<PAGE>
PROSPECTUS SUPPLEMENT
[LOGO]
(TO PROSPECTUS DATED JULY 23, 1998)
$172,901,967 (APPROXIMATE)
CHASE MORTGAGE FINANCE CORPORATION
SELLER
MULTI-CLASS MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-AS1
<TABLE>
<C> <C> <S> <C> <C> <C> <C> <C>
$ 40,980,752 6.75% CLASS IA-1 CERTIFICATES $ 0 6.75%(1) CLASS IA-X CERTIFICATES
$ 14,725,947 6.75% CLASS IA-2 CERTIFICATES $12,262,215 6.75% CLASS CERTIFICATES
IIA-1
$ 16,250,000 6.75% CLASS IA-3 CERTIFICATES $ 0 6.75%(2) CLASS CERTIFICATES
IIA-X
$ 12,240,000 6.75% CLASS IA-4 CERTIFICATES $3,123...... (3) CLASS A-P CERTIFICATES
$ 16,100,000 6.75% CLASS IA-5 CERTIFICATES $100........ 6.75% CLASS A-R CERTIFICATES
$ 9,034,036 6.75% CLASS IA-6 CERTIFICATES $ 5,512,562 6.75% CLASS M CERTIFICATES
$ 10,000,000 6.75% CLASS IA-7 CERTIFICATES $ 2,537,528 6.75% CLASS B-1 CERTIFICATES
$ 5,599,985 6.75% CLASS IA-8 CERTIFICATES $ 1,662,518 6.75% CLASS B-2 CERTIFICATES
$ 25,993,201 6.75% CLASS IA-9 CERTIFICATES
</TABLE>
- ------------------
(1) The Class IA-X Certificates are interest-only certificates, have no
principal balance and will bear interest on the Class IA-X Notional Amount
(initially approximately $21,453,063) as described herein under "Description
of the Certificates--Interest."
(2) The Class IIA-X Certificates are interest-only certificates, have no
principal balance and will bear interest on the Class IIA-X Notional Amount
(initially approximately $1,349,887) as described herein under "Description
of the Certificates--Interest."
(3) The Class A-P Certificates will be entitled to principal only as described
herein under "Description of the Certificates--Principal (Including
Prepayments)--Distributions to the Class A-P Certificateholders."
---------------------------
PRINCIPAL AND INTEREST PAYABLE MONTHLY, COMMENCING IN AUGUST 1998
The Series 1998-AS1 Certificates will consist of the fourteen Classes of
Class A Certificates set forth above (collectively, the "Class A Certificates"),
the Class M Certificates and the Class B-1, Class B-2, Class B-3, Class B-4 and
Class B-5 Certificates (collectively, the "Class B Certificates"). The
"Certificates" are the Class A, Class M and Class B Certificates, referred to
collectively. The "Offered Certificates" are the Class A Certificates, the Class
M Certificates, the Class B-1 Certificates and the Class B-2 Certificates,
referred to collectively. The "Class IA Certificates" are the Class IA-1, Class
IA-2, Class IA-3, Class IA-4, Class IA-5, Class IA-6, Class IA-7, Class IA-8,
Class IA-9 and Class IA-X Certificates, referred to collectively. The "Class IIA
Certificates" are the Class IIA-1 and Class IIA-X Certificates, referred to
collectively. The "Offered Class B Certificates" are the Class B-1 and Class B-2
Certificates, referred to collectively. The "Non-Offered Class B Certificates"
are the Class B-3, Class B-4 and Class B-5 Certificates, referred to
collectively. Only the Offered Certificates are offered hereby.
(COVER CONTINUED ON NEXT PAGE)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD CONSIDER THE
FACTORS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE S-20 OF THIS PROSPECTUS
SUPPLEMENT AND "RISK FACTORS" BEGINNING ON PAGE 7 OF THE PROSPECTUS.
The Offered Certificates (other than the Class IA-X and Class IIA-X
Certificates) will be purchased from the Seller by Credit Suisse First Boston
Corporation ("CSFBC"). The Class IA-X and Class IIA-X Certificates will be
purchased from the Seller by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ," and together with CSFBC, the "Underwriters"). The Offered Certificates
will be offered by each Underwriter from time to time in negotiated transactions
or otherwise at varying prices to be determined at the time of sale. Proceeds to
the Seller from the sale of the Offered Certificates will be approximately
$177,107,000 plus accrued interest on the Offered Certificates (other than the
Class A-P Certificates), before deducting expenses payable by the Seller,
estimated to be $262,000.
------------------------
The Offered Certificates purchased by each Underwriter are offered by such
Underwriter subject to prior sale, when, as and if delivered to and accepted by
such Underwriter, and subject to certain other conditions. It is expected that
delivery of the Class A-R, Class M, Class B-1 and Class B-2 Certificates will be
made at the offices of Credit Suisse First Boston Corporation, New York, New
York, and that delivery of the remaining Classes of Offered Certificates will be
made in book-entry form only, through the Same Day Funds Settlement System of
The Depository Trust Company, in each case on or about July 30, 1998.
------------------------
Credit Suisse First Boston Donaldson, Lufkin & Jenrette
Securities Corporation
<PAGE>
The date of this Prospectus Supplement is July 24, 1998
<PAGE>
The Certificates will represent beneficial interests in a pool (the
"Mortgage Pool") of fixed rate one-to four-family first lien mortgage loans (the
"Mortgage Loans") and certain related property (together, the "Trust Fund")
conveyed by Chase Mortgage Finance Corporation (the "Seller"). The Mortgage Pool
will be divided into two groups (each, a "Mortgage Group"): "Mortgage Group One"
and "Mortgage Group Two." Mortgage Group One will consist of Mortgage Loans with
approximate original terms to stated maturity of greater than 15 years, but not
more than 30 years, together with Mortgage Loans with approximate original terms
to stated maturity of up to 15 years and original principal balances greater
than $227,150. Mortgage Group Two will consist of Mortgage Loans with
approximate original terms to stated maturity of up to 15 years and original
principal balances less than or equal to $227,150. See "The Mortgage Pool."
Distributions of interest and principal with respect to the Class IA and Class
A-R Certificates will be made primarily based on payments received on the
Mortgage Loans in Mortgage Group One (the "Group One Mortgage Loans").
Distributions of interest and principal with respect to the Class IIA
Certificates will be made primarily based upon payments received on the Mortgage
Loans in Mortgage Group Two (the "Group Two Mortgage Loans"). Distributions of
interest and principal with respect to the Class A-P, Class M and Class B
Certificates will be made based upon payments received on the Mortgage Loans in
both Mortgage Groups. The Offered Certificates will be issued in the initial
principal amounts set forth above and the Non-Offered Class B Certificates will
be issued in the aggregate initial principal amount of approximately $2,100,027.
Chase Manhattan Mortgage Corporation ("Chase Manhattan Mortgage") will serve as
servicer (in such capacity, the "Servicer") of the Mortgage Pool. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Prospectus dated July 23, 1998 attached hereto
(the "Prospectus").
Initially, the Class A Certificates will evidence a beneficial interest of
approximately 93.25% in the aggregate principal balance of the Mortgage Loans in
the Trust Fund, the Class M Certificates will evidence a beneficial interest of
approximately 3.15% in the aggregate principal balance of the Mortgage Loans in
the Trust Fund, the Class B-1 Certificates will evidence a beneficial interest
of approximately 1.45% in the aggregate principal balance of the Mortgage Loans
in the Trust Fund, the Class B-2 Certificates will evidence a beneficial
interest of approximately 0.95% in the aggregate principal balance of the
Mortgage Loans in the Trust Fund and the Non-Offered Class B Certificates will
evidence a beneficial interest of the remaining approximately 1.20% in the
aggregate principal balance of the Mortgage Loans in the Trust Fund. The rights
of the Class M Certificateholders to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the Class A
Certificateholders to the extent described herein. The rights of the Class B-1
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A and Class M Certificateholders
to the extent described herein. The rights of the Class B-2 Certificateholders
to receive distributions with respect to the Mortgage Loans will be subordinated
to the rights of the Class A, Class M and Class B-1 Certificateholders to the
extent described herein. The rights of the Non-Offered Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A, Class M, Class B-1 and Class
B-2 Certificateholders to the extent described herein. The percentage interest
of the Class A, Class M, Class B-1 and Class B-2 Certificates in the Mortgage
Pool on each Distribution Date will vary to the extent that the Class A, Class
M, Class B-1 or Class B-2 Certificateholders, as the case may be, do not receive
amounts due to them on such date, losses are realized on the Mortgage Loans or
there are principal prepayments of, or certain other unscheduled amounts of
principal are received with respect to, the Mortgage Loans. Realized Losses
(defined herein) on the Mortgage Loans (other than Excess Losses (defined
herein)) will be allocated first to the Non-Offered Class B Certificates, then
to the Class B-2 Certificates, then to the Class B-1 Certificates, then to the
Class M Certificates and then to the Class A Certificates as described herein,
in each case until their principal balances have been reduced to zero. See
"Description of the Certificates--Subordinated Certificates and Shifting
Interests."
Proceeds of the assets in the Trust Fund are the sole source of payments on
the Offered Certificates. The Offered Certificates will not represent an
interest in or obligation of the Seller, Chase Manhattan Mortgage or any of
their affiliates or any other entity. The Offered Certificates will not be
savings accounts
S-2
<PAGE>
or deposits and neither the Offered Certificates nor the underlying Mortgage
Loans will be insured or guaranteed by the Federal Deposit Insurance Corporation
or any other governmental agency or by the Seller, Chase Manhattan Mortgage or
any of their affiliates or any other entity, nor has the Federal Deposit
Insurance Corporation or any other governmental agency passed upon the accuracy
of the information contained in this Prospectus Supplement or in the Prospectus.
The Offered Certificates may not be an appropriate investment for individual
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:
- 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 (including full or partial prepayments, repurchases, defaults
and liquidations) on the Mortgage Loans;
- 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 (including full or partial prepayments,
repurchases, defaults and liquidations) on the Mortgage Loans, and as such
the Offered Certificates may be inappropriate investments for an investor
requiring a distribution of a particular amount of principal on a specific
date or an otherwise predictable stream of distributions;
- There can be no assurance that an investor will be able to reinvest
amounts distributed in respect of principal on an Offered Certificate
(which, in general, are expected to be greater during periods of
relatively low interest rates) at a rate at least as high as the
Certificate Rate applicable thereto;
- As discussed below, there can be no assurance that a secondary market for
the Offered Certificates will develop or provide Certificateholders with
liquidity of investment; and The Offered Certificates are subject to the
further risks and other special considerations discussed herein and in the
Prospectus under the heading "Risk Factors."
THE YIELD TO MATURITY OF THE CLASS IA-X CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
LIQUIDATIONS, REPURCHASES AND DEFAULTS) ON THE NON-DISCOUNT MORTGAGE LOANS
(DEFINED HEREIN) IN MORTGAGE GROUP ONE, WHICH MAY FLUCTUATE SIGNIFICANTLY FROM
TIME TO TIME. A RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE NON-DISCOUNT MORTGAGE
LOANS IN MORTGAGE GROUP ONE WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE YIELD TO
MATURITY OF THE CLASS IA-X CERTIFICATES. INVESTORS SHOULD FULLY CONSIDER THE
ASSOCIATED RISKS, INCLUDING THE RISK THAT A RAPID RATE OF PRINCIPAL PREPAYMENTS
ON THE NON-DISCOUNT MORTGAGE LOANS IN MORTGAGE GROUP ONE COULD RESULT IN THE
FAILURE OF INVESTORS IN THE CLASS IA-X CERTIFICATES TO RECOUP THEIR INITIAL
INVESTMENT. SEE "PREPAYMENT AND YIELD CONSIDERATIONS--YIELD CONSIDERATIONS WITH
RESPECT TO THE CLASS IA-X AND CLASS IIA-X CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS IIA-X CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
LIQUIDATIONS, REPURCHASES AND DEFAULTS) ON THE NON-DISCOUNT MORTGAGE LOANS IN
MORTGAGE GROUP TWO, WHICH MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. A RAPID
RATE OF PRINCIPAL PREPAYMENTS ON THE NON-DISCOUNT MORTGAGE LOANS IN MORTGAGE
GROUP TWO WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE YIELD TO MATURITY OF THE
CLASS IIA-X CERTIFICATES. INVESTORS SHOULD FULLY CONSIDER THE ASSOCIATED RISKS,
INCLUDING THE RISK THAT A RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE NON-
DISCOUNT MORTGAGE LOANS IN MORTGAGE GROUP TWO COULD RESULT IN THE FAILURE OF
INVESTORS IN THE CLASS IIA-X CERTIFICATES TO RECOUP THEIR INITIAL INVESTMENT.
SEE "PREPAYMENT AND YIELD CONSIDERATIONS--YIELD CONSIDERATIONS WITH RESPECT TO
THE CLASS IA-X AND CLASS IIA-X CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS A-P CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS,
LIQUIDATIONS, REPURCHASES AND DEFAULTS) ON THE DISCOUNT MORTGAGE LOANS, WHICH
MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. A SLOWER RATE OF PRINCIPAL
PREPAYMENTS ON THE DISCOUNT MORTGAGE LOANS THAN THAT ANTICIPATED BY INVESTORS
WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE YIELD TO MATURITY OF THE CLASS A-P
CERTIFICATES. INVESTORS SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING
THE RISK THAT A RELATIVELY SLOW RATE OF PRINCIPAL PAYMENTS (INCLUDING
S-3
<PAGE>
PREPAYMENTS, LIQUIDATIONS, REPURCHASES AND DEFAULTS) ON THE DISCOUNT MORTGAGE
LOANS WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE YIELD TO AN INVESTOR IN THE
CLASS A-P CERTIFICATES. SEE "PREPAYMENT AND YIELD CONSIDERATIONS--YIELD
CONSIDERATIONS WITH RESPECT TO THE CLASS A-P CERTIFICATES."
THE YIELD TO MATURITY ON THE CLASS M, CLASS B-1 AND CLASS B-2 CERTIFICATES,
RESPECTIVELY, WILL BE EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE LOANS (AND
THE TIMING THEREOF), TO THE EXTENT SUCH LOSSES ARE NOT COVERED BY THE APPLICABLE
CLASSES OF CERTIFICATES SUBORDINATE THERETO, BECAUSE THE ENTIRE AMOUNT OF ANY
SUCH LOSSES (OTHER THAN EXCESS LOSSES) WILL BE ALLOCABLE TO SUCH CLASSES OF
CERTIFICATES UNTIL THEIR PRINCIPAL BALANCE IS REDUCED TO ZERO. SEE "PREPAYMENT
AND YIELD CONSIDERATIONS."
The Book-Entry Certificates (defined herein) will be represented by
certificates registered in the name of Cede & Co., as nominee of DTC, as further
described herein. The interests of beneficial owners of the Book-Entry
Certificates will be represented by book entries on the records of participating
members of DTC. Definitive certificates will be available for the Book-Entry
Certificates only under the limited circumstances described herein. See
"Description of the Certificates--Book-Entry Registration."
It is a condition to the issuance of the Offered Certificates that (i) the
Class A Certificates (other than the Class A-P, Class IA-X and Class IIA-X
Certificates) be rated "AAA" by Standard & Poor's, a Division of the McGraw-Hill
Companies, Inc. ("S&P") and Fitch IBCA, Inc. ("Fitch"), (ii) the Class A-P,
Class IA-X and Class IIA-X Certificates be rated "AAAr" by S&P and "AAA" by
Fitch, (iii) the Class M Certificates be rated at least "AA" by Fitch, (iii) the
Class B-1 Certificates be rated at least "A" by Fitch, and (iv) the Class B-2
Certificates be rated at least "BBB" by Fitch. See "Ratings."
The Seller intends to cause an election to be made to treat the segregated
pool comprising the assets of the Trust Fund as a real estate mortgage
investment conduit (a "REMIC") for federal income tax purposes. The Offered
Certificates (other than the Class A-R Certificate) will constitute "regular
interests" in the REMIC. The Class A-R Certificate will represent the sole class
of "residual interests" in the REMIC. See "Federal Income Tax Considerations"
herein and "Federal Income Tax Consequences" in the Prospectus.
There is currently no secondary market for the Offered Certificates and
there can be no assurance that a secondary market will develop or, if such a
market does develop, that it will provide Certificateholders with liquidity of
investment at any particular time or for the life of the Offered Certificates.
The Underwriter intends to act as a market maker in the Offered Certificates,
subject to applicable provisions of federal and state securities laws and other
regulatory requirements, but is under no obligation to do so and any such market
making may be discontinued at any time. There can be no assurance that any
investor will be able to sell an Offered Certificate at a price equal to or
greater than the price at which such Certificate was purchased. THE CLASS M AND
OFFERED CLASS B CERTIFICATES MAY NOT BE TRANSFERRED UNLESS THE TRANSFEREE HAS
DELIVERED (I) A REPRESENTATION LETTER TO THE SERVICER STATING EITHER (A) THAT
THE TRANSFEREE IS NOT A PLAN AND IS NOT ACTING ON BEHALF OF A PLAN OR USING THE
ASSETS OF A PLAN TO EFFECT SUCH PURCHASE OR (B) SUBJECT TO CERTAIN CONDITIONS
DESCRIBED HEREIN, THAT THE SOURCE OF FUNDS USED TO PURCHASE THE CLASS M OR
OFFERED CLASS B CERTIFICATES IS AN "INSURANCE COMPANY GENERAL ACCOUNT" OR (II)
AN OPINION OF COUNSEL AND SUCH OTHER DOCUMENTATION AS PROVIDED IN THIS
PROSPECTUS SUPPLEMENT. IN ADDITION, THE CLASS A-R CERTIFICATE MAY NOT BE
PURCHASED BY OR TRANSFERRED TO (I) A "DISQUALIFIED ORGANIZATION," (II) EXCEPT
UNDER CERTAIN LIMITED CIRCUMSTANCES, A PERSON WHO IS NOT A "U.S. PERSON," (III)
A PLAN OR A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR (IV)
ANY PERSON OR ENTITY WHO THE TRANSFEROR KNOWS OR HAS REASON TO KNOW WILL BE
UNWILLING OR UNABLE TO PAY WHEN DUE FEDERAL, STATE OR LOCAL TAXES WITH RESPECT
THERETO.See "ERISA Considerations" and "Description of the
Certificates--Restrictions on Transfer of the Class A-R, Class M and Offered
Class B Certificates" herein and "Federal Income Tax Consequences" in the
Prospectus.
------------------------
The Seller will file with the Securities and Exchange Commission (the
"Commission") certain computational materials relating to the Mortgage Loans and
the Offered Certificates on Form 8-K. Such
S-4
<PAGE>
materials were prepared by the Underwriter for certain prospective investors,
and, unless otherwise specified in such Form 8-K, the information included in
such materials is subject to and is superseded by, the information set forth in
this Prospectus Supplement.
------------------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus and purchasers are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Offered Certificates may not be consummated
unless the purchaser has received both this Prospectus Supplement and the
Prospectus.
------------------------
UNTIL OCTOBER 22, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OF
SUBSCRIPTIONS.
------------------------
S-5
<PAGE>
TERMS OF THE CERTIFICATES
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise defined
shall have the respective meanings assigned them in the Prospectus.
<TABLE>
<S> <C>
Securities Offered........... Multi-Class Mortgage Pass-Through Certificates, Series
1998-AS1. The Class A Certificates, Class M Certificates,
Class B-1 Certificates and Class B-2 Certificates are
sometimes collectively referred to herein as the "Offered
Certificates." Only the Offered Certificates are offered
hereby.
The "Class A Certificates" will consist of the Class IA-1,
Class IA-2, Class IA-3, Class IA-4, Class IA-5, Class IA-6,
Class IA-7, Class IA-8, Class IA-9, Class IA-X, Class IIA-1,
Class IIA-X, Class A-P and Class A-R Certificates.
The Class A Certificates (exclusive of the Class A-P
Certificates) are sometimes collectively referred to herein
as the "Non-PO Class A Certificates."
The "Class IA Certificates" are the Class IA-1, Class IA-2,
Class IA-3, Class IA-4, Class IA-5, Class IA-6, Class IA-7,
Class IA-8, Class IA-9 and Class IA-X Certificates, referred
to collectively.
The "Class IIA Certificates" are the Class IIA-1 and Class
IIA-X Certificates, referred to collectively.
The Class A-P Certificates are principal only Certificates
and will not be entitled to payments of interest.
The Class IA-X and Class IIA-X Certificates are interest
only Certificates and will not be entitled to payments of
principal.
The "Class B Certificates" will consist of the Class B-1,
Class B-2, Class B-3, Class B-4 and Class B-5 Certificates.
The Class M and Class B Certificates are sometimes
collectively referred to herein as the "Subordinated
Certificates."
The Class B-1 and Class B-2 Certificates are sometimes
collectively referred to herein as the "Offered Class B
Certificates."
The Class B-3, Class B-4 and Class B-5 Certificates are
sometimes collectively referred to herein as the
"Non-Offered Class B Certificates."
The Class B-3, Class B-4 and Class B-5 Certificates are not
offered hereby. Any information contained herein relating to
the Class B-3, Class B-4 and Class B-5 Certificates is
presented solely to provide a better understanding of the
Offered Certificates.
Seller....................... Chase Mortgage Finance Corporation (the "Seller"). See
"Chase Mortgage Finance Corporation" in the Prospectus.
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Servicer..................... Chase Manhattan Mortgage Corporation ("Chase Manhattan
Mortgage" or the "Servicer"). See "Chase Manhattan Mortgage
Corporation."
Trustee...................... Citibank, N.A., a national banking association (the
"Trustee"). See "The Pooling and Servicing
Agreement--Trustee."
Initial Principal Amount of
Offered Certificates....... $172,901,967. (Approximate; subject to a permitted variance
of plus or minus 5%.) In addition, the original principal
amount of any Class of Certificates may be adjusted if
necessary to obtain the required ratings on the Offered
Certificates. Accordingly, any investors' commitments with
respect to the Offered Certificates may be increased or
decreased correspondingly.
Denominations and
Registration of the
Certificates............... The Offered Certificates (other than the Class IA-X and
Class IIA-X Certificates) generally will be issuable in
denominations of $25,000 (or $1,000, in the case of the
Class IA-6, Class IA-7 and Class IA-8 Certificates, and
$100,000, in the case of the Class M and Offered Class B
Certificates) principal amount (or, in either case, internal
multiples of 1,000 in excess thereof). The Class IA-X and
Class IIA-X Certificates will have no principal balance, but
will be issuable in denominations of $25,000 based on the
Class IA-X Notional Amount and the Class IIA-X Notional
Amount, respectively (each as defined herein) (or integral
multiples thereof). A single Class A-R Certificate will be
issuable in a $100 denomination. The Offered Class A
Certificates (other than the Class A-R Certificate)
initially will be issued in book-entry form and initially
will be represented by one or more physical certificates
registered in the name of Cede & Co., as the nominee of The
Depository Trust Company ("DTC"). No person acquiring an
interest in any Offered Class A Certificate (a "Certificate
Owner") will be entitled to receive a Definitive Certificate
(defined herein) representing such person's interest in the
Trust Fund, except in the event that Definitive Certificates
are issued under the limited circumstances described herein.
The Class A-R, Class M, Class B-1 and Class B-2 Certificates
will be issued in definitive form. All references herein to
holders of Certificates ("Certificateholders") and their
rights shall mean and include the rights of Certificate
Owners, as such rights may be exercised through DTC and its
participating organizations, except as otherwise specified
herein. See "Description of the Certificates--Book-Entry
Registration" and "--Definitive Certificates."
Cut-Off-Date................. July 1, 1998
Agreement.................... The Pooling and Servicing Agreement, to be dated as of July
1, 1998 (the "Agreement"), among the Seller, the Servicer
and the Trustee, relating to the Certificates.
The Mortgage Loans........... Fixed rate, first lien mortgage loans secured by one-to
four-family residential properties, having an aggregate
unpaid principal balance on the Cut-off Date of
approximately $175,001,996 (the "Mortgage Loans"). Monthly
payments of principal of and interest on the
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
Mortgage Loans ("Monthly Payments") will be due on the first
day of each month (each, a "Due Date").
The Seller expects the Mortgage Loans to have the
characteristics described below. References herein to
percentages of the Mortgage Loans refer to the percentage of
the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date, after giving effect to Monthly Payments
due on or prior to the Cut-off Date, whether or not
received. The Mortgage Loans will be divided into two groups
(each, a "Mortgage Group"): "Mortgage Group One"
(constituting approximately 92.5% of the Mortgage Loans) and
"Mortgage Group Two" (constituting approximately 7.5% of the
Mortgage Loans). See "The Mortgage Pool."
</TABLE>
SELECTED MORTGAGE LOAN DATA
(APPROXIMATE AS OF THE CUT-OFF DATE)
MORTGAGE POOL
<TABLE>
<S> <C>
Number of Mortgage Loans......................................... 1,476
Aggregate Unpaid Principal Balance............................... $175,001,996
Range of Unpaid Principal Balances............................... $15,182--$749,522
Average Unpaid Principal Balance................................. $118,565
Range of Mortgage Rates.......................................... 7.00%--9.00%
Weighted Average Mortgage Rate................................... 7.943%
Range of Remaining Terms to Stated Maturity...................... 118 months--360 months
Weighted Average Remaining Term to Stated Maturity............... 344 months
Range of Remaining Terms to Expected Maturity(1)................. 28 months--360 months
Weighted Average Remaining Term to Expected Maturity(1).......... 344 months
Weighted Average Loan Age(2)..................................... 2 months
Range of Original Loan-to-Value Ratios........................... 15.58%--95.00%
Weighted Average Original Loan-to-Value Ratio.................... 76.16%
Weighted Average FICO Score(3)................................... 720
</TABLE>
- ------------------------
(1) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan as of the Cut-off Date.
(2) Based on the number of months from and including the first Monthly Payment
to and including the Cut-off Date.
(3) Based on the portion of the Mortgage Loans (approximately 96.8%) that were
scored.
S-8
<PAGE>
SELECTED MORTGAGE LOAN DATA
(APPROXIMATE AS OF THE CUT-OFF DATE)
MORTGAGE GROUP ONE
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Number of Mortgage Loans......................................... 1,308
Aggregate Unpaid Principal Balance............................... $161,851,151
Range of Unpaid Principal Balances............................... $15,182--$749,522
Average Unpaid Principal Balance................................. $123,739
Range of Mortgage Rates.......................................... 7.00%--9.00%
Weighted Average Mortgage Rate................................... 7.959%
Range of Remaining Terms to Stated Maturity...................... 178 months--360 months
Weighted Average Remaining Term to Stated Maturity............... 357 months
Range of Remaining Terms to Expected Maturity(1)................. 28 months--360 months
Weighted Average Remaining Term to Expected Maturity(1).......... 357 months
Weighted Average Loan Age(2)..................................... 2 months
Range of Original Loan-to-Value Ratios........................... 15.58%--95.00%
Weighted Average Original Loan-to-Value Ratio.................... 76.58%
Weighted Average FICO Score(3)................................... 720
</TABLE>
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(1) Based on payments actually received (or scheduled to be received) on each
Group One Mortgage Loan as of the Cut-off Date.
(2) Based on the number of months from and including the first Monthly Payment
to and including the Cut-off Date.
(3) Based on the portion of the Group One Mortgage Loans (approximately 96.9%)
that were scored.
SELECTED MORTGAGE LOAN DATA
(APPROXIMATE AS OF THE CUT-OFF DATE)
MORTGAGE GROUP TWO
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Number of Mortgage Loans......................................... 168
Aggregate Unpaid Principal Balance............................... $13,150,845
Range of Unpaid Principal Balances............................... $18,645--$225,317
Average Unpaid Principal Balance................................. $78,279
Range of Mortgage Rates.......................................... 7.00%--8.75%
Weighted Average Mortgage Rate................................... 7.756%
Range of Remaining Terms to Stated Maturity...................... 118 months--180 months
Weighted Average Remaining Term to Stated Maturity............... 178 months
Range of Remaining Terms to Expected Maturity(1)................. 118 months--180 months
Weighted Average Remaining Term to Expected Maturity(1).......... 178 months
Weighted Average Loan Age(2)..................................... 2 months
Range of Original Loan-to-Value Ratios........................... 23.28%--95.00%
Weighted Average Original Loan-to-Value Ratio.................... 70.98%
Weighted Average FICO Score(3)................................... 720
</TABLE>
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(1) Based on payments actually received (or scheduled to be received) on each
Group Two Mortgage Loan as of the Cut-off Date.
(2) Based on the number of months from and including the first Monthly Payment
to and including the Cut-off Date.
(3) Based on the portion of the Group Two Mortgage Loans (approximately 95.7%)
that were scored.
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Prepayment and Yield
Considerations............. The rate of principal payments and the yields to maturity of
the Offered Certificates are related to the rate and timing
of payments of principal, including prepayments, on the
underlying Mortgage Loans in the related Mortgage Group (or
with respect to the Class A-P, Class M and Offered Class B
Certificates, on the underlying Mortgage Loans in both
Mortgage Groups). As is the case with mortgage- backed
securities generally, the Offered Certificates are subject
to substantial inherent cash-flow uncertainties because the
Mortgage Loans may be prepaid, in whole or in part, at any
time without penalty. Any prepayments of Mortgage Loans in a
Mortgage Group will result in distributions to the related
Certificateholders of principal amounts which would
otherwise be distributed over the remaining terms of the
related Mortgage Loans.
The rate of prepayments with respect to mortgage loans
secured by one- to four-family residences has fluctuated
significantly in recent years. The Seller believes that a
predominant factor affecting the prepayment rate on a large
pool of mortgage loans is the difference between the
interest rates on the mortgage loans (giving consideration
to the cost of any refinancing) and prevailing mortgage
rates. In general, if mortgage interest rates were to fall
below (or rise above) the interest rates on the Mortgage
Loans, the rate of prepayment would be expected to increase
(or decrease). Other factors affecting the prepayment rate
of the Mortgage Loans may include changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions.
In general, rapid rates of prepayments on the Mortgage Loans
are likely to coincide with periods of low prevailing
interest rates. During such periods, the yields at which an
investor may be able to reinvest amounts received as
principal payments on the investor's Class of Offered
Certificates may be lower than the Certificate Rate on that
Class. Conversely, in general, slow rates of prepayments on
the Mortgage Loans are likely to coincide with periods of
high prevailing interest rates. During such periods, the
amount of principal payments available to an investor for
reinvestment at such high rates may be relatively low.
The tables set forth herein under "Prepayment and Yield
Considerations" illustrates the effect of various constant
prepayment rates on the weighted average lives of each Class
of Offered Certificates based on certain assumptions
described therein (the "Modeling Assumptions").
THE YIELD TO MATURITY OF THE CLASS IA-X CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS, LIQUIDATIONS, REPURCHASES
AND DEFAULTS) ON THE NON-DISCOUNT MORTGAGE LOANS (DEFINED
HEREIN) IN MORTGAGE GROUP ONE, WHICH MAY FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME. A RAPID RATE OF PRINCIPAL
PREPAYMENTS ON THE NON-DISCOUNT MORTGAGE LOANS IN MORTGAGE
GROUP ONE WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE YIELD
TO MATURITY OF THE CLASS IA-X CERTIFICATES. IN ADDITION,
BECAUSE HOLDERS OF THE CLASS IA-X CERTIFICATES GENERALLY
HAVE RIGHTS TO RELATIVELY LARGER PORTIONS OF INTEREST
PAYMENTS ON THE GROUP ONE MORTGAGE LOANS WITH
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HIGHER MORTGAGE RATES, AND BECAUSE MORTGAGE LOANS HAVING
HIGHER MORTGAGE RATES ARE GENERALLY LIKELY TO PREPAY AT A
FASTER RATE THAN MORTGAGE LOANS WITH LOWER MORTGAGE RATES,
THE YIELD ON THE CLASS IA-X CERTIFICATES WILL BE ADVERSELY
AFFECTED TO A GREATER EXTENT THAN THE YIELDS ON THE OTHER
CLASSES OF CLASS IA CERTIFICATES IF THE GROUP ONE MORTGAGE
LOANS WITH HIGHER MORTGAGE RATES PREPAY FASTER THAN THE
GROUP ONE MORTGAGE LOANS WITH LOWER MORTGAGE RATES. THE
YIELD TO INVESTORS ON THE CLASS IA-X CERTIFICATES WILL NOT
BE AFFECTED BY PREPAYMENTS ON THE DISCOUNT MORTGAGE LOANS
(DEFINED HEREIN) OR ON THE GROUP TWO MORTGAGE LOANS.
INVESTORS SHOULD FULLY CONSIDER THE ASSOCIATED RISKS,
INCLUDING THE RISK THAT A RAPID RATE OF PRINCIPAL
PREPAYMENTS ON THE NON-DISCOUNT MORTGAGE LOANS IN MORTGAGE
GROUP ONE COULD RESULT IN THE FAILURE OF INVESTORS IN THE
CLASS IA-X CERTIFICATES TO RECOUP THEIR INITIAL INVESTMENT.
SEE "PREPAYMENT AND YIELD CONSIDERATIONS--YIELD
CONSIDERATIONS WITH RESPECT TO THE CLASS IA-X AND CLASS
IIA-X CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS IIA-X CERTIFICATES WILL
BE EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS, LIQUIDATIONS, REPURCHASES
AND DEFAULTS) ON THE NON-DISCOUNT MORTGAGE LOANS IN MORTGAGE
GROUP TWO, WHICH MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO
TIME. A RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE
NON-DISCOUNT MORTGAGE LOANS IN MORTGAGE GROUP TWO WILL HAVE
A MATERIAL NEGATIVE EFFECT ON THE YIELD TO MATURITY OF THE
CLASS IIA-X CERTIFICATES. IN ADDITION, BECAUSE HOLDERS OF
THE CLASS IIA-X CERTIFICATES GENERALLY HAVE RIGHTS TO
RELATIVELY LARGER PORTIONS OF INTEREST PAYMENTS ON MORTGAGE
LOANS IN MORTGAGE GROUP TWO WITH HIGHER MORTGAGE RATES, AND
BECAUSE MORTGAGE LOANS HAVING HIGHER MORTGAGE RATES ARE
GENERALLY LIKELY TO PREPAY AT A FASTER RATE THAN MORTGAGE
LOANS WITH LOWER MORTGAGE RATES, THE YIELD ON THE CLASS
IIA-X CERTIFICATES WILL BE ADVERSELY AFFECTED TO A GREATER
EXTENT THAN THE YIELDS ON THE OTHER CLASSES OF CLASS IIA
CERTIFICATES IF THE MORTGAGE LOANS IN MORTGAGE GROUP TWO
WITH HIGHER MORTGAGE RATES PREPAY FASTER THAN THE MORTGAGE
LOANS IN MORTGAGE GROUP TWO WITH LOWER MORTGAGE RATES. THE
YIELD TO INVESTORS ON THE CLASS IIA-X CERTIFICATES WILL NOT
BE AFFECTED BY PREPAYMENTS ON THE DISCOUNT MORTGAGE LOANS OR
ON THE MORTGAGE LOANS IN MORTGAGE GROUP ONE. INVESTORS
SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE
RISK THAT A RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE
NON-DISCOUNT MORTGAGE LOANS IN MORTGAGE GROUP TWO COULD
RESULT IN THE FAILURE OF INVESTORS IN THE CLASS IIA-X
CERTIFICATES TO RECOUP THEIR INITIAL INVESTMENT. SEE
"PREPAYMENT AND YIELD CONSIDERATIONS YIELD CONSIDERATIONS
WITH RESPECT TO THE CLASS IA-X AND CLASS IIA-X
CERTIFICATES."
THE YIELD TO MATURITY OF THE CLASS A-P CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS, LIQUIDATIONS, REPURCHASES
AND DEFAULTS) ON THE DISCOUNT MORTGAGE LOANS, WHICH MAY
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. A SLOWER RATE OF
PRINCIPAL PREPAYMENTS ON THE DISCOUNT MORTGAGE LOANS THAN
THAT ANTICIPATED BY INVESTORS WILL HAVE A MATERIAL NEGATIVE
EFFECT ON THE YIELD TO MATURITY OF THE CLASS A-P
CERTIFICATES. INVESTORS SHOULD FULLY CONSIDER THE ASSOCIATED
RISKS, INCLUDING THE RISK THAT A
</TABLE>
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RELATIVELY LOW RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS, LIQUIDATIONS, REPURCHASES AND DEFAULTS) ON THE
DISCOUNT MORTGAGE LOANS WILL HAVE A MATERIAL NEGATIVE EFFECT
ON THE YIELD TO AN INVESTOR IN THE CLASS A-P CERTIFICATES.
SEE "PREPAYMENT AND YIELD CONSIDERATIONS--YIELD
CONSIDERATIONS WITH RESPECT TO THE CLASS A-P CERTIFICATES."
THE YIELD TO MATURITY ON THE CLASS M, CLASS B-1 AND CLASS
B-2 CERTIFICATES, RESPECTIVELY, WILL BE EXTREMELY SENSITIVE
TO LOSSES ON THE MORTGAGE LOANS (AND THE TIMING THEREOF), TO
THE EXTENT SUCH LOSSES ARE NOT COVERED BY THE APPLICABLE
CLASSES OF CERTIFICATES SUBORDINATE THERETO, BECAUSE THE
ENTIRE AMOUNT OF ANY SUCH LOSSES (OTHER THAN EXCESS LOSSES
(DEFINED HEREIN)) WILL BE ALLOCABLE TO SUCH CLASSES OF
CERTIFICATES UNTIL THEIR PRINCIPAL BALANCE IS REDUCED TO
ZERO.
If an Offered Certificate (particularly a Class A-P
Certificate) is purchased at a discount and if the purchaser
of such Offered Certificate calculates its yield to maturity
based on a faster assumed rate of payment of principal than
that actually received on such Offered Certificate, its
actual yield to maturity will be lower than that so
calculated. Conversely, if an Offered Certificate
(particularly a Class IA-X or Class IIA-X Certificate) is
purchased at a premium and if the purchaser of such Offered
Certificate calculates its yield to maturity based on a
slower assumed rate of payment of principal or reduction of
notional amount than that actually received on such Offered
Certificate, its actual yield to maturity will be lower than
that so calculated and, under certain circumstances, such a
purchaser may fail to recoup its initial investment.
See "Prepayment and Yield Considerations" herein and "Yield,
Maturity and Weighted Average Life Considerations" in the
Prospectus.
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Description of the
Certificates............... Initially, the Class A Certificates will evidence in the
aggregate a beneficial interest of approximately 93.25% (the
"Class A Percentage") in the aggregate principal balance of
the Mortgage Loans (the "Mortgage Pool") and certain other
property held in trust for the benefit of the
Certificateholders (the "Trust Fund"), the Class M
Certificates will evidence in the aggregate a beneficial
interest of approximately 3.15% (the "Class M Percentage")
in the aggregate principal balance of the Mortgage Loans in
the Trust Fund, the Class B-1 Certificates will evidence in
the aggregate a beneficial interest of approximately 1.45%
(the "Class B-1 Percentage") in the aggregate principal
balance of the Mortgage Loans in the Trust Fund, the Class
B-2 Certificates will evidence in the aggregate a beneficial
interest of approximately 0.95% (the "Class B-2 Percentage")
in the aggregate principal balance of the Mortgage Loans in
the Trust Fund and the Non-Offered Class B Certificates will
evidence in the aggregate the remaining beneficial interest
of approximately 1.20% (the "Non- Offered Class B
Percentage") in the aggregate principal balance of the
Mortgage Loans in the Trust Fund. The Class A Percentage,
the Class M Percentage, the Class B-1 Percentage and the
Class B-2 Percentage will vary from time to time, as
described herein, to the extent that the Class A, Class M,
Class B-1 or Class B-2 Certificateholders do not receive
amounts due to them on any Distribution Date, losses are
realized on the Mortgage Loans or there are principal
prepayments of, or certain other unscheduled amounts of
principal are received with respect to, the Mortgage Loans.
The Non-Offered Class B Certificates will have an initial
aggregate principal balance of approximately $2,100,027 and
such Certificates will be privately placed with a limited
number of institutional investors and are not offered
hereby. See "Description of the Certificates-- Distributions
to Certificateholders" and "--Subordinated Certificates and
Shifting Interests."
Record Date.................. The last business day of the month preceding the month of
each Distribution Date.
Principal (Including
Prepayments)............... Principal received or advanced as a portion of the Monthly
Payment on each Mortgage Loan will be passed through
monthly, on the 25th day of the month (or if such day is not
a business day, the next succeeding business day) in which
the related Due Date occurs (each, a "Distribution Date"),
commencing August 25, 1998. Principal prepayments received
during the period from the first day of any month to the
last day of such month (each, a "Principal Prepayment
Period") will be distributed on the Distribution Date
occurring in the month following the month of receipt.
Distributions in respect of principal will be allocated
among the various Classes as described herein under
"Description of the Certificates--Distributions to
Certificateholders--Principal (Including Prepayments)" and
on a pro rata basis among the Certificates of each Class.
The Class IA-X and Class IIA-X Certificates will be entitled
to interest only and will not be entitled to distributions
of principal. The rate of distribution allocable to
principal will depend on, among other factors, the rate of
payment
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of principal (including prepayments) of the Mortgage Loans.
The Final Scheduled Distribution Date (defined herein) of
each Class of Offered Certificates has been calculated as
described herein. The actual final distribution with respect
to each Class of Offered Certificates is likely to occur
prior to its Final Scheduled Distribution Date, although, in
the event of defaults in payment of the Mortgage Loans, it
could occur later or earlier. See "Description of the
Certificates--Distributions to Certificateholders--Principal
(Including Prepayments)."
Interest..................... Interest received or advanced on each Mortgage Loan at the
applicable Net Mortgage Rate (defined herein) will be passed
through monthly on the Distribution Date occurring in the
month in which the related Due Date occurs, commencing
August 25, 1998. Interest will be payable to the holders of
each Class of Offered Certificates at the rate (the
"Certificate Rate") specified or described on the cover
hereof on the outstanding respective principal balances of
such Certificates (or, in the case of the Class IA-X and
Class IIA-X Certificates, the Class IA-X Notional Amount and
Class IIA-X Notional Amount, respectively) as of the
relevant Determination Date (defined herein). The Class A-P
Certificates will be entitled to principal only and will not
be entitled to distributions of interest. See "Description
of the Certificates--Distributions to
Certificateholders--Interest" and "--Principal (Including
Prepayments)."
The Servicer will receive a fee for the servicing of each
Mortgage Loan (the "Servicing Fee") equal to 0.3139% per
annum of the unpaid principal balance of each Mortgage Loan.
See "The Pooling and Servicing Agreement--Servicing
Compensation and Payment of Expenses."
The Class IA-X and Class IIA-X Certificates are interest
only certificates. The Class IA-X and Class IIA-X
Certificates will not receive distributions of principal,
but will accrue interest on the Class IA-X Notional Amount
and the Class IIA-X Notional Amount, respectively (each as
defined herein).
Subordinated Certificates.... The rights of the holders of each Class of Subordinated
Certificates to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the
Class A Certificateholders, and (except in the case of the
Class M Certificateholders) to the holders of each Class of
Class B Certificates having a lower numerical class
designation, to the extent described below. The
subordination provided by the Subordinated Certificates is
intended to enhance the likelihood of regular receipt by the
Class A Certificateholders of the full amount of monthly
distributions due them and to protect the Class A
Certificateholders against losses. The subordination
provided by each Class of Class B Certificates relative to
the Class M Certificates and each Class of Class B
Certificates having a lower numerical class designation is
intended to similarly benefit such Classes of Subordinated
Certificates.
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Because the Subordinated Certificates represent interests in
Mortgage Loans in both Mortgage Groups, the principal
balances of the Subordinated Certificates could be reduced
to zero as a result of a disproportionate amount of losses
on the Mortgage Loans in one Mortgage Group, increasing the
likelihood that losses on the Mortgage Loans in the other
Mortgage Group will be allocated to the Class A Certificates
corresponding to such other Mortgage Group.
