 6.93 (A) 2,752
RMSC, Series 1991-7, Class B 48,003 6.19 (A) 2,931
RMSC, Series 1991-11 63,010 6.24 (A) 3,825
RMSC, Series 1991-12, Class B 45,983 6.45 (A) 2,795
RMSC, Series 1991-15, Class B 39,972 6.61 (A) 2,430
RMSC, Series 1991-16, Class B 57,109 6.67 (A) 3,471
RMSC, Series 1991-17, Class B 39,523 6.02 (A) 2,405
RMSC, Series 1992-5 72,314 6.67 (A) 4,392
RMSC, Series 1992-9, Class B 10,000 6.19 (A) 238
RTC M-1, A-4 400 7.09 (C) 24
RTC M-6, A-1, A-2 36,426 5.41, 5.53 (C) 2,235
SMSC, Series 1992-1, Class B 5,000 6.52 (A) 302
SMSC, Series 1992-4, Class B 55,900 5.89 (A) 3,347
SMSC, Series 1992-6, Class B 60,193 6.14 (A) 3,620
SMSC, Series 1993-1, Class B-1, B-2 9,963 6.50 (A) 603
SMSC, Series 1993-3, Class A-2, B-2 101,569 6.62 (A) 6,157
SMSC, Series 1993-5, Class A-2, B-2 62,930 5.78 (A) 3,839
SMSC, Series 1993-6, Class B 15,066 6.03 (A) 915
SMSC, Series 1993-7, Class B 27,693 5.96 (A) 1,680
SMSC, Series 1993-9, Class A-2, B-2 92,410 5.97 (A) 5,643
SMSC, Series 1993-11 141,989 4.80 (A) 8,693
SMSC, Series 1994-1, Class A, B 73,619 4.99 (A) 4,497
SMSC, Series 1994-3, Class M 37,784 5.09 (A) 2,321
SMSC, Series 1994-7, Class A-1, B-1 81,336 5.02 (B) 4,928
SMSC, Series 1994-7, Class A-2, B-2 197,111 5.03 (A) 11,941
LIBOR Cap Agreements (5) 31,272
Total $ 182,568
(A) Index - Six-month LIBOR
(B) Index - 1-yr CMT
(C) Index - COFI
(1) All the "Class B" adjustable-rate mortgage securities
were created from the Company's mortgage conduit operations,
and represent a AA rated class that is subordinated to AAA
rated class(es) within the security offering.
(2) As of September 30, 1994.
(3) Pass-through rate as of September 30, 1994.
(4) Equal to the outstanding principal balance of the
adjustable-rate mortgage securities, plus any unamortized
premiums and net of any unamortized discounts, less
repurchase borrowings, if any, calculated at 94% of such
amount.
(5) The Company has purchased various LIBOR cap agreements
in regard to the adjustable-rate mortgage securities.
Pursuant to the cap agreements, the Company will receive
additional cash flows should six-month LIBOR increase above
certain levels as specified below.
Notional
Amount Cap Rate
Cap agreements expiring between 2001 and 2002 $ 230,500 11.50%
Cap agreements expiring between 2001 and 2002 108,000 10.50%
Cap agreements expiring in 1999 235,000 10.00%
Cap agreements expiring between 2000 and 2003 490,000 9.50%
Cap agreements expiring between 2002 and 2004 525,000 9.00%
$ 1,588,500
Fixed-rate Mortgage Securities
(Dollars in thousands)
Remaining
Principal Interest Net
Description Balance (1) Rate Investment (2)
Citibank, Series 1990-B, Class B-5 $ 1,168 9.60 % $ 716
RMSC, various series 75,510 Various 8,092 (3)
RMSC, Series 91-2, Class 2-B (4) 11,567 10.00 1,827 (3)
SMSC, Series 1993-3, Class A-1, B-1 (4) 74,872 6.75 4,561 (3)
SMSC, Series 1993-5, Class A-1, B-1 (4) 49,161 6.51 3,059 (3)
SMSC, Series 1993-9, Class A-1, B-1 (4) 30,331 6.09 1,842 (3)
Total $20,097
(1) As of September 30, 1994.
(2) Equal to the outstanding principal balance of the
securities, plus any unamortized premiums and net of any
unamortized discounts at September 30, 1994.