On each Distribution Date, payments to the Class A
Certificateholders will be made prior to payments to the
Class M and Class B Certificateholders, payments to the
Class M. Certificateholders will be made prior to payments
to the Class B Certificateholders, payments to the Class B-1
Certificate holders will be made prior to payments to the
Class B-2 Certificateholders and the Non-Offered Class B
Certificateholders and payments to the Class B-2
Certificateholders will be made prior to payments to the
Non-Offered Class B Certificateholders. If, on any
Distribution Date prior to the Credit Support Depletion Date
(defined herein), the Class A Certificateholders receive
less than the amount due to them on such date, the interest
of the Class A Certificateholders in the Trust Fund will
increase so as to preserve the entitlement of the Class A
Certificateholders with respect to unpaid principal of the
Mortgage Loans and interest thereon. If a principal
prepayment is made or certain other unscheduled amounts of
principal are received on a Mortgage Loan, the Non-PO Class
A Certificateholders will be entitled to receive an amount
equal to the Non-PO Class A Prepayment (defined herein) of
the amount received. This will have the effect of
accelerating receipt of principal by the Non-PO Class A
Certificateholders (other than the Class IA-5, Class IA-X
and Class IIA-X Certificateholders), thus reducing their
proportionate interest in the Trust Fund and increasing the
relative interest evidenced by the Class M and Class B
Certificates (absent offsetting Realized Losses (defined
herein) allocated to the Class B or Class M Certificates).
Increasing the interest of the Class M and Class B
Certificates relative to that of the Class A Certificates is
intended to preserve the availability of the subordination
provided by the Class M and Class B Certificates. Similarly,
because, as described herein, the then-current level of
Credit Support (defined herein) of each Class of
Subordinated Certificates will determine which Class or
Classes of Subordinated Certificates will receive amounts in
respect of principal prepayments included in the
Subordinated Optimal Principal Amount (defined herein),
under certain circumstances, on any Distribution Date,
Realized Losses on the Mortgage Loans may cause one or more
Classes of Subordinated Certificates to receive a
disproportionate amount of the Subordinated Optimal
Principal Amount. See "Description of the
Certificates--Distributions to Certificateholders--Principal
(Including Prepayments)" and "-- Subordinated Certificates
and Shifting Interests."
Advances..................... The Servicer is obligated to make advances ("Advances") for
distribution to the Certificateholders in respect of
delinquent Monthly Payments due on the immediately preceding
Due Date unless the
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Servicer determines such Advances will not be recoverable
from future payments or collections on the related Mortgage
Loans. See "The Pooling and Servicing Agreement--Advances."
Compensating Interest........ When a Mortgagor makes a full or partial principal
prepayment of a Mortgage Loan between Due Dates, the
Mortgagor generally is required to pay interest on the
principal balance thereof only to the date of prepayment. In
order to minimize any resulting shortfall in interest (such
shortfall, a "Prepayment Interest Shortfall"), the aggregate
amount of the Servicing Fee will be reduced to the extent
necessary to include an amount in payment to the holders of
the Offered Certificates equal to a full month's interest
payment at the applicable Net Mortgage Rate (defined herein)
with respect to such pre-paid Mortgage Loan; provided,
however that such reductions in the Servicing Fee will be
made only up to the product of (i) one-twelfth of 0.125% and
(ii) the aggregate scheduled principal balance of the
Mortgage Loans with respect to the related Distribution
Date. See "The Pooling and Servicing Agreement--Adjustment
to Servicing Fee in Connection with Prepaid Mortgage Loans."
Optional Termination......... On any Distribution Date on which the aggregate unpaid
principal balance of the Mortgage Loans is less than 10% of
the aggregate unpaid scheduled principal balance of the
Mortgage Pool on the Cut-off Date, the Servicer may
repurchase from the Trust Fund all Mortgage Loans remaining
outstanding at a purchase price equal to the sum of (i) the
unpaid principal amount of such Mortgage Loans (other than
any such Mortgage Loans as to which the related Mortgaged
Properties have been acquired and whose fair market values
are included in clause (ii) below), plus accrued interest
thereon at the Net Mortgage Rate (defined herein) to the
next Due Date and (ii) the fair market value of any such
acquired properties, in each case less any unreimbursed
Advances made with respect to such Mortgage Loans. Upon such
repurchase, holders of the Offered Certificates generally
will receive the outstanding principal balance of the
Offered Certificates plus (except in the case of the Class
A-P Certificates) accrued interest thereon at their
respective Certificate Rates. See "The Pooling and Servicing
Agreement--Optional Termination."
Federal Income Tax
Consequences............... An election will be made to treat the assets of the Trust
Fund as a real estate mortgage investment conduit (a
"REMIC") for federal income tax purposes. The Offered
Certificates (other than the Class A-R Certificate) will
represent regular interests in REMIC. As such, the Offered
Certificates (other than the Class A-R Certificate) will
generally be treated as debt instruments issued by a REMIC.
The Class A-R Certificate will represent the sole Class of
residual interests in the REMIC.
All Certificateholders will be required to use the accrual
method of accounting with respect to interest income on the
Certificates, regardless of their normal method of
accounting. Holders of Offered Certificates that have
original issue discount will be required to include amounts
in income with respect to such Certificates in
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advance of the receipt of cash attributable to such income.
It is anticipated that the Class B-2, Class IA-X, Class
IIA-X, Class A-P Certificates will be issued with original
issue discount for federal income tax purposes. It is also
anticipated that the Class IA-1, Class IA-2, Class IA-3,
Class IA-4, Class IA-5, Class IA-9 and Class IIA-1
Certificates will be issued at a premium, and that the Class
IA-6, Class IA-7, Class IA-8, Class M and Class B-1
Certificates will be issued with DE MINIMIS original issue
discount for federal income tax purposes. Holders of Offered
Certificates that have original issue discount will be
required to include amounts in income with respect to such
Certificates in advance of the receipt of cash attributable
to such income. The prepayment assumption that will be used
in computing the amount of original issue discount
includible periodically will be 100% of the Prepayment
Model. See "Prepayment and Yield Considerations." No
representation is made that payments on the Offered
Certificates will occur at that rate or any other rate.
The Offered Certificates will be treated as (i) assets
described in section 7701(a)(19)(C) of the Internal Revenue
Code of 1986, as amended (the "Code") and (ii) "real estate
assets" within the meaning of section 856(c)(5)(B) of the
Code, in each case to the extent described herein and in the
Prospectus. See "Federal Income Tax Consequences" in the
Prospectus.
CLASS A-R CERTIFICATE. The Class A-R Certificate generally
will be treated in the same manner as the Class A
Certificates for the various qualification purposes referred
to above, but generally will not be treated as evidences of
indebtedness for federal income tax purposes. Instead, the
holders of the Class A-R Certificate will be required to
report, and will be taxed on, their pro rata shares of the
taxable income or loss of the REMIC, and such requirements
will continue until there are no Certificates of any Class
outstanding, even though the Class A-R Certificateholder
previously may have received full payment of its stated
interest and principal. Furthermore, the taxable income of
the Class A-R Certificateholder attributable to the Class A-
R Certificate may exceed the principal and interest
distributions received by such Certificateholders with
respect to such Certificates during the corresponding
period, which could result in a negative after-tax return
for such Certificateholders. See "Federal Income Tax
Considerations."
THE CLASS A-R CERTIFICATE, WHICH REPRESENTS THE RESIDUAL
INTEREST IN THE REMIC, MAY EXPERIENCE A NEGATIVE AFTER-TAX
RETURN. ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AND CONSIDER THE AFTER-TAX
EFFECT OF OWNERSHIP OF THE CLASS A-R CERTIFICATE AND THE
SUITABILITY OF THE CLASS A-R CERTIFICATE TO THEIR INVESTMENT
OBJECTIVES.
RESTRICTIONS ON PURCHASE AND TRANSFER OF CLASS A-R
CERTIFICATE. The Class A-R Certificate is not offered for
sale to tax-exempt organizations that are "disqualified
organizations" as defined in "Federal Income Tax
Consequences--Transfers of Residual
Certificates--Disqualified Organizations" in the Prospectus.
In
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addition, there are limitations on transfers of the Class
A-R Certificate to plans ("Plans") described in or subject
to the plan asset regulations set forth in 29 C.F.R. Section
2510.3-101, persons acting on behalf of Plans, or persons
using the assets of Plans. Furthermore, the Class A-R
Certificate may not be purchased by or transferred to any
person that is not a "U.S. Person," as defined herein under
"Description of the Certificates--Restrictions on Transfer
of the Class-A-R, Class M and Offered Class B Certificates,"
unless (i) such person holds the Class A-R Certificates in
connection with the conduct of a trade or business within
the U.S. and furnishes the transferor and the Trustee with
an effective Internal Revenue Service Form 4224 or (ii) the
transferee delivers to both the transferor and the Trustee
an opinion of counsel to the effect that such transfer of
the Class A-R Certificate will not be disregarded for
Federal income tax purposes. Finally, neither the Class A-R
Certificate nor any beneficial interest therein may be sold
or otherwise transferred without the consent of the Trustee,
which will be withheld if necessary to avoid a risk of REMIC
disqualification or REMIC-level tax. See "Description of the
Certificates--Restrictions on Transfer of the Class A-R,
Class M and Offered Class B Certificates."
ERISA Considerations......... A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code, including an
individual retirement account (each, a "Plan"), or any other
person investing "plan assets" of any Plan, should carefully
review with its legal advisors whether the purchase or
holding of Class A Certificates could give rise to a
transaction prohibited or not otherwise permissible under
ERISA or the Code. Because the Class M, Class B-1 and Class
B-2 Certificates are subordinated to the Class A
Certificates, such Certificates may not be transferred
unless the transferee has delivered (i) a representation
letter to the Trustee stating either (a) that the transferee
is not a Plan and is not acting on behalf of a Plan or using
the "plan assets" of a Plan to effect such purchase or (b)
subject to certain conditions described herein, that the
source of funds used to purchase the Class M, Class B-1 or
Class B-2 Certificates is an "insurance company general
account" or (ii) an opinion of counsel as described under
"ERISA Considerations" in this Prospectus Supplement. See
"ERISA Considerations" herein and in the Prospectus.
Legal Investment............. The Class A and Class M Certificates will constitute
"mortgage related securities" under the Secondary Mortgage
Market Enhancement Act of 1984, as amended ("SMMEA"), for 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, will be legal investments
for certain types of institutional investors to the extent
provided in SMMEA, subject to state laws overriding SMMEA.
There may be certain restrictions on the ability of certain
investors either to purchase Class A and Class M
Certificates or to purchase Class A and Class M Certificates
representing more than a specified percentage of the
investor's assets. THE CLASS B-1 AND CLASS B-2 CERTIFICATES
WILL NOT CONSTITUTE "MORTGAGE RELATED SECURITIES"
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C>
UNDER SMMEA. The appropriate characterization of the Class
B-1 and Class B-2 Certificates under various legal
investment restrictions, and thus the ability of investors
subject to these restrictions to purchase the Class B-1 or
Class B-2 Certificates, may be subject to significant
interpretive uncertainties. Prospective purchasers of the
Offered Certificates, including those institutions whose
investment activities are subject to review by federal or
state regulatory authorities, should consult their own
legal, tax and accounting advisors and, where appropriate,
applicable regulatory authorities, in determining the
consequences to them of the purchase, ownership and
disposition of the Offered Certificates. See "Legal
Investment Matters" herein and in the Prospectus.
Use of Proceeds.............. Substantially all of the net proceeds from the sale of the
Offered Certificates will be applied by the Seller to the
purchase price of the Mortgage Loans. See "Use of Proceeds."
Liquidity Considerations..... There is currently no secondary market for the Certificates
offered hereby, and there can be no assurance that such a
market will develop. The Underwriter has indicated its
intention to make a secondary market in the Offered
Certificates, but is not obligated to do so. There can be no
assurance that a secondary market for such Certificates will
develop, or if it does develop, will continue for the life
of the Certificates, or will provide investors with
liquidity of investment. In addition, there can be no
assurance that an investor in a Certificate will be able to
sell such Certificate at a price that is equal to or greater
than the price at which such investor purchased such
Certificate.
Final Scheduled Distribution
Date....................... The Final Scheduled Distribution Date of each Class of
Offered Certificates is August 25, 2028, which is the
Distribution Date occurring in the month that is one month
following the latest stated maturity date of any Mortgage
Loan.
The rate of principal payments of the Certificates will
depend on the rate of principal payments of the Mortgage
Loans (including prepayments, defaults, delinquencies and
liquidations) which, in turn, will depend on the
characteristics of the Mortgage Loans, the level of
prevailing interest rates and other economic factors, and no
assurance can be given as to the actual payment experience.
The principal balance or notional amount, as applicable, of
each Class of Certificates may be reduced to zero earlier or
later than its Final Scheduled Distribution Date.
Ratings...................... It is a condition to the issuance of the Offered
Certificates that (i) the Class A Certificates (other than
the Class A-P, Class IA-X and Class IIA-X Certificates) be
rated "AAA" by Standard & Poor's, a Division of the
McGraw-Hill Companies, Inc. ("S&P") and Fitch IBCA, Inc.
("Fitch"), (ii) the Class A-P, Class IA-X and Class IIA-X
Certificates be rated "AAAr" by S&P and "AAA" by Fitch,
(iii) the Class M Certificates be rated at least "AA" by
Fitch, (iv) the Class B-1 Certificates be rated at least "A"
by Fitch, and (v) the Class B-2 Certificates be rated at
least "BBB" by Fitch. See "Ratings."
</TABLE>
S-19
<PAGE>
RISK FACTORS
GENERAL
The rate of distributions in reduction of the principal balance of any Class
of Offered Certificates, the aggregate amount of distributions of principal and
interest on any Class of Offered Certificates and the yield to maturity of any
Class of Offered Certificates will be directly related to the rate of payments
of principal on the Mortgage Loans and to the amount and timing of mortgagor
defaults resulting in Realized Losses. The rate of principal payments on the
Mortgage Loans will in turn be affected by, among other things, the amortization
schedules of the Mortgage Loans, the rate of principal prepayments (including
partial prepayments and those resulting from refinancing) thereon by mortgagors,
liquidations of defaulted Mortgage Loans, repurchases of Mortgage Loans by the
Seller as a result of defective documentation or breaches of representations and
warranties, optional purchase by the Servicer of defaulted Mortgage Loans and
optional purchase by the Servicer of all of the Mortgage Loans in connection
with the termination of the Trust Fund. See "Prepayment and Yield
Considerations" and "The Pooling and Servicing Agreement--Optional Termination"
herein and "The Pooling and Servicing Agreement-- Assignment of Mortgage Loans;
Warranties," "--Repurchase or Substitution" and "--Termination; Purchase of
Mortgage Loans" in the Prospectus. Mortgagors are permitted to prepay the
Mortgage Loans, in whole or in part, at any time without penalty.
The rate of payments (including prepayments, liquidations and defaults) on
pools of mortgage loans is influenced by a variety of economic, geographic,
social and other factors. If prevailing rates for similar mortgage loans fall
below the Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment
would generally be expected to increase. Conversely, if interest rates on
similar mortgage loans rise above the Mortgage Interest Rates on the Mortgage
Loans, the rate of prepayment would generally be expected to decrease.
An investor that purchases any Offered Certificates at a discount,
particularly the Class A-P Certificates, should consider the risk that a slower
than anticipated rate of principal payments (including prepayments, liquidations
and defaults) on the Mortgage Loans or, in the case of the Class A-P
Certificates, on the Discount Mortgage Loans, will result in an actual yield
that is lower than such investor's expected yield. See "Prepayment and Yield
Considerations--Yield Considerations With Respect to the Class A-P
Certificates." An investor that purchases any Offered Certificates at a premium,
particularly the Class IA-X or Class IIA-X Certificates, should consider the
risk that a faster than anticipated rate of principal payments (including
prepayments, liquidations and defaults) on the Mortgage Loans will result in an
actual yield that is lower than such investor's expected yield and, under
certain circumstances, could result in the failure of such an investor to recoup
its initial investment.
SUBORDINATION
The rights of the holders of the Class M Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Class A Certificates and the rights of the holders
of a Class of Class B Certificates to receive distributions with respect to the
Mortgage Loans will be subordinated to such rights of the holders of the Class A
Certificates, the Class M Certificates and the Classes of Class B Certificates
with lower numerical designations, all to the extent described herein under
"Description of the Certificates--Subordination Certificates and Shifting
Interests."
Because the Subordinated Certificates represent interests in Mortgage Loans
in both Mortgage Groups, the principal balances of the Subordinated Certificates
could be reduced to zero as a result of a disproportionate amount of losses on
the Mortgage Loans in one Mortgage Group, increasing the likelihood that losses
on the Mortgage Loans in the other Mortgage Group will be allocated to the Class
A Certificates corresponding to such other Mortgage Group.
S-20
<PAGE>
UNDERWRITING POLICIES
The Mortgage Loans have been originated using underwriting policies (the
"Modified Underwriting Policies") that are different from and, in certain
respects, less stringent than, the general underwriting policies of Chase
Manhattan Mortgage. See "Chase Manhattan Mortgage Corporation-Modified
Underwriting Policies." For example, certain of the Mortgage Loans may have been
originated with higher maximum Loan-to-Value Ratios, less restrictive
requirements for investment properties or "equity take out" financings, may be
secured by shares in cooperative housing corporations, "condotels" or unusual
parcels of land, or may have been made to foreign nationals. Accordingly, the
Mortgage Loans may also experience rates of delinquencies, defaults,
foreclosure, bankruptcy and loss that are higher than those experienced by
mortgage loans underwritten to Chase Manhattan Mortgage's general underwriting
standards. See "Prepayment and Yield Considerations."
BOOK-ENTRY SYSTEM FOR CERTAIN CLASSES OF CLASS A CERTIFICATES
Transactions in the Book-Entry Certificates generally can be effected only
through DTC, Participants and Indirect Participants. The ability of a
Certificate Owner to pledge Book-Entry Certificates and the liquidity of the
Book-Entry Certificates in general may be limited due to the lack of a physical
certificate for such Book-Entry Certificates. In addition, Certificate Owners
may experience delays in their receipt of payments.
GEOGRAPHIC CONCENTRATION OF THE MORTGAGED PROPERTIES
Approximately 15.4%, 13.3%, 8.3% and 4.8% of the Mortgage Loans (by
aggregate principal balance as of the Cut-off Date) are expected to be secured
by Mortgaged Properties located in the states of California, Florida, New York
and Illinois, respectively. Consequently, losses and prepayments on the Mortgage
Loans and resultant payments on the Offered Certificates may, both generally and
particularly, be affected significantly by changes in the housing markets and
regional economies of, and the occurrence of natural disasters (such as
earthquakes, fires, floods or hurricanes) in, the states of California, Florida,
New York and Illinois.
CERTIFICATES MAY NOT BE APPROPRIATE FOR INDIVIDUAL INVESTORS
The Offered Certificates may not be an appropriate investment for individual
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:
- 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;
- The rate of principal distributions on, and the weighted average life of,
the Offered Certificates will be sensitive to the uncertain rate and
timing of principal prepayments on the Mortgage Loans and the priority of
principal distributions among the Classes of Certificates, and as such the
Offered Certificates may be inappropriate investments for an investor
requiring a distribution of a particular amount of principal on a specific
date or an otherwise predictable stream of distributions;
- There can be no assurance that an investor will be able to reinvest
amounts distributed in respect of principal on an Offered Certificate
(which, in general, are expected to be greater during periods of
relatively low interest rates) at a rate at least as high as the
Pass-Through Rate applicable thereto; or
- There can be no assurance that a secondary market for the Offered
Certificate will develop or provide Certificateholders with liquidity of
investment.
S-21
<PAGE>
Individual investors considering the purchase of an Offered Certificate
should also carefully consider the further risks and other special
considerations discussed above and under the headings "Terms of the
Certificates--Prepayment and Yield Considerations" and "Prepayment and Yield
Considerations" herein and in the Prospectus under the heading "Risk Factors."
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
The Seller is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000 problem" is pervasive and complex; virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Seller has been advised by each of the Servicer and the Trustee that
they are committed to either (i) implementing modifications to their respective
existing systems to the extent required to cause them to be year 2000 compliant
or (ii) acquiring computer systems that are year 2000 compliant in each case
prior to January 1, 2000. However, neither the Seller nor any affiliate of the
Seller has made any independent investigation of the computer systems of the
Trustee. In the event that computer problems arise out of a failure of such
efforts to be completed on time, or in the event that the computer systems of
the Trustee or the Servicer are not fully year 2000 compliant, the resulting
disruptions in the collection or distribution of receipts on the Mortgage Loans
could materially adversely affect the holders of the Offered Certificates.
See "Risk Factors" in the Prospectus for a description of certain other
risks and special considerations applicable to the Offered Certificates.
S-22
<PAGE>
THE MORTGAGE POOL
GENERAL
The mortgage pool with respect to the Certificates (the "Mortgage Pool")
will consist of approximately 1,476 conventional mortgage loans (the "Mortgage
Loans") evidenced by fixed interest rate promissory notes (each, a "Mortgage
Note") having an aggregate principal balance on July 1, 1998 (the "Cut-off
Date") of approximately $175,001,996. References herein to percentages of
Mortgage Loans refer in each case to the percentage of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date, based on the outstanding
principal balances of the Mortgage Loans as of the Cut-off Date, after giving
effect to Monthly Payments (defined herein) due on or prior to the Cut-off Date,
whether or not received. References to percentages of Mortgaged Properties
(defined herein) refer, in each case, to the percentages of aggregate principal
balances of the related Mortgage Loans (determined as described in the preceding
sentence). The Mortgage Notes are secured by mortgages or deeds of trust or
other similar security instruments creating first liens on single-family (one-
to four-family) residential properties (the "Mortgaged Properties"). The
Mortgaged Properties consist of individual dwelling units, individual
cooperative apartment dwelling units, individual condominium units, two- to
four-family dwelling units, attached planned unit developments and detached
planned unit developments. The Trust Fund includes, in addition to the Mortgage
Pool, (i) the amounts held from time to time in one or more accounts
(collectively, the "Accounts") maintained in the name of the Trustee pursuant to
the Pooling and Servicing Agreement (the "Agreement") to be dated as of July 1,
1998 by and among Chase Mortgage Finance Corporation (the "Seller"), Chase
Manhattan Mortgage Corporation, as servicer (in such capacity, the "Servicer")
and Citibank, N.A., as trustee (the "Trustee"), (ii) any property which
initially secured a Mortgage Loan and which is acquired by foreclosure or
deed-in-lieu of foreclosure, (iii) all insurance policies and the proceeds
thereof described below and (iv) certain rights to require repurchase of the
Mortgage Loans by the Seller for breach of representation or warranty.
The Seller will cause the Mortgage Loans to be assigned to the Trustee. The
Servicer will service the Mortgage Loans either by itself or through other
mortgage servicing institutions (the "Sub-servicers"), pursuant to the
Agreement. With respect to those Mortgage Loans serviced by the Servicer through
a Sub-servicer, the Servicer will remain liable for its servicing obligations
under the Agreement as if the Servicer alone were servicing such Mortgage Loans.
REPRESENTATIONS AND WARRANTIES
The Seller will make certain representations and warranties for the benefit
of the Trustee with respect to the Mortgage Loans as described in the Prospectus
under "The Mortgage Pools" and "The Pooling and Servicing Agreement--Assignment
of Mortgage Loans; Warranties" and "--Repurchase or Substitution" and will be
obligated to repurchase any Mortgage Loan as to which there is a material breach
of any such representation or warranty. Such repurchase will constitute the sole
remedy available to Certificateholders for a breach of such representations or
warranties. The Trustee will enforce the repurchase obligations of the Seller.
In lieu of such repurchase obligation, the Seller may, within two years after
the date of initial delivery of the Certificates, substitute for the affected
Mortgage Loans Substitute Mortgage Loans, as described under "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans; Warranties" and "--Repurchase
or Substitution" in the Prospectus.
MORTGAGE LOANS
Certain data with respect to the Mortgage Loans are set forth below. The
Mortgage Loans will be divided into two groups: "Mortgage Group One" and
"Mortgage Group Two" (each, a "Mortgage Group"). Mortgage Group One,
constituting approximately 92.5% of the Mortgage Loans, will consist of Mortgage
Loans which had original terms to stated maturity of greater than 15 years, but
not more than 30 years, together with Mortgage Loans with approximate original
terms to stated maturity of up to 15 years and original principal balances
greater than $227,150. Mortgage Group Two, constituting approximately 7.5% of
the Mortgage Loans, will consist of Mortgage Loans which had original terms to
stated maturity of up to 15 years and original balances less than or equal to
$227,150.
The weighted average number of months from and including the first Monthly
Payment on the Mortgage Loans in Mortgage Group One (the "Group One Mortgage
Loans") and the Mortgage Loans in Mortgage Group Two (the "Group Two Mortgage
Loans") to and including the Cut-off Date was approximately 2 months. The Group
One Mortgage Loans were originated between September 1997 and June 1998 and the
Group Two Mortgage Loans were originated between October 1997 and June 1998.
Monthly payments of principal and interest on the Mortgage Loans ("Monthly
Payments") will be due on the first day of each month (each, a "Due Date").
S-23
<PAGE>
All of the Mortgage Loans having original Loan-to-Value Ratios of greater
than 80% are insured under Primary Mortgage Insurance Policies (as defined in
the Prospectus). Not more than approximately 5.8%, and approximately 4.8%,
respectively, of the Group One Mortgage Loans and the Group Two Mortgage Loans
are insured by any one Primary Mortgage Insurance Policy insurer. At the time of
origination of the Mortgage Loans, each of the Primary Mortgage Insurance Policy
insurers was approved by the Federal National Mortgage Association ("FNMA") or
the Federal Home Loan Mortgage Corporation ("FHLMC"). See "Servicing of the
Mortgage Loans--Private Mortgage Insurance" in the Prospectus.
96.8% of the Mortgage Loans have FICO Scores. The weighted average FICO
Score for the Mortgage Loans that were scored is 720 with respect to Mortgage
Group One and Mortgage Group Two. "FICO Scores" are statistical credit scores
obtained by many mortgage lenders in connection with the loan application to
help assess a borrower's credit-worthiness. FICO Scores are generated by models
developed by a third party and are made available to lenders through three
national credit bureaus. The models were derived by analyzing data on consumers
in order to establish patterns which are believed to be indicative of the
borrower's probability of default. The FICO Score is based on a borrower's
historical credit data, including, among other things, payment history,
delinquencies on accounts, levels of outstanding indebtedness, length of credit
history, types of credit, and bankruptcy experience. FICO Scores range from
approximately 250 to approximately 900, with higher scores indicating an
individual with a more favorable credit history compared to an individual with a
lower score. However, a FICO Score purports only to be a measurement of the
relative degree of risk a borrower represents to a lender, i.e., that a borrower
with a higher score is statistically expected to be less likely to default in
payment than a borrower with a lower score. In addition, it should be noted that
FICO Scores were developed to indicate a level of default probability over a
two-year period which does not correspond to the life of a mortgage loan.
Furthermore, FICO Scores were not developed specifically for use in connection
with mortgage loans, but for consumer loans in general. Therefore, a FICO Score
does not take into consideration the effect of mortgage loan characteristics on
the probability of repayment by the borrower. Neither the Seller nor Chase
Manhattan Mortgage makes any representations or warranties as to the actual
performance of any Mortgage Loan or that a particular FICO Score should be
relied upon as a basis for an expectation that the borrower will repay the
Mortgage Loan according to its terms.
Additional data with respect to the Mortgage Loans are set forth in the
following tables (totals may not sum due to rounding):
S-24
<PAGE>
MORTGAGE POOL
MORTGAGE POOL
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE MORTGAGE POOL BY
PRINCIPAL AGGREGATE
BALANCE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MORTGAGE RATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ---------------------------------------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
7.00%-7.49%............................................... 116 $ 14,961,653 8.5%
7.50%-7.99%............................................... 597 80,243,778 45.9
8.00%-8.49%............................................... 502 57,431,311 32.8
8.50%-8.99%............................................... 260 22,305,987 12.7
9.00%-9.49%............................................... 1 59,267 0.0
----- ---------------- -------
Totals................................................ 1,476 $ 175,001,996 100.0%
----- ---------------- -------
----- ---------------- -------
</TABLE>
- ------------------------
(1) The interest rates (the "Mortgage Rates") borne by the Mortgage Loans as of
the Cut-off Date ranged from 7.00% per annum to 9.00% per annum and the
weighted average Mortgage Rate on the Mortgage Loans as of the Cut-off Date
was approximately 7.943% per annum.
S-25
<PAGE>
MORTGAGE POOL
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL BY
BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- --------------------------------------------------------------- ----------------- ---------------- -------------------
<S> <C> <C> <C>
Alabama........................................................ 11 $ 1,284,903 0.7%
Arizona........................................................ 63 8,246,548 4.7
Arkansas....................................................... 2 96,709 0.1
California..................................................... 125 26,881,010 15.4
Colorado....................................................... 46 5,964,515 3.4
Connecticut.................................................... 22 3,197,452 1.8
Delaware....................................................... 8 554,903 0.3
District of Columbia........................................... 3 244,279 0.1
Florida........................................................ 244 23,332,354 13.3
Georgia........................................................ 30 2,827,452 1.6
Hawaii......................................................... 4 750,937 0.4
Idaho.......................................................... 1 135,543 0.1
Illinois....................................................... 68 8,366,853 4.8
Indiana........................................................ 30 1,814,997 1.0
Iowa........................................................... 4 228,819 0.1
Kansas......................................................... 18 1,199,013 0.7
Kentucky....................................................... 11 928,463 0.5
Louisiana...................................................... 13 1,239,574 0.7
Maine.......................................................... 5 697,367 0.4
Maryland....................................................... 26 3,057,521 1.7
Massachusetts.................................................. 30 3,876,897 2.2
Michigan....................................................... 54 5,663,793 3.2
Minnesota...................................................... 20 2,671,079 1.5
Mississippi.................................................... 4 430,084 0.2
Missouri....................................................... 45 2,982,821 1.7
Montana........................................................ 4 370,321 0.2
Nebraska....................................................... 1 78,392 0.0
Nevada......................................................... 28 3,548,161 2.0
New Hampshire.................................................. 16 1,543,058 0.9
New Jersey..................................................... 53 7,092,571 4.1
New Mexico..................................................... 9 936,064 0.5
New York....................................................... 98 14,441,092 8.3
North Carolina................................................. 25 2,822,978 1.6
North Dakota................................................... 1 77,306 0.0
Ohio........................................................... 67 5,008,108 2.9
Oklahoma....................................................... 15 969,220 0.6
Oregon......................................................... 7 1,059,468 0.6
Pennsylvania................................................... 34 3,488,137 2.0
Rhode Island................................................... 21 2,273,735 1.3
South Carolina................................................. 9 838,432 0.5
Tennessee...................................................... 21 2,129,790 1.2
Texas.......................................................... 78 8,222,688 4.7
Utah........................................................... 33 5,074,620 2.9
Virginia....................................................... 38 4,572,533 2.6
Washington..................................................... 21 2,578,377 1.5
Wisconsin...................................................... 9 1,027,814 0.6
Wyoming........................................................ 1 175,247 0.1
----- ---------------- -----
Totals................................................... 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
S-26
<PAGE>
MORTGAGE POOL
ORIGINAL PRINCIPAL BALANCE(2)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL BY
BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINAL PRINCIPAL BALANCE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ---------------------------------------------------------- ----------------- ---------------- -------------------
<S> <C> <C> <C>
$100,000 or less.......................................... 795 $ 50,302,400 28.7%
$100,001-$150,000......................................... 332 40,587,272 23.2
$150,001-$200,000......................................... 152 26,389,992 15.1
$200,001-$250,000......................................... 82 18,400,940 10.5
$250,001-$300,000......................................... 57 15,962,935 9.1
$300,001-$350,000......................................... 13 4,184,285 2.4
$350,001-$400,000......................................... 17 6,397,020 3.7
$400,001-$450,000......................................... 15 6,440,090 3.7
$450,001-$500,000......................................... 7 3,358,686 1.9
$500,001-$550,000......................................... 4 1,674,227 1.0
$550,001-$600,000......................................... 1 554,628 0.3
$700,001-$750,000......................................... 1 749,522 0.4
----- ---------------- -----
Totals.................................................. 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(2) The average outstanding principal balance of the Mortgage Loans as of the
Cut-off Date was approximately $118,565. The original principal balances of
the Mortgage Loans ranged from $15,200 to $750,000.
MORTGAGE POOL
MORTGAGE LOAN AGE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL BY
BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MORTGAGE LOAN AGE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ---------------------------------------------------------- ----------------- ---------------- -------------------
<S> <C> <C> <C>
Less than 1 month......................................... 6 $ 549,750 0.3%
1 month................................................... 582 73,682,841 42.1
2 months.................................................. 638 72,858,002 41.6
3 months.................................................. 189 20,756,296 11.9
4 months.................................................. 42 5,526,181 3.2
5 months.................................................. 5 499,249 0.3
6 months.................................................. 5 563,997 0.3
7 months.................................................. 5 355,349 0.2
8 months.................................................. 3 149,746 0.1
9 months.................................................. 1 60,584 0.0
----- ---------------- -----
Total................................................... 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
S-27
<PAGE>
MORTGAGE POOL
ORIGINAL LOAN-TO-VALUE RATIO(3)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL BY
BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINAL LOAN-TO-VALUE RATIO MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ---------------------------------------------------------- ----------------- ---------------- -------------------
<S> <C> <C> <C>
50.00% or less............................................ 86 $ 8,211,200 4.7%
50.01%-55.00%............................................. 31 4,517,866 2.6
55.01%-60.00%............................................. 64 9,323,473 5.3
60.01%-65.00%............................................. 51 6,080,717 3.5
65.01%-70.00%............................................. 130 14,006,126 8.0
70.01%-75.00%............................................. 150 23,088,379 13.2
75.01%-80.00%............................................. 482 69,019,279 39.4
80.01%-85.00%............................................. 78 8,583,942 4.9
85.01%-90.00%............................................. 364 27,359,236 15.6
90.01%-95.00%............................................. 40 4,811,779 2.7
----- ---------------- ------
Totals.................................................. 1,476 $ 175,001,996 100.0%
----- ---------------- ------
----- ---------------- ------
</TABLE>
- ------------------------
(3) The weighted average original Loan-to-Value Ratio of the Mortgage Loans was
approximately 76.16% as of the Cut-off Date.
MORTGAGE POOL
LOAN PURPOSE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL BY
BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ---------------------------------------------------------- ----------------- ---------------- -------------------
<S> <C> <C> <C>
Purchase.................................................. 922 $ 103,294,724 59.0%
Cash-out Refinance........................................ 266 32,738,404 18.7
Rate/Term Refinance....................................... 288 38,968,868 22.3
----- ---------------- -----
Totals.................................................. 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
MORTGAGE POOL
REMAINING TERMS TO STATED MATURITY(4)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL BY
BALANCE AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MONTHS REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- ---------------------------------------------------------- ----------------- ---------------- -------------------
<S> <C> <C> <C>
109 to 120 months......................................... 1 $ 56,367 0.0%
169 to 180 months......................................... 169 13,607,766 7.8
229 to 240 months......................................... 4 330,359 0.2
349 to 360 months......................................... 1,302 161,007,503 92.0
----- ---------------- -----
Totals.................................................. 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(4) The weighted average remaining term to stated maturity of the Mortgage Loans
as of the Cut-off Date was approximately 344 months.
S-28
<PAGE>
MORTGAGE POOL
REMAINING TERMS TO EXPECTED MATURITY(5)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MONTHS REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
25 to 36 months......................................... 1 $ 99,706 0.1%
85 to 96 months......................................... 1 16,071 0.0
109 to 120 months....................................... 1 56,367 0.0
145 to 156 months....................................... 1 57,581 0.0
169 to 180 months....................................... 168 13,550,185 7.7
229 to 240 months....................................... 4 330,359 0.2
301 to 312 months....................................... 1 39,057 0.0
313 to 324 months....................................... 1 36,862 0.0
325 to 336 months....................................... 3 153,989 0.1
337 to 348 months....................................... 7 711,611 0.4
349 to 360 months....................................... 1,288 159,950,207 91.4
----- ---------------- -----
Totals............................................ 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(5) Based on payments actually received (or scheduled to be received) on each
Mortgage Loan as of the Cut-off Date. The weighted average remaining term to
expected maturity of the Mortgage Loans as of the Cut-off Date was
approximately 344 months.
MORTGAGE POOL
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Single-family Residence................................. 851 $ 104,879,738 59.9%
Cooperative Unit(6)..................................... 1 355,295 0.2
Attached Planned Unit Development....................... 42 4,158,920 2.4
Detached Planned Unit Development....................... 155 23,861,986 13.6
Condominium............................................. 168 14,480,266 8.3
Two-to-Four-family Dwelling Unit........................ 259 27,265,790 15.6
----- ---------------- -----
Totals............................................ 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(6) Mortgage Loans secured by "Cooperative Units" were made to finance or
refinance the purchase of stock allocated to units in residential
cooperative housing corporations (each, a "Co-op Loan").
S-29
<PAGE>
MORTGAGE POOL
OCCUPANCY(7)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
OCCUPANCY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Owner-occupied.......................................... 783 $ 115,351,871 65.9%
Second-Home............................................. 73 9,397,736 5.4
Investment.............................................. 620 50,252,389 28.7
----- ---------------- -----
Totals............................................ 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(7) Based on representations by the Mortgagors at the time of origination of the
related Mortgage Loans.
MORTGAGE POOL
LOAN DOCUMENTATION
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE POOL
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN DOCUMENTATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Full Documentation...................................... 823 $ 81,179,496 46.4%
Limited Documentation................................... 653 93,822,499 53.6
----- ---------------- -----
Totals............................................ 1,476 $ 175,001,996 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
MORTGAGE GROUP ONE
MORTGAGE GROUP ONE
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MORTGAGE RATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
7.00%-7.49%............................................. 90 $ 12,654,640 7.8%
7.50%-7.99%............................................. 510 72,818,292 45.0
8.00%-8.49%............................................. 453 54,220,690 33.5
8.50%-8.99%............................................. 254 22,098,261 13.7
9.00%-9.49%............................................. 1 59,267 0.0
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(1) The interest rates (the "Mortgage Rates") borne by the Group One Mortgage
Loans as of the Cut-off Date ranged from 7.00% per annum to 9.00% per annum
and the weighted average Mortgage Rate on the Group One Mortgage Loans as of
the Cut-off Date was approximately 7.959% per annum.
S-30
<PAGE>
MORTGAGE GROUP ONE
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Alabama................................................. 8 $ 1,157,187 0.7%
Arizona................................................. 57 7,771,651 4.8
California.............................................. 120 26,452,362 16.3
Colorado................................................ 43 5,770,884 3.6
Connecticut............................................. 19 2,888,492 1.8
Delaware................................................ 6 455,278 0.3
District of Columbia.................................... 3 244,279 0.2
Florida................................................. 207 20,613,804 12.7
Georgia................................................. 28 2,693,659 1.7
Hawaii.................................................. 3 666,196 0.4
Idaho................................................... 1 135,543 0.1
Illinois................................................ 59 7,663,134 4.7
Indiana................................................. 25 1,382,688 0.9
Iowa.................................................... 3 183,720 0.1
Kansas.................................................. 15 1,083,704 0.7
Kentucky................................................ 9 794,854 0.5
Louisiana............................................... 12 1,170,213 0.7
Maine................................................... 3 570,773 0.4
Maryland................................................ 23 2,806,141 1.7
Massachusetts........................................... 26 3,547,387 2.2
Michigan................................................ 52 5,547,231 3.4
Minnesota............................................... 19 2,608,526 1.6
Mississippi............................................. 3 372,052 0.2
Missouri................................................ 40 2,827,539 1.7
Montana................................................. 3 302,146 0.2
Nebraska................................................ 1 78,392 0.0
Nevada.................................................. 25 3,294,412 2.0
New Hampshire........................................... 14 1,403,631 0.9
New Jersey.............................................. 51 6,930,157 4.3
New Mexico.............................................. 9 936,064 0.6
New York................................................ 87 13,211,157 8.2
North Carolina.......................................... 23 2,707,331 1.7
North Dakota............................................ 1 77,306 0.0
Ohio.................................................... 63 4,807,695 3.0
Oklahoma................................................ 14 937,809 0.6
Oregon.................................................. 6 949,616 0.6
Pennsylvania............................................ 32 3,164,007 2.0
Rhode Island............................................ 16 1,702,674 1.1
South Carolina.......................................... 8 739,314 0.5
Tennessee............................................... 16 1,934,215 1.2
Texas................................................... 63 6,958,967 4.3
Utah.................................................... 29 4,593,043 2.8
Virginia................................................ 34 4,226,197 2.6
Washington.............................................. 20 2,511,980 1.6
Wisconsin............................................... 8 802,496 0.5
Wyoming................................................. 1 175,247 0.1
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
S-31
<PAGE>
MORTGAGE GROUP ONE
ORIGINAL PRINCIPAL BALANCE(2)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINAL PRINCIPAL BALANCE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
$100,000 or less........................................ 669 $ 42,842,611 26.5%
$100,001-$150,000....................................... 300 36,784,967 22.7
$150,001-$200,000....................................... 144 24,938,571 15.4
$200,001-$250,000....................................... 80 17,963,612 11.1
$250,001-$300,000....................................... 57 15,962,935 9.9
$300,001-$350,000....................................... 13 4,184,285 2.6
$350,001-$400,000....................................... 17 6,397,020 4.0
$400,001-$450,000....................................... 15 6,440,090 4.0
$450,001-$500,000....................................... 7 3,358,686 2.1
$500,001-$550,000....................................... 4 1,674,227 1.0
$550,001-$600,000....................................... 1 554,628 0.3
$700,001-$750,000....................................... 1 749,522 0.5
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(2) The average outstanding principal balance of the Group One Mortgage Loans as
of the Cut-off Date was approximately $123,739. The original principal
balances of the Group One Mortgage Loans ranged from $15,200 to $750,000.
MORTGAGE GROUP ONE
MORTGAGE LOAN AGE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MORTGAGE LOAN AGE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Less than 1 month....................................... 4 $ 457,650 0.3%
1 month................................................. 526 68,986,748 42.6
2 months................................................ 565 67,309,479 41.6
3 months................................................ 159 18,622,083 11.5
4 months................................................ 38 5,086,693 3.1
5 months................................................ 4 351,568 0.2
6 months................................................ 5 563,997 0.3
7 months................................................ 4 282,523 0.2
8 months................................................ 2 129,826 0.1
9 months................................................ 1 60,584 0.0
----- ---------------- -----
Total............................................. 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
S-32
<PAGE>
MORTGAGE GROUP ONE
ORIGINAL LOAN-TO-VALUE RATIO(3)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINAL LOAN-TO-VALUE RATIO MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
50.00% or less.......................................... 63 $ 6,534,627 4.0%
50.01%-55.00%........................................... 25 4,105,777 2.5
55.01%-60.00%........................................... 51 8,162,716 5.0
60.01%-65.00%........................................... 46 5,830,694 3.6
65.01%-70.00%........................................... 108 12,315,562 7.6
70.01%-75.00%........................................... 132 21,414,403 13.2
75.01%-80.00%........................................... 446 65,550,648 40.5
80.01%-85.00%........................................... 64 7,503,584 4.6
85.01%-90.00%........................................... 335 25,714,927 15.9
90.01%-95.00%........................................... 38 4,718,212 2.9
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(3) The weighted average original Loan-to-Value Ratio of the Group One Mortgage
Loans was approximately 76.58% as of the Cut-off Date.
MORTGAGE GROUP ONE
LOAN PURPOSE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Purchase................................................ 846 $ 97,563,693 60.3%
Cash-out Refinance...................................... 218 29,073,213 18.0
Rate/Term Refinance..................................... 244 35,214,245 21.8
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
MORTGAGE GROUP ONE
REMAINING TERMS TO STATED MATURITY(4)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MONTHS REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
169 to 180 months....................................... 2 $ 513,288 0.3%
229 to 240 months....................................... 4 330,359 0.2
349 to 360 months....................................... 1,302 161,007,503 99.5
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(4) The weighted average remaining term to stated maturity of the Group One
Mortgage Loans as of the Cut-off Date was approximately 357 months.
S-33
<PAGE>
MORTGAGE GROUP ONE
REMAINING TERMS TO EXPECTED MATURITY(5)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MONTHS REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
25 to 36 months......................................... 1 $ 99,706 0.1%
85 to 96 months......................................... 1 16,071 0.0
169 to 180 months....................................... 2 513,288 0.3
229 to 240 months....................................... 4 330,359 0.2
301 to 312 months....................................... 1 39,057 0.0
313 to 324 months....................................... 1 36,862 0.0
325 to 336 months....................................... 3 153,989 0.1
337 to 348 months....................................... 7 711,611 0.4
349 to 360 months....................................... 1,288 159,950,207 98.8
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(5) Based on payments actually received (or scheduled to be received) on each
Group One Mortgage Loan as of the Cut-off Date. The weighted average
remaining term to expected maturity of the Group One Mortgage Loans as of
the Cut-off Date was approximately 357 months.
S-34
<PAGE>
MORTGAGE GROUP ONE
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Single-family Residence................................. 754 $ 97,147,779 60.0%
Cooperative Unit(6)..................................... 1 355,295 0.2
Attached Planned Unit Development....................... 33 3,411,287 2.1
Detached Planned Unit Development....................... 139 22,392,193 13.8
Condominium............................................. 150 13,489,127 8.3
Two-to-Four-family Dwelling Unit........................ 231 25,055,471 15.5
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(6) Mortgage Loans secured by "Cooperative Units" were made to finance or
refinance the purchase of stock allocated to units in residential
cooperative housing corporations (each, a "Co-op Loan").
MORTGAGE GROUP ONE
OCCUPANCY(7)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
OCCUPANCY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Owner-occupied.......................................... 699 $ 107,834,955 66.6%
Second-Home............................................. 64 8,670,490 5.4
Investment.............................................. 545 45,345,706 28.0
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
- ------------------------
(7) Based on representations by the Mortgagors at the time of origination of the
related Mortgage Loans.
MORTGAGE GROUP ONE
LOAN DOCUMENTATION
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP ONE
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN DOCUMENTATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ----------------- ---------------- -----------------------
<S> <C> <C> <C>
Full Documentation...................................... 725 $ 74,657,117 46.1%
Limited Documentation................................... 583 87,194,035 53.9
----- ---------------- -----
Totals............................................ 1,308 $ 161,851,151 100.0%
----- ---------------- -----
----- ---------------- -----
</TABLE>
S-35
<PAGE>
MORTGAGE GROUP TWO
MORTGAGE GROUP TWO
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MORTGAGE RATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
7.00%-7.49%............................................. 26 $ 2,307,012 17.5%
7.50%-7.99%............................................. 87 7,425,485 56.5
8.00%-8.49%............................................. 49 3,210,621 24.4
8.50%-8.99%............................................. 6 207,726 1.6
--- ---------------- -----
Totals............................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
- ------------------------
(1) The interest rates (the "Mortgage Rates") borne by the Group Two Mortgage
Loans as of the Cut-off Date ranged from 7.00% per annum to 8.75% per annum
and the weighted average Mortgage Rate on the Group Two Mortgage Loans as of
the Cut-off Date was approximately 7.756% per annum.
S-36
<PAGE>
MORTGAGE GROUP TWO
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
STATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
Alabama................................................. 3 $ 127,716 1.0%
Arizona................................................. 6 474,897 3.6
Arkansas................................................ 2 96,709 0.7
California.............................................. 5 428,648 3.3
Colorado................................................ 3 193,631 1.5
Connecticut............................................. 3 308,960 2.3
Delaware................................................ 2 99,625 0.8
Florida................................................. 37 2,718,551 20.7
Georgia................................................. 2 133,792 1.0
Hawaii.................................................. 1 84,740 0.6
Illinois................................................ 9 703,718 5.4
Indiana................................................. 5 432,309 3.3
Iowa.................................................... 1 45,099 0.3
Kansas.................................................. 3 115,309 0.9
Kentucky................................................ 2 133,609 1.0
Louisiana............................................... 1 69,362 0.5
Maine................................................... 2 126,595 1.0
Maryland................................................ 3 251,380 1.9
Massachusetts........................................... 4 329,511 2.5
Michigan................................................ 2 116,562 0.9
Minnesota............................................... 1 62,553 0.5
Mississippi............................................. 1 58,032 0.4
Missouri................................................ 5 155,282 1.2
Montana................................................. 1 68,175 0.5
Nevada.................................................. 3 253,749 1.9
New Hampshire........................................... 2 139,426 1.1
New Jersey.............................................. 2 162,414 1.2
New York................................................ 11 1,229,936 9.4
North Carolina.......................................... 2 115,648 0.9
Ohio.................................................... 4 200,413 1.5
Oklahoma................................................ 1 31,411 0.2
Oregon.................................................. 1 109,852 0.8
Pennsylvania............................................ 2 324,130 2.5
Rhode Island............................................ 5 571,061 4.3
South Carolina.......................................... 1 99,118 0.8
Tennessee............................................... 5 195,574 1.5
Texas................................................... 15 1,263,722 9.6
Utah.................................................... 4 481,577 3.7
Virginia................................................ 4 346,336 2.6
Washington.............................................. 1 66,397 0.5
Wisconsin............................................... 1 225,317 1.7
--- ---------------- -----
Totals................................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
S-37
<PAGE>
MORTGAGE GROUP TWO
ORIGINAL PRINCIPAL BALANCE(2)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINAL PRINCIPAL BALANCE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
$100,000 or less........................................ 126 $ 7,459,790 56.7%
$100,001-$150,000....................................... 32 3,802,305 28.9
$150,001-$200,000....................................... 8 1,451,421 11.0
$200,001-$250,000....................................... 2 437,329 3.3
--- ---------------- -----
Totals................................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
- ------------------------
(2) The average outstanding principal balance of the Group Two Mortgage Loans as
of the Cut-off Date was approximately $78,279. The original principal
balances of the Group Two Mortgage Loans ranged from $18,750 to $226,000.
MORTGAGE GROUP TWO
MORTGAGE LOAN AGE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MORTGAGE LOAN AGE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
Less than 1 month....................................... 2 $ 92,100 0.7%
1 month................................................. 56 4,696,093 35.7
2 months................................................ 73 5,548,523 42.2
3 months................................................ 30 2,134,213 16.2
4 months................................................ 4 439,488 3.3
5 months................................................ 1 147,682 1.1
7 months................................................ 1 72,826 0.6
8 months................................................ 1 19,921 0.2
--- ---------------- -----
Total................................................. 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
S-38
<PAGE>
MORTGAGE GROUP TWO
ORIGINAL LOAN-TO-VALUE RATIO(3)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
ORIGINAL LOAN-TO-VALUE RATIO MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
50.00% or less.......................................... 23 $ 1,676,572 12.7%
50.01%-55.00%........................................... 6 412,089 3.1
55.01%-60.00%........................................... 13 1,160,758 8.8
60.01%-65.00%........................................... 5 250,023 1.9
65.01%-70.00%........................................... 22 1,690,564 12.9
70.01%-75.00%........................................... 18 1,673,975 12.7
75.01%-80.00%........................................... 36 3,468,630 26.4
80.01%-85.00%........................................... 14 1,080,357 8.2
85.01%-90.00%........................................... 29 1,644,309 12.5
90.01%-95.00%........................................... 2 93,567 0.7
--- ---------------- -----
Totals................................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
- ------------------------
(3) The weighted average original Loan-to-Value Ratio of the Group Two Mortgage
Loans was approximately 70.98% as of the Cut-off Date.
MORTGAGE GROUP TWO
LOAN PURPOSE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN PURPOSE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
Purchase................................................ 76 $ 5,731,031 43.6%
Cash-out Refinance...................................... 48 3,665,191 27.9
Rate/Term Refinance..................................... 44 3,754,623 28.6
--- ---------------- -----
Totals................................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
MORTGAGE GROUP TWO
REMAINING TERMS TO STATED MATURITY(4)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MONTHS REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
109 to 120 months....................................... 1 $ 56,367 0.4%
169 to 180 months....................................... 167 13,094,478 99.6
--- ---------------- -----
Totals................................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
- ------------------------
(4) The weighted average remaining term to stated maturity of the Group Two
Mortgage Loans as of the Cut-off Date was approximately 178 months.
S-39
<PAGE>
MORTGAGE GROUP TWO
REMAINING TERMS TO EXPECTED MATURITY(5)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
MONTHS REMAINING MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
109 to 120 months....................................... 1 $ 56,367 0.4%
145 to 156 months....................................... 1 57,581 0.4
169 to 180 months....................................... 166 13,036,897 99.1
--- ---------------- -----
Totals................................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
- ------------------------
(5) Based on payments actually received (or scheduled to be received) on each
Group Two Mortgage Loan as of the Cut-off Date. The weighted average
remaining term to expected maturity of the Group Two Mortgage Loans as of
the Cut-off Date was approximately 178 months.
MORTGAGE GROUP TWO
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
PROPERTY TYPE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
Single-family Residence................................. 97 $ 7,731,959 58.8%
Attached Planned Unit Development....................... 9 747,634 5.7
Detached Planned Unit Development....................... 16 1,469,793 11.2
Condominium............................................. 18 991,139 7.5
Two-to-Four-family Dwelling Unit........................ 28 2,210,320 16.8
--- ---------------- -----
Totals................................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
MORTGAGE GROUP TWO
OCCUPANCY(6)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
OCCUPANCY MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
Owner-occupied.......................................... 84 $ 7,516,916 57.2%
Second-Home............................................. 9 727,246 5.5
Investment.............................................. 75 4,906,683 37.3
--- ---------------- -----
Totals................................................ 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
- ------------------------
(6) Based on representations by the Mortgagors at the time of origination of the
related Mortgage Loans.
S-40
<PAGE>
MORTGAGE GROUP TWO
LOAN DOCUMENTATION
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
PRINCIPAL MORTGAGE GROUP TWO
BALANCE BY AGGREGATE PRINCIPAL
NUMBER OF AS OF THE BALANCE AS OF THE
LOAN DOCUMENTATION MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
- -------------------------------------------------------- ------------------- ---------------- -----------------------
<S> <C> <C> <C>
Full Documentation...................................... 98 $ 6,522,380 49.6%
Limited Documentation................................... 70 6,628,465 50.4
--- ---------------- -----
Totals.............................................. 168 $ 13,150,845 100.0%
--- ---------------- -----
--- ---------------- -----
</TABLE>
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent more than 30 days or will have had more than one delinquency in
excess of 30 days as to any Monthly Payment during the preceding twelve months.
With respect to either Mortgage Group, no zip code area contains greater
than approximately 2.07% of the Mortgaged Properties.
A Standard Hazard Insurance Policy is required to be maintained by the
Mortgagor with respect to each Mortgage Loan in an amount equal to the maximum
insurable value of the improvements securing such Mortgage Loan or the principal
balance of such Mortgage Loan, whichever is less. See "Servicing of the Mortgage
Loans--Hazard Insurance" in the Prospectus. No Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy or Mortgagor Bankruptcy Insurance will be
maintained with respect to the Mortgage Pool, nor will any Mortgage Loan be
insured by the FHA or guaranteed by the VA.
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as presently constituted.
Prior to the issuance of the Certificates, Mortgage Loans may be removed from
the Mortgage Pool if the Seller deems such removal necessary or appropriate.
Other mortgage loans may be included in the Mortgage Pool prior to the issuance
of the Certificates unless including such mortgage loans would materially alter
the characteristics of the Mortgage Pool as described herein. The Seller
believes that the information set forth herein will be representative of the
characteristics of the Mortgage Pool as it will be constituted at the time the
Certificates are issued.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Offered Certificates (other than the
Class IA-X and Class IIA-X Certificates), the aggregate amount of each interest
payment on the Offered Certificates (other than the Class A-P Certificates) and
the yield to maturity of such Certificates are related to the rate and timing of
payments of principal on the underlying Mortgage Loans (or, with respect to the
Class IA or Class IIA Certificates, on the underlying Mortgage Loans in the
related Mortgage Group). The principal payments on such Mortgage Loans may be in
the form of scheduled principal payments or prepayments (for this purpose, the
term "prepayment" includes prepayments in full, curtailments and liquidations
due to default, casualty, condemnation and the like, as well as repurchases by a
mortgage loan seller). Any such prepayments will result in distributions to
holders of Certificates ("Certificateholders") of principal amounts which would
otherwise be distributed over the remaining terms of such Mortgage Loans. In
addition, because, for at least nine years after the issuance of the
Certificates, the Offered Class A Certificateholders (other than the Class IA-5,
Class IA-X, Class IIA-X and Class A-P Certificateholders) will be entitled to
receive a percentage of certain amounts, including principal prepayments, which
is greater than their proportionate interest in the Trust Fund, the rate of
principal prepayments on the Mortgage Loans in a Mortgage Group will have a
greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the Class IA or Class IIA
Certificates, as the case may be (other than the Class IA-5, Class IA-X and
Class IIA-X Certificates) than if such Certificateholders were entitled only to
their proportionate interest in such amounts. In general, the prepayment rate
S-41
<PAGE>
may be influenced by a number of factors, including general economic conditions
and homeowner mobility. Mortgagors are permitted to prepay the Mortgage Loans,
in whole or in part, at any time without penalty. The rate of payment of
principal may also be affected by any repurchase of the Mortgage Loans as to
which there has been a material breach of a representation or warranty or defect
in documentation, or by a purchase by the Servicer of certain Mortgage Loans
modified at the request of a Mortgagor (including Mortgagors with respect to
which the Servicer has solicited such a request), or by the exercise by the
Servicer of its right to purchase a defaulted Mortgage Loan. See "The Mortgage
Pool--General" and "The Pooling and Servicing Agreement--Optional Termination."
In such event, the repurchase price will be passed through to the
Certificateholders as a prepayment of principal in the month following the month
of such repurchase.
The rate of prepayments with respect to mortgage loans on one- to
four-family residences has fluctuated significantly in recent years. The Seller
believes that in a fluctuating interest rate environment a predominant factor
affecting the prepayment rate on a large pool of mortgage loans is the
difference between the interest rates on the mortgage loans (giving
consideration to the cost of any refinancing) and prevailing mortgage rates. In
general, if mortgage interest rates were to fall below the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to increase.
Conversely, in general, if mortgage interest rates were to rise above the
interest rates on the Mortgage Loans, the rate of prepayment would be expected
to decrease. Other factors affecting prepayment of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. Additionally, in
general, mortgage loans having relatively high principal balances and/or
relatively low loan-to-value ratios may be more likely to prepay than mortgage
loans having relatively low principal balances and/or relatively high
loan-to-value ratios. Therefore, if a mortgage pool consists of mortgage loans
which generally have relatively high principal balances and relatively low
loan-to-value ratios, the rate of prepayments with respect to such mortgage pool
could be higher than would otherwise be the case. In addition, prepayments
generally will also result from home sales by mortgagors and from foreclosures
due to defaults on mortgage loans. There is no historical prepayment data
available for the Mortgage Pool, and comparable data is not available because
the Mortgage Loans do not constitute a representative sample of mortgage loans
generally. In addition, historical data available with respect to mortgage loans
underlying mortgage pass-through certificates issued by GNMA, FNMA or FHLMC may
not be comparable to prepayments expected to be experienced by the Mortgage
Pool, because the Mortgage Loans have characteristics which differ from mortgage
loans underlying pass-through certificates issued by GNMA, FNMA and FHLMC.
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect the total distributions received, the date of receipt of
such distributions and the actual yield to maturity to an investor in the
Offered Certificates, even if the average rate of principal payments is
consistent with an investor's expectations. Because the rate of distribution of
principal of the Certificates will be directly related to the actual
amortization (including prepayments) of the Mortgage Loans in the related
Mortgage Group (or in the case of the Class M or Offered Class B Certificates,
of the Mortgage Loans in both Mortgage Groups), which may include Mortgage Loans
that have remaining terms to maturity shorter or longer than those assumed and
interest rates higher or lower than those assumed, the distributions of the
Offered Certificates are likely to differ from those reflected in the following
tables, even if all the Mortgage Loans in the related Mortgage Group (or in the
case of the Class M or Offered Class B Certificates, of the Mortgage Loans in
both Mortgage Groups) prepay at the indicated percentages of the Prepayment
Model (defined below). In addition, it is not likely that the Mortgage Loans
will prepay at a constant rate until maturity or that all of the Mortgage Loans
will prepay at the same rate. In general, the earlier a payment of principal on
the Mortgage Loans, the greater the effect on an investor's yield to maturity.
As a result, if principal payments occur at a rate higher (or lower) than the
rate anticipated by an investor in the Offered Certificates during the period
immediately following the issuance of the Certificates, the effect on such
investor's yield will not be equally offset by a subsequent like reduction (or
increase) in the rate of principal payments. If an Offered Certificate is
offered at a discount from its
S-42
<PAGE>
original principal amount and if the purchaser of such Offered Certificate
calculates its yield to maturity based on a faster assumed rate of payment of
principal than that actually received on such Certificate, its actual yield to
maturity will be lower than that so calculated. Conversely, if an Offered
Certificate is offered at a premium to its original principal amount, and if the
purchaser of such Offered Certificate calculates its yield to maturity based on
a slower assumed rate of payment of principal than that actually received on
such Certificate, its actual yield to maturity will be lower than that so
calculated and, under certain circumstances, such a purchaser may fail to recoup
its initial investment. No assurances can be given as to the rate of payments on
the Mortgage Loans in either Mortgage Group.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, during periods
in which the residential real estate market is experiencing an overall decline
in property values such that the principal balances of the Mortgage Loans and
any secondary financing on the related Mortgaged Properties become equal to or
greater than the value of the related Mortgaged Properties, rates of
delinquencies, defaults, foreclosures and losses could be significantly higher
than might otherwise be the case. In addition, adverse economic conditions
(which may affect real property values) may affect the timely payment by
Mortgagors of Monthly Payments, and accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the Mortgage Pool.
Because the Mortgage Loans were originated using underwriting policies that are,
in certain respects, less stringent than the general underwriting policies of
Chase Manhattan Mortgage, the Mortgage Loans may experience rates of
delinquencies, defaults, foreclosures and losses that are higher than those
experienced by mortgage loans that satisfy the general underwriting policies of
Chase Manhattan Mortgage.
CHASE MANHATTAN MORTGAGE HAS NOT HAD SUFFICIENT EXPERIENCE SERVICING
MORTGAGE LOANS UNDERWRITTEN USING THE MODIFIED UNDERWRITING POLICIES TO PROVIDE
MEANINGFUL DISCLOSURE OF ITS DELINQUENCY AND LOSS EXPERIENCE WITH RESPECT TO
SUCH MORTGAGE LOANS.
Investors in the Class IA-5 Certificates should be aware that because the
Class IA-5 Certificates are not expected to receive any distributions of
payments of principal prior to the Distribution Date occurring in August 2003
and until the Distribution Date occurring in August 2007 are expected to receive
a disproportionately small portion of principal payments (unless the principal
balances of the Non-PO Class A Certificates (other than the Class IA-5
Certificates) have been reduced to zero), the weighted average life of the Class
IA-5 Certificates will be longer than would otherwise be the case, and the
effect on the market value of the Class IA-5 Certificates of changes in market
interest rates or market yields for similar securities will be greater than for
other classes of Class A Certificates entitled to such distributions.
IF THE AGGREGATE PRINCIPAL BALANCE OF THE NON-OFFERED CLASS B CERTIFICATES
IS REDUCED TO ZERO, THE YIELD TO MATURITY ON THE CLASS B-2 CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE LOANS (AND THE TIMING THEREOF),
BECAUSE THE ENTIRE AMOUNT OF ANY SUCH LOSSES (OTHER THAN EXCESS LOSSES) WHICH
OCCUR AFTER THE AGGREGATE PRINCIPAL BALANCE OF THE NON-OFFERED CLASS B
CERTIFICATES HAS BEEN REDUCED TO ZERO WILL BE ALLOCABLE TO THE CLASS B-2
CERTIFICATES, AS DESCRIBED HEREIN. IF THE AGGREGATE PRINCIPAL BALANCE OF THE
CLASS B-2 CERTIFICATES AND THE NON-OFFERED CLASS B CERTIFICATES IS REDUCED TO
ZERO, THE YIELD TO MATURITY ON THE CLASS B-1 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO LOSSES ON THE MORTGAGE LOANS AND THE TIMING THEREOF BECAUSE THE
ENTIRE AMOUNT OF ANY SUCH LOSSES (OTHER THAN EXCESS LOSSES) WHICH OCCUR AFTER
THE AGGREGATE PRINCIPAL BALANCE OF THE CLASS B-2 CERTIFICATES AND THE
NON-OFFERED CLASS B CERTIFICATES HAS BEEN REDUCED TO ZERO WILL BE ALLOCABLE TO
THE CLASS B-1 CERTIFICATES, AS DESCRIBED HEREIN. IF THE AGGREGATE PRINCIPAL
BALANCE OF THE CLASS B CERTIFICATES IS REDUCED TO ZERO, THE YIELD TO MATURITY ON
THE CLASS M CERTIFICATES WILL BE EXTREMELY SENSITIVE TO LOSSES ON THE MORTGAGE
LOANS AND THE TIMING THEREOF BECAUSE THE ENTIRE AMOUNT OF ANY SUCH LOSSES (OTHER
THAN EXCESS LOSSES) WHICH OCCUR AFTER THE AGGREGATE PRINCIPAL BALANCE OF THE
CLASS B CERTIFICATES HAS BEEN REDUCED TO ZERO WILL BE ALLOCABLE TO THE CLASS M
CERTIFICATES, AS DESCRIBED HEREIN. IN ADDITION, AS DESCRIBED HEREIN, FOR AT
LEAST NINE YEARS AFTER THE ISSUANCE OF THE CERTIFICATES OR SUCH LESSER TIME AS
THE CLASS A CERTIFICATES ARE OUTSTANDING, EACH CLASS OF SUBORDINATED
CERTIFICATES (DEFINED HEREIN), WILL BE ENTITLED TO RECEIVE A PERCENTAGE OF
CERTAIN AMOUNTS, INCLUDING PRINCIPAL PREPAYMENTS, WHICH IS GENERALLY LESS
S-43
<PAGE>
THAN THEIR PROPORTIONATE INTEREST IN THE TRUST FUND. SEE "DESCRIPTION OF THE
CERTIFICATES--SUBORDINATED CERTIFICATES AND SHIFTING INTERESTS."
No assurance can be given as to the rate or timing of principal payments or
prepayments on the Mortgage Loans in either Mortgage Group. In addition, it is
unlikely that prepayments on the Mortgage Loans in either Mortgage Group will
occur at a constant rate even if the average prepayment experience equals the
indicated levels of the Prepayment Model.
In the event of acceleration of Mortgage Loans as a result of enforcement of
"due-on-sale" provisions in connection with transfers of the related Mortgaged
Properties, the level of prepayments on the respective Mortgage Loans will be
increased, thereby shortening the weighted average lives of the related Offered
Certificates. See "Yield, Maturity and Weighted Average Life Considerations" in
the Prospectus.
The yield to holders of the Offered Certificates will depend upon, among
other things, the price at which such Offered Certificates are purchased and the
amount of and rate at which principal, including both scheduled and unscheduled
payments thereof, is paid to the respective Certificateholders.
The yield to Certificateholders (other than the Class A-P
Certificateholders) will be reduced by lags between the time interest income
accrues to Certificateholders and the time the related interest income is
received by Certificateholders. In addition, the yield to Certificateholders
(other than the Class A-P Certificateholders) may be reduced as a result of
Prepayment Interest Shortfalls (defined herein) to the extent described herein.
See "The Pooling and Servicing Agreement--Adjustment to Servicing Fee in
Connection with Prepaid Mortgage Loans."
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement (the "Prepayment
Model") 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 100% of the Prepayment Model assumes prepayment rates of 4.0% per
annum of the then outstanding principal balance of such mortgage loans in the
first month of the life of the mortgage loans and an additional 1.09090909%
(precisely 12/11%) per annum in each month thereafter until the twelfth month.
Beginning in the twelfth month and in each month thereafter during the life of
the mortgage loans, 100% of the Prepayment Model assumes a constant prepayment
rate of 16% per annum. The tables set forth below are based on the assumption
that the Mortgage Loans prepay at the indicated percentages of the Prepayment
Model. Neither the Prepayment Model nor any other prepayment model purports 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 Pool.
The tables set forth below have been prepared on the basis of the respective
expected initial principal balances of the Offered Certificates. For purposes of
preparation of the tables, it has been assumed that the Mortgage Loans included
in the Mortgage Pool on the Closing Date consist of two Mortgage Loans
comprising Mortgage Group One and two Mortgage Loans comprising Mortgage Group
Two, in each case having the assumed characteristics described below and that
(i) scheduled payments on all Mortgage Loans are received on the first day of
each month beginning August 1, 1998, (ii) any principal prepayments on the
Mortgage Loans are received on the last day of each month beginning in July 1998
and include 30 days of interest thereon, (iii) there are no defaults or
delinquencies on the Mortgage Loans, (iv) optional termination of the Trust Fund
does not occur, (v) there are no partial prepayments on the Mortgage Loans and
prepayments are computed after giving effect to scheduled payments received on
the following day, (vi) the Mortgage Loans prepay at the indicated constant
percentages of the Prepayment Model, (vii) the date of issuance for the
Certificates is July 30, 1998, (viii) cash distributions are received by the
Certificateholders on the 25th day of each month when due and (ix) the scheduled
monthly payments for each Mortgage Loan are computed based upon the amount of
principal and interest contractually due
S-44
<PAGE>
each month under the Mortgage Note. The assumptions set forth in this paragraph
are referred to herein as the "Modeling Assumptions."
<TABLE>
<CAPTION>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<S> <C> <C> <C> <C> <C>
OUTSTANDING
PRINCIPAL BALANCE ORIGINAL LOAN
AS NET TERM AGE
OF THE CUT-OFF DATE MORTGAGE RATE MORTGAGE RATE (MONTHS) (MONTHS)
------------------- --------------- --------------- ------------- ---------------
MORTGAGE GROUP ONE
Assumed Discount Mortgage Loan.... $ 229,921.36 7.0000000000% 6.6861000000% 360 2
Assumed Premium Mortgage Loan..... $ 161,621,229.80 7.9598724878% 7.6459724878% 359 2
MORTGAGE GROUP TWO
Assumed Discount Mortgage Loan.... $ 100,062.74 7.0000000000% 6.6861000000% 180 2
Assumed Premium Mortgage Loan..... $ 13,050,781.79 7.7620755988% 7.4481755988% 180 2
</TABLE>
There will be differences between the characteristics of the Mortgage Loans
actually included in the Trust Fund and the characteristics assumed in preparing
the following tables. Such differences may affect the percentages of the
original principal balance outstanding set forth in the tables and the weighted
average lives of the Offered Certificates, and could cause the outstanding
principal balance of any Offered Certificate to be reduced to zero earlier or
later than indicated by the tables.
Variations in actual prepayment experience and the principal balances of
Mortgage Loans that prepay may increase or decrease the percentages of the
original principal balances outstanding and the weighted average lives shown in
the following tables. Such variations may occur even if the average prepayment
experience of all such Mortgage Loans equals the indicated levels of the
Prepayment Model. There is no assurance that the Mortgage Loans will prepay at
any constant level of the Prepayment Model.
Based on the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Offered Certificates and set forth the
percentages of the original principal balance of each Class of Offered
Certificates that would be outstanding after each of the dates shown at various
percentages of the Prepayment Model.
NO ASSURANCE CAN BE GIVEN AS TO THE RATE OR TIMING OF PRINCIPAL PAYMENTS OR
PREPAYMENTS ON ANY OF THE MORTGAGE LOANS.
S-45
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS IA-1 CLASS IA-2
----------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100%
- ------------------------------- --------- --------- ----- ----- ----- --------- --------- -----
Initial........................ 100 100 100 100 100 100 100 100
July 25, 1999.................. 98 81 64 47 29 100 100 100
July 25, 2000.................. 95 57 22 0 0 100 100 100
July 25, 2001.................. 93 36 0 0 0 100 100 68
July 25, 2002.................. 90 16 0 0 0 100 100 0
July 25, 2003.................. 86 0 0 0 0 100 95 0
July 25, 2004.................. 83 0 0 0 0 100 56 0
July 25, 2005.................. 80 0 0 0 0 100 21 0
July 25, 2006.................. 76 0 0 0 0 100 0 0
July 25, 2007.................. 72 0 0 0 0 100 0 0
July 25, 2008.................. 68 0 0 0 0 100 0 0
July 25, 2009.................. 63 0 0 0 0 100 0 0
July 25, 2010.................. 59 0 0 0 0 100 0 0
July 25, 2011.................. 53 0 0 0 0 100 0 0
July 25, 2012.................. 48 0 0 0 0 100 0 0
July 25, 2013.................. 41 0 0 0 0 100 0 0
July 25, 2014.................. 35 0 0 0 0 100 0 0
July 25, 2015.................. 28 0 0 0 0 100 0 0
July 25, 2016.................. 20 0 0 0 0 100 0 0
July 25, 2017.................. 11 0 0 0 0 100 0 0
July 25, 2018.................. 2 0 0 0 0 100 0 0
July 25, 2019.................. 0 0 0 0 0 80 0 0
July 25, 2020.................. 0 0 0 0 0 53 0 0
July 25, 2021.................. 0 0 0 0 0 23 0 0
July 25, 2022.................. 0 0 0 0 0 0 0 0
July 25, 2023.................. 0 0 0 0 0 0 0 0
July 25, 2024.................. 0 0 0 0 0 0 0 0
July 25, 2025.................. 0 0 0 0 0 0 0 0
July 25, 2026.................. 0 0 0 0 0 0 0 0
July 25, 2027.................. 0 0 0 0 0 0 0 0
July 25, 2028.................. 0 0 0 0 0 0 0 0
Weighted Average Life in
years(1)..................... 12.52 2.43 1.36 0.98 0.78 22.09 6.24 3.27
<CAPTION>
<S> <C> <C>
DISTRIBUTION DATE 150% 200%
- ------------------------------- ----- -----
Initial........................ 100 100
July 25, 1999.................. 100 100
July 25, 2000.................. 73 0
July 25, 2001.................. 0 0
July 25, 2002.................. 0 0
July 25, 2003.................. 0 0
July 25, 2004.................. 0 0
July 25, 2005.................. 0 0
July 25, 2006.................. 0 0
July 25, 2007.................. 0 0
July 25, 2008.................. 0 0
July 25, 2009.................. 0 0
July 25, 2010.................. 0 0
July 25, 2011.................. 0 0
July 25, 2012.................. 0 0
July 25, 2013.................. 0 0
July 25, 2014.................. 0 0
July 25, 2015.................. 0 0
July 25, 2016.................. 0 0
July 25, 2017.................. 0 0
July 25, 2018.................. 0 0
July 25, 2019.................. 0 0
July 25, 2020.................. 0 0
July 25, 2021.................. 0 0
July 25, 2022.................. 0 0
July 25, 2023.................. 0 0
July 25, 2024.................. 0 0
July 25, 2025.................. 0 0
July 25, 2026.................. 0 0
July 25, 2027.................. 0 0
July 25, 2028.................. 0 0
Weighted Average Life in
years(1)..................... 2.23 1.69
</TABLE>
- ------------------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
S-46
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS IA-3 CLASS IA-4
----------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100%
- ---------------------------------- --------- --------- ----- ----- ----- --------- --------- -----
Initial........................... 100 100 100 100 100 100 100 100
July 25, 1999..................... 100 100 100 100 100 100 100 100
July 25, 2000..................... 100 100 100 100 96 100 100 100
July 25, 2001..................... 100 100 100 57 0 100 100 100
July 25, 2002..................... 100 100 93 0 0 100 100 100
July 25, 2003..................... 100 100 21 0 0 100 100 100
July 25, 2004..................... 100 100 0 0 0 100 100 52
July 25, 2005..................... 100 100 0 0 0 100 100 0
July 25, 2006..................... 100 91 0 0 0 100 100 0
July 25, 2007..................... 100 61 0 0 0 100 100 0
July 25, 2008..................... 100 36 0 0 0 100 100 0
July 25, 2009..................... 100 13 0 0 0 100 100 0
July 25, 2010..................... 100 0 0 0 0 100 87 0
July 25, 2011..................... 100 0 0 0 0 100 57 0
July 25, 2012..................... 100 0 0 0 0 100 30 0
July 25, 2013..................... 100 0 0 0 0 100 4 0
July 25, 2014..................... 100 0 0 0 0 100 0 0
July 25, 2015..................... 100 0 0 0 0 100 0 0
July 25, 2016..................... 100 0 0 0 0 100 0 0
July 25, 2017..................... 100 0 0 0 0 100 0 0
July 25, 2018..................... 100 0 0 0 0 100 0 0
July 25, 2019..................... 100 0 0 0 0 100 0 0
July 25, 2020..................... 100 0 0 0 0 100 0 0
July 25, 2021..................... 100 0 0 0 0 100 0 0
July 25, 2022..................... 90 0 0 0 0 100 0 0
July 25, 2023..................... 49 0 0 0 0 100 0 0
July 25, 2024..................... 6 0 0 0 0 100 0 0
July 25, 2025..................... 0 0 0 0 0 35 0 0
July 25, 2026..................... 0 0 0 0 0 0 0 0
July 25, 2027..................... 0 0 0 0 0 0 0 0
July 25, 2028..................... 0 0 0 0 0 0 0 0
Weighted Average Life in
years(1)........................ 25.00 9.54 4.62 3.10 2.32 26.82 13.33 6.08
<CAPTION>
<S> <C> <C>
DISTRIBUTION DATE 150% 200%
- ---------------------------------- ----- -----
Initial........................... 100 100
July 25, 1999..................... 100 100
July 25, 2000..................... 100 100
July 25, 2001..................... 100 31
July 25, 2002..................... 39 0
July 25, 2003..................... 0 0
July 25, 2004..................... 0 0
July 25, 2005..................... 0 0
July 25, 2006..................... 0 0
July 25, 2007..................... 0 0
July 25, 2008..................... 0 0
July 25, 2009..................... 0 0
July 25, 2010..................... 0 0
July 25, 2011..................... 0 0
July 25, 2012..................... 0 0
July 25, 2013..................... 0 0
July 25, 2014..................... 0 0
July 25, 2015..................... 0 0
July 25, 2016..................... 0 0
July 25, 2017..................... 0 0
July 25, 2018..................... 0 0
July 25, 2019..................... 0 0
July 25, 2020..................... 0 0
July 25, 2021..................... 0 0
July 25, 2022..................... 0 0
July 25, 2023..................... 0 0
July 25, 2024..................... 0 0
July 25, 2025..................... 0 0
July 25, 2026..................... 0 0
July 25, 2027..................... 0 0
July 25, 2028..................... 0 0
Weighted Average Life in
years(1)........................ 3.95 2.93
</TABLE>
- ------------------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
S-47
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS IA-5 CLASS IA-6
--------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100%
- -------------------------------- --------- --------- --------- ----- ----- --------- --------- -----
Initial......................... 100 100 100 100 100 100 100 100
July 25, 1999................... 100 100 100 100 100 100 100 100
July 25, 2000................... 100 100 100 100 100 100 100 100
July 25, 2001................... 100 100 100 100 100 100 100 100
July 25, 2002................... 100 100 100 100 100 100 100 100
July 25, 2003................... 100 100 100 100 90 100 100 100
July 25, 2004................... 100 97 94 90 47 100 100 100
July 25, 2005................... 99 93 86 78 22 100 100 86
July 25, 2006................... 98 87 76 63 9 100 100 26
July 25, 2007................... 97 80 65 48 4 100 100 0
July 25, 2008................... 95 73 53 36 3 100 100 0
July 25, 2009................... 93 65 44 26 2 100 100 0
July 25, 2010................... 90 59 36 20 1 100 100 0
July 25, 2011................... 88 52 29 14 1 100 100 0
July 25, 2012................... 85 47 24 11 1 100 100 0
July 25, 2013................... 83 42 19 8 * 100 100 0
July 25, 2014................... 79 37 16 6 * 100 74 0
July 25, 2015................... 76 33 13 4 * 100 44 0
July 25, 2016................... 73 29 10 3 * 100 18 0
July 25, 2017................... 69 25 8 2 * 100 0 0
July 25, 2018................... 64 21 6 2 * 100 0 0
July 25, 2019................... 60 18 5 1 * 100 0 0
July 25, 2020................... 55 15 4 1 * 100 0 0
July 25, 2021................... 50 13 3 1 * 100 0 0
July 25, 2022................... 44 10 2 * * 100 0 0
July 25, 2023................... 38 8 2 * * 100 0 0
July 25, 2024................... 31 6 1 * * 100 0 0
July 25, 2025................... 23 4 1 * * 100 0 0
July 25, 2026................... 16 3 * * * 39 0 0
July 25, 2027................... 7 1 * * * 0 0 0
July 25, 2028................... 0 0 0 0 0 0 0 0
Weighted Average Life in
years(1)...................... 21.64 14.71 11.49 9.64 6.34 27.92 16.88 7.65
<CAPTION>
<S> <C> <C>
DISTRIBUTION DATE 150% 200%
- -------------------------------- ----- -----
Initial......................... 100 100
July 25, 1999................... 100 100
July 25, 2000................... 100 100
July 25, 2001................... 100 100
July 25, 2002................... 100 0
July 25, 2003................... 0 0
July 25, 2004................... 0 0
July 25, 2005................... 0 0
July 25, 2006................... 0 0
July 25, 2007................... 0 0
July 25, 2008................... 0 0
July 25, 2009................... 0 0
July 25, 2010................... 0 0
July 25, 2011................... 0 0
July 25, 2012................... 0 0
July 25, 2013................... 0 0
July 25, 2014................... 0 0
July 25, 2015................... 0 0
July 25, 2016................... 0 0
July 25, 2017................... 0 0
July 25, 2018................... 0 0
July 25, 2019................... 0 0
July 25, 2020................... 0 0
July 25, 2021................... 0 0
July 25, 2022................... 0 0
July 25, 2023................... 0 0
July 25, 2024................... 0 0
July 25, 2025................... 0 0
July 25, 2026................... 0 0
July 25, 2027................... 0 0
July 25, 2028................... 0 0
Weighted Average Life in
years(1)...................... 4.67 3.45
</TABLE>
- ------------------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
* Less than 0.5% but greater than 0.0%.
S-48
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS IA-7 CLASS IA-8
--------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50% 100%
- ------------------------------- --------- --------- --------- ----- ----- --------- --------- ---------
Initial........................ 100 100 100 100 100 100 100 100
July 25, 1999.................. 100 100 100 100 100 100 100 100
July 25, 2000.................. 100 100 100 100 100 100 100 100
July 25, 2001.................. 100 100 100 100 100 100 100 100
July 25, 2002.................. 100 100 100 100 49 100 100 100
July 25, 2003.................. 100 100 100 99 0 100 100 100
July 25, 2004.................. 100 100 100 20 0 100 100 100
July 25, 2005.................. 100 100 100 0 0 100 100 100
July 25, 2006.................. 100 100 100 0 0 100 100 100
July 25, 2007.................. 100 100 87 0 0 100 100 100
July 25, 2008.................. 100 100 62 0 0 100 100 100
July 25, 2009.................. 100 100 41 0 0 100 100 100
July 25, 2010.................. 100 100 23 0 0 100 100 100
July 25, 2011.................. 100 100 9 0 0 100 100 100
July 25, 2012.................. 100 100 0 0 0 100 100 94
July 25, 2013.................. 100 100 0 0 0 100 100 77
July 25, 2014.................. 100 100 0 0 0 100 100 62
July 25, 2015.................. 100 100 0 0 0 100 100 50
July 25, 2016.................. 100 100 0 0 0 100 100 40
July 25, 2017.................. 100 94 0 0 0 100 100 32
July 25, 2018.................. 100 73 0 0 0 100 100 25
July 25, 2019.................. 100 55 0 0 0 100 100 20
July 25, 2020.................. 100 37 0 0 0 100 100 15
July 25, 2021.................. 100 22 0 0 0 100 100 11
July 25, 2022.................. 100 7 0 0 0 100 100 8
July 25, 2023.................. 100 0 0 0 0 100 89 6
July 25, 2024.................. 100 0 0 0 0 100 67 4
July 25, 2025.................. 100 0 0 0 0 100 47 3
July 25, 2026.................. 100 0 0 0 0 100 29 1
July 25, 2027.................. 29 0 0 0 0 100 12 1
July 25, 2028.................. 0 0 0 0 0 0 0 0
Weighted Average Life in
years(1)..................... 28.83 21.40 10.75 5.64 4.03 29.53 26.96 18.02
<CAPTION>
<S> <C> <C>
DISTRIBUTION DATE 150% 200%
- ------------------------------- ----- -----
Initial........................ 100 100
July 25, 1999.................. 100 100
July 25, 2000.................. 100 100
July 25, 2001.................. 100 100
July 25, 2002.................. 100 100
July 25, 2003.................. 100 0
July 25, 2004.................. 100 0
July 25, 2005.................. 49 0
July 25, 2006.................. 10 0
July 25, 2007.................. 0 0
July 25, 2008.................. 0 0
July 25, 2009.................. 0 0
July 25, 2010.................. 0 0
July 25, 2011.................. 0 0
July 25, 2012.................. 0 0
July 25, 2013.................. 0 0
July 25, 2014.................. 0 0
July 25, 2015.................. 0 0
July 25, 2016.................. 0 0
July 25, 2017.................. 0 0
July 25, 2018.................. 0 0
July 25, 2019.................. 0 0
July 25, 2020.................. 0 0
July 25, 2021.................. 0 0
July 25, 2022.................. 0 0
July 25, 2023.................. 0 0
July 25, 2024.................. 0 0
July 25, 2025.................. 0 0
July 25, 2026.................. 0 0
July 25, 2027.................. 0 0
July 25, 2028.................. 0 0
Weighted Average Life in
years(1)..................... 7.18 4.62
</TABLE>
- ------------------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
S-49
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS IA-9 CLASS IA-X(2)
----------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50%
- ------------------------------------- --------- --------- ----- ----- ----- --------- ---------
Initial.............................. 100 100 100 100 100 100 100
July 25, 1999........................ 99 88 78 68 57 96 91
July 25, 2000........................ 97 74 53 32 10 92 80
July 25, 2001........................ 96 61 30 6 0 88 70
July 25, 2002........................ 94 49 10 0 0 83 61
July 25, 2003........................ 92 38 2 0 0 78 53
July 25, 2004........................ 90 27 0 0 0 73 45
July 25, 2005........................ 88 17 0 0 0 67 38
July 25, 2006........................ 85 10 0 0 0 60 32
July 25, 2007........................ 83 6 0 0 0 53 26
July 25, 2008........................ 81 4 0 0 0 46 20
July 25, 2009........................ 78 1 0 0 0 38 15
July 25, 2010........................ 75 0 0 0 0 29 11
July 25, 2011........................ 72 0 0 0 0 19 7
July 25, 2012........................ 68 0 0 0 0 9 3
July 25, 2013........................ 65 0 0 0 0 0 0
July 25, 2014........................ 61 0 0 0 0 0 0
July 25, 2015........................ 56 0 0 0 0 0 0
July 25, 2016........................ 52 0 0 0 0 0 0
July 25, 2017........................ 47 0 0 0 0 0 0
July 25, 2018........................ 41 0 0 0 0 0 0
July 25, 2019........................ 34 0 0 0 0 0 0
July 25, 2020........................ 26 0 0 0 0 0 0
July 25, 2021........................ 17 0 0 0 0 0 0
July 25, 2022........................ 10 0 0 0 0 0 0
July 25, 2023........................ 5 0 0 0 0 0 0
July 25, 2024........................ 1 0 0 0 0 0 0
July 25, 2025........................ 0 0 0 0 0 0 0
July 25, 2026........................ 0 0 0 0 0 0 0
July 25, 2027........................ 0 0 0 0 0 0 0
July 25, 2028........................ 0 0 0 0 0 0 0
Weighted Average Life in
years(1)........................... 16.63 4.29 2.26 1.57 1.21 8.83 6.02
<CAPTION>
<S> <C> <C> <C>
DISTRIBUTION DATE 100% 150% 200%
- ------------------------------------- ----- ----- -----
Initial.............................. 100 100 100
July 25, 1999........................ 85 79 73
July 25, 2000........................ 68 57 48
July 25, 2001........................ 55 42 31
July 25, 2002........................ 43 30 20
July 25, 2003........................ 34 21 13
July 25, 2004........................ 27 15 8
July 25, 2005........................ 21 11 5
July 25, 2006........................ 16 7 3
July 25, 2007........................ 12 5 2
July 25, 2008........................ 8 3 1
July 25, 2009........................ 6 2 1
July 25, 2010........................ 4 1 *
July 25, 2011........................ 2 1 *
July 25, 2012........................ 1 * *
July 25, 2013........................ 0 0 0
July 25, 2014........................ 0 0 0
July 25, 2015........................ 0 0 0
July 25, 2016........................ 0 0 0
July 25, 2017........................ 0 0 0
July 25, 2018........................ 0 0 0
July 25, 2019........................ 0 0 0
July 25, 2020........................ 0 0 0
July 25, 2021........................ 0 0 0
July 25, 2022........................ 0 0 0
July 25, 2023........................ 0 0 0
July 25, 2024........................ 0 0 0
July 25, 2025........................ 0 0 0
July 25, 2026........................ 0 0 0
July 25, 2027........................ 0 0 0
July 25, 2028........................ 0 0 0
Weighted Average Life in
years(1)........................... 4.33 3.26 2.56
</TABLE>
- ------------------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
(2) Indicates the percentage of the Class IA-X Notional Amount outstanding.