(3) Equal to the outstanding principal balance of the
securities, plus any unamortized premiums and net of any
unamortized discounts, less the associated repurchase
agreement borrowings at September 30, 1994.
(4) These series become adjustable-rate in 1995-1998.
Other Mortgage Securities
(Dollars in thousands)
Other Mortgage Securities are comprised of mortgage
residual interests and mortgage derivative securities as set
forth below.
Mortgage residual interests:
Type of Weighted
Mortgage Percent Average
Net Net
Series Collateral Owned Coupon Rate (1) Investment (2)
FNMA REMIC Trust 1988-22 FNMA 40.00 % 9.50 % $ 1,335
GMS, Series 1994-1 FNMA 100.00 3.76 4,242
GMS, Series 1994-2 FHLMC 100.00 4.11 3,830
GMS, Series 1994-3 FHLMC 100.00 3.93 3,194
LIBOR ARM Trust 1991-19 Loans 100.00 5.60 298
LIBOR ARM Trust 1992-1 Loans 100.00 5.46 299
LIBOR ARM Trust 1992-4 Loans 100.00 5.51 354
ML Trust XI FHLMC 49.00 8.50 192
NMF, Series 1994-1 FNMA 100.00 3.83 5,969
NMF, Series 1994-2 FHLMC 100.00 3.80 2,876
NMF, Series 1994-3 FHLMC 100.00 3.90 2,243
RAC Four, Series 39 FHLMC 49.90 10.20 429
RAC Four, Series 62 GNMA 30.00 10.00 401
RAC Four, Series 73 GNMA 55.00 11.50 4,045
RAC Four, Series 74 GNMA 23.60 10.50 1,491
RAC Four, Series 75 GNMA 36.00 9.50 1,155
RAC Four, 22 Misc. Series Various Various 11.54 348
RMSC, Series 1991-7 Loans 100.00 6.01 553
RMSC, Series 1991-15 Loans 100.00 6.67 171
RMSC, Series 1991-16 Loans 100.00 6.67 40
RMSC, Series 1991-17 Loans 100.00 5.62 89
Shearson Lehman, Series K FNMA 50.00 10.00 91
NTF Various 48.30 9.00 6,250
Total $ 39,895
(1) Based on the weighted average coupons of the underlying
mortgage loans or mortgage certificates when the mortgage
securities were issued and the current principal balances of
such mortgage collateral. This information is presented as
of December 31, 1993.
(2) Equal to the amortized cost of the mortgage residual
interests as of September 30, 1994.
Other Mortgage Securities (continued)
Mortgage derivative securities:
Weighted
Type of Average
Type of Mortgage Net
Coupon Net
Description Securities (1) Collateral Rate (2) Investment (3)
Chemical, Series 1988-4 I/O Loans 9.82 % $ 82
Interest-only strips, various I/O Loans Various 3,704
LIBOR ARM Trust 1992-8, Class I I/O Loans 5.54 720
LIBOR ARM Trust 1992-9, Class I I/O Loans 5.46 492
LIBOR ARM Trust 1992-10, Class I I/O Loans 5.41 450
Principal-only strips, various P/O Loans Various 4,839
RMSC, Series 89-6, 6F I/O Loans 10.62 274
RMSC, Series 1989-7B, B-2 I/O Loans 10.39 137
RMSC, Series 1991-14, Class 14-P P/O Loans 9.77 62
RMSC, Series 1991-16, Class I I/O Loans 5.79 264
RMSC, Series 1991-20, Class P P/O Loans 8.96 172
RMSC, Series 1992-18, Class P P/O Loans 8.18 148
RMSC, Series 1992-18, Class X I/O Loans 8.18 1,113
SMSC, Series 1992-1, Class I I/O Loans 5.46 436
SMSC, Series 1992-2, Class I I/O Loans 5.53 482
SMSC, Series 1992-3, Class I I/O Loans 5.56 247
SMSC, Series 1992-4, Class I I/O Loans 5.46 262
SMSC, Series 1993-8, Class 2I I/O Loans 7.97 160
SMSC, Series 1993-10, Class I I/O Loans 7.72 2,553
SMSC, Series 1994-2, Class I I/O Loans 7.20 3,186
SMSC, Series 1994-4, Class 1I, 2I I/O Loans 7.09 4,209
SMSC, Series 1994-8, Class I I/O Loans 5.86 1,021
SMSC, Series 1994-9, Class 1I, 2I I/O Loans 8.03, 7.38 1,833
SMSC, Series 1994-9, Class 2P P/O Loans 8.03 414
SMSC, Series 1994-10, Class I I/O Loans 6.35 1,327
Total $ 28,587
(1) I/O means an interest-only security; P/O means a
principal-only security.