* Less than 0.5% but greater than 0.0%.
S-50
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS II-A1 CLASS IIA-X(2)
----------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50%
- ------------------------------------- --------- --------- ----- ----- ----- --------- ---------
Initial.............................. 100 100 100 100 100 100 100
July 25, 1999........................ 96 90 84 78 71 99 93
July 25, 2000........................ 92 79 66 55 44 98 85
July 25, 2001........................ 88 69 52 38 27 97 77
July 25, 2002........................ 83 59 40 26 15 96 70
July 25, 2003........................ 78 51 31 17 8 95 64
July 25, 2004........................ 73 43 24 11 4 94 58
July 25, 2005........................ 67 36 18 7 2 92 53
July 25, 2006........................ 60 30 13 5 1 91 48
July 25, 2007........................ 53 24 10 3 * 89 43
July 25, 2008........................ 46 19 7 2 * 87 39
July 25, 2009........................ 38 15 5 1 * 85 35
July 25, 2010........................ 29 10 3 1 * 83 31
July 25, 2011........................ 19 6 2 * * 81 28
July 25, 2012........................ 9 3 1 * * 79 25
July 25, 2013........................ 0 0 0 0 0 76 22
July 25, 2014........................ 0 0 0 0 0 73 20
July 25, 2015........................ 0 0 0 0 0 70 17
July 25, 2016........................ 0 0 0 0 0 67 15
July 25, 2017........................ 0 0 0 0 0 63 13
July 25, 2018........................ 0 0 0 0 0 59 11
July 25, 2019........................ 0 0 0 0 0 55 10
July 25, 2020........................ 0 0 0 0 0 51 8
July 25, 2021........................ 0 0 0 0 0 46 7
July 25, 2022........................ 0 0 0 0 0 40 6
July 25, 2023........................ 0 0 0 0 0 35 4
July 25, 2024........................ 0 0 0 0 0 28 3
July 25, 2025........................ 0 0 0 0 0 22 2
July 25, 2026........................ 0 0 0 0 0 14 1
July 25, 2027........................ 0 0 0 0 0 6 1
July 25, 2028........................ 0 0 0 0 0 0 0
Weighted Average Life in
years(1)........................... 8.83 5.86 4.08 2.97 2.24 20.27 9.44
<CAPTION>
<S> <C> <C> <C>
DISTRIBUTION DATE 100% 150% 200%
- ------------------------------------- ----- ----- -----
Initial.............................. 100 100 100
July 25, 1999........................ 87 81 75
July 25, 2000........................ 73 61 51
July 25, 2001........................ 60 46 34
July 25, 2002........................ 50 35 23
July 25, 2003........................ 42 26 15
July 25, 2004........................ 34 19 10
July 25, 2005........................ 29 15 7
July 25, 2006........................ 24 11 5
July 25, 2007........................ 19 8 3
July 25, 2008........................ 16 6 2
July 25, 2009........................ 13 5 1
July 25, 2010........................ 11 3 1
July 25, 2011........................ 9 2 1
July 25, 2012........................ 7 2 *
July 25, 2013........................ 6 1 *
July 25, 2014........................ 5 1 *
July 25, 2015........................ 4 1 *
July 25, 2016........................ 3 1 *
July 25, 2017........................ 2 * *
July 25, 2018........................ 2 * *
July 25, 2019........................ 1 * *
July 25, 2020........................ 1 * *
July 25, 2021........................ 1 * *
July 25, 2022........................ 1 * *
July 25, 2023........................ * * *
July 25, 2024........................ * * *
July 25, 2025........................ * * *
July 25, 2026........................ * * *
July 25, 2027........................ * * *
July 25, 2028........................ 0 0 0
Weighted Average Life in
years(1)........................... 5.53 3.77 2.81
</TABLE>
- ------------------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
(2) Indicates the percentage of the Class IIA-X Notional Amount outstanding.
* Less than 0.5% but greater than 0.0%.
S-51
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-P CLASS A-R
----------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 50% 100% 150% 200% 0% 50%
- ------------------------------------- --------- --------- ----- ----- ----- --------- ---------
Initial.............................. 100 100 100 100 100 100 100
July 25, 1999........................ 98 92 86 80 74 0 0
July 25, 2000........................ 96 83 71 60 50 0 0
July 25, 2001........................ 94 75 58 44 33 0 0
July 25, 2002........................ 91 67 48 33 22 0 0
July 25, 2003........................ 89 60 39 24 14 0 0
July 25, 2004........................ 86 53 32 18 10 0 0
July 25, 2005........................ 83 47 26 13 6 0 0
July 25, 2006........................ 80 42 21 10 4 0 0
July 25, 2007........................ 77 37 17 7 3 0 0
July 25, 2008........................ 73 32 13 5 2 0 0
July 25, 2009........................ 69 28 11 4 1 0 0
July 25, 2010........................ 65 24 8 3 1 0 0
July 25, 2011........................ 61 21 7 2 * 0 0
July 25, 2012........................ 56 18 5 1 * 0 0
July 25, 2013........................ 51 15 4 1 * 0 0
July 25, 2014........................ 49 13 3 1 * 0 0
July 25, 2015........................ 47 12 3 * * 0 0
July 25, 2016........................ 45 10 2 * * 0 0
July 25, 2017........................ 42 9 2 * * 0 0
July 25, 2018........................ 40 8 1 * * 0 0
July 25, 2019........................ 37 6 1 * * 0 0
July 25, 2020........................ 34 5 1 * * 0 0
July 25, 2021........................ 30 5 1 * * 0 0
July 25, 2022........................ 27 4 * * * 0 0
July 25, 2023........................ 23 3 * * * 0 0
July 25, 2024........................ 19 2 * * * 0 0
July 25, 2025........................ 14 2 * * * 0 0
July 25, 2026........................ 10 1 * * * 0 0
July 25, 2027........................ 4 * * * * 0 0
July 25, 2028........................ 0 0 0 0 0 0 0
Weighted Average Life in
years(1)........................... 16.42 8.28 5.12 3.59 2.72 0.07 0.07
<CAPTION>
<S> <C> <C> <C>
DISTRIBUTION DATE 100% 150% 200%
- ------------------------------------- ----- ----- -----
Initial.............................. 100 100 100
July 25, 1999........................ 0 0 0
July 25, 2000........................ 0 0 0
July 25, 2001........................ 0 0 0
July 25, 2002........................ 0 0 0
July 25, 2003........................ 0 0 0
July 25, 2004........................ 0 0 0
July 25, 2005........................ 0 0 0
July 25, 2006........................ 0 0 0
July 25, 2007........................ 0 0 0
July 25, 2008........................ 0 0 0
July 25, 2009........................ 0 0 0
July 25, 2010........................ 0 0 0
July 25, 2011........................ 0 0 0
July 25, 2012........................ 0 0 0
July 25, 2013........................ 0 0 0
July 25, 2014........................ 0 0 0
July 25, 2015........................ 0 0 0
July 25, 2016........................ 0 0 0
July 25, 2017........................ 0 0 0
July 25, 2018........................ 0 0 0
July 25, 2019........................ 0 0 0
July 25, 2020........................ 0 0 0
July 25, 2021........................ 0 0 0
July 25, 2022........................ 0 0 0
July 25, 2023........................ 0 0 0
July 25, 2024........................ 0 0 0
July 25, 2025........................ 0 0 0
July 25, 2026........................ 0 0 0
July 25, 2027........................ 0 0 0
July 25, 2028........................ 0 0 0
Weighted Average Life in
years(1)........................... 0.07 0.07 0.07
</TABLE>
- ------------------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
* Less than 0.5% but greater than 0.0%.
S-52
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS M, CLASS B-1, CLASS B-2
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ------------------------------------------------------------------------- --------- --------- --------- ----- -----
Initial.................................................................. 100 100 100 100 100
July 25, 1999............................................................ 99 99 99 99 99
July 25, 2000............................................................ 98 98 98 98 98
July 25, 2001............................................................ 96 96 96 96 96
July 25, 2002............................................................ 95 95 95 95 95
July 25, 2003............................................................ 94 94 94 94 94
July 25, 2004............................................................ 92 90 87 85 82
July 25, 2005............................................................ 90 85 80 75 69
July 25, 2006............................................................ 88 79 71 62 54
July 25, 2007............................................................ 86 73 60 49 39
July 25, 2008............................................................ 84 65 49 36 26
July 25, 2009............................................................ 82 58 40 27 17
July 25, 2010............................................................ 79 52 33 20 11
July 25, 2011............................................................ 77 46 26 14 7
July 25, 2012............................................................ 74 41 21 11 5
July 25, 2013............................................................ 70 36 17 8 3
July 25, 2014............................................................ 68 32 14 6 2
July 25, 2015............................................................ 65 28 11 4 1
July 25, 2016............................................................ 62 25 9 3 1
July 25, 2017............................................................ 59 21 7 2 1
July 25, 2018............................................................ 55 18 6 2 *
July 25, 2019............................................................ 51 16 4 1 *
July 25, 2020............................................................ 47 13 3 1 *
July 25, 2021............................................................ 42 11 3 1 *
July 25, 2022............................................................ 37 9 2 * *
July 25, 2023............................................................ 32 7 1 * *
July 25, 2024............................................................ 26 5 1 * *
July 25, 2025............................................................ 20 4 1 * *
July 25, 2026............................................................ 13 2 * * *
July 25, 2027............................................................ 6 1 * * *
July 25, 2028............................................................ 0 0 0 0 0
Weighted Average Life in years(1)........................................ 19.41 13.51 10.81 9.38 8.51
</TABLE>
- ------------------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the total principal distribution on such
Certificates.
* Less than 0.5% but greater than 0.0%.
S-53
<PAGE>
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS IA-X AND CLASS IIA-X CERTIFICATES
The yield to maturity of the Class IA-X and Class IIA-X Certificates will be
extremely sensitive to the rate and timing of principal payments (including
prepayments, liquidations, repurchases and defaults) on the Non-Discount
Mortgage Loans (defined herein) in the related Mortgage Group, which may
fluctuate significantly from time to time. A rapid rate of principal payments on
the Non-Discount Mortgage Loans in a Mortgage Group will have a material
negative effect on the yield to maturity of the Class IA-X or Class IIA-X
Certificates, as the case may be. An investor should fully consider the
associated risks, including the risk that a relatively rapid rate of principal
payments (including prepayments and defaults) on the Non-Discount Mortgage Loans
in the related Mortgage Group will have a material negative effect on the yield
to an investor in the Class IA-X or Class IIA-X Certificates, as the case may
be, and could result in any case in the failure of investors in the Class IA-X
or Class IIA-X Certificates to recoup their initial investment. The Non-Discount
Mortgage Loans in a Mortgage Group will have higher Net Mortgage Rates than the
other Mortgage Loans in such Mortgage Group. In general, mortgage loans with
higher mortgage interest rates may tend to prepay at a faster rate of payment in
respect of principal than mortgage loans with relatively lower mortgage interest
rates, in response to changes in market interest rates. As a result, the
Non-Discount Mortgage Loans in a Mortgage Group may prepay at a faster rate of
payment in respect of principal than the other Mortgage Loans in such Mortgage
Group, resulting in a lower yield on the Class IA-X or Class IIA-X Certificates,
as the case may be, than would be the case if the Non-Discount Mortgage Loans in
the related Mortgage Group, prepaid at the same rate as the other Mortgage Loans
in such Mortgage Group.
The following tables illustrate the significant effect that principal
prepayments on the Non-Discount Mortgage Loans in a Mortgage Group have upon the
yield to maturity of the Class IA-X or Class IIA-X Certificates, as the case may
be. The actual prices to be paid for the Class IA-X or Class IIA-X Certificates
have not been determined and will be dependent on the characteristics of each
Mortgage Group. The tables show the hypothetical pre-tax yields to maturity of
the Class IA-X and Class IIA-X Certificates, stated on a corporate bond
equivalent basis, under six different prepayment assumptions based on the
Prepayment Model described above. The tables are based on the Modeling
Assumptions and assume further that the purchase price of the Class IA-X and
Class IIA-X Certificates are $4,299,998 and $196,324, respectively (which
includes accrued interest in each case).
CLASS IA-X CERTIFICATES
PRE-TAX YIELD
<TABLE>
<CAPTION>
PREPAYMENT MODEL
- ----------------------------------------------------------------
0% 50% 75% 100% 150% 200%
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
35.00% 26.38% 21.94% 17.40% 8.01% (1.86)%
</TABLE>
CLASS IIA-X CERTIFICATES
PRE-TAX YIELD
<TABLE>
<CAPTION>
PREPAYMENT MODEL
- ----------------------------------------------------------------
0% 75% 100% 150% 200% 300%
- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
45.56% 32.49% 27.94% 18.55% 8.69% (12.76)%
</TABLE>
Based upon the above assumptions, at approximately 191% and 242% of the
Prepayment Model, respectively, the pre-tax yield to maturity of the Class IA-X
and Class IIA-X Certificates will be approximately 0%. If the rate of
prepayments on the Mortgage Loans in the related Mortgage Group were to exceed
such respective level for as little as one month, while equaling such level for
all other months, the Class IA-X or Class IIA-X Certificateholders, as the case
may be, would not fully recoup their initial
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investment. Any change in the composition of either Mortgage Group from that
assumed could substantially alter the information set forth in the tables above.
No assurances can be given as to the rate or timing of principal payments or
prepayments on the Non-Discount Mortgage Loans in either Mortgage Group.
The pre-tax yields set forth in the preceding tables were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class IA-X and Class IIA-X Certificates
would cause the discounted present value of such assumed streams of cash flows
to equal the assumed offering prices of $4,299,998 and $196,324, respectively
(which includes accrued interest in each case) for the Class IA-X and Class
IIA-X Certificates, respectively. In all cases, monthly rates are then converted
to the corporate bond equivalent yields shown above. Implicit in the use of any
discounted present value or internal rate of return calculation such as these is
the assumption that intermediate cash flows are reinvested at the discount rate
or internal rate of return. Thus, these calculations do not take into account
the different interest rates at which investors may be able to reinvest funds
received by them as distributed on the Class IA-X or Class IIA-X Certificates.
Consequently, these yields do not purport to reflect the return on any
investment in the Class IA-X or Class IIA-X Certificates when such reinvestment
rates are considered.
YIELD CONSIDERATIONS WITH RESPECT TO THE CLASS A-P CERTIFICATES
The yield to maturity of the Class A-P Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments,
liquidations, repurchases and defaults) on the Discount Mortgage Loans (defined
herein), which may fluctuate significantly from time to time. A slower rate of
principal payments on the Discount Mortgage Loans than that anticipated by
investors will have a material negative effect on the yield to maturity of the
Class A-P Certificates. An investor should fully consider the associated risks,
including the risk that a relatively slow rate of principal payments (including
prepayments, liquidations, repurchases and defaults) on the Discount Mortgage
Loans will have a material negative effect on the yield to an investor in the
Class A-P Certificates. The Discount Mortgage Loans will have lower Net Mortgage
Rates than the other Mortgage Loans. In general, mortgage loans with lower
mortgage interest rates may tend to prepay at a slower rate of payment in
respect of principal than mortgage loans with relatively higher mortgage
interest rates in response to changes in market interest rates. As a result, the
Discount Mortgage Loans may prepay at a slower rate of payment in respect of
principal than the other Mortgage Loans, resulting in a lower yield on the Class
A-P Certificates than would be the case if the Discount Mortgage Loans prepaid
at the same rate as the other Mortgage Loans. As of the Cut-off Date, there were
approximately 3 Discount Mortgage Loans, with an aggregate outstanding principal
balance of approximately $329,984.
The following table illustrates the significant effect that principal
prepayments on the Discount Mortgage Loans have upon the yield to maturity of
the Class A-P Certificates. The actual prices to be paid for the Class A-P
Certificates have not been determined and will be dependent on the
characteristics of the Mortgage Pool. The table shows the hypothetical pre-tax
yields to maturity of the Class A-P Certificates, stated on a corporate bond
equivalent basis, under six different prepayment assumptions based on the
Prepayment Model described above. The table is based on the Modeling Assumptions
and assumes further that the purchase price of the Class A-P Certificates is
80.00%.
PRE-TAX YIELD
<TABLE>
<CAPTION>
PREPAYMENT MODEL
- -----------------------------------------------------
0% 50% 100% 150% 200%
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1.41% 2.93% 4.83% 6.92% 9.15%
</TABLE>
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Any change in the composition of the Mortgage Pool from that assumed could
substantially alter the information set forth in the table above. No assurances
can be given as to the rate or timing of principal payments or prepayments on
the Discount Mortgage Loans.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class A-P Certificates would cause the
discounted present value of such assumed streams of cash flows to equal the
assumed offering price of 80.00% for the Class A-P Certificates. In all cases
monthly rates are then converted to the corporate bond equivalent yields shown
above. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that intermediate cash flows
are reinvested at the discount rate or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Class A-P Certificates. Consequently, these yields do not purport to reflect the
return on any investment in the Class A-P Certificates when such reinvestment
rates are considered.
It is unlikely that the characteristics of the Discount Mortgage Loans will
correspond exactly to those assumed in preparing the table above. The pre-tax
yield of the Class A-P Certificates may therefore differ even if all the
Discount Mortgage Loans prepay monthly at the assumed prepayment rate. In
addition, it is highly unlikely that any Discount Mortgage Loan will prepay at a
constant rate until maturity or that all the Discount Mortgage Loans will prepay
at the same rate. The timing of changes in the rate of prepayments on the
Discount Mortgage Loans may affect significantly the total distributions
received, the date of receipt of such distributions and the actual yield
received by a holder of a Class A-P Certificate even if the average rate of
principal prepayments on the Discount Mortgage Loans is consistent with an
investor's expectations.
The Seller makes no representation that any of the Mortgage Loans will
prepay in the manner or at any of the rates assumed in the tables set forth
above. Each investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the Offered
Certificates. Since the rate of principal payments (including prepayments) and
repurchases on the Mortgage Loans will significantly affect the yield to
maturity on the Offered Certificates, prospective investors are urged to consult
their investment advisors as to both the anticipated rate of future principal
payments (including prepayments) on the Mortgage Loans and the suitability of
the Offered Certificates to their investment objectives.
The Seller intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Securities and Exchange Commission in a Report on Form
8-K. See "Incorporation of Certain Documents By Reference" in the Prospectus.
Such tables and materials were prepared by the Underwriter at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such investors. Such tables and assumptions may be
based on assumptions that differ from the Modeling Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for
investors other than those specifically requesting them.
CHASE MANHATTAN MORTGAGE CORPORATION
Chase Manhattan Mortgage is a New Jersey corporation, formed in 1920. It is
a wholly-owned indirect subsidiary of Chase Manhattan Bank USA, National
Association. Chase Manhattan Mortgage is engaged in the mortgage origination and
servicing businesses. Chase Manhattan Mortgage is HUD-approved mortgagee. Chase
Manhattan Mortgage is subject to supervision, examination and regulation by the
Office of the Comptroller of the Currency and various state regulatory bodies.
The address of Chase Manhattan Mortgage is 343 Thornall Street, Edison, New
Jersey 08837 and its telephone number is (732) 205-0600. Chase Manhattan
Mortgage makes loans in all 50 states primarily for the purpose of enabling
borrowers to purchase or refinance residential real property, secured by first
liens on such property. Chase Manhattan
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Mortgage's real estate loans primarily are made to homeowners based on the
security of one- to four-family residences.
MODIFIED UNDERWRITING POLICIES.
The Mortgage Loans have been originated using underwriting policies (the
"Modified Underwriting Policies") that are different from and, in certain
respects, less stringent than the general underwriting policies of Chase
Manhattan Mortgage. For example, the Mortgage Loans include mortgage loans
secured by non-owner occupied properties, mortgage loans made to borrowers whose
income is not required to be provided or verified, mortgage loans with higher
Loan-to-Value Ratios or mortgage loans made to borrowers whose ratios of debt
service on the mortgage loan to income and total debt service on borrowings to
income are higher than for such other programs, or mortgage loans made to
foreign nationals. Other examples include mortgage loans secured by smaller or
larger or otherwise unusual parcels of land and mortgage loans with higher
Loan-to-Value Ratios than in such other programs. The inclusion of such Mortgage
Loans may present certain risks that are not present in such other programs.
Under the Modified Underwriting Policies, the mortgagor is required to
complete an application designed to provide to Chase Manhattan Mortgage
pertinent credit information concerning the mortgagor. As part of the
description of the mortgagor's financial condition, each mortgagor is required
to furnish information (which may have been supplied solely in such application)
with respect to its assets, liabilities, income (except as described below),
credit history and employment history, and to furnish 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. The mortgagor may also be
required to authorize verifications of deposits at financial institutions where
the mortgagor had demand or savings accounts. In the case of non-owner occupied
properties, income derived from the mortgaged property may be considered for
underwriting purposes. With respect to mortgaged property consisting of a
vacation or second home, generally no income derived from the property is
considered for underwriting purposes.
Based on the data provided in the application and certain verifications (if
required), Chase Manhattan Mortgage determines whether the mortgagor's monthly
income (if required to be stated) will be sufficient to enable the mortgagor to
meet its monthly obligations on the mortgage loan and other expenses related to
the property (such as property taxes, utility costs, standard hazard insurance
and other fixed obligations other than housing expenses). Generally, scheduled
payments on a mortgage loan during the first year of its term plus taxes and
insurance and all scheduled payments on obligations that extend beyond ten
months (including those mentioned above and other fixed obligations) equal no
more than specified percentages of the prospective mortgagor's gross income.
Chase Manhattan Mortgage may also consider the amount of liquid assets available
to the mortgagor after origination.
Certain of the Mortgage Loans have been originated under "reduced
documentation" or "no stated income" 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 stated income" program,
certain borrowers with acceptable payment histories will not be required to
provide any information regarding income and no other investigation regarding
the borrower's income will be undertaken. Under a "no income/no asset" program,
no verification of a mortgagor's income or assets is undertaken by the
originator. The underwriting for such mortgage loans may be based primarily or
entirely on an appraisal of the Mortgaged Property and the Loan-to-Value Ratio
at origination.
Because the Mortgage Loans were originated using the Modified Underwriting
Policies described above, the Mortgage Loans may experience greater rates of
delinquency, foreclosure and loss than mortgage loans required to satisfy more
stringent underwriting standards.
Chase Manhattan Mortgage requires an appraisal to be made of each property
to be financed. The appraisal is conducted by an independent fee appraiser. The
person conducting the appraisal personally
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visits the property and estimates its market value on the basis of comparable
properties. The independent appraisers do not receive any compensation dependent
upon either the amount of the loan or its consummation. In normal practice, the
lower of purchase price or appraised value determines the maximum amount which
will be lent on the property.
From time to time, exceptions and/or variances to Chase Manhattan Mortgage's
Modified Underwriting Policies may be made. Such exceptions and/or variances may
be made only if specifically approved on a loan-by-loan basis by certain credit
personnel of Chase Manhattan Mortgage who have the authority to make such
exceptions and/or variances. Exceptions and/or variances may be made only after
careful consideration of certain mitigating factors such as borrower capacity,
liquidity, employment and residential stability and local economic conditions.
Chase Manhattan Mortgage obtains a search of the liens of record to which
the property being financed is subject at the time of origination. Title
insurance is required in the case of all mortgage loans.
LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE. The Mortgage Loans were
underwritten using the Modified Underwriting Policies, as described above. Chase
Manhattan Mortgage has not had sufficient experience servicing mortgage loans
underwritten using the Modified Underwriting Policies to provide meaningful
disclosure of its delinquency and loss experience with respect to such mortgage
loans.
THE POOLING AND SERVICING AGREEMENT
The Certificates will be issued pursuant to the Agreement. The following
summaries describe certain provisions of the Agreement. See "The Pooling and
Servicing Agreement" in the accompanying Prospectus for summaries of certain
other provisions of the Agreement. The summaries below do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the provisions of the Agreement. Where particular provisions or terms used in
the Agreement are referred to, such provisions or terms are as specified in the
Agreement.
ASSIGNMENT OF MORTGAGE LOANS
The Seller will cause the Mortgage Loans to be assigned to the Trustee,
together with the rights to all principal and interest due on or with respect to
the Mortgage Loans after the Cut-off Date other than interest accrued on the
Mortgage Loans prior to the Cut-off Date. The Chase Manhattan Bank, as
authenticating agent, will, concurrently with such assignment, authenticate and
deliver the Certificates. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Agreement (the "Mortgage Loan Schedule"). The
Mortgage Loan Schedule will specify, among other things, with respect to each
Mortgage Loan, the original principal balance and the unpaid principal balance
as of the close of business on the Cut-off Date; the Monthly Payment; the months
remaining to stated maturity of the Mortgage Note; and the Mortgage Rate.
In addition, the Seller will, as to each Mortgage Loan, deliver or cause to
be delivered to the Trustee the Mortgage Note (together with all amendments and
modifications thereto) endorsed without recourse to the Trustee or its designee,
the original or a certified copy of the mortgage (together with all amendments
and modifications thereto) with evidence of recording indicated thereon and an
original or certified copy of an assignment of the Mortgage in recordable form.
The Seller will cause the assignments to be recorded in the appropriate public
records.
SERVICING
The Mortgage Loans will be serviced by the Servicer generally in accordance
with procedures described in the accompanying Prospectus under the headings
"Servicing of the Mortgage Loans" and "Description of the Certificates."
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When any Mortgaged Property is conveyed by the Mortgagor, the Servicer
generally will enforce any "due-on-sale" clause contained in the Mortgage Loan,
to the extent permitted under applicable law and governmental regulations.
Acceleration of Mortgage Loans as a result of enforcement of such "due-on-sale"
provisions in connection with transfers of the related Mortgaged Properties will
affect the level of prepayments on the Mortgage Loans, thereby affecting the
weighted average lives and yields to maturity of the Offered Certificates. See
"Prepayment and Yield Considerations" herein and "Yield, Maturity and Weighted
Average Life Considerations" in the Prospectus. The terms of the Mortgage Loans
or applicable law, however, may provide that the Servicer is prohibited from
exercising the "due-on-sale" clause if information is submitted so as to
evaluate the intended buyer as if a new loan were being made to the buyer and it
can reasonably be determined that the security under the related Mortgage Note
will not be impaired by the assumption of the Mortgage Loan and that the risk of
a breach of any covenant in the Mortgage Note is acceptable. Upon any such
assumption, a fee equal to a specified percentage of the outstanding principal
balance of the Mortgage Loan is typically required, which sum will be retained
by the Servicer as additional servicing compensation.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be paid a monthly fee (the "Servicing Fee") (including
sub-servicing compensation) with respect to each Mortgage Loan in an amount
equal to 0.3139% (the "Servicing Fee Rate") per annum of the unpaid principal
balance of each Mortgage Loan.
The Servicer is obligated to pay certain ongoing expenses associated with
the Mortgage Pool and incurred by the Servicer in connection with its
responsibilities under the Agreement. See "The Pooling and Servicing
Agreement--Servicing and Other Compensation and Payment of Expenses" in the
Prospectus for information regarding other possible compensation to the Servicer
and for information regarding expenses payable by the Servicer.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a Mortgagor makes a full or partial principal prepayment of a Mortgage
Loan between Due Dates, the Mortgagor generally is required to pay interest on
the principal balance thereof only to the date of prepayment. In order to
minimize any resulting shortfall in interest (such shortfall, a "Prepayment
Interest Shortfall"), the aggregate amount of the Servicing Fee will be reduced
to the extent necessary to include an amount in payments to the holders of the
Offered Certificates equal to a full month's interest payment at the applicable
Net Mortgage Rate (defined herein) with respect to such prepaid Mortgage Loan;
provided, however, that such reductions in the Servicing Fee will be made only
up to the product of (i) one-twelfth of 0.125% and (ii) the aggregate scheduled
principal balance of the Mortgage Loans with respect to the related Distribution
Date. Any Prepayment Interest Shortfalls (adjusted to the applicable Net
Mortgage Rate) in excess of such amount (such excess, the "Non-Supported
Interest Shortfall") will be allocated on such Distribution Date pro rata among
the outstanding Classes of Certificates (including the Class A-X Certificates)
based upon the amount of interest which each such Class would otherwise be paid
on such Distribution Date and will consequently reduce the yield on the
applicable Classes of Certificates. Any principal prepayment, together with a
full month's interest thereon at the applicable Net Mortgage Rate (to the extent
described in this paragraph), will be paid on the Distribution Date in the month
following the month in which the last day of the related Principal Prepayment
Period (defined herein) occurred. See "Yield, Maturity and Weighted Average Life
Considerations" in the Prospectus.
PAYMENTS ON MORTGAGE LOANS; COLLECTION ACCOUNT; CERTIFICATE ACCOUNT
The Agreement provides that the Servicer for the benefit of the
Certificateholders shall establish and maintain a Collection Account (the
"Collection Account"), into which the Servicer is generally required to deposit
or cause to be deposited on a daily basis the payments and collections described
in "The Pooling and Servicing Agreement--Payments on Mortgage Loans; Certificate
Account" in the Prospectus, except
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that the Servicer may deduct its Servicing Fee and any expenses of liquidating
defaulted Mortgage Loans or property acquired in respect thereof. The Agreement
permits the Servicer to direct any depository institution maintaining the
Collection Account to invest the funds in the Collection Account in one or more
investments acceptable to S&P and Fitch (as provided in the Agreement) that
mature, unless payable on demand, no later than the Business Day preceding the
25th day of each month, or, if such day is not a business day, the preceding
business day (the "Servicer Remittance Date"). The Servicer will be entitled to
all income and gain realized from any such investment, and such income and gain
will be subject to withdrawal by the Servicer from time to time. The Servicer
will be required to deposit the amount of any losses incurred in respect of any
such investments out of its own funds as such losses are realized.
The Trustee will be obligated to establish an account (the "Certificate
Account"), into which the Servicer will deposit or cause to be deposited on the
Servicer Remittance Date the Available Distribution Amount (including any
Advances with respect to such Servicer Remittance Date) for the related
Distribution Date, together with certain other amounts specified in the
Agreement. Subject to the restrictions set forth in the Agreement, the Trustee
is permitted to direct the investment of funds in the Certificate Account. Any
such investments are required to mature, unless payable on demand, no later than
the related Distribution Date. The Trustee will be entitled to all income and
gain realized from any such investment, and such income and gain will be subject
to withdrawal by the Trustee from time to time. The Trustee will be required to
deposit the amount of any losses incurred in respect of any such investments out
of its own funds as such losses are realized.
ADVANCES
In the event that any Mortgagor fails to make any payment of principal or
interest required under the terms of a Mortgage Loan, the Servicer will advance
the entire amount of such payment, net of the applicable Servicing Fee, less the
amount of any such payment that the Servicer reasonably believes will not be
recoverable out of liquidation proceeds or otherwise. The amount of any
scheduled payment required to be advanced by the Servicer will not be affected
by any agreement between the Servicer and a Mortgagor providing for the
postponement or modification of the due date or amount of such scheduled
payment. The Servicer will be entitled to reimbursement for any such advance
from related late payments on the Mortgage Loan as to which such advance was
made. Furthermore, in the event that any Mortgage Loan as to which an advance
has been made is foreclosed while in the Trust Fund, the Servicer will be
entitled to reimbursement for such advance from related liquidation proceeds or
insurance proceeds prior to payment to Certificateholders of the related
Mortgage Pool of the Scheduled Principal Balance of such Mortgage Loan plus
accrued interest at the Net Mortgage Rate.
If the Servicer makes a good faith judgment that all or any portion of any
advance made by it with respect to any Mortgage Loan may not ultimately be
recoverable from related liquidation proceeds (a "Nonrecoverable Advance"), the
Servicer will so notify the Trustee and the Servicer will be entitled to
reimbursement for such Nonrecoverable Advance from recoveries on all other
unrelated Mortgage Loans included in the related Mortgage Pool. The Servicer's
judgment that it has made a Nonrecoverable Advance with respect to any Mortgage
Loan will be based upon its assessment of the value of the related Mortgaged
Property and such other facts and circumstances as it may deem appropriate in
evaluating the likelihood of receiving liquidation proceeds, net of expenses,
equal to or greater than the aggregate amount of unreimbursed advances made with
respect to such Mortgage Loan.
TRUSTEE
The Trustee for the Certificates offered hereby will be Citibank, N.A., a
national banking association. The Corporate Trust Office of the Trustee is
located at 111 Wall Street, New York, New York 10043 (the "Corporate Trust
Office"). The Servicer will pay to the Trustee a fee in consideration for its
services as trustee under the Agreement. The Trustee will appoint The Chase
Manhattan Bank ("Chase") as
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certificate registrar and authenticating agent. Chase's office for such purposes
is 450 West 33rd Street, New York, New York 10001.
OPTIONAL TERMINATION
The Servicer may, on any Distribution Date, repurchase from the Trust Fund
all Mortgage Loans remaining outstanding at such time as the aggregate unpaid
principal balance of such Mortgage Loans is less than 10% of the aggregate
unpaid scheduled principal balance of the Mortgage Pool on the Cut-off Date. The
repurchase price will equal the sum of (i) the unpaid principal amount of such
Mortgage Loans (other than any such Mortgage Loans as to which the related
Mortgaged Properties have been acquired and whose fair market values are
included in clause (ii) below), plus accrued interest thereon at the Remittance
Rate to the next Due Date and (ii) the fair market value of any such acquired
properties, in each case less any unreimbursed Advances made with respect to
such Mortgage Loans. Upon any such repurchase, the Offered Certificateholders
generally will receive the outstanding principal balance of the Offered
Certificates plus (except in the case of the Class A-P Certificates) accrued
interest thereon at their respective Certificate Rates. Such amounts will be
distributed to Certificateholders on the Distribution Date in the month
following the month of repurchase.
SPECIAL SERVICING AGREEMENTS
The Agreement may permit the Servicer to enter into a special servicing
agreement with an unaffiliated holder of a Class of Class B Certificates or of a
class of securities representing interests in the Class B Certificates and/or
other subordinated mortgage pass-through certificates. Pursuant to such
agreement, such holder may instruct the Servicer to commence or delay
foreclosure proceedings with respect to delinquent Mortgage Loans. Such
commencement or delay at such holder's direction will be taken by the Servicer
only after such holder deposits a specified amount of cash with the Servicer.
Such cash will be available for distribution to Certificateholders if
Liquidation Proceeds are less than they otherwise may have been had the Servicer
acted pursuant to its normal servicing procedures.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. A copy of the
Agreement will be attached as an exhibit to the Current Report on Form 8-K of
the Seller that will be available to purchasers of the Certificates at, and will
be filed with the Securities and Exchange Commission within 15 days of, the
initial delivery of the Certificates. Reference is made to the Prospectus for
additional information regarding the terms and conditions of the Agreement.
The following summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Agreement. When particular provisions or terms used in the Agreement are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
GENERAL
Initially, the Class A Certificates will evidence in the aggregate a
beneficial interest of approximately 93.25% in the aggregate principal balance
of the Mortgage Loans in the Trust Fund (the "Class A Percentage"), the Class M
Certificates will evidence a beneficial interest of approximately 3.15% in the
aggregate principal balance of the Mortgage Loans in the Trust Fund (the "Class
M Percentage"), the Class B-1 Certificates will evidence a beneficial interest
of approximately 1.45% in the aggregate principal balance of the Mortgage Loans
in the Trust Fund (the "Class B-1 Percentage"), the Class B-2 Certificates will
evidence in the aggregate a beneficial interest of approximately 0.95% in the
aggregate principal balance of the Mortgage Loans in the Trust Fund (the "Class
B-2 Percentage") and the Non-Offered Class B Certificates will evidence in the
aggregate the remaining beneficial interest (the "Non-Offered
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Class B Percentage") in the aggregate principal balance of the Mortgage Loans in
the Trust Fund. Initially, the Non-Offered Class B Percentage will be
approximately 1.20%. The Class A Percentage, the Class M Percentage, the Class
B-1 Percentage and the Class B-2 Percentage will vary from time to time to the
extent that the respective Class A, Class M, Class B-1 or Class B-2
Certificateholders do not receive amounts due to them on any Distribution Date,
losses are realized on the Mortgage Loans, or principal prepayments are made or
certain other unscheduled amounts of principal are received in respect of the
Mortgage Loans. See "Description of the Certificates--Subordinated Certificates
and Shifting Interests." The Non-Offered Class B Certificates will be privately
placed with a limited number of institutional investors and are not offered
hereby. The Offered Certificates (other than the Class IA-X and Class IIA-X
Certificates) generally will be issuable in denominations of $25,000 (or $1,000
in the case of the Class IA-6, Class IA-7 and Class IA-8 Certificates, and
$100,000, in the case of the Class M and Offered Class B Certificates) principal
amount (or, in either case, integral multiples of $1,000 in excess thereof). The
Class IA-X and Class IIA-X Certificates will have no principal balance, but will
be issuable in denominations of $25,000 based on the Class IA-X Notional Amount
and the Class IIA-X Notional Amount, respectively (each as defined herein) (or
integral multiples thereof). A single Class A-R Certificate will be issuable in
a $100 denomination.
The Class A-R, Class M, Class B-1 and Class B-2 Certificates, as well as
Definitive Certificates (defined herein), if any, will be transferable and
exchangeable at the Corporate Trust Office. No service charge will be made for
any registration or transfer of Offered Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge in connection with such transfer. The Offered Certificates, other than
the Class A-R, Class M, Class B-1 and Class B-2 Certificates (such Classes of
Certificates, the "Book-Entry Certificates") will be represented initially by
one or more physical certificates registered in the name of Cede & Co. ("Cede")
as the nominee of The Depository Trust Company ("DTC"). No person acquiring an
interest in the Book-Entry Certificates (a "Certificate Owner") will be entitled
to receive a certificate representing such person's interest in the Trust Fund,
except as set forth below under "Description of the Certificates--Definitive
Certificates." Unless and until Definitive Certificates are issued under the
limited circumstances described herein, all references to actions by the
Book-Entry Certificateholders shall refer to actions taken by DTC upon
instructions from its Participants (as defined below) and all references herein
to distributions, notices, reports and statements to the Book-Entry
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Book-Entry Certificates, as the
case may be, for distribution to Certificate Owners in accordance with DTC
procedures. See "Description of the Certificates--Book-Entry Registration."
The Final Scheduled Distribution Date of each Class of Offered Certificates
is August 25, 2028, which is the Distribution Date occurring in the month that
is one month following the latest stated maturity date of any Mortgage Loan.
The rate of principal payments of the Certificates will depend on the rate
of principal payments of the Mortgage Loans (including prepayments, defaults,
delinquencies and liquidations) which, in turn, will depend on the
characteristics of the Mortgage Loans, the level of prevailing interest rates
and other economic factors, and no assurance can be given as to the actual
payment experience. The principal balance or notional amount, as applicable, of
each Class of Certificates may be reduced to zero earlier or later than its
Final Scheduled Distribution Date.
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BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the State
of New York and is a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934. DTC was created to hold securities for its participating
organizations (each, a "Participant") and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (including
Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation), banks, trust companies and clearing corporations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Certificate Owners that are not Participants or Indirect Participants and
that desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Book-Entry Certificates may do so only through Participants
and Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest on the Book-Entry Certificates through a
Participant or an Indirect Participant. Under a book-entry format, Certificate
Owners may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC will
forward such payments to its Participants, which thereafter will forward them to
Certificate Owners directly or through an Indirect Participant. It is
anticipated that the only "Certificateholder" of a Book-Entry Certificate will
be Cede, as nominee of DTC. Certificate Owners will not be recognized by the
Trustee as Certificateholders, as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of Book-Entry
Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC will be required to make book-entry transfers
of Book-Entry Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, Book-Entry Certificates.
Participants and Indirect Participants with which Certificates Owners have
accounts with respect to the Book-Entry Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess physical certificates, the Rules provide a mechanism by which
Participants and Certificate Owners will receive payments and will be able to
transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, the ability of
a Certificate Owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the DTC system, or to otherwise act with respect to
such Certificates, may be limited due to the absence of physical certificates
for such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Participants to whose accounts with DTC the Book-Entry Certificates are
credited. Additionally, DTC has advised the Seller that it will take such action
where the consent of specified percentages of the Offered Certificates is
required under the Agreement only at the direction of and on behalf of
Participants whose interests represent such specified percentages. DTC may take
conflicting actions on behalf of other Participants.
Neither the Seller, the Servicer nor the Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Book-Entry Certificates held by Cede, as nominee for
DTC, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
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DEFINITIVE CERTIFICATES
The Class A-R, Class M, Class B-1 and Class B-2 Certificates will be issued
in fully registered, certificated form. The Book-Entry Certificates will be
issued in fully registered, certificated form ("Definitive Certificates") to
Certificate Owners or their nominees, rather than to DTC or its nominee, only if
(i) the Seller advises the Servicer in writing that DTC is no longer willing or
able to discharge properly its responsibilities as depository with respect to
the Book-Entry Certificates and the Seller is unable to locate a qualified
successor within 30 days or (ii) the Seller, at its option, elects to terminate
the book-entry system through DTC.
Upon the occurrence of either event described in the immediately preceding
paragraph, the Trustee is required to notify DTC which in turn will notify all
Certificate Owners through Participants of the availability of Definitive
Certificates in exchange for Book-Entry Certificates. Upon surrender by Cede, as
nominee of DTC, of the definitive certificates representing the Book-Entry
Certificates and receipt of instructions for re-registration, the Trustee or its
agent will reissue the Book-Entry Certificates as Definitive Certificates to
Certificate Owners.
RESTRICTIONS ON TRANSFER OF THE CLASS A-R, CLASS M AND OFFERED CLASS B
CERTIFICATES
The Class A-R Certificate will be subject to the following restrictions on
transfer, and the Class A-R Certificate will contain a legend describing such
restrictions.