(2) Based on the weighted average coupons of the underlying
mortgage loans or mortgage certificates when the mortgage
securities were issued and the current principal balances of
such mortgage collateral. This information is presented as
of December 31, 1993 or as of the date purchased if
purchased in 1994.
(3) Equal to the amortized cost of the mortgage derivative
securities as of September 30, 1994. The Company owned 100%
of each such security.
YIELD ON MORTGAGE INVESTMENTS
This presentation contains an analysis of the yield
sensitivity to different short-term interest rates and
prepayment rates of the Company's Mortgage Investments (as
described in the previous section) as of October 1,1994.
The Company utilizes this analysis in making decisions as to
the cash flow characteristics of investments that the
Company desires to create or acquire for its investment
portfolio. The Company's investment strategy is to create a
diversified portfolio of mortgage securities that in the
aggregate generates stable income in a variety of interest
rate and prepayment rate environments and preserves the
capital base of the Company. Capitalized terms used herein
and not defined within this section are defined in the
glossary on page 15 of this Exhibit.
This presentation does not reflect all of the Company's
assets and liabilities (or income and expenses of such
excluded assets or liabilities) nor any of the general and
administrative expenses of the Company. This presentation
also does not purport to reflect the liquidation or ongoing
value of the Company's business or assets. The yield
information presented herein is provided solely for
analytical purposes. This presentation does not seek to
predict, nor should it be interpreted as a prediction of,
the actual present or future yield on such investments.
The table below sets forth the estimated cash yields
calculated on a semi-annual equivalent basis as of September
30, 1994 of the projected net cash flows on the Company's
existing investment portfolio as set forth in "Mortgage
Investments" above, based upon the current balances of the
assets as of October 1,1994, and upon assumptions set forth
below on pages 10 through 14 for each of the respective
cases. The most important of these assumptions are the
prepayment rates applicable to each mortgage investment and
the level of short-term interest rates.
MORTGAGE INVESTMENTS YIELD SENSITIVITY ANALYSIS
YIELD ON INVESTMENT (%)
Short-Term Interest Rate Assumption Case
Prepayment
Assumption
Case Case I Case II Case III Case IV Case V Case VI Case VII
Case A 22.6% 20.3% 19.1% 18.0% 16.5% 14.3% 11.1%
Case B 23.0 20.7 19.7 18.7 17.3 15.2 12.2
Case C 23.5 21.2 20.2 19.3 18.0 16.0 13.1
Case D 23.9 21.7 20.8 19.9* 18.6 16.8 14.0
Case E 24.4 22.2 21.3 20.5 19.3 17.5 14.9
Case F 25.0 22.8 22.0 21.1 20.0 18.3 15.7
Case G 25.6 23.5 22.6 21.9 20.8 19.1 16.4
The case most representative of short-term interest rates
and prepayment rates as of October 1,1994, is case D-IV,
represented by the "*."
The yields for each case expressed above are level yields
relative to the Company's aggregate net investment of $275.0
million in the various listed mortgage investments as shown
beginning on page 2. These yields are calculated over the remaining
life of the securities, and may be higher or lower than shown in
any period for financial statement reporting.
In addition to the foregoing, the
projected yields assume that the Company is able to reinvest
principal received on its investments at the same yield as
the yield in each case; consequently, these yields do not
purport to reflect the return when such reinvestment is not
available.
Such yields do not give effect to the operating expenses
of the Company. These yields are also exclusive of the
yields on mortgage assets of the Company not listed in
"Mortgage Investments" above. In particular, the listed
mortgage investments do not include (i) mortgage loans in
warehouse, (ii) certain first-loss class securities, and
(iii) certain other adjustable-rate and fixed-rate mortgage
securities. These other securities are excluded in an
amount equal to the discount which compensates the Company
for certain risks on mortgage securities collateralized by
mortgage loans for which mortgage pool insurance is used as
the primary source of credit enhancement. There is no
assurance that any particular yield actually will be
obtained. Prepayment speeds may exceed those shown in the
tables on pages 11 and 12 and/or short-term interest rates
may exceed those shown in the table on page 13. If this
happens, the portfolio yields may differ significantly from
those shown below. Also, the table shows changes in short-
term interest rates and prepayment rates occurring on a
gradual basis over one year. If these factors change more
rapidly, the portfolio yields may be significantly affected.
The assumptions that are set forth below detail certain
information with respect to the mortgage investments as of
September 30, 1994, or other dates as specified.
Factors Affecting Return
The return on the Company's portfolio of investments will
be affected by a number of factors. These include the rate
of prepayments of the mortgage loans directly or indirectly
securing the mortgage investments and the characteristics of
the net cash flows available. Prepayments on mortgage loans
commonly are measured by a prepayment standard or model.
Two models are used herein. One such model which is used
primarily for fixed-rate mortgage loans (the "PSA"
prepayment assumption model) is based on an assumed rate of
prepayment each month of the unpaid principal amount of a
pool of new mortgage loans expressed on an annual basis. A
prepayment assumption of 100 percent of the PSA assumes that
each mortgage loan (regardless of interest rate, principal
amount, original term to maturity or geographic location)
prepays at an annual compounded rate of 0.2% of its
outstanding principal balance in the first month after
origination. The prepayment rate increases by an additional
0.2% per annum in each month thereafter until the thirtieth
month after origination. In the thirtieth month and each
month thereafter each mortgage loan prepays at a constant
prepayment rate of 6% per annum.
The other model used herein is the Constant Prepayment
Rate ("CPR"), which is used primarily to model prepayments
on adjustable-rate mortgage loans. CPR represents an
assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans.
A prepayment assumption of 18% CPR assumes a rate of
prepayment of the then outstanding principal balance of such
mortgage loans in each month equal to 18% per annum.
The Prepayment Assumption Model and CPR do not purport to
be either an historical description of the prepayment
experience of any pool of mortgage loans or a prediction of
the anticipated rate of prepayment of any pool of mortgage
loans, including mortgage loans underlying the mortgage
investments. The actual prepayment rate of the mortgage
loans will likely differ from the assumed prepayment rates.
The rate of principal payments on a single-family pool of
mortgage loans is influenced by a variety of economic,
geographic, social and other factors. In general, however,
mortgage loans are likely to be subject to relatively higher
prepayment rates if prevailing long-term interest rates fall
significantly below the interest rates on the mortgage
loans. Conversely, the rate of prepayments would be
expected to decrease if long-term interest rates rise above
the interest rate on the mortgage loans. Other factors
affecting prepayment of mortgage loans include changes in
mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgaged properties,
assumability of mortgage loans and servicing decisions.
The terms of the multi-family mortgage loans that
collateralize the multi-family investments prohibit the
prepayment of principal during the lock-out period, a period
generally equal to fifteen years after origination of the
loan. Subsequent to the lock-out period, prepayments will
be subject to a prepayment premium based on 1% of the
remaining principal balance of the multi-family mortgage
loan.
The net cash flows on the Company's CMOs will be derived
principally from the difference between (i) the cash flow
from the collateral pledged to secure the CMO together with
reinvestment income, and (ii) the amount required for
payment on the CMOs together with related administrative
expenses. Certain of the Company's other mortgage
securities have similar net cash flow characteristics
(collectively, net cash flow investments). Distributions of
net cash flows on such net cash flow investments represent
both income relative to the investment and a return of the
principal invested.
Assumptions Employed in Projecting the Net Cash Flows
In calculating the "Mortgage Investments Yield
Sensitivity Analysis" above, the projected net cash flows on
the Company's mortgage investments were calculated on the
basis of the following:
(1) Prepayments on the mortgage loans underlying the
mortgage investments (other than adjustable-rate mortgage
securities) were projected to be received in proportion to
the PSA model described in this report. Prepayments on the
adjustable-rate mortgage securities were projected to be
received in proportion to the CPR model described in this
report.
The tables below show the prepayment rate projections,
expressed as a percentage of the PSA or CPR, on the mortgage
loans underlying the mortgage investments in which the
Company has an interest under the assumed Case A, Case B,
Case C, Case D, Case E, Case F and Case G scenarios.