The REMIC provisions of the Code impose certain taxes on (i) transferors of
residual interests to, or agents that acquire residual interests on behalf of,
Disqualified Organizations (as defined in the Prospectus) and (ii) certain
Pass-Through Entities (as defined in the Prospectus) that have Disqualified
Organizations as beneficial owners. No tax will be imposed on a Pass-Through
Entity (other than an "electing large partnership" as defined in the Code) with
respect to the Class A-R Certificate to the extent it has received an affidavit
from the owner thereof that such owner is not a Disqualified Organization or a
nominee for a Disqualified Organization. The Agreement will provide that no
legal or beneficial interest in the Class A-R Certificate may be transferred to
or registered in the name of any person unless (i) the proposed purchaser
provides to the Trustee an affidavit to the effect that, among other items, such
transferee is not a Disqualified Organization and is not purchasing the Class
A-R Certificate as an agent for a Disqualified Organization (i.e., as a broker,
nominee, or other middleman thereof) and (ii) the transferor states in writing
to the Trustee that it has no actual knowledge that such affidavit or letter is
false. Further, such affidavit or letter requires the transferee to affirm that
it (i) historically has paid its debts as they have come due and intends to do
so in the future, (ii) understands that it may incur tax liabilities with
respect to the Class A-R Certificate in excess of cash flows generated thereby,
(iii) intends to pay taxes associated with holding the Class A-R Certificate as
such taxes become due and (iv) will not transfer the Class A-R Certificate to
any person or entity that does not provide a similar affidavit or letter.
In addition, the Class A-R Certificate may not be purchased by or
transferred to any person that is not a "U.S. Person," unless (i) such person
holds such Class A-R Certificate in connection with the conduct of a trade or
business within the United States and furnishes the transferor and the Trustee
with an effective Internal Revenue Service Form 4224 or (ii) the transferee
delivers to both the transferor and the Trustee an opinion of a nationally
recognized tax counsel to the effect that such transfer of the Class A-R
Certificate will not be disregarded for federal income tax purposes. The term
"U.S. Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate that is subject to
United States federal income tax regardless of the source of its income, or a
trust if (A) a court within the United States is able to exercise primary
supervision over the administration of such trust, and (B) one or more such U.S.
Persons have the authority to control all substantial decisions of such trust.
The Agreement will provide that any attempted or purported transfer in
violation of these transfer restrictions will be null and void and will vest no
rights in any purported transferee. Any transferor or agent
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to whom the Trustee provides information as to any applicable tax imposed on
such transferor or agent may be required to bear the cost of computing or
providing such information. See "Federal Income Tax Consequences--REMIC
Certificates;--Income from Residual Certificates;--Taxation of Certain Foreign
Investors;--Transfers of Residual Certificates;--Servicing Compensation and
Other REMIC Pool Expense" in the Prospectus.
THE CLASS A-R CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN
OR A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN. See "ERISA
Considerations" herein and in the Prospectus.
Because the Class M and Offered Class B Certificates are subordinated to the
Class A Certificates, the Class M Certificates and the Offered Class B
Certificates may not be transferred unless the transferee has delivered (i) a
representation letter to the Trustee stating either (a) that the transferee is
not a Plan and is not acting on behalf of a Plan or using the assets of Plan to
effect such purchase or (b) subject to the conditions described herein, that the
source of funds used to purchase the Class M or Offered Class B Certificates in
an "insurance company general account" or (ii) an opinion of counsel and such
other documentation as described herein under "ERISA Considerations." See "ERISA
Considerations" herein and in the Prospectus.
DISTRIBUTIONS TO CERTIFICATEHOLDERS
Distributions of principal and interest on the Certificates will be made on
the 25th day of each month or, if such day is not a business day, the next
succeeding business day (each, a "Distribution Date"), beginning August 25,
1998, to the persons in whose names the Certificates are registered at the close
of business on the last business day of the month preceding the month in which
payment is made (each, a "Record Date"). Distributions will be made to each
Class as described below and on a pro rata basis among the Certificates of each
Class. Distributions of principal of and interest on the Book-Entry Certificates
will initially be made by the Trustee directly to Cede by wire transfer.
Distributions with respect to the Class A-R, Class M, Class B-1 and Class B-2
Certificates and, upon the issuance of Definitive Certificates to persons other
than Cede, distributions of principal and interest on such Definitive
Certificates will be made by the Trustee directly to holders in whose names such
Certificates were registered at the close of business on the related Record
Date. Such distributions will be made by check mailed to the address of the
person entitled thereto as it appears on the certificate register, or, upon
written request to the Trustee delivered at least ten business days prior to the
first Distribution Date for which distribution by wire transfer is to be made,
by a holder of an Offered Certificate having an original aggregate principal
balance of at least $5,000,000 (or by a holder which holds all of the
Certificates of a Class), by wire transfer to such Certificateholder, except
that the final distribution in retirement of Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee specified in the final distribution notice to Certificateholders.
Principal received or advanced as part of a regularly scheduled Monthly
Payment on each Mortgage Loan will be passed through monthly on the Distribution
Date occurring in the month in which the related Due Date occurs. The Non-PO
Class A Certificateholders will be entitled to an amount equal to the Non-PO
Class A Percentage (defined herein) of the applicable Non-PO Percentage (defined
herein) of scheduled principal amounts due or advanced with respect to each
Mortgage Loan, allocated between the Class IA Certificates and the Class IIA
Certificates as described herein. Principal prepayments and certain other
unscheduled amounts of principal received during the period from the first day
of any month to the last day of such month (each, a "Principal Prepayment
Period") will be passed through on the Distribution Date occurring in the month
following the month of receipt. The Non-PO Class A Certificateholders will be
entitled to an amount equal to the Non-PO Class A Prepayment Percentage (defined
herein) of the applicable Non-PO Percentage of such unscheduled amounts of
principal, allocated among the Class IA, Class IIA and Class A-R Certificates as
described herein.
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<PAGE>
The aggregate amount available for distribution to Certificateholders on
each Distribution Date will be the Available Distribution Amount. The "Available
Distribution Amount" means, generally, as of any Distribution Date, an amount
equal to the amount on deposit in the Collection Account as of the close of
business on the related Servicer Remittance Date (including amounts to be
advanced by the Servicer in respect of delinquent Monthly Payments), except: (a)
amounts received as late payments or other recoveries of principal or interest
(including liquidation proceeds and insurance proceeds) and applied to the
reimbursement of unreimbursed Advances and amounts representing reimbursement
for Advances determined to be nonrecoverable and amounts representing
reimbursement for certain losses and expenses incurred by the Servicer, as
described in the Agreement; (b) the Servicing Fee, as adjusted as provided in
the Agreement with respect to principal prepayments; (c) all amounts
representing Monthly Payments due after the related Due Date; and (d) all
principal prepayments, liquidation proceeds, insurance proceeds, condemnation
proceeds and repurchase proceeds received after the related Principal Prepayment
Period.
On each Distribution Date, the Available Distribution Amount will be
allocated among the Classes of Certificates and distributed to the holders of
record thereof as of the related Record Date as follows:
FIRST, to each Class of Non-PO Class A Certificates, the sum of (i) the
Interest Accrual Amount with respect to such Class and (ii) any Interest
Shortfall with respect to such Class;
SECOND, concurrently (i) to the Non-PO Class A Certificates, up to the
Non-PO Class A Optimal Principal Amount (allocated among such Classes as
described below under "--Principal (Including Prepayments)--Allocation of the
Non-PO Class A Optimal Principal Amount"), and (ii) to the Class A-P
Certificates, the applicable PO Percentage (defined herein) of all principal
received on or in respect of each Discount Mortgage Loan;
THIRD, to the Class A-P Certificates, the Class A-P Shortfall Amount
(defined herein); provided, however, that any amounts distributed pursuant to
this paragraph third will not cause a further reduction in the principal balance
of the Class A-P Certificates;
FOURTH, to the Class M Certificates, the sum of (i) the Interest Accrual
Amount with respect to such Class and (ii) any Interest Shortfall with respect
to such Class;
FIFTH, to the Class M Certificates, in an amount up to the portion of the
Subordinated Optimal Principal Amount allocable to the Class M Certificates as
described below under "--Principal (Including Prepayments)--Allocation of the
Subordinated Optimal Principal Amount";
SIXTH, to the Class B-1 Certificates the sum of (i) the Interest Accrual
Amount with respect such Class and (ii) any Interest Shortfall with respect to
such Class;
SEVENTH, to the Class B-1 Certificates, in an amount up to the portion of
the Subordinated Optimal Principal Amount allocable to the Class B-1
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
EIGHTH, to the Class B-2 Certificates, the sum of (i) the Interest Accrual
Amount with respect to such Class and (ii) any Interest Shortfall with respect
to such Class;
NINTH, to the Class B-2 Certificates, in an amount up to the portion of the
Subordinated Optimal Principal Amount allocable to the Class B-2 Certificates as
described below under "--Principal (Including Prepayments)--Allocation of the
Subordinated Optimal Principal Amount";
TENTH, to the Class B-3 Certificates, the sum of (i) the Interest Accrual
Amount with respect to such Class and (ii) any Interest Shortfall with respect
to such Class;
ELEVENTH, to the Class B-3 Certificates, in an amount up to the portion of
the Subordinated Optimal Principal Amount allocable to the Class B-3
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
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<PAGE>
TWELFTH, to the Class B-4 Certificates, the sum of (i) the Interest Accrual
Amount with respect to such Class and (ii) any Interest Shortfall with respect
to such Class;
THIRTEENTH, to the Class B-4 Certificates, in an amount up to the portion of
the Subordinated Optimal Principal Amount allocable to the Class B-4
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
FOURTEENTH, to the Class B-5 Certificates, the sum of (i) the Interest
Accrual Amount with respect to such Class and (ii) any Interest Shortfall with
respect to such Class;
FIFTEENTH, to the Class B-5 Certificates, in an amount up to the portion of
the Subordinated Optimal Distribution Amount allocable to the Class B-5
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount"; and
SIXTEENTH, to the Class A-R Certificates, the remaining portion, if any
(which is expected to be zero), of the Available Distribution Amount for such
Distribution Date.
The "Class A Certificates" will consist of the Class IA-1, Class IA-2, Class
IA-3, Class IA-4, Class IA-5, Class IA-6, Class IA-7, Class IA-8, Class IA-9,
Class IA-X, Class IIA-1, Class IIA-X, Class A-P and Class A-R Certificates.
The "Class IA Certificates" are the Class IA-1, Class IA-2, Class IA-3,
Class IA-4, Class IA-5, Class IA-6, Class IA-7, Class IA-8, Class IA-9 and Class
IA-X Certificates, referred to collectively.
The "Class IIA Certificates" are the Class IIA-1 and Class IIA-X
Certificates, referred to collectively.
The Class A Certificates, Class M Certificates, Class B-1 Certificates and
Class B-2 Certificates are sometimes collectively referred to herein as the
"Offered Certificates."
The Class A Certificates (exclusive of the Class A-P Certificates) are
sometimes collectively referred to herein as the "Non-PO Class A Certificates."
"Class B Certificates" means the Class B-1, Class B-2, Class B-3, Class B-4
and Class B-5 Certificates, referred to collectively.
"Non-Offered Class B Certificates" means the Class B-3, Class B-4 and Class
B-5 Certificates, referred to collectively.
"Subordinated Certificates" means the Class M and Class B Certificates,
referred to collectively.
The "Credit Support Depletion Date" is the first Distribution Date on which
the aggregate outstanding principal balance of the Subordinated Certificates has
been or will be reduced to zero.
With respect to each Mortgage Loan, the "PO Percentage" will equal a
fraction, expressed as a percentage (but not less than 0%), the numerator of
which will equal the excess, if any, of 6.75% per annum (the "Remittance Rate")
over the applicable Net Mortgage Rate (defined herein) and the denominator of
which will equal the Remittance Rate. The PO Percentage will be 0% with respect
to Mortgage Loans for which the Net Mortgage Rate is greater than or equal to
the Remittance Rate. As of the Cut-off Date, the weighted average Net Mortgage
Rate of the Discount Mortgage Loans (defined below) is approximately 6.686%.
With respect to each Mortgage Loan, the "Non-PO Percentage" will equal a
fraction, expressed as a percentage (but not greater than 100%), the numerator
of which will equal the applicable Net Mortgage Rate and the denominator of
which will equal the Remittance Rate. The Non-PO Percentage will be 100% with
respect to Mortgage Loans for which the Net Mortgage Rate is greater than or
equal to the Remittance Rate.
The "Discount Mortgage Loans" are those Mortgage Loans having Net Mortgage
Rates less than the Remittance Rate.
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The "Non-Discount Mortgage Loans" are those Mortgage Loans having Net
Mortgage Rates greater than the Remittance Rate.
The Class A-P Certificates will not be entitled to receive interest and will
be entitled to receive principal only with respect to the Discount Mortgage
Loans. The Class IA-X and Class IIA-X Certificates will not be entitled to
receive principal and will be entitled to receive interest only with respect to
the Non-Discount Mortgage Loans in the related Mortgage Group.
With respect to each Mortgage Loan, the "Net Mortgage Rate" equals the
applicable Mortgage Rate less the Servicing Fee Rate.
INTEREST
On each Distribution Date, interest will be payable to each Class of
Certificates (other than the Class A-P Certificates) in an amount equal to the
sum of (i) the Interest Accrual Amount with respect to such Class and (ii) any
Interest Shortfall with respect to such Class.
As of any Distribution Date, the "Interest Accrual Amount" with respect to
any Class of Certificates (other than the Class A-P Certificates) means
generally one month's interest at the Certificate Rate on the outstanding
principal balance thereof (or, in the case of the Class IA-X and Class IIA-X
Certificates, on the Class IA-X Notional Amount and the Class IIA-X Notional
Amount, respectively), minus any Non-Supported Interest Shortfalls allocated to
such Class on such Distribution Date (as described herein under "The Pooling and
Servicing Agreement--Adjustment to Servicing Fee in connection with Prepaid
Mortgage Loans").
As of any Distribution Date, the "Interest Shortfall" with respect to any
Class of Certificates (other than the Class A-P Certificates) means generally
any portion of the Interest Accrual Amount with respect to any previous
Distribution Amount which remains unpaid (before giving effect to distributions
made on such Distribution Date).
For any Class of Certificates (other than the Class A-P and Non-Offered
Class B Certificates), the "Certificate Rate" is the per annum rate of interest
specified or described for such Class on the cover hereof. The "Certificate
Rate" for each Class of Non-Offered Class B Certificates is equal to 6.75%.
The "Class IA-X Notional Amount" with respect to any Distribution Date will
equal the product of (x) the aggregate Scheduled Principal Balance of the
Non-Discount Mortgage Loans in Mortgage Group One and (y) a fraction, the
numerator of which is the weighted average of the Stripped Interest Rates for
the Non-Discount Mortgage Loans in Mortgage Group One as of such Due Date and
the denominator of which is 6.75%. The initial Class IA-X Notional Amount will
be approximately $21,453,063.
The "Class IIA-X Notional Amount" with respect to any Distribution Date will
equal the product of (x) the aggregate Scheduled Principal Balance of the
Non-Discount Mortgage Loans in Mortgage Group Two and (y) a fraction, the
numerator of which is the weighted average of the Stripped Interest Rates for
the Non-Discount Mortgage Loans in Mortgage Group Two as of such Due Date and
the denominator of which is 6.75%. The initial Class IIA-X Notional Amount will
be approximately $1,349,887.
The "Stripped Interest Rate" means for each Mortgage Loan, the excess, if
any, of the Net Mortgage Rate for such Mortgage Loan over 6.75%.
The "Scheduled Principal Balance" of a Mortgage Loan as of any Distribution
Date is the unpaid principal balance of such Mortgage Loan as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such schedule by reason of bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period) as of the first day of the month preceding the
month of such Distribution Date, after giving effect to any previously applied
prepayments, the payment of principal due on such first day of the month and any
reduction of the principal balance of such Mortgage Loan by a bankruptcy court,
irrespective of any delinquency in payment by the related Mortgagor.
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PRINCIPAL (INCLUDING PREPAYMENTS)
DISTRIBUTIONS TO THE CLASS A-P CERTIFICATEHOLDERS
On each Distribution Date, the Class A-P Certificates will receive a portion
of the Available Distribution Amount attributable to principal received on or
with respect to any Discount Mortgage Loan equal to the amount of such principal
so attributable multiplied by the PO Percentage with respect to such Discount
Mortgage Loan. In addition, on each Distribution Date prior to and including the
Credit Support Depletion Date, the Class A-P Certificates also will be allocated
principal, to the extent of amounts available to pay the Subordinated Optimal
Principal Amount (without regard to clause (2) of the definition of such term)
on such Distribution Date, in an amount (the "Class A-P Shortfall Amount")
generally equal to (i) the applicable PO Percentage of the principal portion of
any Realized Loss with respect to a Discount Mortgage Loan other than an Excess
Loss and (ii) the sum of amounts, if any, by which the amounts specified in
clause (i) with respect to each prior Distribution Date exceeded the amount
actually distributed in respect thereof on such prior Distribution Date and not
subsequently distributed to the Class A-P Certificates; provided, however, that
such payments in respect of the Class A-P Shortfall Amount will not cause a
further reduction in the principal balance of the Class A-P Certificates. The
aggregate of the amounts payable to the Class A-P Certificates described in this
paragraph are referred to herein as the "Class A-P Distribution Amount."
ALLOCATION OF THE NON-PO CLASS A OPTIMAL PRINCIPAL AMOUNT
Except after the Credit Support Depletion Date, distributions in respect of
principal will be made on each Distribution Date to the Non-PO Class A
Certificates as described below. On each Distribution Date, the Non-PO Class A
Optimal Principal Amount (defined herein) will be distributed to the Non-PO
Class A Certificateholders as follows:
(A) the Class IA Principal Distribution Amount (defined herein) will be
distributed as follows:
FIRST, to the Class IA-5 Certificates, up to the Lockout Principal
Distribution Amount (defined below), until the principal balance of such Class
has been reduced to zero;
SECOND, 72.3404271845% to the Class A-R and Class IA-1 Certificates
sequentially, and 27.6595728155% to the Class IA-9 Certificates, until the
principal balance of the Class IA-1 Certificates has been reduced to zero;
THIRD, 66.0356367713% to the Class IA-2 Certificates and 33.9643632287% to
the Class IA-9 Certificates, until the principal balance of the Class IA-2
Certificates has been reduced to zero;
FOURTH, 85.5263157895% to the Class IA-3 Certificates and 14.4736842105% to
the Class IA-9 Certificates, until the principal balances of such Classes have
been reduced to zero;
FIFTH, to the Class IA-4, Class IA-6, Class IA-7 and Class IA-8
Certificates, sequentially, until the principal balance of each such Class has
been reduced to zero; and
SIXTH, to the Class IA-5 Certificates, until the principal balance of such
Class has been reduced to zero; and
(B) the Class IIA Principal Distribution Amount (defined herein) will be
distributed to the Class IIA-1 Certificates, until the principal balance of such
Class has been reduced to zero.
On any Distribution Date after the Credit Support Depletion Date,
distributions among the Classes of Non-PO Class A Certificates then outstanding
will be made pro rata in accordance with their respective outstanding principal
balances and not in accordance with the priorities set forth above.
The "Lockout Principal Distribution Amount" for any Distribution Date will
equal the Adjusted Lockout Percentage (defined below) of the Class IA Principal
Distribution Amount (defined below).
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The "Adjusted Lockout Percentage" will equal (i) for any Distribution Date
prior to the Distribution Date in August 2003, 0% and (ii) for any Distribution
Date on or after the Distribution Date in August 2003, the product of (A) the
Lockout Percentage and (B) the Step Down Percentage.
The "Lockout Percentage" for any Distribution Date will equal (A) the
outstanding principal balance of the Class IA-5 Certificates divided by (B) the
Non-PO Allocated Amount with respect to Mortgage Group One, in each case
immediately prior to the Distribution Date. The Lockout Percentage as of the
Cut-Off Date will be approximately 10.6676193049%.
The "Step Down Percentage" for any Distribution Date will be the percentage
indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN STEP DOWN PERCENTAGE
- -------------------------------------------------------------------------------------------- -----------------------
<S> <C>
August 1998 through July 2003............................................................... 0%
August 2003 through July 2004............................................................... 30%
August 2004 through July 2005............................................................... 40%
August 2005 through July 2006............................................................... 60%
August 2006 through July 2007............................................................... 80%
August 2007 and thereafter.................................................................. 100%
</TABLE>
Principal distributions made on each Class of Certificates will be paid pro
rata among the Certificates of such Class in accordance with their respective
outstanding principal balances.
The "Non-PO Class A Optimal Principal Amount" means generally as of any
Distribution Date, an amount, not in excess of the Non-PO Class A Principal
Balance equal to the sum of: (a) an amount equal to the Non-PO Class A
Percentage of the applicable Non-PO Percentage of the principal portion of all
Monthly Payments whether or not received, which were due on the related Due Date
on outstanding Mortgage Loans as of such Due Date; (b) an amount equal to the
Non-PO Class A Prepayment Percentage of the applicable Non-PO Percentage of all
principal prepayments received during the related Principal Prepayment Period;
(c) with respect to each Mortgage Loan not described in (d) below, an amount
equal to the Non-PO Class A Percentage of the applicable Non-PO Percentage of
the sum of the principal portion of all insurance proceeds, condemnation awards
and any other cash proceeds from a source other than the Mortgagor, to the
extent required to be deposited in the Collection Account, which were received
during the related Principal Prepayment Period, net of related unreimbursed
servicing advances and net of any portion thereof which, as to any Mortgage
Loan, constitutes a late collection with respect to which an Advance has
previously been made; (d) with respect to each Mortgage Loan which has become a
Liquidated Mortgage Loan during the related Principal Prepayment Period, an
amount equal to the lesser of (i) the Non-PO Class A Percentage of the
applicable Non-PO Percentage of an amount equal to the principal balance of such
Mortgage Loan (net of Advances with respect to principal) as of the Due Date
immediately preceding the date on which it became a Liquidated Mortgage Loan and
(ii) the Non-PO Class A Prepayment Percentage of the applicable Non-PO
Percentage of the net liquidation proceeds, if any, with respect to such
Liquidated Mortgage Loan (net of any unreimbursed Advances); (e) with respect to
each Mortgage Loan repurchased during the related Principal Prepayment Period,
an amount equal to the Non-PO Class A Prepayment Percentage of the applicable
Non-PO Percentage of the principal portion of the purchase price thereof (net of
amounts with respect to which a distribution has previously been made to the
Non-PO Class A Certificateholders); and (f) while none of the Subordinated
Certificates remains outstanding, the excess of the outstanding principal
balance of the Non-PO Class A Certificates (calculated after giving effect to
reductions thereof on such Distribution Date with respect to amounts described
in (a)--(e) above) over the Non-PO Allocated Amount (defined below).
As of any Distribution Date, the "Non-PO Class A Percentage" will equal a
fraction, expressed as a percentage, the numerator of which is the Non-PO Class
A Principal Balance and the denominator of which is the Non-PO Allocated Amount
immediately prior to the Due Date in the month of such Distribution Date.
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The "Non-PO Allocated Amount" with respect to either Mortgage Group or, as
the context requires, both Mortgage Groups, will be calculated as of any date by
(i) multiplying the outstanding principal balance of each Mortgage Loan in the
related Mortgage Group as of such date (giving effect to any Advances but prior
to giving effect to any principal prepayments received with respect to such
Mortgage Loan that have not been passed through to the Certificateholders) by
the Non-PO Percentage with respect to such Mortgage Loan and (ii) summing the
results.
The "Non-PO Class A Principal Balance" means, generally, as of any
Distribution Date, (a) the Non-PO Class A Principal Balance for the preceding
Distribution Date less (b) amounts distributed to the Non-PO Class A
Certificateholders on such preceding Distribution Date allocable to principal
(including Advances) and any losses allocated to the Non-PO Class A
Certificates; provided that the Non-PO Class A Principal Balance on the first
Distribution Date will be the initial Non-PO Class A Principal Balance, which is
expected to be approximately $163,186,236.
The "Non-PO Class A Prepayment Percentage" means, generally, as of any
Distribution Date up to and including the Distribution Date in July 2003, 100%;
as of any Distribution Date in the first year thereafter, the Non-PO Class A
Percentage plus 70% of the Subordinated Percentage for such Distribution Date;
as of any Distribution Date in the second year thereafter, the Non-PO Class A
Percentage plus 60% of the Subordinated Percentage for such Distribution Date;
as of any Distribution Date in the third year thereafter, the Non-PO Class A
Percentage plus 40% of the Subordinated Percentage for such Distribution Date;
as of any Distribution Date in the fourth year thereafter, the Non-PO Class A
Percentage plus 20% of the Subordinated Percentage for such Distribution Date;
and as of any Distribution Date after the fourth year thereafter, the Non-PO
Class A Percentage; provided that, if the Non-PO Class A Percentage as of any
such Distribution Date is greater than the initial Non-PO Class A Percentage,
the Non-PO Class A Prepayment Percentage shall be 100%; and provided further,
however, that no reduction of the Non-PO Class A Prepayment Percentage below the
level in effect for the most recent period shall occur with respect to any
Distribution Date unless, as of the last day of the month preceding such
Distribution Date, (i) the aggregate outstanding principal balance of Mortgage
Loans delinquent 60 days or more (including for this purpose any Mortgage Loans
in foreclosure and Mortgage Loans with respect to which the related Mortgaged
Property has been acquired by the Trust Fund) does not exceed 50% of the
aggregate principal balance of the Subordinated Certificates as of such date and
(ii) cumulative Realized Losses do not exceed (a) 30% of the aggregate principal
balance of the Subordinated Certificates as of the date of issuance of the
Certificates (the "Original Subordinated Principal Balance") if such
Distribution Date occurs between and including August 2003 and July 2004, (b)
35% of the Original Subordinated Principal Balance if such Distribution Date
occurs between and including August 2004 and July 2005, (c) 40% of the Original
Subordinated Principal Balance if such Distribution Date occurs between and
including August 2005 and July 2006, (d) 45% of the Original Subordinated
Principal Balance if such Distribution Date occurs between and including August
2006 and July 2007, and (e) 50% of the Original Subordinated Principal Balance
if such Distribution Date occurs during or after August 2007.
As of any Distribution Date, the "Subordinated Percentage" means the
difference between 100% and the Non-PO Class A Percentage, and the "Subordinated
Prepayment Percentage" means the difference between 100% and the Non-PO Class A
Prepayment Percentage.
The "Class IA Principal Distribution Amount" means, with respect to any
Distribution Date, the lesser of (A) the aggregate outstanding principal balance
of the Class IA Certificates and (B) the portion of the Non-PO Class A Optimal
Principal Amount attributable to amounts received with respect to Mortgage Group
One; provided, however, that (i) with respect to the Distribution Date on which
the principal balance of the Class IIA-1 Certificates is reduced to zero (so
long as any of the Class IA Certificates are outstanding), the Class IA
Principal Distribution Amount will equal the portion of the Non-PO Class A
Optimal Principal Amount not distributed to the Class IIA-1 Certificates and
(ii) with respect to each Distribution Date thereafter, the Class IA Principal
Distribution Amount will equal the Non-PO Class A Optimal Principal Amount.
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The "Class IIA Principal Distribution Amount" means, with respect to any
Distribution Date, the lesser of (A) the outstanding principal balance of the
Class IIA-1 Certificates and (B) the portion of the Non-PO Class A Optimal
Principal Amount attributable to amounts received with respect to Mortgage Group
Two; provided, however, that (i) with respect to the Distribution Date on which
the aggregate principal balance of the Class IA Certificates is reduced to zero
(so long as the Class IIA-1 Certificates are outstanding), the Class IIA
Principal Distribution Amount will equal the portion of the Non-PO Class A
Optimal Principal Amount not distributed to the Class IA Certificates and (ii)
with respect to each Distribution Date thereafter, the Class IIA Principal
Distribution Amount will equal the Non-PO Class A Optimal Principal Amount.
ALLOCATION OF THE SUBORDINATED OPTIMAL PRINCIPAL AMOUNT
On each Distribution Date, distributions in respect of principal will be
made to each Class of Subordinated Certificates up to an amount equal to the
portion of the Subordinated Optimal Principal Amount (defined below) allocable
to such Class, calculated as described below.
The "Subordinated Optimal Principal Amount" means generally as of any
Distribution Date, an amount, not in excess of the aggregate outstanding
principal balance of the Subordinated Certificates, equal to (1) the sum of: (a)
an amount equal to the Subordinated Percentage of the applicable Non-PO
Percentage of the principal portion of all Monthly Payments whether or not
received, which were due on the related Due Date on outstanding Mortgage Loans
as of such Due Date; (b) an amount equal to the Subordinated Prepayment
Percentage of the applicable Non-PO Percentage of all principal prepayments
received during the related Principal Prepayment Period; (c) with respect to
each Mortgage Loan not described in (d) below, an amount equal to the
Subordinated Percentage of the applicable Non-PO Percentage of the sum of the
principal portion of all insurance proceeds, condemnation awards and any other
cash proceeds from a source other than the Mortgagor, to the extent required to
be deposited in the Collection Account, which were received during the related
Principal Prepayment Period, net of related unreimbursed servicing advances and
net of any portion thereof which, as to any Mortgage Loan, constitutes a late
collection with respect to which an Advance has previously been made; (d) with
respect to each Mortgage Loan which has become a Liquidated Mortgage Loan during
the related Principal Prepayment Period, an amount equal to the portion (if any)
of the net liquidation proceeds with respect to such Liquidated Mortgage Loan
(net of any unreimbursed Advances) that was not included in the Class A-P
Distribution Amount or the Non-PO Class A Optimal Principal Amount with respect
to such Distribution Date; and (e) with respect to each Mortgage Loan
repurchased during the related Principal Prepayment Period, an amount equal to
the Subordinated Prepayment Percentage of the applicable Non-PO Percentage of
the principal portion of the purchase price thereof (net of amounts with respect
to which a distribution has previously been made to the Subordinated
Certificateholders), minus (2) the Class A-P Shortfall Amount with respect to
such Distribution Date.
On each Distribution Date, the Subordinated Optimal Principal Amount will be
allocated among the outstanding Classes of Subordinated Certificates entitled to
receive distributions in respect thereof on such Distribution Date, as described
in the second succeeding sentence. Each such Class will be allocated its pro
rata portion of the Subordinated Optimal Principal Amount based upon the
outstanding principal balances of all Classes of Subordinated Certificates
entitled to distributions in respect of the Subordinated Optimal Principal
Amount on such Distribution Date. On each Distribution Date, the Subordinated
Optimal Principal Amount will be allocated among the following Classes of
Certificates: (i) any Class of Subordinated Certificates which has current
Credit Support (defined herein) (before giving effect to any distribution of
principal thereon on such Distribution Date) greater than or equal to the
original Credit Support for such Class; (ii) the Class of Subordinated
Certificates having the lowest numerical class designation of any outstanding
Class of Subordinated Certificates which does not meet the criteria in (i)
above; and (iii) the Class B-5 Certificates if all other outstanding Classes of
Subordinated Certificates meet the criteria in (i) above or if no other Class of
Subordinated Certificates is outstanding; provided, however,
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that no Class of Subordinated Certificates will receive any distribution in
respect of the Subordinated Optimal Principal Amount on any Distribution Date if
on such Distribution Date any Class of Subordinated Certificates having a lower
numerical class designation than such Class fails to meet the criteria in (i)
above. For the purposes of (ii) above, the Class M Certificates will be deemed
to have a lower numerical class designation than each Class of Class B
Certificates.
Each Class of Subordinated Certificates (other than the Class B-5
Certificates) will have the benefit of a level of credit support, expressed as a
percentage of the aggregate outstanding principal balance of the Certificates
("Credit Support"). Credit Support for such Classes of Certificates will equal
in each case the percentage obtained by dividing the aggregate outstanding
principal balance of all Classes of Subordinated Certificates having higher
numerical class designations than such Class by the aggregate outstanding
principal balance of all outstanding Classes of Certificates (other than the
Class A-P Certificates) (for this purpose, the Class M Certificates shall be
deemed to have a lower numerical class designation than each Class of Class B
Certificates). Generally, the level of Credit Support for any Class will
decrease to the extent Realized Losses are allocated to any Class of
Subordinated Certificates having a higher numerical class designation and will
increase to the extent that any Class or Classes of Certificates not
subordinated to such Class receives a disproportionate portion of payments
(including prepayments) of principal on the Mortgage Loans.
ADDITIONAL RIGHTS OF THE CLASS A-R CERTIFICATEHOLDER
The Class A-R Certificate will remain outstanding for so long as the Trust
Fund shall exist, whether or not such Certificate is receiving current
distributions of principal or interest. In addition to distributions of
principal and interest distributable as described under "Distributions on the
Certificates," the holder of the Class A-R Certificate will be entitled to
receive (i) the amounts, if any, of the Available Distribution Amount remaining
in the Certificate Account on any Distribution Date after distributions of
principal and interest on the Certificates on such date and (ii) the proceeds of
the assets of the Trust Fund, if any, remaining in the REMIC on the final
Distribution Date for the Certificates, after distributions in respect of any
accrued and unpaid interest on such Certificates, and after distributions in
respect of principal have reduced the Certificate Principal Balances of the
Certificates to zero. It is not anticipated that there will be any material
assets remaining in the Trust Fund at any such time or that any material
distributions will be made with respect to the Class A-R Certificate at any
time. See "Federal Income Tax Consequences-- Residual Certificates" in the
Prospectus.
SUBORDINATED CERTIFICATES AND SHIFTING INTERESTS
The rights of the Class M Certificateholders to receive distributions with
respect to the Mortgage Loans will be subordinated to the rights of the Class A
Certificateholders, the rights of the holders of each Class of Class B
Certificates to receive distributions with respect to the Mortgage Loans will be
subordinated to the rights of the holders of the Class A Certificates, the Class
M Certificates, and each Class of Class B Certificates having a lower numerical
class designation than such Class of Class B Certificates, each to the extent
described below. The subordination provided by the Class M and Class B
Certificates is intended to enhance the likelihood of regular receipt by the
Class A Certificateholders of the full amount of monthly distributions due them
and to protect the Class A Certificateholders against losses. The subordination
provided by each Class of Class B Certificates is intended to enhance the
likelihood of regular receipt by the holders of the Class A Certificates, the
Class M Certificates, and each Class of Class B Certificates having a lower
numerical class designation than such Class of Class B Certificates of the full
amount of monthly distributions due them and to protect such Certificateholders
against losses.
On each Distribution Date payments to the Class A Certificateholders will be
made prior to payments to the Class M and Class B Certificateholders, payments
to the Class M Certificateholders will be made prior to payments to the Class B
Certificateholders, payments to the Class B-1 Certificateholders will be
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made prior to payments to the Class B-2 Certificateholders and the Non-Offered
Class B Certificateholders and payments to the Class B-2 Certificateholders will
be made prior to payments to the Non-Offered Class B Certificateholders. If on
any Distribution Date on which the aggregate outstanding principal balance of
the Class M and Class B Certificates is greater than zero the Non-PO Class A
Certificateholders are paid less than the Non-PO Class A Optimal Principal
Amount for such date, the interest of the Non-PO Class A Certificateholders in
the Trust Fund will vary so as to preserve the entitlement of the Non-PO Class A
Certificateholders to unpaid principal of the Mortgage Loans and interest
thereon. This may have the effect of increasing the proportionate interest of
the Non-PO Class A Certificateholders in the Trust Fund.
The Non-PO Class A Certificateholders will be entitled to receive the Non-PO
Class A Prepayment Percentage of the applicable Non-PO Percentage of the amount
of principal prepayments and certain other unscheduled amounts of principal
received on the Mortgage Loans as described above. This will have the effect of
initially accelerating principal payments to the Non-PO Class A
Certificateholders (other than the Class IA-5, Class IA-X and Class IIA-X
Certificateholders) and reducing their proportionate interest in the Trust Fund
and correspondingly increasing (in the absence of offsetting Realized Losses)
the Credit Support of each Class of Subordinated Certificates having Credit
Support. See "Description of the Certificates--Distributions of Principal and
Interest." Increasing the interest of the Class M and Class B Certificates in
the Trust Fund relative to that of the Class A Certificates is intended to
preserve the availability of the benefits of the subordination provided by the
Class M and Class B Certificates.
All Realized Losses on the Mortgage Loans (other than Excess Losses (defined
below)) generally will be allocated first, to the Non-Offered Class B
Certificates until the principal balance of the Non-Offered Class B Certificates
has been reduced to zero; second, to the Class B-2 Certificates until the
principal balance of the Class B-2 Certificates has been reduced to zero; third,
to the Class B-1 Certificates until the principal balance of the Class B-1
Certificates has been reduced to zero; fourth, to the Class M Certificates until
the principal balance of the Class M Certificates has been reduced to zero; and
fifth, to the Class A Certificates pro rata based upon their respective
outstanding principal balances until the principal balance of the Class A
Certificates has been reduced to zero; provided, however, that if a Realized
Loss occurs with respect to a Discount Mortgage Loan (A) the amount of such
Realized Loss equal to the product of (i) the amount of such Realized Loss and
(ii) the PO Percentage with respect to such Discount Mortgage Loan will be
allocated to the Class A-P Certificates and (B) the remainder of such Realized
Loss will be allocated as described above.
A "Realized Loss" is generally the amount, if any, with respect to any
defaulted Mortgage Loan which has been liquidated in accordance with the
Agreement, by which the unpaid principal balance and accrued interest thereon at
a rate equal to the Net Mortgage Rate exceeds the amount actually recovered by
the Servicer with respect thereto (net of reimbursement of certain expenses) at
the time such defaulted Mortgage Loan was liquidated.
Excess Fraud Losses, Excess Bankruptcy Losses and Excess Special Hazard
Losses (collectively, "Excess Losses") will be allocated to all Classes of
Certificates pro rata based upon their respective outstanding principal
balances; provided, however, that the applicable PO Percentage of any Excess
Losses on the Discount Mortgage Loans will be allocated to the Class A-P
Certificates.
The aggregate amount of Realized Losses that may be allocated in connection
with Special Hazard Losses (defined below) on the Mortgage Loans (the "Special
Hazard Amount") to the Subordinated Certificates will initially be equal to
approximately $1,750,019. As of each anniversary of the Cut-off Date, the
Special Hazard Amount generally will be reduced, but not increased, to an amount
equal to the lesser of (i) the Special Hazard Amount as of the previous
anniversary of the Cut-off Date less the sum of all amounts allocated to the
Certificates in respect of Special Hazard Losses on the Mortgage Loans since
such previous anniversary or (ii) the Adjustment Amount. The "Adjustment Amount"
with respect to each anniversary of the Cut-off Date will be equal to the
greatest of (i) 1.00% multiplied by the aggregate
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outstanding principal balance of the Mortgage Loans, (ii) the aggregate
outstanding principal balance of the Mortgage Loans secured by Mortgaged
Properties located in the California postal zip code area in which the highest
percentage of the Mortgage Loans are located and (iii) twice the outstanding
principal balance of the Mortgage Loan having the largest outstanding principal
balance, in each case as of such anniversary of the Cut-off Date.
A "Special Hazard Loss" is a loss incurred in respect of any defaulted
Mortgage Loan as a result of direct physical loss or damage to the Mortgage
Property, which is not insured against under the standard hazard insurance
policy or blanket policy insuring against hazard losses which the Servicer is
required to cause to be maintained on each Mortgage Loan. See "Servicing of the
Mortgage Loans--Hazard Insurance" in the Prospectus.
"Excess Special Hazard Losses" are Special Hazard Losses in excess of the
Special Hazard Amount.
The aggregate amount of Realized Losses incurred on defaulted Mortgage Loans
as to which there was fraud in the origination of such Mortgage Loan ("Fraud
Losses") which may be allocated to the Subordinated Certificates (the "Fraud
Loss Amount") will initially be equal to approximately $3,500,038. As of any
date of determination after the Cut-off Date, the Fraud Loss Amount generally
will equal to (X) prior to the first anniversary of the Cut-off Date an amount
equal to 2.00% of the aggregate principal balance of all of the Mortgage Loans
as of the Cut-off Date minus the aggregate amounts allocated to the Certificates
with respect to Fraud Losses on the Mortgage Loans up to such date of
determination and (Y) from the first to the fifth anniversary of the Cut-off
Date, an amount equal to (1) 1.00% of the aggregate principal balance of all of
the Mortgage Loans as of the most recent anniversary of the Cut-off Date minus
(2) the aggregate amounts allocated to the Certificates with respect to Fraud
Losses on the Mortgage Loans since the most recent anniversary of the Cut-off
Date up to such date of determination. On and after the fifth anniversary of the
Cut-off Date, the Fraud Loss Amount will be zero.
"Excess Fraud Losses" are Fraud Losses in excess of the Fraud Loss Amount.
The aggregate amount of Realized Losses which may be allocated in connection
with Bankruptcy Losses on the Mortgage Loans (the "Bankruptcy Amount") to the
Subordinate Certificates will initially be equal to approximately $100,000. As
of any date of determination, the Bankruptcy Amount will equal approximately
$100,000 less the sum of any amounts allocated to the Certificates for such
losses up to such date of determination.
A "Bankruptcy Loss" is a Deficient Valuation or a Debt Service Reduction.
With respect to any Mortgage Loan, A "Deficient Valuation" is a valuation by a
court of competent jurisdiction of the Mortgage Property in an amount less than
the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated under the United States Bankruptcy Code. A
"Debt Service Reduction" is any reduction in the amount which a mortgagor is
obligated to pay on a monthly basis with respect to a Mortgage Loan as a result
of any proceeding initiated under the United States Bankruptcy Code, other than
a reduction attributable to a Deficient Valuation.
"Excess Bankruptcy Losses" are Bankruptcy Losses in excess of the Bankruptcy
Amount.
Amounts actually paid at any time to the Class M and Class B
Certificateholders in accordance with the terms of the Agreement will not be
subsequently recoverable from the Class M and Class B Certificateholders.
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FEDERAL INCOME TAX CONSIDERATIONS
An election will be made to treat assets of the Trust Fund as a REMIC for
federal income tax purposes. The Offered Certificates (other than the Class A-R
Certificate) will represent regular interests in the REMIC and will be treated
as newly originated debt instruments. The Class A-R Certificate will represent
the residual interest in the REMIC
All Certificateholders will be required to use the accrual method of
accounting with respect to interest income on the Certificates, regardless of
their normal method of accounting. Holders of Offered Certificates that have
original issue discount will be required to include amounts in income with
respect to such Certificates in advance of the receipt of cash attributable to
such income. It is anticipated that the Class B-2, Class IA-X, Class IIA-X and
Class A-P Certificates will be issued with original issue discount for federal
income tax purposes. It is also anticipated that the Class IA-1, Class IA-2,
Class IA-3, Class IA-4, Class IA-5, Class IA-9 and Class IIA-1 Certificates will
be issued at a premium, and that the Class IA-6, Class IA-7, Class IA-8, Class M
and Class B-1 Certificates will be issued with DE MINIMIS original issue
discount for federal income tax purposes. The prepayment assumption that will be
used in computing the amount and rate of accrual of original issue discount
includible periodically will be 100% of the Prepayment Model set forth herein.
See "Prepayment and Yield Considerations." No representation is made that
payments on the Offered Certificates will occur at that rate or any other rate.
The Offered Certificates will be treated as (i) assets described in section
7701(a)(19)(C) of the Code and (ii) "real estate assets" within the meaning of
section 856(c)(5)(B) of the Code, in each case to the extent described herein
and in the Prospectus. Interest on the Offered Certificates will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of section 856(c)(3)(B) of the Code to the same extent that the Offered
Certificates are treated as "real estate assets" within the meaning of section
856(c)(5)(B) of the Code.
CLASS A-R CERTIFICATE
The holder of the Class A-R Certificate must include the taxable income or
loss of the REMIC in determining its federal taxable income. The Class A-R
Certificate will remain outstanding for federal income tax purposes until there
are no Certificates of any other Class outstanding. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT THE CLASS A-R CERTIFICATEHOLDER'S REMIC TAXABLE INCOME AND THE
TAX LIABILITY THEREON MAY EXCEED, AND MAY SUBSTANTIALLY EXCEED, CASH
DISTRIBUTIONS TO SUCH HOLDER DURING CERTAIN PERIODS, IN WHICH EVENT, THE HOLDER
THEREOF MUST HAVE SUFFICIENT ALTERNATIVE SOURCES OF FUNDS TO PAY SUCH TAX
LIABILITY. Furthermore, it is anticipated that all or a substantial portion of
the taxable income of the REMIC includible by the holder of the Class A-R
Certificate will be treated as "excess inclusion" income, resulting in (i) the
inability of such holder to use net operating losses to offset such income from
the REMIC, (ii) the treatment of such income as "unrelated business taxable
income" to certain holders who are otherwise tax-exempt, and (iii) the treatment
of such income as subject to 30% withholding tax to certain non-U.S. investors,
with no exemption or treaty reduction.