Neither the prepayment projections used in this report nor
any other prepayment model or projection purports to be a
historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool
of mortgage loans. It is unlikely that actual prepayments
on the mortgage collateral will conform to any of the
projected prepayment rates shown in the table below.
Prepayment rate projections for certain of the Company's
smaller investments are not listed in the tables below.
The prepayment rate for each type of mortgage loan is
projected to begin at the prepayment rate used in Case D in
the table below. For cases other than Case D, the
applicable rate increases or decreases ratably over a one-
year period to the prepayment rate set forth for the
applicable case. The prepayment rates set forth in Case D
are the average of the published estimates of projected
prepayment rates of a number of major Wall Street firms,
excluding the highest and lowest estimates, as published on
Bloomberg on October 1,1994. Cases A through C and Cases E
through G represent the average of the prepayment estimates
from two investment banking firms multiplied by the ratio of
Case D and the average of the comparable prepayment
estimates of the two investment banking firms.
PREPAYMENT ASSUMPTION TABLE
FIXED-RATE MORTGAGE LOANS OR CERTIFICATES
Pass
Through Percentage of PSA
Rate (%) Case A Case B Case C Case D* Case E Case F Case G
Mortgage Certificate
GNMA Certif. 9.50 509 392 288 175 145 119 94
10.00 465 370 302 205 161 138 110
10.50 406 343 321 235 155 131 112
11.50 351 297 289 259 214 172 154
FNMA Certif. 9.00 583 416 325 225 155 130 125
9.50 669 483 405 280 205 170 160
10.00 666 485 425 340 235 200 185
FHLMC Certif. 8.50 685 490 325 195 160 135 130
10.00 645 470 415 340 250 215 190
10.25 625 450 405 340 260 220 190
10.50 570 430 395 345 270 225 195
Fixed-rate Mortgage Loans:
MCA 1, Series 1 340 335 330 325 320 315 310
RAC Four, Series 77 585 415 325 225 155 130 125
RMSC, Series 1989-4A and 1989-4B
670 485 405 270 205 170 160
RMSC, Series 91-2** 510 390 290 175 145 120 95
RMSC, Series 92-12 760 425 225 150 125 115 110
* Case D is the case most representative of projected
prepayment speeds as of October 1, 1994. This is representative
of the yield on a FNMA 30-year pass-through security of 8.54%.
(Case A represents a FNMA pass-through yield of 5.54%, Case B
6.54%, Case C 7.54%, Case E 9.54%, Case F 10.54% and Case G
11.54%).
** The mortgage loans underlying the security become
adjustable-rate in 1996-1998.
CONSTANT PREPAYMENT RATES (CPR) TABLE (%)
ADJUSTABLE-RATE MORTGAGE LOANS OR CERTIFICATES
Case A Case B Case C Case D* Case E Case F Case G
FNMA Pools, Various 36 32 28 26 22 18 14
FHLMC Pools, Various 27 24 21 18 15 12 9
LIBOR ARM Trust 1991-19 27 24 21 18 15 12 9
LIBOR ARM Trust 1992-1 27 24 21 18 15 12 9
LIBOR ARM Trust 1992-4 27 24 21 18 15 12 9
LIBOR ARM Trust 1992-6 27 24 21 18 15 12 9
LIBOR ARM Trust 1992-8 27 24 21 18 15 12 9
LIBOR ARM Trust 1992-10 27 24 21 18 15 12 9
RMSC, AHF 1989-1 40 36 32 28 26 22 18
RMSC, Series 1991-5 27 24 21 18 15 12 9
RMSC, Series 1991-7 27 24 21 18 15 12 9
RMSC, Series 1991-11 27 24 21 18 15 12 9
RMSC, Series 1991-12 27 24 21 18 15 12 9
RMSC, Series 1991-15 27 24 21 18 15 12 9
RMSC, Series 1991-16 27 24 21 18 15 12 9
RMSC, Series 1991-17 27 24 21 18 15 12 9
RMSC, Series 1992-5 27 24 21 18 15 12 9
RTC M-1 15 13 10 7 5 5 5
RTC M-6 17 15 10 7 5 5 5
SMSC, Series 1992-4 27 24 21 18 15 12 9
SMSC, Series 1992-6 27 24 21 18 15 12 9
SMSC, Series 1993-1 27 24 21 18 15 12 9
SMSC, Series 1993-3** 27 24 21 18 15 12 9
SMSC, Series 1993-5** 27 24 21 18 15 12 9
SMSC, Series 1993-6 27 24 21 18 15 12 9
SMSC, Series 1993-7 27 24 21 18 15 12 9
SMSC, Series 1993-9** 27 24 21 18 15 12 9
SMSC, Series 1993-11 27 24 21 18 15 12 9
SMSC, Series 1994-1 27 24 21 18 15 12 9
SMSC, Series 1994-3 27 24 21 18 15 12 9
* Case D is the case most representative of projected
prepayment speeds as of October 1,1994.