The Class A-R Certificate will be considered a "noneconomic residual
interest," with the result that transfers thereof would be disregarded for
federal income tax purposes if any significant purpose of the transferor was to
impede the assessment or collection of tax. Accordingly, the transferee
affidavit used for transfer of the Class A-R Certificate will require the
transferee to affirm that it (i) historically has paid its debts as they have
come due and intends to do so in the future, (ii) understands that it may incur
tax liabilities with respect to the Class A-R Certificate in excess of cash
flows generated thereby, (iii) intends to pay taxes associated with holding the
Class A-R Certificate as such taxes become due and (iv) will not transfer the
Class A-R Certificate to any person or entity that does not provide a similar
affidavit. The transferor must certify in writing to the Trustee that, as of the
date of the transfer, it had no knowledge or reason to know that the
affirmations made by the transferee pursuant to the preceding sentence were
false. Additionally, the Class A-R Certificate generally may not be transferred
to certain persons who are not
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U.S. Persons (as defined herein). See "Description of the
Certificates--Restrictions on Transfer of the Class A-R, Class M and Offered
Class B Certificates" herein and "Federal Income Tax Consequences-- REMIC
Certificates;--Income from Residual Certificates; Taxation of Certain Foreign
Investors;--Transfers of Residual Certificates" in the Prospectus.
An individual, trust or estate that holds the Class A-R Certificate (whether
such Certificate is held directly or indirectly through certain pass-through
entities) also may have additional gross income with respect to, but may be
subject to limitations on the deductibility of, Servicing Fees on the Mortgage
Loans and other administrative expenses of the Trust Fund in computing such
holder's regular tax liability, and may not be able to deduct such fees or
expenses to any extent in computing such holder's alternative minimum tax
liability. In addition, some portion of a purchaser's basis, if any, in the
Class A-R Certificate may not be recovered until termination of the Trust Fund.
Furthermore, the federal income tax consequences of any consideration paid to a
transferee on a transfer of the Class A-R Certificate are unclear. The preamble
to the REMIC Regulations indicates that the Internal Revenue Service anticipates
providing guidance with respect to the federal tax treatment of such
consideration. Any transferee receiving consideration with respect to the Class
A-R Certificate should consult its tax advisors.
Due to the special tax treatment of residual interests, the effective
after-tax return of the Class A-R Certificate may be significantly lower than
would be the case if the Class A-R Certificate were taxed as a debt instrument,
or may be negative.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or section 4975 of the Code,
including an individual retirement account (each, a "Plan"), or any other person
investing "plan assets" of any Plan, should carefully review with its legal
advisors whether the purchase or holding of Class A Certificates could give rise
to a transaction prohibited or not otherwise permissible under ERISA or the
Code. See "ERISA Considerations" in the Prospectus.
The Class A-R Certificate may not be purchased by or transferred to a Plan
or any other person investing "plan assets" of any Plan. Accordingly, the
following discussion does not purport to discuss any considerations under ERISA
with respect to the purchase, acquisition or resale of the Class A-R Certificate
and for purposes of the following discussion all references to the Offered
Certificates are deemed to exclude the Class A-R Certificate.
The U.S. Department of Labor ("DOL") has issued Prohibited Transaction Class
Exemption 83-1 ("PTCE 83-1") exempting certain transactions involving mortgage
pool investment entities holding mortgages on certain residential property from
the prohibited transaction provisions of ERISA and the Code. See "ERISA
Considerations" in the Prospectus for a discussion of PTCE 83-1 and the
prohibited transaction provisions of ERISA and the Code.
Prohibited Transaction Exemption 89-90, 54 Fed. Reg. 42597 (October 17,
1989), as amended, 55 Fed. Reg. 48939 (November 23, 1990) granted by the DOL to
Credit Suisse First Boston Corporation ("PTE 89-90") and Prohibited Transaction
Exemption 90-83, 55 Fed. Reg. 50250 (December 5, 1990) granted by the DOL to
Donaldson, Lufkin & Jenrette Securities Corporation ("PTE 90-83" and, together
with PTE 89-90, the "Exemptions"), exempt the purchase and holding of the Class
A Certificates by or with "plan assets" of a Plan from the prohibited
transaction provisions of section 406(a) of ERISA (and the excise taxes imposed
by section 4975(c)(1)(A) of the Code) provided that certain conditions are met.
Among the conditions are the following: (i) the respective Underwriter is the
sole underwriter, or the manager or co-manager of the underwriting syndicate for
such Class A Certificates, (ii) the Class A Certificates are rated
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in one of the three highest generic rating categories by Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P"), Moody's Investors Service,
Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc. ("Fitch") (iii) the
Class A Certificates are collateralized by, among other things, obligations that
bear interest or are purchased at a discount and which are secured by
single-family residential, multifamily residential or commercial real property
(including obligations secured by leasehold interests on commercial real
property), or fractional undivided interests in such obligations, (iv) the Class
A Certificates are not subordinated to other Certificates of the Trust Fund, (v)
the Plan is an "accredited investor" (as defined under Rule 501(a)(1) of
Regulation D under the Securities Act of 1933, as amended (the "Act")), (vi) the
acquisition of the Class A Certificates by a Plan is on terms that are at least
as favorable to the Plan as they would be in an arm's length transaction with an
unrelated third party, and (vii) the compensation to the respective Underwriter
represents reasonable compensation, the proceeds to the Seller represent no more
than the fair market value of the obligations securing such Class A Certificates
and the sum of all payments made to and retained by the Servicer represents not
more than reasonable compensation for the Servicer's services under the
Agreement and reimbursement of the Servicer's reasonable expenses in connection
therewith. It is expected that the Class A Certificates will satisfy the
conditions of the corresponding Exemption set forth above in clauses (i), (iii),
(iv) and (vii). Whether the remaining conditions of the corresponding Exemption
will be satisfied with respect to the Class A Certificates will depend on the
circumstances at the time "plan assets" of a Plan are used to acquire such
Certificates. In that connection, the Class A Certificates will, on the date of
their original issue, satisfy the
condition set forth in clause (ii). In addition, if certain additional
conditions specified in the Exemptions are met, the Exemptions would provide an
exemption from the prohibited transaction provisions of ERISA section 406(b)
(and the excise taxes imposed by section 4975(c)(1)(E) of the Code) relating to
possible self-dealing transactions by fiduciaries who have discretionary
authority, or render investment advice, with respect to Plan assets used to
purchase Class A Certificates where the fiduciary (or its affiliate) is an
obligor on the obligations or receivables held in the Trust Fund. The Exemptions
would not apply to certain otherwise prohibited transactions with respect to
Plans sponsored by the following entities (or any affiliate of any such entity):
(a) the Seller, (b) Credit Suisse First Boston Corporation, (c) Donaldson,
Lufkin & Jenrette Securities Corporation, (d) the Trustee, (e) the Servicer or
(f) any obligor with respect to obligations or receivables included in the
Seller constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Seller.
Before purchasing a Class A Certificate, a fiduciary of a Plan or any other
person investing "plan assets" of any Plan, should itself confirm that (a) the
Class A Certificates constitute "certificates" for the purposes of the
Exemptions and (b) that the specific and general conditions set forth in the
Exemptions would be satisfied. In addition to making its own determination as to
the availability of the exemptive relief provided in the Exemptions, the
fiduciary or other Plan investor should consider its general fiduciary
obligations under ERISA in determining whether to purchase a Certificate on
behalf or with "plan assets" of a Plan.
Neither the Exemptions nor PTCE 83-1 will apply to the Class M Certificates,
the Class B-1 Certificates or the Class B-2 Certificates; therefore, the
purchase or holding of a Class M Certificate, a Class B-1 Certificate or a Class
B-2 Certificate by or with "plan assets" of a Plan may result in prohibited
transactions or the imposition of excise taxes or civil penalties. Accordingly,
transfer of the Class M, Class B-1 or Class B-2 Certificates will not be made
unless the transferee (i) executes a representation letter in form and substance
satisfactory to the Trustee and the Seller stating that (a) it is not, and is
not acting on behalf of, any such Plan or using the "plan assets" of any such
Plan to effect such purchase or (b) if it is an insurance company, that the
source of funds used to purchase the Class M, Class B-1 or Class B-2
Certificates is an "insurance company general account" (as such term is defined
in Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60"),
60 Fed. Reg. 35925 (July 12, 1995) and there is no Plan with respect to which
the amount of such general account's reserves and liabilities for the
contract(s) held by or on behalf of such Plan and all other Plans maintained by
the same employer (or affiliate thereof as defined in Section V(a)(1) of PTCE
95-60 or by the same employee organization,
S-78
<PAGE>
exceed 10% of the total of all reserves and liabilities of such general account
(as such amounts are determined under Section 1(a) of PTCE 95-60) at the date of
acquisition or (ii) provides an opinion of counsel in form and substance
satisfactory to the Trustee and the Seller that the purchase or holding of the
Class M, Class B-1 or Class B-2 Certificates by or on behalf of such Plan will
not result in the assets of the Trust Fund being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Seller, the Servicer or the Trustee to any obligation in
addition to those undertaken in the Agreement. The Class M, Class B-1 and Class
B-2 Certificates will contain a legend describing such restrictions on transfer
and the Agreement will provide that any attempted or purported transfer in
violation of these transfer restrictions will be null and void and will vest no
rights in any purported transferee.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1, the
Exemptions or other exemptions, and the potential consequences to their specific
circumstances prior to making an investment in the Class A Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the Class A 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.
The sale of Certificates to a Plan is in no respect a representation by the
Seller or the Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or by any particular
Plan, or that this investment is appropriate for Plans generally or for any
particular Plan.
LEGAL INVESTMENT MATTERS
The Class A and Class M Certificates offered hereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"), for 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, will be legal investments for
certain entities to the extent provided in SMMEA. However, institutions subject
to the jurisdiction of the Office of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration or federal or state banking, insurance or other regulatory
authorities should review applicable rules, supervisory policies and guidelines,
since certain restrictions may apply to investments in such classes. It should
also be noted that certain states have enacted legislation limiting to varying
extents the ability of certain entities (in particular insurance companies) to
invest in mortgage related securities. Investors should consult with their own
legal advisors in determining whether, and to what extent the Class A and Class
M Certificates constitute legal investments for such investors. See "Legal
Investment Matters" in the Prospectus.
The Class B-1 and Class B-2 Certificates will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of the Class
B-1 and Class B-2 Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase Class
B-1 and Class B-2 Certificates, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Class B-1 and Class B-2 Certificates will constitute legal
investments for them.
Except as to the status of the Class A and Class M Certificates as "mortgage
related securities", no representations are made as to the proper
characterization of the Offered Certificates for legal investment or financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase the Offered Certificates under applicable legal
investment restrictions. The uncertainties described above (and any unfavorable
future determinations concerning legal investment or financial
S-79
<PAGE>
institution regulatory characteristics of the Offered Certificates) may
adversely affect the liquidity of the Offered Certificates.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Offered Certificates will be applied by the Seller to the purchase price of the
Mortgage Loans.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated May
20, 1998 and the terms agreement dated July 24, 1998 (together, the "CSFBC
Underwriting Agreement") between the Seller and Credit Suisse First Boston
Corporation ("CSFBC"), as underwriter and the underwriting agreement dated June
17, 1998 and the terms agreement dated July 24, 1998 (together, the "DLJ
Underwriting Agreement") between the Seller and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), as underwriter, the Offered Certificates (other
than the Class IA-X and Class IIA-X Certificates) are being purchased from the
Seller by CSFBC and the Class IA-X and Class IIA-X Certificates are being
purchased from the Seller by DLJ, in each case upon issuance thereof. Each of
CSFBC and DLJ is referred to herein as an "Underwriter," and together, as the
"Underwriters," and each of the CSFBC Underwriting Agreement and the DLJ
Underwriting Agreement is referred to herein as an "Underwriting Agreement."
Each Underwriting Agreement provides that the applicable Underwriter's
obligations thereunder are subject to certain conditions precedent. CSFBC is
committed to purchase all of the Offered Certificates (other than the Class IA-X
and Class IIA-X Certificates) if any such Certificates are purchased and DLJ is
committed to purchase all of the Class IA-X and Class IIA-X Certificates if any
such Certificates are purchased.
Each Underwriter has advised the Seller that it proposes to offer the
Offered Certificates purchased by such Underwriter, from time to time in one or
more negotiated transactions, or otherwise, at varying prices to be determined,
in each case, at the time of sale. Each Underwriter may effect such transactions
by selling the Offered Certificates purchased by such Underwriter to or through
dealers, and such dealers may receive from such Underwriter, for whom they act
as agents, compensation in the form of underwriting discounts, concessions or
commissions. The Underwriters and any dealers that participate with an
Underwriter in the distribution of the Offered Certificates may be deemed to be
underwriters, and any discounts, concessions or commissions received by them,
and any profit on the resale of the Offered Certificates by them, may be deemed
to be underwriting discounts and commissions under the Act.
Each Underwriting Agreement provides that the Seller will indemnify the
applicable Underwriter against certain civil liabilities, including liabilities
under the Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Seller by Morgan, Lewis &
Bockius LLP, New York, New York and for the Underwriter by Cadwalader,
Wickersham & Taft, New York, New York. The material federal income tax
consequences of the Certificates will be passed upon for the Seller by Morgan,
Lewis & Bockius LLP.
RATINGS
It is a condition to the issuance of the Offered Certificates that the Class
A Certificates (other than the Class IA-X, Class IIA-X and Class A-P
Certificates) be rated "AAA" by each of S&P and Fitch, that the Class IA-X,
Class IIA-X and Class A-P Certificates be rated "AAAr" by S&P and "AAA" by
Fitch, and that the Class M, Class B-1 and Class B-2 Certificates be rated at
least "AA", "A" and "BBB", respectively, by Fitch.
S-80
<PAGE>
S&P's ratings on mortgage pass-through certificates address the likelihood
of receipt by Certificateholders of payments required under the operative
agreements. S&P assigns the additional rating of "r" to highlight classes of
securities that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. S&P's ratings take into
consideration the credit quality of the mortgage pool including any credit
support providers, structural and legal aspects associated with the
certificates, and the extent to which the payment stream of the mortgage pool is
adequate to make payment required under the certificates. S&P's ratings on
mortgage pass-through certificates do not, however, constitute a statement
regarding the frequency of prepayments on the mortgage loans. S&P's ratings do
not address the possibility that investors may suffer a lower than anticipated
yield.
The ratings by Fitch assigned to the Offered Certificates do not constitute
a recommendation to purchase or sell such Certificates. Rather, they are an
indication of the likelihood of the payment of principal and interest as set
forth in the transaction documentation. The ratings do not address the effect on
the Offered Certificates' yield attributable to prepayments or recoveries on the
underlying Mortgage Loans. Further, the ratings on the Class IA-X and Class
IIA-X Certificates do not address whether investors will recoup their initial
investment. Additionally, the rating on the Class A-R Certificate addresses only
the return of the Class A-R Certificate's principal balance and interest thereon
at the stated rate. The rating on the Class A-P Certificates do not assess the
likelihood of return to investors except to the extent of the principal balance
thereof.
The ratings of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. 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 agency.
The Seller has not requested a rating of the Offered Certificates by any
rating agency other than S&P and Fitch and the Seller has not provided
information relating to the Certificates offered hereby or the Mortgage Loans to
any rating agency other than S&P and Fitch. However, there can be no assurance
as to whether any other rating agency will rate the Offered Certificates or, if
another rating agency rates such Certificates, what rating would be assigned to
such Certificates by such rating agency. Any such unsolicited rating assigned by
another rating agency to the Offered Certificates may be lower than the rating
assigned to such Certificates by either, or both, of S&P and Fitch.
S-81
<PAGE>
GLOSSARY OF DEFINED TERMS IN PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Act...................................................................................................... S-78
Adjusted Lockout Percentage.............................................................................. S-70
Adjustment Amount........................................................................................ S-75
Advances................................................................................................. S-15
Agreement................................................................................................ S-7
Available Distribution Amount............................................................................ S-66
Bankruptcy Amount........................................................................................ S-75
Bankruptcy Loss.......................................................................................... S-75
Book-Entry Certificates.................................................................................. S-62
Cede..................................................................................................... S-62
Certificate Account...................................................................................... S-60
Certificate Owner........................................................................................ S-7
Certificate Rate......................................................................................... S-14
Certificateholders....................................................................................... S-7
Certificates............................................................................................. Cover
Chase.................................................................................................... S-60
Chase Manhattan Mortgage................................................................................. S-2
Class A Certificates..................................................................................... Cover
Class IA Certificates.................................................................................... Cover
Class IIA Certificates................................................................................... Cover
Class A Percentage....................................................................................... S-13
Class IA Principal Distribution Amount................................................................... S-71
Class IIA Principal Distribution Amount.................................................................. S-72
Class A-P Distribution Amount............................................................................ S-69
Class A-P Shortfall Amount............................................................................... S-69
Class IA-X Notional Amount............................................................................... S-68
Class IIA-X Notional Amount.............................................................................. S-68
Class B Certificates..................................................................................... Cover
Class B-1 Percentage..................................................................................... S-13
Class B-2 Percentage..................................................................................... S-13
Class M Percentage....................................................................................... S-13
Code..................................................................................................... S-17
Collection Account....................................................................................... S-59
Commission............................................................................................... S-4
Co-op Loan............................................................................................... S-29
Cooperative Units........................................................................................ S-29
Corporate Trust Office................................................................................... S-60
Credit Support........................................................................................... S-73
Credit Support Depletion Date............................................................................ S-67
CSFBC.................................................................................................... Cover
CSFBC Underwriting Agreement............................................................................. S-80
Cut-off Date............................................................................................. S-7
DCR...................................................................................................... S-3
Debt Service Reduction................................................................................... S-75
Deficient Valuation...................................................................................... S-75
Definitive Certificates.................................................................................. S-64
Discount Mortgage Loans.................................................................................. S-67
Distribution Date........................................................................................ S-13
DLJ...................................................................................................... Cover
</TABLE>
S-82
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
DLJ Underwriting Agreement............................................................................... S-80
DOL...................................................................................................... S-77
DTC...................................................................................................... S-7
Due Date................................................................................................. S-8
ERISA.................................................................................................... S-18
Excess Bankruptcy Losses................................................................................. S-75
Excess Fraud Losses...................................................................................... S-75
Excess Losses............................................................................................ S-74
Excess Special Hazard Losses............................................................................. S-75
Exemptions............................................................................................... S-77
FICO Scores.............................................................................................. S-24
Fitch.................................................................................................... S-4
FHLMC.................................................................................................... S-24
FNMA..................................................................................................... S-24
Fraud Loss Amount........................................................................................ S-75
Fraud Losses............................................................................................. S-75
Group One Mortgage Loans................................................................................. S-2
Group Two Mortgage Loans................................................................................. S-2
Indirect Participants.................................................................................... S-63
Interest Accrual Amount.................................................................................. S-68
Interest Shortfall....................................................................................... S-68
Lockout Percentage....................................................................................... S-70
Lockout Principal Distribution Amount.................................................................... S-69
Modeling Assumptions..................................................................................... S-10
Modified Underwriting Policies........................................................................... S-21
Monthly Payments......................................................................................... S-8
Mortgage Group........................................................................................... S-2
Mortgage Group One....................................................................................... S-2
Mortgage Group Two....................................................................................... S-2
Mortgage Loans........................................................................................... S-2
Mortgage Loan Schedule................................................................................... S-58
Mortgage Note............................................................................................ S-23
Mortgage Pool............................................................................................ S-2
Mortgaged Properties..................................................................................... S-23
Mortgage Rates........................................................................................... S-25
Net Mortgage Rate........................................................................................ S-68
Non-Discount Mortgage Loans.............................................................................. S-68
Non-Offered Class B Certificates......................................................................... Cover
Non-Offered Class B Percentage........................................................................... S-13
Non-PO Allocated Amount.................................................................................. S-71
Non-PO Class A Certificates.............................................................................. S-6
Non-PO Class A Optimal Principal Amount.................................................................. S-70
Non-PO Class A Percentage................................................................................ S-70
Non-PO Class A Prepayment Percentage..................................................................... S-71
Non-PO Class A Principal Balance......................................................................... S-71
Non-PO Percentage........................................................................................ S-67
Non-recoverable Advance.................................................................................. S-60
Non-Supported Interest Shortfall......................................................................... S-59
Offered Certificates..................................................................................... Cover
Offered Class B Certificates............................................................................. Cover
Original Subordinated Principal Balance.................................................................. S-71
Participant.............................................................................................. S-63
</TABLE>
S-83
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Plan..................................................................................................... S-18
Plans.................................................................................................... S-18
PO Percentage............................................................................................ S-67
Prepayment Interest Shortfall............................................................................ S-16
Prepayment Model......................................................................................... S-44
Principal Prepayment Period.............................................................................. S-13
Prospectus............................................................................................... S-2
PTCE 83-1................................................................................................ S-77
PTCE 95-60............................................................................................... S-78
PTE 89-90................................................................................................ S-77
PTE 90-83................................................................................................ S-77
Realized Loss............................................................................................ S-74
Record Date.............................................................................................. S-65
REMIC.................................................................................................... S-4
Remittance Rate.......................................................................................... S-67
Rules.................................................................................................... S-63
S&P...................................................................................................... S-4
Scheduled Principal Balance.............................................................................. S-68
Seller................................................................................................... S-2
Servicer................................................................................................. S-2
Servicer Remittance Date................................................................................. S-60
Servicing Fee............................................................................................ S-14
Servicing Fee Rate....................................................................................... S-59
SMMEA.................................................................................................... S-18
Special Hazard Amount.................................................................................... S-74
Special Hazard Loss...................................................................................... S-75
Step Down Percentage..................................................................................... S-70
Stripped Interest Rate................................................................................... S-68
Subordinated Certificates................................................................................ S-6
Subordinated Optimal Principal Amount.................................................................... S-72
Subordinated Percentage.................................................................................. S-71
Subordinated Prepayment Percentage....................................................................... S-71
Subservicers............................................................................................. S-23
Trustee.................................................................................................. S-7
Trust Fund............................................................................................... S-2
Underwriting Agreement................................................................................... S-80
Underwriters............................................................................................. Cover
</TABLE>
S-84
<PAGE>
PROSPECTUS
CHASE MORTGAGE FINANCE CORPORATION, SELLER
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
Each Certificate offered hereby will evidence a beneficial ownership
interest in one of a number of trust funds (each a "Trust Fund") created by
Chase Mortgage Finance Corporation (the "Seller"), from time to time. As
specified in the related Prospectus Supplement, the property of each Trust Fund
will consist of a pool of one- to four-family residential mortgage loans (the
"Mortgage Loans") and related property and interests (such as amounts received
as Monthly Payments or principal prepayments which are on deposit in the
Collection Account from time to time, property which secured a Mortgage Loan
which has been acquired by foreclosure or proceeds of the liquidation of a
Mortgaged Property) conveyed to such Trust Fund by the Seller, or of mortgage
pass-through securities issued or guaranteed by FHLMC, FNMA or GNMA ("Agency
Certificates"). Unless otherwise indicated in the related Prospectus Supplement,
each pool will consist entirely of fixed-rate, first-lien Mortgage Loans or
entirely of adjustable-rate, first-lien Mortgage Loans originated by Chase
Manhattan Mortgage Corporation ("Chase Manhattan Mortgage" or the "Servicer"),
either directly or through correspondent originators, or originated by other
originators and, in any such case, acquired by the Seller. Information regarding
the size, composition and other characteristics of the mortgage pool relating to
such Series, will be furnished in the related Prospectus Supplement at the time
such Series is offered. If specified in the related Prospectus Supplement, a
Trust Fund may also include one or more of the following: reinvestment income,
reserve accounts, insurance policies, guarantees or similar instruments or
agreements.
The Certificates may be sold from time to time in one or more series on
terms determined at the time of sale and specified in the Prospectus Supplement
relating to such series. Each series of Certificates will be issued in a single
class or in two or more classes. The Certificates of each class will evidence
the beneficial ownership of (i) any distributions in respect of the assets of
the Trust Fund that are allocable to principal of the Certificates in the amount
of the aggregate original principal balance, if any, of such class of
Certificates as specified in the related Prospectus Supplement and (ii) any
distributions in respect of the assets of the Trust Fund that are allocable to
interest on the principal balance or notional principal balance of such
Certificates at the interest rate, if any, applicable to such class of
Certificates as specified in the related Prospectus Supplement. One or more
classes of each series (i) may be entitled to receive distributions allocable to
principal, principal prepayments, interest or any combination thereof prior to
one or more other classes of Certificates of such series or after the occurrence
of certain events and (ii) may be subordinated in the right to receive such
distributions on such Certificates to one or more senior classes of
Certificates, in each case as specified in the related Prospectus Supplement.
Interest on each class of Certificates entitled to distributions allocable to
interest will accrue at a fixed rate or at a rate that is subject to change from
time to time as specified in the related Prospectus Supplement on an actual or
notional principal amount, may represent a specified portion of interest
received on some or all of the assets of the Trust Fund or may otherwise be
determined as specified in the related Prospectus Supplement.
Distributions on the Certificates of a series will be made only from the
assets of the related Trust Fund. The Certificates of any series will not be
insured or guaranteed by any governmental entity or by any other person.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN CHASE
MORTGAGE FINANCE CORPORATION, CHASE MANHATTAN MORTGAGE CORPORATION, THE CHASE
MANHATTAN BANK OR ANY OF THEIR AFFILIATES. THE CERTIFICATES WILL NOT BE SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY NOR HAS THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY PASSED UPON THE
ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS.
Except as otherwise specifically provided in the applicable Prospectus
Supplement (which may also provide that a party other than the Seller shall have
some or all of the following obligations), the Seller's only obligations with
respect to the Certificates will be (i) its obligation, as described herein (see
"The Pooling and Servicing Agreement--Repurchase or Substitution"), to
repurchase Mortgage Loans under certain circumstances if either documentation
with respect to one or more Mortgage Loans required to be delivered by the
Seller to the Trustee is missing or defective or a representative or warranty
with respect to one or more Mortgage Loans is breached and such breach
materially and adversely affects the interests of the Certificateholders in a
Mortgage Loan, and (ii) its obligations, if any, as principal obligor in
connection with certain credit enhancements that may be described in the
Prospectus Supplement. Except as otherwise specifically provided in the
applicable Prospectus Supplement and except for certain representations and
warranties relating to the Servicer, the Servicer's obligations with respect to
each Series of Certificates will be limited to its contractual servicing
obligations, including any obligation it may have to advance, under the
circumstances specified in the Prospectus Supplement, delinquent payments on the
Mortgage Loans included in the related Trust Fund, and its obligations pursuant
to certain representations and warranties made by it.
The yield on each class of Certificates of a series will be affected by the
rate of payment of principal (including prepayments) on the assets in the
related Trust Fund and the timing of receipt of such payments as described
herein and in the related Prospectus Supplement. Each series of Certificates may
be subject to early termination only under the circumstances described herein
and in the related Prospectus Supplement.
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 7.
If specified in a Prospectus Supplement, an election will be made to treat
the related Trust Fund as a "real estate mortgage investment conduit" ("REMIC")
for federal income tax purposes, or two REMIC elections may be made with respect
to the related Trust Fund. See "Federal Income Tax Consequences".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. There
will have been no public market for any series of Certificates prior to the
offering thereof. Accordingly, once an offering of any Series of Certificates
has been made, there can be no assurance that a secondary market for
Certificates of such Series will develop or, if it does develop, that such
market will continue. No application will be made to list the Certificates on
any securities exchange.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is July 23, 1998.
<PAGE>
PROSPECTUS
CHASE MORTGAGE FINANCE CORPORATION, SELLER
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
Each Certificate offered hereby will evidence a beneficial ownership
interest in one of a number of trust funds (each a "Trust Fund") created by
Chase Mortgage Finance Corporation (the "Seller"), from time to time. As
specified in the related Prospectus Supplement, the property of each Trust Fund
will consist of a pool of one- to four-family residential mortgage loans (the
"Mortgage Loans") and related property and interests (such as amounts received
as Monthly Payments or principal prepayments which are on deposit in the
Collection Account from time to time, property which secured a Mortgage Loan
which has been acquired by foreclosure or proceeds of the liquidation of a
Mortgaged Property) conveyed to such Trust Fund by the Seller, or of mortgage
pass-through securities issued or guaranteed by FHLMC, FNMA or GNMA ("Agency
Certificates"). Unless otherwise indicated in the related Prospectus Supplement,
each pool will consist entirely of fixed-rate, first-lien Mortgage Loans or
entirely of adjustable-rate, first-lien Mortgage Loans originated by Chase
Manhattan Mortgage Corporation ("Chase Manhattan Mortgage" or the "Servicer"),
either directly or through correspondent originators, or originated by other
originators and, in any such case, acquired by the Seller. Information regarding
the size, composition and other characteristics of the mortgage pool relating to
such Series, will be furnished in the related Prospectus Supplement at the time
such Series is offered. If specified in the related Prospectus Supplement, a
Trust Fund may also include one or more of the following: reinvestment income,
reserve accounts, insurance policies, guarantees or similar instruments or
agreements.
The Certificates may be sold from time to time in one or more series on
terms determined at the time of sale and specified in the Prospectus Supplement
relating to such series. Each series of Certificates will be issued in a single
class or in two or more classes. The Certificates of each class will evidence
the beneficial ownership of (i) any distributions in respect of the assets of
the Trust Fund that are allocable to principal of the Certificates in the amount
of the aggregate original principal balance, if any, of such class of
Certificates as specified in the related Prospectus Supplement and (ii) any
distributions in respect of the assets of the Trust Fund that are allocable to
interest on the principal balance or notional principal balance of such
Certificates at the interest rate, if any, applicable to such class of
Certificates as specified in the related Prospectus Supplement. One or more
classes of each series (i) may be entitled to receive distributions allocable to
principal, principal prepayments, interest or any combination thereof prior to
one or more other classes of Certificates of such series or after the occurrence
of certain events and (ii) may be subordinated in the right to receive such
distributions on such Certificates to one or more senior classes of
Certificates, in each case as specified in the related Prospectus Supplement.
Interest on each class of Certificates entitled to distributions allocable to
interest will accrue at a fixed rate or at a rate that is subject to change from
time to time as specified in the related Prospectus Supplement on an actual or
notional principal amount, may represent a specified portion of interest
received on some or all of the assets of the Trust Fund or may otherwise be
determined as specified in the related Prospectus Supplement.
Distributions on the Certificates of a series will be made only from the
assets of the related Trust Fund. The Certificates of any series will not be
insured or guaranteed by any governmental entity or by any other person.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN CHASE
MORTGAGE FINANCE CORPORATION, CHASE MANHATTAN MORTGAGE CORPORATION, THE CHASE
MANHATTAN BANK OR ANY OF THEIR AFFILIATES. THE CERTIFICATES WILL NOT BE SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY NOR HAS THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY PASSED UPON THE
ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS.
Except as otherwise specifically provided in the applicable Prospectus
Supplement (which may also provide that a party other than the Seller shall have
some or all of the following obligations), the Seller's only obligations with
respect to the Certificates will be (i) its obligation, as described herein (see
"The Pooling and Servicing Agreement--Repurchase or Substitution"), to
repurchase Mortgage Loans under certain circumstances if either documentation
with respect to one or more Mortgage Loans required to be delivered by the
Seller to the Trustee is missing or defective or a representative or warranty
with respect to one or more Mortgage Loans is breached and such breach
materially and adversely affects the interests of the Certificateholders in a
Mortgage Loan, and (ii) its obligations, if any, as principal obligor in
connection with certain credit enhancements that may be described in the
Prospectus Supplement. Except as otherwise specifically provided in the
applicable Prospectus Supplement and except for certain representations and
warranties relating to the Servicer, the Servicer's obligations with respect to
each Series of Certificates will be limited to its contractual servicing
obligations, including any obligation it may have to advance, under the
circumstances specified in the Prospectus Supplement, delinquent payments on the
Mortgage Loans included in the related Trust Fund, and its obligations pursuant
to certain representations and warranties made by it.
The yield on each class of Certificates of a series will be affected by the
rate of payment of principal (including prepayments) on the assets in the
related Trust Fund and the timing of receipt of such payments as described
herein and in the related Prospectus Supplement. Each series of Certificates may
be subject to early termination only under the circumstances described herein
and in the related Prospectus Supplement.
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 7.
If specified in a Prospectus Supplement, an election will be made to treat
the related Trust Fund as a "real estate mortgage investment conduit" ("REMIC")
for federal income tax purposes, or two REMIC elections may be made with respect
to the related Trust Fund. See "Federal Income Tax Consequences".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. There
will have been no public market for any series of Certificates prior to the
offering thereof. Accordingly, once an offering of any Series of Certificates
has been made, there can be no assurance that a secondary market for
Certificates of such Series will develop or, if it does develop, that such
market will continue. No application will be made to list the Certificates on
any securities exchange.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is July 23, 1998.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Certificates being offered
hereby will, among other things, set forth with respect to such series of
Certificates (i) information as to the assets comprising the Trust Fund,
including the characteristics of the Mortgage Loans or Agency Certificates and,
if applicable, the insurance, guarantees or other instruments or agreements
included in the Trust Fund and the amount and source of any reserve accounts;
(ii) the aggregate original principal balance of each class of Certificates
entitled to distributions allocable to principal and, if a fixed rate of
interest, the interest rate for each class of such Certificates entitled to
distributions allocable to interest; (iii) information as to any class of
Certificates that has a rate of interest that is subject to change from time to
time and the basis on which such interest rate will be determined; (iv)
information as to any class of Certificates on which interest will accrue and be
added to the principal or, if applicable, the notional principal balance
thereof; (v) information as to the method used to calculate the amount of
interest to be paid on any class entitled to distributions of interest only;
(vi) information as to the nature and extent of subordination with respect to
any class of Certificates that is subordinate in right of payment to any other
class; (vii) the circumstances, if any, under which the Trust Fund is subject to
early termination; (viii) if applicable, the final distribution date and the
first mandatory principal distribution date of each class of such Certificates;
(ix) the method used to calculate the aggregate amounts of principal and
interest required to be distributed on each distribution date in respect of each
class of such Certificates and, with respect to any series consisting of more
than one class, the basis on which such amounts will be allocated among the
classes of such series; (x) the distribution date for each class of the
Certificates, the date on which payments received in respect of the assets
included in the Trust Fund during the related period will be deposited in the
related Collection Account (as defined herein) and, if applicable, the assumed
reinvestment rate applicable to payments received in respect of such assets and
the date on which such payments are assumed to be received for such series of
Certificates; (xi) the name of the trustee of the Trust Fund; (xii) information
with respect to the administrator, if any, of the Trust Fund; (xiii) whether an
election will be made to treat all or a portion of the Trust Fund as a REMIC or
a double REMIC and, if applicable, the designation of the regular interests and
residual interests therein; and (xiv) information with respect to the plan of
distribution of such Certificates.
AVAILABLE INFORMATION
The Seller will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect
to the series of Certificates offered hereby and by the related Prospectus
Supplement, and in accordance therewith will file reports and other information
with the Securities and Exchange Commission (the "Commission"). Such reports and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Such material can also be obtained from the web site that the Commission
maintains at http://www.sec.gov.
The Seller has filed with the Commission 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, omits certain
information contained in such Registration Statement pursuant to the rules and
regulations of the Commission. The Registration Statement can be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission as described in the preceding paragraph.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act with respect to a series of Certificates subsequent to
the date of this Prospectus and the related Prospectus Supplement and prior to
the termination of the offering of such series of Certificates shall be deemed
to be incorporated by reference in this Prospectus as supplemented by the
related Prospectus Supplement. If so specified in any such document, such
document shall also be deemed to be incorporated by reference in the
Registration Statement of which this Prospectus forms a part.
Any statement contained herein or in a Prospectus Supplement for a series of
Certificates or in a document incorporated or deemed to be incorporated by
reference herein or therein shall be deemed to be modified or superseded for
purposes of this Prospectus and such Prospectus Supplement to the extent that a
statement contained herein or in such Prospectus Supplement or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein or in such Prospectus Supplement modifies or supersedes such
statement, except to the extent that such subsequently filed document expressly
states otherwise. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus or the related Prospectus Supplement or, if applicable, the
Registration Statement.
The Seller will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus and the related Prospectus
Supplement is delivered, on the written or oral request of any such person, a
copy of any and all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Office of the President, Chase Mortgage Finance
Corporation, 343 Thornall Street, Edison, New Jersey 08837. Telephone requests
for such copies should be directed to the Office of the President at (732)
205-0600.
------------------------
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the series of Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters of the series of Certificates covered by
such Prospectus Supplement and with respect to their unsold allotments or
subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon as having been authorized. This
Prospectus and any Prospectus Supplement with respect hereto do not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the Certificates offered hereby and thereby nor an offer to sell or a
solicitation of an offer to buy the Certificates to any person in any state or
other jurisdiction in which such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus or any Prospectus Supplement with
respect hereto nor any sale made hereunder and thereunder shall, under any
circumstances, create any implication that the information herein or therein is
correct as of any time subsequent to the date of such information.
------------------------
REPORTS TO CERTIFICATEHOLDERS
The Servicer will provide to the holders of Certificates of each series,
annually and on each Distribution Date, reports concerning the Trust Fund
related to such Certificates. See "The Pooling and Servicing Agreement-- Reports
to Certificateholders". The Servicer will file with the Commission such reports
with respect to the Trust Fund for a series of Certificates as are required
under the Exchange Act and the rules and regulations of the Commission
thereunder until the completion of the reporting period required by Rule 15d-1
under the Exchange Act.
------------------------
iii
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TABLE OF CONTENTS
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SUMMARY OF PROSPECTUS.................................................................. 1
RISK FACTORS........................................................................... 7
DESCRIPTION OF THE CERTIFICATES........................................................ 9
General.............................................................................. 9
Classes of Certificates.............................................................. 10
Distributions of Principal and Interest.............................................. 11
THE MORTGAGE POOLS..................................................................... 12
CREDIT SUPPORT......................................................................... 15
General.............................................................................. 15
Limited Guarantee of the Guarantor................................................... 15
Subordination........................................................................ 15
Cross-Support........................................................................ 16
Pool Insurance....................................................................... 16
Special Hazard Insurance............................................................. 18
Bankruptcy Bond...................................................................... 18
Repurchase Bond...................................................................... 19
Guaranteed Investment Contracts...................................................... 19
Reserve Accounts..................................................................... 19
Other Insurance, Guarantees and Similar Instruments or Agreements.................... 20
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS............................... 20
CHASE MORTGAGE FINANCE CORPORATION..................................................... 22
UNDERWRITING POLICIES.................................................................. 23
SERVICING OF THE MORTGAGE LOANS........................................................ 24
Collection and Other Servicing Procedures............................................ 24
Private Mortgage Insurance........................................................... 25
Hazard Insurance..................................................................... 25
Advances............................................................................. 26
Servicing and Other Compensation and Payment of Expenses............................. 27
Resignation, Succession and Indemnification of the Servicer.......................... 27
THE POOLING AND SERVICING AGREEMENT.................................................... 29
Assignment of Mortgage Loans; Warranties............................................. 29
Payments on Mortgage Loans; Collection Account....................................... 30
Repurchase or Substitution........................................................... 31
Certain Modifications and Refinancings............................................... 32
Evidence as to Compliance............................................................ 32
The Trustee.......................................................................... 32
Reports to Certificateholders........................................................ 33
Events of Default.................................................................... 34
Rights Upon Event of Default......................................................... 34
Amendment............................................................................ 35
Termination; Purchase of Mortgage Loans.............................................. 35
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS............................................ 36
General.............................................................................. 36
Foreclosure.......................................................................... 36
Right of Redemption.................................................................. 38
Anti-Deficiency Legislation and Other Limitations on Lenders......................... 38
Consumer Protection Laws............................................................. 39
Enforceability of Due-on-Sale Clauses................................................ 39
Applicability of Usury Laws.......................................................... 40
Soldiers' and Sailors' Civil Relief Act.............................................. 40
Late Charges, Default Interest and Limitations on Prepayment......................... 41
Environmental Considerations......................................................... 41
Forfeiture in Drug and RICO Proceedings.............................................. 42
LEGAL INVESTMENT MATTERS............................................................... 42
ERISA CONSIDERATIONS................................................................... 44
FEDERAL INCOME TAX CONSEQUENCES........................................................ 46
General.............................................................................. 46
REMIC Elections...................................................................... 46
REMIC Certificates................................................................... 46
Tax Opinion.......................................................................... 46
Status of Certificates............................................................... 47
Income from Regular Certificates..................................................... 47
Income from Residual Certificates.................................................... 51
Sale or Exchange of Certificates..................................................... 52
Taxation of Certain Foreign Investors................................................ 53
Transfers of Residual Certificates................................................... 54
Servicing Compensation and Other REMIC Pool Expenses................................. 56
Reporting and Administrative Matters................................................. 56
Non-REMIC Certificates............................................................... 57
Trust Fund as Grantor Trust.......................................................... 57
Status of the Certificates........................................................... 57
Possible Application of Stripped Bond Rules.......................................... 57
Taxation of Certificates if Stripped Bond Rules Do Not Apply......................... 58
Taxation of Certificates if Stripped Bond Rules Apply................................ 59
Sales of Certificates................................................................ 59
Foreign Investors.................................................................... 59
Reporting............................................................................ 60
Backup Withholding................................................................... 60
PLAN OF DISTRIBUTION................................................................... 61
USE OF PROCEEDS........................................................................ 62
LEGAL MATTERS.......................................................................... 62
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<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the Prospectus Supplement to be prepared in connection with each Series of
Certificates. Unless otherwise specified, capitalized terms used and not defined
in this Summary of Prospectus have the meanings given to them in this Prospectus
and in the related Prospectus Supplement.
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Title of Securities............. Mortgage Pass-Through Certificates, issuable in series.
Seller; Servicer................ Chase Mortgage Finance Corporation (the "Seller"). See
"Chase Mortgage Finance Corporation." Chase Manhattan
Mortgage Corporation ("Chase Manhattan Mortgage") or the
"Servicer"), or such other entity or entities specified in
the Prospectus Supplement will service, and may act as
master servicer with respect to, the Mortgage Loans
included in the Trust Fund.
Description of Certificates..... Each Certificate will represent a beneficial ownership
interest in one of a number of trusts to be created by the
Seller from time to time pursuant to a pooling and
servicing agreement (each, an "Agreement") among the
Seller, the Servicer and the commercial bank or trust
company acting as trustee specified in the Prospectus
Supplement. The property of each trust (a "Trust Fund")
will consist of a pool (a "Mortgage Pool") of residential
one- to four-family mortgage loans (the "Mortgage Loans")
and related property and interests (including, for
example, (i) amounts received as Monthly Payments or
principal prepayments which are on deposit in the
Collection Account from time to time, (ii) property which
secured a Mortgage Loan which has been acquired by
foreclosure or (iii) proceeds of the liquidation of a
Mortgaged Property) conveyed to each Trust Fund by the
Seller. As specified in the related Prospectus Supplement,
each Mortgage Pool will consist entirely of fixed-rate or
adjustable-rate Mortgage Loans originated by the Servicer,
either directly or through correspondent originators, or
originated by other originators and, in any such case,
acquired by the Servicer or an affiliate thereof. If
specified in the related Prospectus Supplement, a Trust
Fund may also include one or more of the following:
reinvestment income, reserve accounts, insurance policies,
guarantees or similar instruments or agreements intended
to decrease the likelihood that Certificateholders will
experience delays in distributions of scheduled payments
on, or losses in respect of, the assets in such Trust
Fund. The Certificates of any series will be entitled to
payment only from the assets of the related Trust Fund.
The Certificates of any series may be issued in a single
class or in two or more classes, as specified in the
Prospectus Supplement. One or more classes of Certificates
of each series (i) may be entitled to receive
distributions allocable only to principal, only to
interest or to any combination thereof; (ii) may be
entitled to receive distributions only of prepayments of
principal throughout the lives of the Certificates or
during specified periods; (iii) may be
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subordinated in the right to receive distributions of
scheduled payments of principal, prepayments of principal,
interest or any combination thereof to one or more other
classes of Certificates of such series throughout the
lives of the Certificates or during specified periods;
(iv) may be entitled to receive such distributions only
after the occurrence of events specified in the Prospectus
Supplement; (v) may be entitled to receive distributions
in accordance with a schedule or formula or on the basis
of collections from designated portions of the assets in
the Trust Fund; (vi) as to Certificates entitled to
distributions allocable to interest, may be entitled to
receive interest at a fixed rate or a rate that is subject
to change from time to time; and (vii) as to Certificates
entitled to distributions allocable to interest, may be
entitled to distributions allocable to interest only after
the occurrence of events specified in the Prospectus
Supplement and may accrue interest until such events
occur, in each case as specified in the Prospectus
Supplement. The timing and amounts of such distributions
may vary among classes, over time, or otherwise as
specified in the related Prospectus Supplement.
The Certificates will be offered in fully-registered form
only in the denominations specified in the Prospectus
Supplement. The Certificates will not be guaranteed or
insured by any governmental agency or instrumentality or
any other issuer and, except as described in the
Prospectus Supplement, the Mortgage Loans included in the
related Trust Fund will not be guaranteed or insured by
any governmental agency or instrumentality or any other
person.
Distributions on the
Certificates.................... Distributions on the Certificates entitled thereto will be
made on the 25th day (or, if such day is not a business
day, the business day immediately following such 25th day)
of each month or such other date specified in the
Prospectus Supplement solely out of the payments received
in respect of the assets of the related Trust Fund. The
amount allocable to payments of principal and interest on
any distribution date will be determined as specified in
the Prospectus Supplement. All distributions will be made
pro rata to Certificateholders of the class entitled
thereto or by the other method specified in the Prospectus
Supplement. See "Description of the Certificates."
The aggregate original principal balance of the
Certificates will equal the aggregate distributions
allocable to principal that such Certificates will be
entitled to receive. If specified in the Prospectus
Supplement, the Certificates of a series will have an
aggregate original principal balance equal to the
aggregate unpaid principal balance of the related Mortgage
Loans as of the first day of the month of creation of the
Trust Fund and will bear interest in the aggregate at a
rate equal to the interest rate borne by the underlying
Mortgage Loans, net of servicing fees payable to the
Servicer and any primary or sub-services of the Mortgage
Loans and any other amounts (including fees payable to the
Servicer as
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master Servicer, if applicable) specified in the
Prospectus Supplement (as to each Mortgage Loan, the
"Remittance Rate"). See "Description of the
Certificates--Distributions of Principal and Interest."
The rate at which interest will be passed through to
holders of Certificates entitled thereto may be a fixed
rate or a rate that is subject to change from time to
time, in each case as specified in the Prospectus
Supplement. Any such rate may be calculated on a loan-
by-loan, weighted average or other basis, in each case as
described in the Prospectus Supplement. See "Description
of the Certificates--Distributions of Principal and
Interest."
The Mortgage Pools.............. As specified in the Prospectus Supplement, each Mortgage
Pool will consist of Mortgage Loans which were represented
to the Seller as meeting certain standards. Each Mortgage
Pool will contain one or more of the following types of
Mortgage Loans:(1) 20- to 30-year ("30-year") fixed-rate,
fully amortizing Mortgage Loans providing for level
monthly payments of principal and interest; (2) 10- to
15-year ("15-year") fixed-rate, fully amortizing Mortgage
Loans providing for level monthly payments of principal
and interest; (3) adjustable-rate Mortgage Loans ("ARMs"
or "ARM Loans"), which may include loans providing for
negative amortization; (4) another type of Mortgage Loan,
as described in the applicable Prospectus Supplement. If
specified in the applicable Prospectus Supplement, a
Mortgage Pool may contain Mortgage Loans subject to
buy-down plans ("Buy-Down Mortgage Loans"). See "The
Mortgage Pools."
Primary Mortgage Insurance...... To the extent specified in the applicable Prospectus
Supplement, each Mortgage Loan having a Loan-to-Value
Ratio above a specified level will be covered by a Primary
Mortgage Insurance Policy insuring against default by the
Borrower with respect to all or a specified portion of the
principal amount thereof until the principal balance of
such Mortgage Loan is reduced below a specified percentage
of the lesser of the sales price or appraised value of the
Mortgaged Property. See "The Mortgage Pools."
Purchase of Mortgage Loans...... As described in the applicable Prospectus Supplement, the
Agreement for each series may permit, but not require, the
Seller, the Servicer or another party to purchase from the
Trust Fund for such series all remaining Mortgage Loans
and all property acquired in respect of the Mortgage
Loans, at a price described in the Prospectus Supplement,
subject to the condition that the aggregate outstanding
principal balance of the Mortgage Loans for such series at
the time of purchase shall be less than a percentage of
the aggregate principal balance at the Cut-Off Date
specified in the Prospectus Supplement. The exercise of
such right will result in the early retirement of the
Certificates of that series. See "The Pooling and
Servicing Agreement-- Termination; Purchase of Mortgage
Loans."
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Collection Account.............. With respect to each Trust Fund, the Servicer will be
obligated to establish an account into which it will
deposit on the dates specified in the related Prospectus
Supplement payments received in respect of the assets in
such Trust Fund. See "The Pooling and Servicing
Agreement--Payments on Mortgage Loans; Collection
Account."
Advances........................ If specified in the Prospectus Supplement, the Servicer,
as Servicer or master servicer of the Mortgage Loans, will
be obligated to advance, using its own funds, delinquent
installments of principal and interest (the latter
adjusted to the applicable Remittance Rate) on the
Mortgage Loans in a Trust Fund. Any such obligation to
make advances may be limited to amounts due holders of
certain classes of Certificates of the related series, to
amounts deemed to be recoverable from late payments or
liquidation proceeds, for specified periods or any
combination thereof, in each case as specified in the
related Prospectus Supplement. Any such advance will be
recoverable by the Servicer as specified in the related
Prospectus Supplement. See "Servicing of the Mortgage
Loans--Advances."
Credit Support.................. If specified in the Prospectus Supplement, a series of
Certificates, or certain classes within such series, may
have the benefit of one or more of the following types of
credit support. The protection against losses afforded by
any such credit support will be limited. See "Credit
Support."
A. Limited Guarantee............ If specified in the Prospectus Supplement, certain
obligations of the Servicer under the related Agreement,
including obligations of the Servicer to cover certain
deficiencies in principal or interest payments on the
Mortgage Loans resulting from the bankruptcy of the
related borrower, may be covered by a financial guarantee
policy, limited guarantee or other similar instrument (the
"Limited Guarantee"), limited in scope and amount, issued
by an entity named in the Prospectus Supplement (the
"Guarantor"). If so specified, the Guarantor may be
obligated to take either or both of the following actions
in the event the Servicer fails to do so: make deposits to
the Collection Account (a "Deposit Guarantee"); or make
advances (an "Advance Guarantee"). Any such Limited
Guarantee will be limited in amount and a portion of the
coverage of any such Limited Guarantee may be separately
allocated to certain events. The scope, amount and, if
applicable, the allocation of any Limited Guarantee will
be described in the related Prospectus Supplement. See
"Credit Support--Limited Guarantee of the Guarantor."
B. Subordination................ A series of Certificates may include one or more classes
that are subordinate in the right to receive distributions
on such Certificates to one or more senior classes of
Certificates of the same series, to the extent described
in the related Prospectus Supplement. If so specified in
the related Prospectus Supplement, subordination may apply
only in the event of certain types of losses not covered
by other forms of credit support, such as hazard losses
not covered by standard hazard insurance policies or
losses resulting from the
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bankruptcy of the borrower. If specified in the Prospectus
Supplement, a reserve fund may be established and
maintained by the deposit therein of distributions
allocable to the holders of subordinate Certificates until
a specified level is reached. The related Prospectus
Supplement will set forth information concerning the
amount of subordination of a class or classes of
subordinate Certificates in a series, the circumstances in
which such subordination will be applicable, the manner,
if any, in which the amount of subordination will decrease
over time, the manner of funding the related reserve fund,
if any, and the conditions under which amounts in any such
reserve fund will be used to make distributions to holders
of senior Certificates or released from the related Trust
Fund. See "Credit Support--Subordination."
C. Cross-Support................ If specified in the Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust
Fund may be evidenced by separate classes of the related
series of Certificates. In such case, and if so specified,
credit support may be provided by a cross-support feature
which requires that distributions be made with respect to
Certificates evidencing beneficial ownership of one or
more asset groups prior to distributions to subordinate
Certificates evidencing a beneficial ownership interest in
other asset groups within the same Trust Fund. If
specified in the Prospectus Supplement, the coverage
provided by one or more forms of credit support may apply
concurrently to two or more separate Trust Funds. If
applicable, the Prospectus Supplement will identify the
Trust Funds to which such credit support relates and the
manner of determining the amount of the coverage provided
thereby and of the application of such coverage to the
identified Trust Funds. See "Credit Support--Cross
Support."
D. Pool and Special Hazard
Insurance....................... In order to decrease the likelihood that
Certificateholders will experience losses in respect of
the Mortgage Loans, if specified in the Prospectus
Supplement, the Seller will obtain one or more insurance
policies to cover (i) losses by reason of defaults by
borrowers (a "Mortgage Pool Insurance Policy") and (ii)
losses by reason of hazards not covered under the standard
form of hazard insurance (a "Special Hazard Insurance
Policy"), in each case up to the amounts, for the periods
and subject to the conditions specified in the Prospectus
Supplement. See "Credit Support--Pool Insurance" and
"--Special Hazard Insurance."
E. Reserve Accounts, Other
Insurance, Guarantees and
Similar Instruments and
Agreements...................... In order to decrease the likelihood that
Certificateholders will experience delays in the receipt
of scheduled payments on, and losses in respect of, the
assets in a Trust Fund, if specified in the related
Prospectus Supplement, such Trust Fund may also include
reserve accounts, other insurance, guarantees and similar
instruments and agreements entered into with the entities,
in the amounts, for the purposes and subject to the
conditions specified in
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the Prospectus Supplement. See "Credit Support--Reserve
Accounts" and "--Other Insurance, Guarantees and Similar
Instruments or Agreements."
Agency Certificates............. If specified in the Prospectus Supplement, a Trust Fund
may include mortgage pass-through securities issued or
guaranteed by the Federal Home Loan Mortgage Corporation
("FHLMC), the Federal National Mortgage Association
("FNMA"), or the Government National Mortgage Association
("GNMA") (collectively, "Agency Certificates"). Any Agency
Certificates will be described in the related Prospectus
Supplement.
Federal Income Tax
Consequences.................... The federal income tax consequences to Certificateholders
will depend on, among other factors, whether an election
is made to treat the Trust Fund or specified portions
thereof as a "real estate mortgage investment conduit"
("REMIC") under the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"). See "Federal Income
Tax Consequences".
ERISA Considerations............ A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or a plan subject to Section 4975 of
the Code should carefully review with its own legal
advisors whether the purchase or holding of Certificates
could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. See "ERISA
Considerations".
Legal Investment Matters........ The Prospectus Supplement for each series of Certificates
will specify which, if any, of the classes of Certificates
offered thereby will constitute "mortgage related
securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of Certificates
that qualify as "mortgage related securities" will be
legal investments for certain types of institutional
investors to the extent provided in SMMEA, subject, in any
case, to any other regulations which may govern
investments by such institutional investors. Institutions
whose investment authority is subject to legal
restrictions should consult with their own legal advisors
or the applicable authorities to determine whether and to
what extent an investment in a particular class of
Certificates (whether or not such class constitutes a
"mortgage related security") constitutes a legal
investment for them. See "Legal Investment Matters".
</TABLE>
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RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
l. LOSSES ON THE MORTGAGE POOL. An investment in Certificates evidencing
interests in Mortgage Loans may be affected, among other things, by a decline in
real estate values or changes in mortgage market rates. If the residential real
estate market in the locale of properties securing the Mortgage Loans should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans, and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool, become equal to or greater than the
value of Mortgaged Properties, the actual rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced in the mortgage
lending industry. To the extent that such losses are not covered by any
subordination feature, applicable insurance policies or other credit
enhancement, holders of the Certificates of a Series evidencing interests in
such Mortgage Pool will bear all risk of loss resulting from default by
mortgagors and will have to look primarily to the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest of the
defaulted Mortgage Loans. See "The Mortgage Pools."
2. LIMITED OBLIGATIONS. The Certificates will not represent an interest in
or obligation of the Seller. The Certificates will not be insured or guaranteed
by any government agency or instrumentality, nor, unless expressly provided in
the related Prospectus Supplement, by The Chase Manhattan Bank, Chase Manhattan
Mortgage Corporation, Chase Mortgage Finance Corporation or any of their
affiliates.
3. LIMITED LIQUIDITY. There can be no assurance that a secondary market
will develop for the Certificates of any Series or, if it does develop, that it
will provide the holders of Certificates of such Series with liquidity of
investment or that it will remain for the term of such series of Certificates.
Although the Certificateholders of each series receive monthly statements
containing certain statistical information with respect to the related Mortgage
Pool, neither the Company nor the Servicer publishes any information relating to
the Certificates of any series or any Mortgage Pool. The limited availability of
any such published information may influence the liquidity of the Certificates.
The Certificates will not be listed on any securities exchange.
4. PREPAYMENT CONSIDERATIONS. The prepayment experience on the Mortgage
Loans will affect the average life of the Certificates or each class of
Certificates. Prepayments on the Mortgage Loans may be influenced by a variety
of economic, geographic, social and other factors, including the difference
between the interest rates on the Mortgage Loans and prevailing mortgage rates
(giving consideration to the cost of refinancing). In general, if mortgage
interest rates fall below the interest rates on the Mortgage Loans, the rate of
prepayment would be expected to increase, and the yields at which an investor in
the Certificates may be able to reinvest amounts received as payments on such
investor's Certificates may be lower than the yield on such Certificates.
Conversely, if mortgage interest rates rise above the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to decrease, and the
amount of payments available to a Certificateholder for reinvestment may be
relatively low. Other factors affecting prepayment of mortgage loans include
changes in housing needs, job transfers, unemployment and servicing decisions.
See "Yield, Maturity and Weighted Average Life Considerations."
5. YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS. The yield of
the Certificates of each series will depend in part on the rate of principal
payment on the Mortgage Loans (including prepayments, liquidations due to
defaults and mortgage loan repurchases). Such yield may be adversely affected,
depending upon whether a particular Certificate is purchased at a premium or
discount price, by a higher or lower than anticipated rate of prepayments on the
related Mortgage Loans. In particular, the yield on Classes of Certificates
entitling the holders thereof primarily or exclusively to payments of interest
or primarily or exclusively to payments of principal will be extremely sensitive
to the rate of prepayments on the related Mortgage Loans. In addition, the yield
on certain Classes of Certificates may be relatively more sensitive to the rate
of prepayment of specified Mortgage Loans than other Classes of Certificates.
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Furthermore, the yield to investors may be adversely affected by interest
shortfalls which may result from the timing of the receipt of prepayments or
liquidations to the extent that such interest shortfalls are not covered by
aggregate Servicing Fees or other mechanisms specified in the applicable
Prospectus Supplement. The yield to investors in Classes of Certificates will be
adversely affected to the extent that losses on the Mortgage Loans in the
related Trust Fund are allocated to such Classes and may be adversely affected
to the extent of unadvanced delinquencies on the Mortgage Loans in the related
Trust Fund. Classes of Certificates identified in the applicable Prospectus
Supplement as subordinated Certificates are more likely to be affected by
delinquencies and losses than other Classes of Certificates. See "Yield,
Maturity and Weighted Average Life Considerations."
6. SUBORDINATION. With respect to Certificates of a series having one or
more classes of subordinated Certificates, while the subordination feature is
intended to enhance the likelihood of timely payment of principal and interest
to senior Certificateholders, such subordination will be limited as specified in
the Prospectus Supplement, any reserve fund could be depleted under certain
circumstances, and payments applied to the senior Certificates which are
otherwise due to the subordinated Certificates may be less than losses.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate pooling
and servicing agreement (each, an "Agreement") entered into among the Seller,
the Servicer and a commercial bank or trust company named in the Prospectus
Supplement, as trustee (the "Trustee") for the benefit of holders of
Certificates of that Series. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. The Agreement will be substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
is a part, or in such similar form as will reflect the terms of a series of
Certificates described in the Prospectus Supplement. The following summaries
describe the material provisions which may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any provision
of the Agreement relating to such series that materially differs from the
description thereof contained in this Prospectus. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Agreement for each series of
Certificates and the applicable Prospectus Supplement. The Seller will provide
any Certificateholder, without charge, on written request a copy of the
Agreement for any series. Requests should be addressed to Chase Mortgage Finance
Corporation, 343 Thornall Street, Edison, New Jersey 08837, Attention:
President. The Agreement relating to a series of Certificates will be filed with
the Securities and Exchange Commission in a report on Form 8-K within 15 days
after the date of issuance of such series of Certificates (the "Delivery Date").
The Certificates of a series will be entitled to payment only from the
assets included in the Trust Fund related to such series and will not be
entitled to payments in respect of the assets included in any other trust fund
established by the Seller. The Certificates will not represent obligations of
the Seller, the Servicer or any of their affiliates and will not be insured or
guaranteed by any governmental agency or any other person. Unless otherwise
specified in the Prospectus Supplement, the Seller's only obligations with
respect to the Certificates will consist of its obligations pursuant to certain
representations and warranties made by it. Unless otherwise specified in the
Prospectus Supplement, the Servicer's only obligations with respect to the
Certificates will consist of its contractual servicing and/or master servicing
obligations, including any obligation to make advances under certain limited
circumstances specified herein of delinquent installments of principal and
interest (adjusted to the applicable Remittance Rate), and its obligations
pursuant to certain representations and warranties made by it.
The Mortgage Loans will not be insured or guaranteed by any governmental
entity or, except as specified in the Prospectus Supplement, by any other
person. To the extent that delinquent payments on or losses in respect of
defaulted Mortgage Loans are not advanced by the Servicer or any other entity or
paid from any applicable credit support arrangement, such delinquencies may
result in delays in the distribution of payments to the holders of one or more
classes of Certificates, and such losses will be borne by the holders of one or
more classes of Certificates.
GENERAL
The Certificates of each series will be issued in fully-registered form
only. The minimum original Certificate Principal Balance or Notional Principal
Balance that may be represented by a Certificate (the "denomination") will be
specified in the Prospectus Supplement. The original Certificate Principal
Balance of each Certificate will equal the aggregate distributions allocable to
principal to which such Certificate is entitled. Distributions allocable to
interest on each Certificate that is not entitled to distributions allocable to
principal will be calculated based on the Notional Principal Balance of such
Certificate. The Notional Principal Balance of a Certificate will not evidence
an interest in or entitlement to distributions allocable to principal but will
be used solely for convenience in expressing the calculation of interest and for
certain other purposes.
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The Certificates of a series will be transferable and exchangeable on a
Certificate Register to be maintained at the corporate trust office of the
Trustee for the related series or such other office or agency maintained for
such purposes by the Trustee in New York City (or at the office of the
certificate registrar specified in the related Prospectus Supplement). Unless
otherwise specified in the Prospectus Supplement, under each Agreement, the
Servicer will initially be appointed as the Certificate Registrar. Unless
otherwise specified in the Prospectus Supplement, no service charge will be made
for any registration of transfer or exchange of Certificates, but payment of a
sum sufficient to cover any tax or other governmental charge may be required.
CLASSES OF CERTIFICATES
Each series of Certificates will be issued in a single class or in two or
more classes. The Certificates of each class will evidence the beneficial
ownership of (i) any distributions in respect of the assets of the Trust Fund
that are allocable to principal, in the aggregate amount of the original
Certificate Principal Balance, if any, of such class of Certificates as
specified in the Prospectus Supplement and (ii) any distributions in respect of
the assets of the Trust Fund that are allocable to interest on the Certificate
Principal Balance or Notional Principal Balance of such Certificates from time
to time at the Certificate Rate, if any, applicable to such class of
Certificates as specified in the Prospectus Supplement. If specified in the
Prospectus Supplement, one or more classes of a series of Certificates may
evidence beneficial ownership interests in separate groups of assets included in
the related Trust Fund.
If specified in the Prospectus Supplement, the Certificates will have an
aggregate original Certificate Principal Balance equal to the aggregate unpaid
principal balance of the Mortgage Loans as of the close of business on the first
day of the month of creation of the Trust Fund (the "Cut-Off Date") after
deducting payments of principal due on or before, and prepayments of principal
received on or before, the Cut-Off Date and in the aggregate will bear interest
equal to the weighted average of the Remittance Rates. The Remittance Rate will
equal the rate of interest payable on each Mortgage Loan minus the Servicer's
servicing fee as described herein, the servicing fee of any third party servicer
of the Mortgage Loans and such other amounts (including fees payable to the
Servicer as master servicer, if applicable) as are specified in the Prospectus
Supplement. The Certificates may have an original Certificate Principal Balance
as determined in the manner specified in the Prospectus Supplement.
Each class of Certificates that is entitled to distributions allocable to
interest will bear interest at a fixed rate or a rate that is subject to change
from time to time (a) in accordance with a schedule, (b) in reference to an
index, or (c) otherwise (each, a "Certificate Rate"), in each case as specified
in the Prospectus Supplement. One or more classes of Certificates may provide
for interest that accrues, but is not currently payable ("Accrual
Certificates"). With respect to any class of Accrual Certificates, if specified
in the Prospectus Supplement, any interest that has accrued but is not paid on a
given Distribution Date (as defined below under "Distributions of Principal and
Interest") will be added to the aggregate Certificate Principal Balance of such
class of Certificates on that Distribution Date.
A series of Certificates may include one or more classes entitled only to
distributions (i) allocable to interest, (ii) allocable to principal (and
allocable as between scheduled payments of principal and Principal Prepayments,
as defined below) or (iii) allocable to both principal (and allocable as between
scheduled payments of principal and Principal Prepayments) and interest. A
series of Certificates may consist of one or more classes as to which
distributions will be allocated (i) on the basis of collections from designated
portions of the assets of the Trust Fund, (ii) in accordance with a schedule or
formula, (iii) in relation to the occurrence of events, or (iv) otherwise, in
each case as specified in the Prospectus Supplement. The timing and amounts of
such distributions may vary among classes, over time or otherwise, in each case
as specified in the Prospectus Supplement.
The taking of action with respect to certain matters under the Agreement,
including certain amendments thereto, will require the consent of the holders of
the Certificates. The voting rights allocated to
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each class of Certificates will be specified in the Prospectus Supplement. Votes
may be allocated in different proportions among classes of Certificates
depending on whether the Certificates of a class have a Notional Principal
Balance or a Certificate Principal Balance.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
GENERAL.
Distributions of principal and interest at the applicable Certificate Rate
(if any) on the Certificates will be made to the extent of funds available from
the related Trust Fund on the 25th day (or if such 25th day is not a business
day, on the business day next following such 25th day) of each calendar month
(each, a "Distribution Date"), commencing in the month following the issuance of
the related series, or on such other date as is specified in the Prospectus
Supplement. Distributions will be made to the persons in whose names the
Certificates are registered at the close of business on the dates specified in
the Prospectus Supplement (each, a "Record Date"). Distributions will be made by
check or money order mailed to the person entitled thereto at the address
appearing in the Certificate Register or, if specified in the Prospectus
Supplement, in the case of Certificates that are of a certain minimum
denomination as specified in the Prospectus Supplement, upon written request by
the Certificateholder, by wire transfer or by such other means as are agreed
upon with the person entitled thereto; provided, however, that the final
distribution in retirement of the Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee specified in the notice to Certificateholders of such final
distribution.
Distributions allocable to principal and interest on the Certificates will
be made by the entity specified in the Prospectus Supplement as the paying agent
(the "Paying Agent") out of, and only to the extent of, funds in a separate
account established and maintained under the Agreement for the benefit of
holders of the Certificates of the related series (the "Collection 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 Prospectus Supplement.
Distributions to any class of Certificates will be made pro rata to all
Certificateholders of that class or by the other method described in the
Prospectus Supplement. If so specified in the Prospectus Supplement, the amounts
deposited into the Collection Account as described below under "The Pooling and
Servicing Agreement--Payments on Mortgage Loans; Collection Account" will be
invested in the eligible investments specified in the Agreement and all income
or other gain from such investments will be deposited in the Collection Account
and will be for the benefit of the Servicer or other entity specified in the
Prospectus Supplement and subject to withdrawal from time to time.
DISTRIBUTIONS OF INTEREST. Interest will accrue on the aggregate
Certificate Principal Balance (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate Notional Principal Balance)
of each class of Certificates entitled to interest from the date, at the
Certificate Rate and for the periods (each, an "Interest Accrual Period")
specified in the Prospectus Supplement. To the extent funds are available
therefor, interest accrued during each Interest Accrual Period on each class of
Certificates entitled to interest (other than a class of Accrual Certificates)
will be distributable on the Distribution Dates specified in the Prospectus
Supplement until the aggregate Certificate Principal Balance of the Certificates
of such class has been distributed in full or, in the case of Certificates
entitled only to distributions allocable to interest, until the aggregate
Notional Principal Balance of such Certificates is reduced to zero or for the
period of time designated in the 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. Prior to such
time, the beneficial ownership interest of such class of Accrual Certificates in
the Trust Fund, as reflected in the aggregate Certificate Principal Balance of
such class of Accrual Certificates, will increase on each Distribution Date by
the amount of interest that accrued on such class of Accrual Certificates during
the preceding Interest Accrual Period but that was not
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required to be distributed to such class on such Distribution Date. Any such
class of Accrual Certificates will thereafter accrue interest on its outstanding
Certificate Principal Balance as so adjusted.
DISTRIBUTIONS OF PRINCIPAL. Unless otherwise specified in the Prospectus
Supplement, the aggregate Certificate Principal Balance of any class of
Certificates entitled to distributions of principal will be the aggregate
original Certificate Principal Balance of such class of Certificates specified
in the Prospectus Supplement, reduced by all distributions reported to the
holders of such Certificates as allocable to principal, and, in the case of
Accrual Certificates, as specified in the Prospectus Supplement, increased on
each Distribution Date by all interest accrued but not then distributable on
such Accrual Certificates. The Prospectus Supplement will specify the method by
which the amount of principal to be distributed on the Certificates on each
Distribution Date will be calculated and the manner in which such amount will be
allocated among the classes of Certificates entitled to distributions of
principal.
If so specified in the Prospectus Supplement, one or more classes of senior
Certificates will be entitled to receive all or a disproportionate percentage of
the payments or other recoveries of principal on a Mortgage Loan which are
received in advance of their scheduled due dates and not accompanied by amounts
of interest representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or for
the periods specified in the Prospectus Supplement. Any such allocation of
Principal Prepayments to such class or classes of Certificateholders will have
the effect of accelerating the amortization of such Certificates while
increasing the interests evidenced by the remaining Certificates in the Trust
Fund.
THE MORTGAGE POOLS
Each mortgage pool (a "Mortgage Pool") will consist of one- to four-family
residential mortgage loans evidenced by promissory notes (each, a "Note")
secured by first mortgages or first deeds of trust or other similar security
instrument (each, a "Mortgage") creating a first lien on properties (the
"Mortgaged Properties"). When each series of Certificates is issued, the Seller
will cause the Mortgage Loans comprising each Mortgage Pool to be assigned to
the Trustee for the benefit of the holders of the Certificates of that series,
and will receive the Certificates in exchange therefor. Certain Certificates
evidencing interests in a Trust Fund may not form part of the offering made
pursuant to this Prospectus and the related Prospectus Supplement.
The Mortgaged Properties in each Mortgage Pool may consist of single-unit
dwellings, two-, three-and four-unit detached, townhouse or rowhouse dwellings,
condominium and planned-unit development ("PUD") units and such other types of
homes or units as are described in the applicable Prospectus Supplement, and may
include vacation and second homes and investment properties. The applicable
Prospectus Supplement will contain information concerning the originators of the
Mortgage Loans and the underwriting standards employed by such originators.
Unless otherwise specified in the applicable Prospectus Supplement, all
Mortgage Loans will (i) have monthly payments due on the first of each month,
(ii) be secured by Mortgaged Properties located in one of the states of the
United States or the District of Columbia, and (iii) be of one or more of the
following types of Mortgage Loans:
(1) Fully-amortizing Mortgage Loans, each with a 20-to 30-year
("30-Year") term at origination, interest (the "Mortgage Rate") at a fixed
rate and level monthly payments over the term of the Mortgage Loan.
(2) Fully-amortizing Mortgage Loans, each with a 10-to 15-year
("15-Year") term at origination, a fixed Mortgage Rate and level monthly
payments over the term of the Mortgage Loan.
(3) Mortgage Loans, each with an adjustable Mortgage Rate, which may
include loans providing for negative amortization.
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Mortgage Loans with certain Loan-to-Value Ratios and/or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Mortgage Insurance Policy"). The existence,
extent and duration of any such coverage will be described in the applicable
Prospectus Supplement. The "Loan-to- Value Ratio" is the ratio, expressed as a
percentage, of the principal amount of the Mortgage Loan to the lesser of (i)
the sales price for such property at the time the Mortgage Loan is closed and
(ii) the appraised value at origination or, in the case of refinancings, the
value set forth in the appraisal, if any, obtained by the loan originator in
connection with such refinancing. Unless otherwise specified in the applicable
Prospectus Supplement, each Mortgage Loan will also be covered by a Standard
Hazard Insurance Policy, as described under "Servicing of the Mortgage
Loans--Hazard Insurance" below.
In addition, other credit enhancements acceptable to the rating agency (or
agencies) rating the Certificates may be provided for coverage of certain risks
of default or losses. See "Credit Support" herein.
If specified in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans subject to buy-down plans ("Buy-Down Mortgage Loans")
pursuant to which the monthly payments made by the Borrower will be less than
the scheduled monthly payments on the Buy-Down Mortgage Loan, the resulting
difference to be drawn from an amount contributed by the seller of the Mortgaged
Property or another source at the time of origination of the Buy-Down Mortgage
Loan and placed in a trust or custodial account (the "Buy-Down Fund") (such
amount hereinafter referred to as the "Buy-Down Reserve"). The applicable
Prospectus Supplement or Current Report (as defined below) will contain
information, with respect to any Buy-Down Mortgage Loans, concerning limitations
on the interest rate payable by the Borrower initially, on annual increases in
the interest rate, on the length of the buy-down period, and on the Buy-Down
Fund. The repayment of a temporary Buy-Down Mortgage Loan is dependent on the
ability of the Borrower to make larger monthly payments after the Buy-Down
Reserves have been depleted and, for certain Buy-Down Mortgage Loans, while such
funds are being depleted. The inability of the Borrower to make larger monthly
payments may lead to a default on the Buy-Down Mortgage Loan or, if the Borrower
is able to obtain refinancing on favorable terms, a prepayment of such loan. See
"Yield, Maturity and Weighted Average Life Considerations."
The Prospectus Supplement for a series of Certificates may specify that the
related Mortgage Pool contains Mortgage Loans that have been used for
refinancing for the purpose of removing equity from the related Mortgaged
Properties ("Cash-Out Refinance Loans").
The Prospectus Supplement for each series of Certificates will specify the
approximate aggregate principal balance of the Mortgage Loans (within the
percentage or dollar range specified therein). The Prospectus Supplement for
each series of Certificates will contain information regarding the Mortgage
Loans which are expected to be included in the related Mortgage Pool, including
among other things, information, as of the applicable Cut-Off Date and to the
extent then specifically known to the Seller, as to (i) the aggregate principal
balance of the Mortgage Loans, (ii) the aggregate principal balance or
percentage by aggregate principal balance of Mortgage Loans secured by each type
of property, (iii) the original terms to maturity of the Mortgage Loans, (iv)
the smallest and largest in principal balance at origination of the Mortgage
Loans, (v) the earliest origination date and latest maturity date of the
Mortgage Loans, (vi) the aggregate principal balance or percentage by aggregate
principal balance of Mortgage Loans having Loan-to-Value Ratios at origination
exceeding 80%, (vii) the Mortgage Rate or range of Mortgage Rates borne by the
Mortgage Loans and (viii) the average outstanding principal balance of the
Mortgage Loans. If specific information with respect to the Mortgage Loans is
not known at the time the related series of Certificates is initially offered,
more general information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth in a report on
Form 8-K to be filed with the Securities and Exchange Commission within fifteen
days after the initial issuance of such Certificates (the "Current Report"). A
copy of the Agreement with respect to a series of Certificates will be attached
to the related Current Report and will be available for inspection at the
corporate trust office of the Trustee specified in the related Prospectus
Supplement.
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The Seller's assignment of the Mortgage Loans to the Trustee will be without
recourse. Unless otherwise specified in the applicable Prospectus Supplement,
the Seller or another party identified in such Prospectus Supplement will make
certain representations concerning the Mortgage Loans, including that no
Mortgage Loan in a Mortgage Pool evidenced by Certificates will be more than one
month delinquent as of the date of the initial issuance of the Certificates. For
a description of other representations that will be made by the party specified
in the applicable Prospectus Supplement concerning the Mortgage Loans, see "The
Pooling and Servicing Agreement--Assignment of Mortgage Loans; Warranties." The
Seller's obligations with respect to the Mortgage Loans will be limited to any
representations and warranties made by it in, as well as its contractual
obligations under, the Agreement for each series of Certificates. Unless
otherwise specified in the applicable Prospectus Supplement, these obligations
consist primarily of the obligation under certain circumstances to repurchase or
replace Mortgage Loans as to which there has been a material breach of the
Seller's representations and warranties which materially and adversely affects
the interests of the Certificateholders in a Mortgage Loan or to cure such
breach, and of the obligation, under certain circumstances, to ensure the timely
payment of premiums on certain insurance policies and bonds. See "The Pooling
and Servicing Agreement--Assignment of Mortgage Loans; Warranties."
In addition, to the extent specified in the applicable Prospectus
Supplement, in the event of delinquencies in payments of principal and interest
on the Mortgage Loans in any Mortgage Pool, the Servicer (or, if so indicated in
the applicable Prospectus Supplement, another entity) will advance cash in
amounts described herein under "The Pooling and Servicing Agreement-Advances"
and "--Payments on Mortgage Loans; Collection Account." The Servicer is not
required to make any advance which it determines in its good faith judgment not
to be ultimately recoverable under any applicable policy of insurance
("Insurance Proceeds") or out of the proceeds of liquidation of a Mortgage Loan
("Liquidation Proceeds"). Each month, the Trustee (or such other paying agent as
may be specified in the applicable Prospectus Supplement) will be obligated to
remit to Certificateholders of each series all amounts relating to the Mortgage
Loans due to the Certificateholders to the extent such amounts have been
collected or advanced by the Servicer or such other entity and remitted to the
Trustee pursuant to the terms of the Agreement for such series. See "Description
of the Certificates--Distributions of Principal and Interest."
There can be no assurance that real estate values will remain at present
levels in the areas in which the Mortgaged Properties will be located. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of the Mortgage Loans, and any
secondary financing on the Mortgaged Properties, in a particular Mortgage Pool
become equal to or greater than the value of the properties subject to the
Mortgage Loans included in such Mortgage Pool, the actual rates of
delinquencies, foreclosures and losses could be significantly higher than those
now generally experienced in the mortgage lending industry. To the extent that
such delinquencies, foreclosures and losses are not covered by applicable credit
enhancements described in the Prospectus Supplement, the losses resulting
therefrom will be borne by holders of the Certificates of the series evidencing
interests in such Mortgage Pool. With respect to any series as to which
subordinated Certificates shall have been issued, such losses will first be
borne by the holders of subordinated Certificates as a result and to the extent
of the subordination in right of payment of the subordinated Certificates to the
senior Certificates and as a result of first allocating such losses to reduce
the Certificate Principal Balance of such subordinated Certificates.
Because the principal amounts of Mortgage Loans decline monthly as principal
payments, including prepayments, are received, the fractional undivided interest
in principal evidenced by each Certificate in a series multiplied by the
aggregate principal balance of the Mortgage Loans in the related Mortgage Pool
will decline correspondingly. The principal balance represented by a
Certificate, therefore, ordinarily will decline over time.
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CREDIT SUPPORT
GENERAL
Credit support may be provided with respect to one or more classes of a
series of Certificates or with respect to the assets in the related Trust Fund.
Credit support may be in the form of a limited financial guarantee policy,
limited guarantee or other similar instrument (a "Limited Guarantee") issued by
an entity named in the Prospectus Supplement (the "Guarantor"), the
subordination of one or more classes of the Certificates of such series, the
establishment of one or more reserve accounts, the use of a pool insurance
policy, bankruptcy bond, special hazard insurance policy, repurchase bond,
guaranteed investment contract or another method of credit support described in
the related Prospectus Supplement, or any combination of the foregoing. Unless
otherwise specified in the Prospectus Supplement, any credit support will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance of the Certificates and interest thereon. If losses
occur which exceed the amount covered by credit support or which are not covered
by the credit support, Certificateholders will bear their allocable share of the
resulting deficiencies.
LIMITED GUARANTEE OF THE GUARANTOR
If specified in the Prospectus Supplement, certain obligations of the
Servicer under the related Agreement may be covered by a Limited Guarantee,
limited in scope and amount, issued by the Guarantor. If so specified, the
Guarantor may be obligated to take either or both of the following actions in
the event the Servicer fails to do so: make deposits to the Collection Account
(a "Deposit Guarantee"); or make advances (an "Advance Guarantee"). Any such
Limited Guarantee will be limited in amount and a portion of the coverage of any
such Limited Guarantee may be separately allocated to certain events. The scope,
amount and, if applicable, the allocation of any Limited Guarantee will be
described in the related Prospectus Supplement.
SUBORDINATION
If so specified in the Prospectus Supplement, distributions in respect of
scheduled principal, Principal Prepayments, interest or any combination thereof
that otherwise would have been payable to one or more classes of Certificates of
a series (the "subordinated Certificates") will instead be payable to holders of
one or more other classes of such series (the "senior Certificates") under the
circumstances and to the extent specified in the Prospectus Supplement. If
specified in the 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 the Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Mortgage Loans over the
lives of the Certificates or at any time, the aggregate losses in respect of
defaulted Mortgage Loans which must be borne by the subordinated Certificates by
virtue of subordination and the amount of the distributions otherwise
distributable to the subordinated Certificateholders that will be distributable
to senior Certificateholders on any Distribution Date may be limited as
specified in the Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Mortgage Loans or aggregate losses in respect of such
Mortgage Loans were to exceed the total amounts payable and available for
distribution to holders of subordinated Certificates or, if applicable, were to
exceed the specified maximum amount, holders of senior Certificates could
experience losses on the Certificates.
In addition to or in lieu of the foregoing, if so specified in the
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of subordinated Certificates on any Distribution Date may instead be
deposited into one or more reserve accounts (a "Reserve Account") established by
the Trustee. If so specified in the Prospectus Supplement, such deposits may be
made on each Distribution Date, on each Distribution Date for specified periods
or until the balance in the Reserve Account has
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reached a specified amount and, following payments from the Reserve Account to
holders of senior Certificates or otherwise, thereafter to the extent necessary
to restore the balance in the Reserve Account to required levels, in each case
as specified in the Prospectus Supplement. If so specified in the Prospectus
Supplement, amounts on deposit in the Reserve Account may be released to the
Servicer or the holders of any class of Certificates at the times and under the
circumstances specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, one or more classes of
Certificates may bear the risk of certain losses on defaulted Mortgage Loans not
covered by other forms of credit support prior to other classes of Certificates.
Such subordination might be effected by reducing the Certificate Principal
Balance of the subordinated Certificates on account of such losses, thereby
decreasing the proportionate share of distributions allocable to such
Certificates, or by another means specified in the Prospectus Supplement.
If specified in the 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 between classes of senior Certificates and as between classes of
subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the Prospectus Supplement. As
between classes of subordinated Certificates, payments to holders of senior
Certificates on account of delinquencies or losses and payments to any Reserve
Account will be allocated as specified in the Prospectus Supplement.
CROSS-SUPPORT
If specified in the Prospectus Supplement, the beneficial ownership of
separate groups of assets included in a Trust Fund may be evidenced by separate
classes of the related series of Certificates. In such case, credit support may
be provided by a cross-support feature which may require that distributions be
made with respect to Certificates evidencing beneficial ownership of one or more
asset groups prior to distributions to subordinated Certificates evidencing a
beneficial ownership interest in other asset groups within the same Trust Fund.
The Prospectus Supplement for a series which includes a cross-support feature
will describe the manner and conditions for applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one or
more forms of credit support may apply concurrently to two or more separate
Trust Funds. If applicable, the Prospectus Supplement will identify the Trust
Funds to which such credit support relates and the manner of determining the
amount of the coverage provided thereby and of the application of such coverage
to the identified Trust Funds.
POOL INSURANCE
In order to decrease the likelihood that Certificateholders will experience
losses in respect of the Mortgage Loans, if specified in the Prospectus
Supplement, the Seller will obtain one or more pool insurance policies. Any such
policies may be in lieu of or in addition to any obligations of the Seller or
the Servicer in respect of the Mortgage Loans. Such pool insurance policy will,
subject to the limitations described below and in the Prospectus Supplement,
cover loss by reason of default in payments on the Mortgage Loans up to the
amounts specified in the Prospectus Supplement or the Detailed Description and
for the periods specified in the Prospectus Supplement. The Servicer will agree
to use its best reasonable efforts to maintain in effect any such pool insurance
policy and to present claims thereunder to the pool insurer on behalf of itself,
the Trustee and the Certificateholders. The pool insurance policy, however, is
not a blanket policy against loss, since claims thereunder may only be made
respecting particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. The pool insurance policy, if any,
will not cover losses due to a failure to pay or denial of a claim under a
primary mortgage insurance policy, irrespective of the reason therefor. The
related Prospectus
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Supplement will describe any provisions of a pool insurance policy that are
materially different from those described below.
Any pool insurance policy may provide that no claims may be validly
presented thereunder unless (i) any required primary mortgage insurance policy
is in effect for the defaulted Mortgage Loan and a claim thereunder has been
submitted and settled; (ii) hazard insurance on the related Mortgaged Property
has been kept in force and real estate taxes and other protection and
preservation expenses have been paid; (iii) if there has been physical loss or
damage to the Mortgaged Property, it has been restored to its condition
(reasonable wear and tear excepted) at the Cut-Off Date; (iv) the insured has
acquired good and merchantable title to the Mortgaged Property free and clear of
liens, except certain permitted encumbrances; and (v) the Servicer has advanced
foreclosure costs. Upon satisfaction of these conditions, the pool insurer will
have the option either (a) to purchase the Mortgaged Property at a price equal
to the Principal Balance thereof plus accrued and unpaid interest at the
Mortgage Rate to the date of purchase and certain expenses incurred by the
Servicer on behalf of the Trustee and the Certificateholders, or (b) to pay the
amount by which the sum of the Principal Balance of the defaulted Mortgage Loan
plus accrued and unpaid interest at the Mortgage Rate to the date of payment of
the claim and the aforementioned expenses exceeds the proceeds received from an
approved sale of the Mortgaged Property, in either case net of certain amounts
paid or assumed to have been paid under any 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 pool insurance policy,
the Servicer will not be required to expend its own funds to restore the damaged
property unless it determines (i) that such restoration will increase the
proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Servicer for its expenses, and (ii) that such expenses will
be recoverable by it through proceeds of the sale of the property or proceeds of
the pool insurance policy or any primary mortgage insurance policy.
In general, no pool insurance policy will insure (and many primary mortgage
insurance policies may not insure) against loss sustained by reason of a default
arising from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor or
persons involved in the origination thereof, or (ii) failure to construct a
Mortgaged Property in accordance with plans and specifications. If so specified
in the related Prospectus Supplement, a failure of coverage attributable to one
of the foregoing events might result in a breach of a representation of the
Seller (or another party) and in such event might give rise to an obligation on
the part of the Seller (or such other party) to purchase or replace the
defaulted Mortgage Loan if the breach materially and adversely affects the
interests of Certificateholders and cannot be cured.