** The mortgage loans underlying these securities become
adjustable-rate in 1995-1996.
(2) Principal and interest payments on the mortgage
collateral was assumed to be received monthly with interest
payments received in arrears.
(3) The LIBOR, commercial paper, COFI, 1 Yr-CMT, and
reinvestment income rates are assumed to be as set forth in
the table set forth below. The applicable rate is assumed
to begin at the rate set forth in Case II in the table
below. For cases other than Case II, the applicable rate
increases or decreases ratably over a one-year period to the
rate set forth for the applicable case. The rates set forth
in Case II are representative of the rates as of October
1,1994. Case I and Cases III through VII indicate rates
decreasing or increasing, respectively, from the rates of
Case II in equal steps each month over one year, to the rate
indicated and continuing thereafter at that rate. According
to the scheduled resets and subject to the periodic and
lifetime caps, if applicable, the interest rates on the
Company's adjustable-rate mortgage securities, in each case,
reset at the defined margin relative to their respective
indices.
SHORT TERM INTEREST RATE ASSUMPTIONS
Case I Case II Case III Case IV* Case V Case VI Case VII
LIBOR
One-month 3.063% 3.063% 4.063% 5.063% 6.063% 7.063% 8.063%
Three-month 2.500 3.500 4.500 5.500 6.500 7.500 8.500
Six-month 2.750 3.750 4.750 5.750 6.750 7.750 8.750
COFI 1.850 2.550 3.250 3.950 4.650 5.350 6.050
1 Yr-CMT 3.910 4.610 5.310 6.010 6.710 7.410 8.110
* Case IV is the case most representative of short-term
interest rates as of October 1,1994.
(4) Principal and interest payments on each mortgage
investment were assumed to be made in accordance with the
terms for each such mortgage investment.
(5) It was assumed that no optional redemptions are
exercised on any of the mortgage investments.
(6) Administrative fees for each series of mortgage
securities have been calculated using the assumptions set
forth in the prospectus relating to each such series. The
administrative fee generally is based upon a fixed
percentage of the principal amount of such mortgage
securities outstanding.
(7) For the purposes of calculating the net cash flows on
the adjustable-rate mortgage securities that are subject to
repurchase borrowings, it was assumed that the repurchase
borrowings were equal to 94% of the Company's cost basis in
such adjustable-rate mortgage securities, and that such
ratio would remain constant. Actual repurchase borrowings
were greater on September 30, 1994 than the amount used for
modeling. If the ratio that the Company was able to borrow
were to decrease to a level below the 94% for adjustable-
rate mortgage securities used in modeling due to either
increases in short-term interest rates or other market
conditions, the yield to the Company would be lower in each
case.
(8) For purposes of calculating the net cash flows on the
fixed-rate mortgage securities that are subject to
repurchase borrowings, it was assumed that the repurchase
borrowings were equal to 93.5% of the Company's basis in
such fixed-rate mortgage securities, and that such ratio
would remain constant. Actual repurchase borrowings were
greater on September 30, 1994 than the amount used for
modeling. If the ratio that the Company was able to borrow
were to decrease to a level below the 93.5% for fixed-rate
mortgage securities used in modeling due to either increases
in short-term interest rates or other market conditions, the
yield to the Company would be lower in each case.
(9) No losses are projected on any mortgage loans owned by
the Company or underlying any adjustable-rate mortgage
security or other mortgage security that would not be
covered by external sources of insurance or the Company's
allowance for losses. Any losses not covered by such
insurance or allowance would lower the yield in each case to
the Company.
(10) While the cost of the LIBOR cap agreements has been
added to the Company's investment in its portfolio, the
projections do not include any benefit from them, as such
caps are generally above the range of the short-term
interest rate assumptions set forth on page 13.
(11) In modeling certain of the Company's smaller mortgage
investments, the cash flows of the investments were modeled
by substituting for the actual assets and liabilities a
small number of representative assets or liabilities, the
characteristics of which summarize the actual mortgage loans
or mortgage securities and the related liabilities that
comprise the investment.
GLOSSARY
AHF - American Home Funding.
Adjustable-rate mortgage loan (ARM) - A mortgage loan that
features adjustments of the loan interest rate at
predetermined times based on an agreed margin to an
established index. An ARM is usually subject to
periodic and lifetime interest-rate and/or payment-rate
caps.
Adjustable-rate mortgage securities - Mortgage certificates
that represent the pass-through of principal and
interest on adjustable-rate mortgage loans.
Bloomberg - Bloomberg Business Services, Inc. information
systems.
Chemical - Chemical Acceptance Corporation.
Citibank - Citibank, N.A., REMIC mortgage pass-through
certificates.
COFI - Eleventh District Cost of Funds Index.
Collateralized Mortgage Obligations (CMOs) - Debt
obligations (bonds) that are collateralized by mortgage
loans or mortgage certificates. CMOs are structured so
that principal and interest payments received on the
collateral are sufficient to make principal and
interest payments on the bonds. The bonds may be
issued in one or more classes with specified interest
rates and maturities which are designed for the
investment objectives of different bond purchasers.
Company - Resource Mortgage Capital, Inc.
FAI2 - Fund America Investors Corporation II.
FHLMC - Federal Home Loan Mortgage Corporation.
Fixed-rate mortgage loan - A mortgage loan which features a
fixed interest rate that does not change during the
life of the loan, or does not change for at least one
year from the date of the analysis.
FNMA - Federal National Mortgage Association.
FNMA Yield - FNMA 30-year mortgage certificate yield.
GAAP - Generally accepted accounting principles.
GMS - General Mortgage Securities, Inc. Two.
GNMA - Government National Mortgage Association.
LIBOR - The London Inter-Bank Offered Rate for overseas
deposits of U.S. dollars. The LIBOR index generally
follows the patterns of the short-term interest rate
environment in the U.S. market.
Long-term interest rates - The interest rates applicable to
debt securities with an average life of 10 years or
more.
MCA 1 - Multi-family Capital Access One, Inc., a subsidiary
of the Company
ML - Merrill Lynch
Mortgage certificates - Certificates which represent
participation in pools of mortgage loans. The
principal and interest payments on the mortgage loans
are passed through to the certificate holders. GNMA,
FNMA, or FHLMC may issue and guarantee the payment of
principal and interest on mortgage certificates issued
by them. Mortgage certificates may also be privately
issued.
Mortgage derivative securities - Mortgage securities that
generally have a market price that is substantially
below or in excess of the principal balance of the
underlying mortgage loans or mortgage certificates
(e.g., a principal-only or interest-only security).
Mortgage loans - Mortgage loans secured by first liens on
single-family residential properties.
Mortgage residual interests - An investment which entitles
the Company to receive any excess cash flow on a pool
of mortgage loans or mortgage certificates after
payment of principal, interest and fees on the related
mortgage securities.
Mortgage warehouse participations - A participation in a
line of credit to a mortgage originator that is secured
by recently originated mortgage loans that are in the
process of being sold to permanent investors.
N/A - Not available.
NMF - National Mortgage Funding, Inc.
1 Yr-CMT - One-year constant maturity treasury index.
Other mortgage securities - Mortgage derivative securities
and mortgage residual interests.
Prepayment rates - Represent a measure as to how quickly the
number of mortgage loans in a pool are prepaid-in-full.
PWMO - PaineWebber Mortgage Obligations, Inc.
RAC Four - Ryland Acceptance Corporation Four.
REMIC - A real estate mortgage investment conduit pursuant
to the Internal Revenue Code of 1986, as amended.
RMSC - Ryland Mortgage Securities Corporation.
RTC - Resolution Trust Corporation
SMART - Structured Mortgage Asset Residential Trust.
SMSC - Saxon Mortgage Securities Corporation, an affiliate
of the Company.
Short-term interest rates - Short-term interest rates are
the interest rates applicable to debt securities with
an average life of six months or less.
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