As specified in the Prospectus Supplement, the original amount of coverage
under any pool insurance policy will be reduced over the life of the related
series of 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 Servicer as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. See "Certain Legal Aspects
of the Mortgage Loans--Foreclosure". Accordingly, if aggregate net claims paid
under any pool insurance policy reach the original policy limit, coverage under
that pool insurance policy will be exhausted and any further losses will be
borne by one or more classes of Certificateholders unless assumed by some other
entity, if and to the extent specified in the Prospectus Supplement.
Since any mortgage pool insurance policy may require that the property
subject to a defaulted Mortgage Loan be restored to its original condition prior
to claiming against the pool insurer, such policy may not provide coverage
against hazard losses. The hazard policies concerning the Mortgage Loans
typically exclude from coverage physical damage resulting from a number of
causes and, even when the damage is covered, may afford recoveries which are
significantly less than the full replacement cost of such losses. Even if
special hazard insurance is applicable as specified in the Prospectus
Supplement, no
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coverage in respect of special hazard losses will cover all risks, and the
amount of any such coverage will be limited. See "Special Hazard Insurance"
below. As a result, certain hazard risks will not be insured against and will
therefore be borne by Certificateholders, unless otherwise assumed by some other
entity, as specified in the Prospectus Supplement.
SPECIAL HAZARD INSURANCE
In order to decrease the likelihood that Certificateholders will experience
losses in respect of the Mortgage Loans, if specified in the Prospectus
Supplement, the Seller will obtain one or more special hazard insurance policies
with respect to the Mortgage Loans. Such a special hazard insurance policy will,
subject to limitations described below and in the Prospectus Supplement, protect
holders of Certificates from (i) loss by reason of damage to Mortgaged
Properties caused by certain hazards (including earthquakes and, to a limited
extent, tidal waves and related water damage) not covered by the standard form
of hazard insurance policy for the respective states in which the Mortgaged
Properties are located or under flood insurance policies, if any, covering the
Mortgaged Properties, and (ii) loss from partial damage caused by reason of the
application of the co-insurance clause contained in hazard insurance policies.
See "Servicing of the Mortgage Loans--Hazard Insurance" below. Any special
hazard insurance policy may not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, flood (if
the Mortgaged Property is located in a federally designated flood area),
chemical contamination and certain other risks. Aggregate claims under each
special hazard insurance policy may be limited to a specified percentage of the
aggregate principal balance as of the Cut-Off Date of the Mortgage Loans. Any
special hazard insurance policy may also provide that no claim may be paid
unless hazard and, if applicable, flood insurance on the Mortgaged Property has
been kept in force and other protection and preservation expenses have been paid
by the Servicer.
Subject to the foregoing limitations, any special hazard insurance policy
may provide that, where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the Servicer, the
special hazard insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
special hazard insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement and certain
expenses incurred by the Servicer with respect to such property. If the unpaid
principal balance plus accrued interest and certain expenses is paid by the
insurer, the amount of further coverage under the related special hazard
insurance policy will be reduced by such amount less any net proceeds from the
sale of the property. Any amount paid as the cost of repair or replacement of
the property will also reduce coverage by such amount. Restoration of the
property with the proceeds described under clause (i) above will satisfy the
condition under any pool insurance policy that the property be restored before a
claim under such pool insurance policy may be validly presented with respect to
the defaulted Mortgage Loan secured by such property. The payment described
under clause (ii) above will render unnecessary presentation of a claim in
respect of such Mortgage Loan under the related pool insurance policy.
Therefore, so long as a pool insurance policy remains in effect, the payment by
the insurer under a special hazard insurance policy of the cost of repair or
replacement or the unpaid principal balance of the Mortgage Loan plus accrued
interest and certain expenses will not affect the total insurance proceeds paid
to Certificateholders, but will affect the relative amounts of coverage
remaining under the related special hazard insurance policy and pool insurance
policy.
BANKRUPTCY BOND
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the Mortgaged Property securing the related Mortgage Loan
at an amount less than the then outstanding
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principal balance of such Mortgage Loan secured by such Mortgaged Property and
could reduce the secured debt to such value. In such case, the holder of such
Mortgage Loan would become an unsecured creditor to the extent of the difference
between the outstanding principal balance of such Mortgage Loan and such reduced
secured debt. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding, including the reduction
in monthly payments required to be made by the borrower. See "Certain Legal
Aspects of the Mortgage Loans--Enforceability of Certain Provisions". If so
provided in the related Prospectus Supplement, the Servicer will obtain a
bankruptcy bond or similar insurance contract (the "bankruptcy bond") for
proceedings with respect to borrowers under the Bankruptcy Code. Any such
bankruptcy bond will cover certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal of and interest on a
Mortgage Loan or a reduction by such court of the secured principal amount of a
Mortgage Loan and will cover certain unpaid interest on the amount of such a
principal reduction from the date of the filing of a bankruptcy petition.
Any such bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement. Such amount will be reduced by
payments made under such bankruptcy bond in respect of the related Mortgage
Loans, to the extent specified in the related Prospectus Supplement, and will
not be restored.
In lieu of a bankruptcy bond, the Servicer may obtain a Limited Guarantee to
cover such bankruptcy-related losses.
REPURCHASE BOND
If so specified in the related Prospectus Supplement, the Servicer will be
obligated to purchase any Mortgage Loan up to an aggregate dollar amount
specified in the related Prospectus Supplement) for which insurance coverage is
denied due to dishonesty, misrepresentation or fraud in connection with the
origination or sale of such Mortgage Loan. Such obligation may be secured by a
surety bond or other instrument or mechanism guaranteeing payment of the amount
to be paid by the Servicer.
GUARANTEED INVESTMENT CONTRACTS
If so specified in the Prospectus Supplement, on or prior to the Delivery
Date, the Trustee will enter into a guaranteed investment contract (a "GIC")
pursuant to which all amounts deposited in the Collection Account, and if so
specified the Reserve Accounts, will be invested by the Trustee and under which
the issuer of the GIC will pay to the Trustee interest at an agreed rate per
annum with respect to the amounts so invested.
RESERVE ACCOUNTS
If specified in the Prospectus Supplement, cash, U.S. Treasury securities,
instruments evidencing ownership of principal or interest payments thereon,
letters of credit, demand notes, certificates of deposit, other instruments or
obligations or a combination thereof in the aggregate amount specified in the
Prospectus Supplement will be deposited by the Servicer on the Delivery Date in
one or more Reserve Accounts established by the Trustee. Such cash and the
principal and interest payments on such other instruments will be used to
enhance the likelihood of timely payment of principal of, and interest on, or,
if so specified in the Prospectus Supplement, to provide additional protection
against losses in respect of, the assets in the related Trust Fund, to pay the
expenses of the Trust Fund or for such other purposes specified in the
Prospectus Supplement. Whether or not the Servicer has any obligation to make
such a deposit, certain amounts to which the subordinated Certificateholders, if
any, will otherwise be entitled may instead be deposited into the Reserve
Account from time to time and in the amounts as specified in the Prospectus
Supplement. Any cash in the Reserve Account and the proceeds of any other
instrument upon maturity will be invested in Eligible Investments, which will
include obligations of the United States and certain agencies thereof,
certificates of deposit, certain commercial paper, time deposits and bankers
acceptances
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sold by eligible commercial banks, certain repurchase agreements of United
States government securities with eligible commercial banks and certain other
Eligible Investments described in the Agreement. If a letter of credit is
deposited with the Trustee, such letter of credit will be irrevocable. Unless
otherwise specified in the Prospectus Supplement, any instrument deposited
therein will name the Trustee, in its capacity as trustee for the holders of the
related Certificates, as beneficiary and will be issued by an entity acceptable
to each rating agency that rates the Certificates. Additional information with
respect to such instruments deposited in the Reserve Accounts will be set forth
in the Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Certificates for the purposes, in the manner and at the times
specified in the Prospectus Supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the Prospectus Supplement, the related Trust Fund may also
include insurance, guarantees, letters of credit or similar arrangements for the
purpose of (i) maintaining timely payments or providing additional protection
against losses on the assets included in such Trust Fund, (ii) paying
administrative expenses or (iii) establishing a minimum reinvestment rate on the
payments made in respect of such assets or principal payment rate on such
assets. Such arrangements may include agreements under which Certificateholders
are entitled to receive amounts deposited in various accounts held by the
Trustee upon the terms specified in the Prospectus Supplement. Such arrangements
may be in lieu of any obligation of the Servicer to advance delinquent
installments in respect of the Mortgage Loans.
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates will
be affected primarily by the rate and timing of principal payments received on
or in respect of the Mortgage Loans included in the related Trust Fund. Such
principal payments will include scheduled payments as well as Principal
Prepayments (including refinancings) and prepayments resulting from foreclosure,
condemnation and other dispositions of the Mortgaged Properties (including
amounts paid by insurers under applicable insurance policies), from purchase by
the Seller of any Mortgage Loan as to which there has been a material breach of
warranty or defect in documentation (or deposit of certain amounts in respect of
delivery of a substitute Mortgage Loan), purchase by the Servicer of Mortgage
Loans modified by it in lieu of refinancing thereof and from the repurchase by
the Seller of all of the Mortgage Loans in certain circumstances. See "The
Pooling and Servicing Agreement--Termination; Purchase of Mortgage Loans." The
yield to maturity and weighted average lives of the Certificates may also be
affected by the amount and timing of delinquencies and losses on the Mortgage
Loans.
A number of social, economic, tax, geographic, demographic, legal and other
factors may influence prepayments, delinquencies and losses. For a Trust Fund
comprised of Mortgage Loans, these factors may include the age of the Mortgage
Loans, the geographic distribution of the Mortgaged Properties, the payment
terms of the Mortgages, the characteristics of the mortgagors, homeowner
mobility, economic conditions generally and in the geographic area in which the
Mortgaged Properties are located, enforceability of due-on-sale clauses,
servicing decisions, prevailing mortgage market interest rates in relation to
the interest rates on the Mortgage Loans, the availability of mortgage funds,
the use of second or "home equity" mortgage loans by mortgagors, the
availability of refinancing opportunities (including refinancing opportunities
offered by Chase Manhattan Mortgage Corporation to existing borrowers or to its
affiliates), the use of the properties as second or vacation homes, the extent
of the mortgagors' net equity in the Mortgaged Properties and, where investment
properties are securing the Mortgage Loans, tax-related considerations and the
availability of other investments. The rate of principal payment may also be
subject to seasonal variations.
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The rate of principal prepayments on pools of conventional housing loans has
fluctuated significantly in recent years. Generally, if prevailing interest
rates were to fall significantly below the interest rates on the Mortgage Loans,
the Mortgage Loans would be expected to prepay at higher rates than if
prevailing rates were to remain at or above the interest rates on the Mortgage
Loans. Conversely, if interest rates were to rise above the interest rates on
the Mortgage Loans, the Mortgage Loans would be expected to prepay at lower
rates than if prevailing rates were to remain at or below interest rates on the
Mortgage Loans. The timing of changes in the rate of prepayments may
significantly affect a Certificateholder's actual yield to maturity, even if the
average rate of principal payments is consistent with a Certificateholder's
expectation. In general, the earlier a prepayment of principal the greater the
effect on a Certificateholder's yield to maturity. As a result, the effect on a
Certificateholder's yield of principal payments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period immediately
following the issuance of the related series of Certificates will not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
To the extent described in the applicable Prospectus Supplement, the
effective yields to Certificateholders will be lower than the yields produced by
the interest rates on the Certificates because, while interest will accrue on
each Mortgage Loan from the first day of each month, the distribution of such
interest to Certificateholders will be made in the month following the month of
accrual.
When a Mortgage Loan prepays in full, the borrower will generally be
required to pay interest on the amount of prepayment only to the prepayment
date. When a partial prepayment of principal is made on a Mortgage Loan, the
borrower generally will not be required to pay interest on the amount of the
partial prepayment during the month in which such prepayment is made. In
addition, unless otherwise specified in the related Prospectus Supplement, a
full or partial prepayment will not be required to be passed through to
Certificateholders until the month following receipt.
If and to the extent specified in the applicable Prospectus Supplement,
under the Agreement, if a full or partial voluntary prepayment of a Mortgage
Loan is made and does not include the full amount of interest on such Mortgage
Loan which would have been due but for such prepayment to and including the end
of the month in which the prepayment takes place, the servicer will be obligated
to pay the interest thereon at the Remittance Rate from the date of prepayment
through the end of such month (each such payment, a "Compensating Interest
Payment"), provided that the aggregate of such Compensating Interest Payments by
the Servicer with respect to any Distribution Date will not exceed the aggregate
Servicing Fee to which the Servicer is entitled in connection with such
Distribution Date. The Servicer will not be entitled to reimbursement for such
Compensating Interest Payments. Consequently, to the extent the Servicer is so
obligated, neither partial nor full prepayments will reduce the amount of
interest passed through to Certificateholders the following month from the
amount which would have been passed through in the absence of such prepayments.
If the Servicer is not obligated to make Compensating Interest Payments, or if
such payments are insufficient to cover the interest shortfall, partial or full
prepayments will reduce the amount of interest passed through to
Certificateholders, as described in the applicable Prospectus Supplement.
Factors other than those identified herein and in the 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 Loans at any time or over the lives
of the Certificates.
The Prospectus Supplement relating to a series of Certificates will discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments), delinquencies and losses on the yield, weighted average
lives and maturities of such Certificates.
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CHASE MORTGAGE FINANCE CORPORATION
Chase Mortgage Finance Corporation (the "Seller") was incorporated in the
State of Delaware on December 4, 1986 as a wholly-owned, limited-purpose finance
subsidiary of The Chase Manhattan Corporation. The Seller maintains its
principal office at 343 Thornall Street, Edison, New Jersey 08837. Its telephone
number is (732) 205-0600.
As described herein under "The Mortgage Pools," "Underwriting Policies," and
"The Pooling and Servicing Agreement--Assignment of Mortgage Loans; Warranties,"
the only obligations, if any, of the Seller with respect to a Series of
Certificates may be pursuant to certain limited representations and warranties
and limited undertakings to repurchase or substitute Mortgage Loans or Agency
Securities under certain circumstances. The Seller will have no ongoing
servicing obligations or responsibilities with respect to any Mortgage Pool or
pool of Agency Certificates. The Seller does not have, nor is it expected in the
future to have, any significant assets.
As specified in the related Prospectus Supplement, the Servicer with respect
to any Series of Certificates evidencing interests in Mortgage Loans may be an
affiliate of the Company. The Seller anticipates that it will acquire Mortgage
Loans in the open market or in privately negotiated transactions, which may be
through or from an affiliate.
Unless otherwise specifically provided in the related Prospectus Supplement,
none of the Company, the Chase Manhattan Corporation, The Chase Manhattan Bank,
Chase Manhattan Mortgage Corporation, nor any of their affiliates, will insure
or guarantee the Certificates of any Series.
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UNDERWRITING POLICIES
Except as otherwise set forth in the related Prospectus Supplement, the
Seller expects that the originator of a Mortgage Loan will have applied, in a
standard procedure which complies with applicable federal and state laws and
regulations, underwriting standards which are intended to evaluate the
Mortgagor's credit standing and repayment ability and the value and adequacy of
the Mortgaged Property as collateral. FHA Mortgage Loans and VA Mortgage Loans
will comply with the underwriting policies of FHA and VA, respectively. Except
as described below or in the related Prospectus Supplement, the Seller believes
that these policies were consistent with those utilized by mortgage lenders
generally during the period of origination.
Certain states where the Mortgaged Properties are located may have
"anti-deficiency" laws requiring, in general, that lenders providing credit on
one- to four-family properties look solely to the property for repayment in the
event of foreclosure. The Seller expects that the underwriting standards applied
with respect to the Mortgage Loans (including in states with anti-deficiency
laws) will require that the underwriting officers be satisfied that the value of
the property being financed, as indicated by an appraisal, currently supports
and is anticipated to support in the future the outstanding loan balance, and
provides sufficient value to mitigate the effects of adverse shifts in real
estate values. See "Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency
Legislation and Other Limitations on Lenders." The general appreciation of real
estate values experienced in the past has been a factor in limiting the general
loss experience on conventional mortgage loans. There can be no assurance,
however, that the past pattern of appreciation in value of the real property
securing these loans will continue.
The adequacy of a Mortgaged Property as security will be determined by
appraisal. With respect to a Mortgage Loan made in connection with the
borrower's purchase of the Mortgaged Property, the "appraised value" is the
lower of the purchase price or the amount determined by the appraiser. The
appraiser must personally inspect the property and will prepare a report which
customarily includes a market data analysis based on recent sales of comparable
homes and, when deemed applicable, a replacement cost analysis based on the
current cost of constructing a similar home. The Loan-to-Value Ratio of a
Mortgage Loan is equal to the original principal amount of the Mortgage Loan
divided by the appraised value of the related Mortgaged Property.
The Seller expects that each prospective borrower will be required to
complete an application which will include information with respect to the
applicant's assets, liabilities, income, credit history, employment history and
personal information, and furnish 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. With respect to establishing the applicant's
ability to make timely payments on the loans given his or her income and fixed
obligations other than housing expenses, the Company expects that each
originator will have followed procedures generally acceptable to FNMA and FHLMC,
except as otherwise described in this Prospectus or a Prospectus Supplement.
The Seller will obtain representations and warranties from the seller of the
Mortgage Loan (which may or may not be the originator) that the Mortgage Loan
was originated in accordance with the underwriting guidelines described above or
such other policies as the Seller may require from time to time. Unless
otherwise specified in the applicable Prospectus Supplement, the Seller, not
later than 90 days following delivery of a Series of Certificates, will review
or cause to be reviewed, all or a representative sample of the Mortgage Loans,
and perform such other reviews as it deems appropriate to determine compliance
with such standards. Any Mortgage Pool must be repurchased or substituted for by
the seller, unless such Mortgage Loan is otherwise demonstrated to be includible
in the Mortgage Pool to the satisfaction of the Company. See "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans; Warranties,"
The foregoing underwriting policies may be varied for particular Series of
Certificates to the extent set forth in the related Prospectus Supplement.
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SERVICING OF THE MORTGAGE LOANS
Unless otherwise specified in the Prospectus Supplement, with respect to
each series of Certificates, the related Mortgage Loans will be serviced by
Chase Manhattan Mortgage, acting alone or, as master servicer, through one or
more direct servicers. Unless otherwise specified in the Prospectus Supplement,
if Chase Manhattan Mortgage acts as master servicer with respect to a series,
the related Agreement will provide that Chase Manhattan Mortgage shall not be
released from its obligations to the Trustee and Certificateholders with respect
to the servicing and administration of the Mortgage Loans, that any servicing
agreement entered into between Chase Manhattan Mortgage and a direct servicer
will be deemed to be between Chase Manhattan Mortgage and the direct servicer
alone and that the Trustee and the Certificateholders will have no claims,
obligations, duties or liabilities with respect to any such agreement.
COLLECTION AND OTHER SERVICING PROCEDURES
Subject to the terms of the Agreement, the Servicer generally will be
obligated to service and administer the Mortgage Loans in accordance with the
specific procedures set forth in the Fannie Mae Seller's Guide and Fannie Mae
Servicing Guide, as amended or supplemented from time to time, and, to the
extent such procedures are unavailable, in accordance with the mortgage
servicing practices of prudent mortgage lending institutions.
The Servicer will be responsible for using its best reasonable efforts to
collect all payments called for under the Mortgage Loans and shall, consistent
with each Agreement, follow such collection procedures as it deems necessary and
advisable with respect to the Mortgage Loans. Consistent with the above, the
Servicer, may, in its discretion, (i) waive any late payment charge and (ii) if
a default on the related Mortgage Loan has occurred or is reasonably
foreseeable, arrange with the mortgagor a schedule for the liquidation of a
delinquency. In the event of any such arrangement the Servicer will be
responsible for distributing funds with respect to such Mortgage Loan during the
scheduled period in accordance with the original amortization schedule thereof
and without regard to the temporary modification thereof.
The Servicer will be obligated to use it best reasonable efforts to realize
upon a defaulted Mortgage Loan in such manner as will maximize the payments to
Certificateholders. In this regard, the Servicer may (directly or through a
local assignee) sell the property at a foreclosure or trustee's sale, negotiate
with the mortgagor for a deed in lieu of foreclosure or, in the event a
deficiency judgment is available against the mortgagor or other person,
foreclose against such property and proceed for the deficiency against the
appropriate person. See "Certain Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" for a
description of the limited availability of deficiency judgments. The amount of
the ultimate net recovery (including the proceeds of any pool insurance or other
guarantee), after reimbursement to the Servicer of its expenses incurred in
connection with the liquidation of any such defaulted Mortgage Loan will be
distributed to the related Certificateholders on the next Distribution Date
following the month of receipt. If specified in the Prospectus Supplement, if
such net recovery exceeds the Principal Balance of such Mortgage Loan plus one
month's interest thereon at the Remittance Rate, the excess will be paid to the
Servicer as additional servicing compensation. The Servicer will not be required
to expend its own funds in connection with any foreclosure or towards the
restoration of any Mortgaged Property unless it shall determine (i) that such
restoration or foreclosure will increase the Liquidation Proceeds in respect of
the related Mortgaged Loan to Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds or Insurance Proceeds in respect of the related
Mortgage Loan.
If a Mortgaged Property has been or is about to be conveyed by the
mortgagor, the Servicer will be obligated to accelerate the maturity of the
Mortgage Loan, unless it reasonably believes it is unable to enforce that
Mortgage Loan's "due-on-sale" clause under applicable law or such enforcement
would adversely affect or jeopardize coverage under any related primary mortgage
insurance policy or pool insurance policy. If it reasonably believes it may be
restricted by law, for any reason, from enforcing such a
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"due-on-sale" clause, the Servicer, with the consent of the insurer under any
insurance policy implicated thereby, may enter into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable under the
Mortgage Note. Any fee collected by the Servicer for entering into an assumption
agreement will be retained by the Servicer as additional servicing compensation.
For a description of circumstances in which the Servicer may be unable to
enforce "due-on-sale" clauses, see "Certain Legal Aspects of the Mortgage
Loans--Enforceability of Certain Provisions". In connection with any such
assumption, the Mortgage Rate borne by the related Mortgage Note may not be
decreased.
The Servicer will maintain with one or more depository institutions one or
more accounts into which it will deposit all payments of taxes, insurance
premiums, assessments or comparable items received for the account of the
mortgagors. Withdrawals from such account or accounts may be made only to effect
payment of taxes, insurance premiums, assessments or comparable items, to
reimburse the Servicer out of related collections for any cost incurred in
paying taxes, insurance premiums and assessments or otherwise preserving or
protecting the value of the Mortgages, to refund to mortgagors any amounts
determined to be overages and to pay interest to mortgagors on balances in such
account or accounts to the extent required by law.
PRIVATE MORTGAGE INSURANCE
Unless otherwise specified in the Prospectus Supplement, each Agreement will
obligate the Servicer to exercise its best reasonable efforts to maintain and
keep in full force and effect a private mortgage insurance policy on all
Mortgage Loans that have a Loan-to-Value Ratio in excess of 80%.
A private mortgage insurance policy may provide that, as an alternative to
paying a claim thereunder, the mortgage insurer will have the right to purchase
the Mortgage Loan following the receipt of a notice of default, at a purchase
price equal to the sum of the principal balance of the Mortgage Loan, accrued
interest thereon and the amount of certain advances made by the Servicer with
respect to the Mortgage Loan. The mortgage insurer may have such purchase right
after the borrower has failed to make three scheduled monthly payments (or one
payment if it is the first payment due on the Mortgage Loan) or after any
foreclosure or other proceeding affecting the Mortgage Loan or the Mortgaged
Property has been commenced. The proceeds of any such purchase will be
distributed to Certificateholders on the applicable Distribution Date. A
mortgage insurer may be more likely to exercise such purchase option when
prevailing interest rates are low relative to the interest rate borne by the
defaulted Mortgage Loan, in order to reduce the aggregate amount of accrued
interest that the insurer would be obligated to pay upon payment of a claim.
HAZARD INSURANCE
The Servicer will cause to be maintained for each Mortgaged Property a
standard hazard insurance policy. The coverage of such policy is required to be
in an amount at least equal to the maximum insurable value of the improvements
which are a part of such property from time to time or the principal balance
owing on such Mortgage Loan from time to time, whichever is less. All amounts
collected by the Servicer under any hazard policy (except for amounts to be
applied to the restoration or repair of property subject to the related Mortgage
or property acquired by foreclosure or amounts released to the related mortgagor
in accordance with the Servicer's normal servicing procedures) will be deposited
in the Collection Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property 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 will be
underwritten by different insurers and, therefore, will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting from the
following: war, revolution,
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governmental actions, floods and other water-related causes, earth movement
(including earthquakes, landslides and mud flow), nuclear reactions, pollution,
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
property securing a Mortgage Loan is located in a federally designated flood
area, the Agreement will require that flood insurance be maintained in an amount
representing coverage not less than the least of (i) the principal balance owing
on such Mortgage Loan from time to time, (ii) the maximum insurable value of the
improvements which are a part of such property from time to time or (iii) the
maximum amount of insurance which is available under the Flood Disaster
Protection Act of 1973, as amended. The Seller may also purchase special hazard
insurance against certain of the uninsured risks described above. See "Credit
Support--Special Hazard Insurance."
Most of the properties securing the Mortgage Loans will be covered by
homeowners' insurance policies, which, in addition to the standard form of fire
and extended coverage, provide coverage for certain other risks. These
homeowners' policies typically contain a "coinsurance" clause which in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
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 lesser of (i) the
actual cash value (generally defined as replacement cost at the time and place
of loss, less physical depreciation) of the improvements damaged or destroyed,
or (ii) such proportion of the loss as the amount of insurance carried bears to
the specified percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance the Servicer is required to cause to be
maintained on the improvements securing the Mortgage Loans declines as the
principal balances owing thereon decrease, if the residential properties
securing the Mortgage Loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property.
The Servicer will cause to be maintained on any Mortgaged Property acquired
upon foreclosure, or by deed in lieu of foreclosure, hazard insurance with
extended coverage in an amount which is at least equal to the lesser of (i) the
maximum insurable value from time to time of the improvements which are a part
of such property or (ii) the unpaid principal balance of the related Mortgage
Loan at the time of such foreclosure or deed in lieu of foreclosure, plus
accrued interest and the Servicer's good-faith estimate of the related
liquidation expenses to be incurred in connection therewith.
The Servicer may maintain, in lieu of causing individual hazard insurance
policies to be maintained with respect to each Mortgage Loan, one or more
blanket insurance policies covering hazard losses on the Mortgage Loans. The
Servicer will pay the premium for such policy on the basis described therein and
will pay any deductible amount with respect to claims under such policy relating
to the Mortgage Loans.
ADVANCES
To the extent specified in the Prospectus Supplement, in the event that any
borrower fails to make any payment of principal or interest required under the
terms of a Mortgage Loan, the Servicer will be obligated to advance the entire
amount of such payment adjusted in the case of any delinquent interest payment
to the applicable Net Mortgage Rate. This obligation to advance will be limited
to amounts which the Servicer reasonably believes will be recoverable by it out
of liquidation proceeds or otherwise in respect of such Mortgage Loan. The
Servicer will be entitled to reimbursement for any such advance from related
late payments on the Mortgage Loan as to which such advance was made.
Furthermore, the Servicer will be entitled to reimbursement for any such advance
(i) from Liquidation Proceeds or Insurance Proceeds received if such Mortgage
Loan is foreclosed prior to any payment to Certificateholders in respect of the
repossession or foreclosure and (ii) from receipts or recoveries on all other
Mortgage Loans or from any other assets of the Trust Fund, for all or any
portion of such advance which the Servicer determines, in
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good faith, may not be ultimately recoverable from such liquidation or insurance
proceeds (a "Nonrecoverable Advance"). Any Nonrecoverable Advance will be
reimbursable out of the assets of the Trust Fund. The amount of any scheduled
payment required to be advanced by the Servicer will not be affected by any
agreement between the Servicer and a borrower providing for the postponement or
modification of the due date or amount of such scheduled payment. If specified
in the Prospectus Supplement, the Trustee for the related series will make
advances of delinquent payments of principal and interest in the event of a
failure by the Servicer to perform such obligation.
Any such obligation to make advances may be limited to amounts due holders
of certain classes of Certificates of the related series or may be limited to
specified periods or otherwise as specified in the Prospectus Supplement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the Prospectus Supplement, the Servicer's
primary compensation for its servicing activities will come from the payment to
it, with respect to each interest payment on a Mortgage Loan, of all or a
portion of the difference between the Mortgage Rate for such Mortgage Loan and
the related Remittance Rate. In addition to its primary compensation, the
Servicer will retain all assumption fees, late payment charges and other
miscellaneous charges, all to the extent collected from borrowers. In the event
the Servicer is acting as master servicer under an Agreement, it will receive
compensation with respect to the performance of its activities as master
servicer.
Unless otherwise specified in the Prospectus Supplement, the Servicer will
be responsible for paying all expenses incurred in connection with the servicing
of the Mortgage Loans (subject to limited reimbursement as described under "The
Pooling and Servicing Agreement--Payments on Mortgage Loans; Collection
Account"), including, without limitation, payment of any premium for any Advance
Guarantee, Deposit Guarantee, bankruptcy bond, repurchase bond or other
guarantee or surety, payment of the fees and the disbursements of the Trustee
and the and independent accountants, payment of the compensation of any direct
servicers of the Mortgage Loans, payment of all fees and expenses in connection
with the realization upon defaulted Mortgage Loans and payment of expenses
incurred in connection with distributions and reports to Certificateholders.
Unless otherwise specified in the Prospectus Supplement, the Servicer may assign
any of its primary servicing compensation in excess of that amount customarily
retained as servicing compensation for similar assets.
RESIGNATION, SUCCESSION AND INDEMNIFICATION OF THE SERVICER
The Agreement will provide that the Servicer may not resign from its
obligations and duties as servicer or master servicer thereunder, except upon
determination that its performance of such duties is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor has assumed the Servicer's servicing obligations and duties under such
Agreement. The Guarantor's obligations under any Advance Guarantee or Deposit
Guarantee will, upon issuance thereof, be irrevocable, subject to certain
limited rights of assignment as described in the Prospectus Supplement if
applicable.
The Agreement will provide that neither the Seller nor the Servicer nor, if
applicable, the Guarantor, nor any of their respective directors, officers,
employees or agents, shall be under any liability to the Trust Fund or the
Certificateholders of the related series for taking any action, or for
refraining from taking any action, in good faith pursuant to such Agreement, or
for errors in judgment; provided, however, that neither the Servicer nor, if
applicable, the Guarantor, nor any such person, will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder. The Agreement will also provide
that the Seller, the Servicer and, if applicable, the Guarantor and their
respective directors, officers, employees and agents are entitled to
indemnification by the related Trust
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Fund and will be held harmless against any loss, liability or expense incurred
in connection with any legal action relating to the Agreement or the
Certificates, other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, each Agreement will provide that neither the Seller nor
the Servicer nor, if applicable, the Guarantor is under any obligation to appear
in, prosecute or defend any legal action which is not incidental to the
Servicer's servicing responsibilities under such Agreement or the Guarantor's
payment obligations under any Limited Guarantee, respectively, and which in its
respective opinion may involve it in any expense or liability. Each of the
Seller, the Servicer and, if applicable, the Guarantor may, however, in its
respective discretion undertake any such action which it may deem necessary or
desirable in respect of such Agreement and the rights and duties of the parties
thereto and the interests of the Certificateholders thereunder. In such event,
the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust Fund, and the
Seller, the Servicer and, if applicable, the Guarantor, will be entitled to be
reimbursed therefor from amounts deposited in the Collection Account.
Any corporation into which the Servicer may be merged or consolidated or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer is a party, or any corporation succeeding to the business of the
Servicer, which assumes the obligations of the Servicer, will be the successor
of the Servicer under each Agreement.
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THE POOLING AND SERVICING AGREEMENT
The following summaries describe certain provisions of the Agreements. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreement applicable to a
particular series of Certificates. Where particular provisions or terms used in
the Agreements are referred to, such provisions or terms are as specified in the
Agreements.
ASSIGNMENT OF MORTGAGE LOANS; WARRANTIES
At the time of issuance of each series of Certificates, the Seller will
cause the Mortgage Loans in the Trust Fund represented by that series of
Certificates to be assigned to the Trustee, together with all principal and
interest due on or with respect to such Mortgage Loans, other than principal and
interest due on or before the Cut-Off Date and prepayments of principal received
before the Cut-Off Date. The Trustee, concurrently with such assignment, will
execute and deliver Certificates evidencing such Trust Fund to the Seller in
exchange for the Mortgage Loans. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the Agreement for that series (the "Mortgage
Loan Schedule"). The Mortgage Loan Schedule will include, as to each Mortgage
Loan, information as to the outstanding principal balance as of the close of
business on the Cut-Off Date, as well as information respecting the Mortgage
Rate, the current scheduled monthly payment, the number of months remaining
until the stated maturity date of each Note and the location of the related
Mortgaged Property.
In addition, the Seller will, as to each Mortgage Loan, deliver to the
Trustee (i) the Note, endorsed to the order of the Trustee by the holder/payee
thereof without recourse; (ii) the "buy-down" agreement (if applicable); (iii) a
Mortgage and Mortgage assignment meeting the requirements of the Agreement; (iv)
all Mortgage assignments from the original holder of the Mortgage Loan, through
any subsequent transferees to the transferee to the Trustee; (v) the original
Lender's Title Insurance Policy, or other evidence of title, or if a policy has
not been issued, a written commitment or interim binder or preliminary report of
title issued by the title insurance or escrow company ; (vi) as to each Mortgage
Loan, an original certificate of Primary Mortgage Insurance Policy (or copy
certified to be true by the originator) to the extent required under the
applicable requirements for the Mortgage Pool; and (vii) such other documents as
may be described in the applicable Prospectus Supplement. Except as expressly
permitted by the Agreement, all documents so delivered are to be original
executed documents; provided, however, that in instances where the original
recorded document has been retained by the applicable jurisdiction or has not
yet been returned from recordation, the Seller may deliver a photocopy
containing a certification of the appropriate judicial or other governmental
authority of the jurisdiction, and the Servicer shall cause the originals of
each Mortgage and Mortgage assignment which is so unavailable to be delivered to
the Trustee as soon as available.
The Trustee will hold such documents for each series of Certificates in
trust for the benefit of all Certificateholders of such series. The Trustee is
obligated to review such documents for each Mortgage Loan within 270 days after
the conveyance of the Mortgage Loan to it. If any document is found by the
Trustee not to have been executed or received or to be unrelated to the Mortgage
Loan identified in the Agreement, the Trustee will promptly notify the Seller.
The Seller, or another party specified in the applicable Prospectus Supplement,
will be required to cure such defect or to repurchase the Mortgage Loan or to
provide a substitute Mortgage Loan. See "Repurchase or Substitution" below.
In the Agreement for each series, the Seller or another party described in
the Agreement (the "Representing Party") will make certain representations and
warranties with respect to the Mortgage Loans. Unless otherwise specified in the
applicable Prospectus Supplement, the representations and warranties in each
Agreement will generally include that (i) the information set forth in the
Mortgage Loan Schedule is true and correct in all material respects at the date
or dates with respect to which such information is furnished; (ii) each Mortgage
constitutes a valid and enforceable first lien on the Mortgaged Property,
including all improvements thereon (subject only to (A) the lien of current real
property taxes
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and assessments, (B) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally and specifically referred to in the Lender's
Title Insurance Policy delivered to the originator of the Mortgage Loan and not
adversely affecting the value of the Mortgaged Property and (C) other matters to
which like properties are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by such Mortgage);
(iii) each Primary Mortgage Insurance Policy is in full force and effect, and
(except where noted in the Agreement) each Mortgage Loan which has a
Loan-to-Value Ratio greater than 80% is subject to a Primary Mortgage Insurance
Policy; (iv) at the date of initial issuance of the Certificates, no Mortgage
Loan was more than 30 days delinquent in payment, no Mortgage Loan had more than
one delinquency in excess of 30 days during the preceding 12-month period; (v)
at the time each Mortgage Loan was originated and, to the best knowledge of the
Representing Party, at the date of initial issuance of the Certificates, there
are no delinquent taxes, assessments or other outstanding charges affecting the
Mortgaged Property; (vi) each Mortgage Loan was originated in compliance with
and complied at the time of origination in all material respects with applicable
laws, including usury, equal credit opportunity and disclosure laws; (vii) each
Mortgage Loan is covered by a lender's title insurance policy insuring the
priority of the lien of the Mortgage in the original principal amount of such
Mortgage Loan, and each such policy is in full force and effect; and (viii)
immediately prior to the assignment to the Trust Fund the Seller had good title
to, and was the sole owner of, each Mortgage Loan free and clear of any lien,
claim, charge, encumbrance or security interest of any kind.
Upon the discovery or notice of a breach of any of such representations or
warranties which materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the Seller or the applicable party will
cure the breach or repurchase such Mortgage Loan or will provide a substitute
Mortgage Loan in the manner described under "Repurchase or Substitution" below.
Unless otherwise indicated in the applicable Prospectus Supplement, this
obligation to repurchase or substitute constitutes the sole remedy available to
the Certificateholders or the Trustee for any such breach of representations and
warranties.
The Agreement for a Series of Certificates may provide that the Servicer
may, at its sole option, purchase from the Trust Fund, at the price specified in
the Agreement, any Mortgage Loan as to which the related Borrower has failed to
make full payments as required under the related Note for three consecutive
months.
PAYMENTS ON MORTGAGE LOANS; COLLECTION ACCOUNT
It is expected that the Agreement for each series of Certificates will
provide that the Servicer will establish and maintain a trust account or
accounts (the "Collection Account") in the name of the Trustee for the benefit
of the Certificateholders. The amount at any time credited to the Collection
Account will be fully-insured to the maximum coverage possible or shall be
invested in Permitted Investments, all as described in the applicable Prospectus
Supplement. In addition, a Certificate Account may be established for the
purpose of making distributions to Certificateholders if and as described in the
applicable Prospectus Supplement.
The Servicer will deposit in the Collection Account, as described more fully
in the applicable Prospectus Supplement, amounts representing the following
collections and payments (other than in respect of principal of or interest on
the Mortgage Loans due on or before the Cut-Off Date and prepayments of
principal received before the Cut-Off Date): (i) all installments of principal
and interest on the applicable Mortgage Loans and any principal and/or interest
required to be advanced by the Servicer that were due on the immediately
preceding Due Date, net of servicing fees due the Servicer and other amounts, if
any, specified in the applicable Prospectus Supplement; (ii) all amounts
received in respect of such Mortgage Loans representing late payments of
principal and interest to the extent such amounts were not previously advanced
by the Servicer with respect to such Mortgage Loans, net of servicing fees due
the
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Servicer; (iii) all principal prepayments (whether full or partial) on such
Mortgage Loans received, together with interest calculated at the Mortgage Rate
(net of servicing fees due the Servicer) to the end of the calendar month during
which such principal prepayment shall have been received by the Servicer, to the
extent received from the mortgagor or advanced by the Servicer, as described
under "Servicing of the Mortgage Loans--Advances" herein; and (iv) any amounts
received by the Servicer as Insurance Proceeds (to the extent not applied to the
repair or restoration of the Mortgaged Property) or Liquidation Proceeds.
REPURCHASE OR SUBSTITUTION
The Trustee will review the documents delivered to it with respect to the
assets of the applicable Trust Fund within 270 days after execution and delivery
of the related Agreement. Unless otherwise specified in the Prospectus
Supplement, if any document required to be delivered by the Seller is not
delivered or is found to be defective in any material respect, then within 90
days after notice of such defect, the Seller will (a) cure such defect, (b)
remove the affected Mortgage Loan from the Trust Fund and substitute one or more
other mortgage loans therefor or (c) repurchase the Mortgage Loan from the
Trustee for a price equal to 100% of its Principal Balance plus interest thereon
at the applicable Remittance Rate from the date on which interest was last paid
to the first day of the month in which such purchase price is to be distributed
to the related Certificateholders. Unless otherwise specified in the Prospectus
Supplement, this repurchase and substitution obligation constitutes the sole
remedy available to Certificateholders or the Trustee on behalf of
Certificateholders against the Seller for a material defect in a document
relating to a Mortgage Loan.
Unless otherwise specified in the Prospectus Supplement, the Seller will
agree, within 90 days of the earlier of the discovery by the Seller or receipt
by the Seller of notice from the Trustee or the Servicer of its discovery of any
breach of any representation or warranty of the Seller set forth in the related
Agreement with respect to the Mortgage Loans that materially and adversely
affects the interests of the Certificateholders in a Mortgage Loan (a "Defective
Mortgage Loan") or the value of a Mortgage Loan, to either (a) cure such breach
in all material respects, (b) repurchase such Defective Mortgage Loan at a price
equal to 100% of its Principal Balance plus interest thereon at the applicable
Remittance Rate from the date on which interest was last paid to the first day
of the month in which such purchase price is to be distributed or (c) remove the
affected Mortgage Loan from the Trust Fund and substitute one or more other
mortgage loans or contracts therefor. Unless otherwise specified in the
Prospectus Supplement, this repurchase or substitution obligation will
constitute the sole remedy available to Certificateholders or the Trustee on
behalf of Certificateholders for any such breach.
If so specified in the Prospectus Supplement for a series where the Seller
has acquired the related Mortgage Loans, in lieu of agreeing to repurchase or
substitute Mortgage Loans as described above, the Seller may obtain such an
agreement from the entity which sold such mortgage loans, which agreement will
be assigned to the Trustee for the benefit of the holders of the Certificates of
such series. In such event, unless otherwise specified in the related Prospectus
Supplement, the Seller will have no obligation to repurchase or substitute
mortgage loans if such entity defaults in its obligation to do so.
If a mortgage loan is substituted for another Mortgage Loan as described
above, the new mortgage loan will have the following characteristics, or such
other characteristics as may be specified in the Prospectus Supplement: (i) a
Principal Balance (together with any other new mortgage loan so substituted), as
of the first Distribution Date following the month of substitution, after
deduction of all payments due in the month of substitution, not in excess of the
Principal Balance of the removed Mortgage Loan as of such Distribution Date (the
amount of any difference, plus one month's interest thereon at the applicable
Net Mortgage Rate, to be deposited in the Collection Account on the business day
prior to the applicable Distribution Date), (ii) a Mortgage Rate not less than,
and not more than one percentage point greater than, that of the removed
Mortgage Loan, (iii) a remaining term to stated maturity not later than, and not
more than one year less than, the remaining term to stated maturity of the
removed Mortgage Loan, (iv) a Loan-to Value Ratio at origination not greater
than that of the removed Mortgage Loan, and
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(v) in the reasonable determination of the Seller, be of the same type, quality
and character (including location of the Mortgaged Property) as the removed
Mortgage Loan (as if the defect or breach giving rise to the substitution had
not occurred) and be, as of the substitution date, in compliance with the
representations and warranties contained in the Agreement.
If a REMIC election is to be made with respect to all or a portion of a
Trust Fund, any such substitution will occur within two years after the initial
issuance of the related Certificates.
CERTAIN MODIFICATIONS AND REFINANCINGS
The Agreement will permit the Servicer to modify any Mortgage Loan upon the
request of the related Mortgagor, and will also permit the Servicer to solicit
such requests by offering Mortgagors the opportunity to refinance their Mortgage
Loans, provided in either case that the Servicer purchases such Mortgage Loan
from the Trust Fund immediately following such modification. Any such
modification may not be made unless the modification includes a change in the
interest rate on the related Mortgage Loan to approximately a prevailing market
rate. Any such purchase will be for a price equal to 100% of the Principal
Balance of such Mortgage Loan, plus accrued and unpaid interest thereon to the
date of purchase at the applicable Remittance Rate, net of any unreimbursed
advances of principal and interest thereon made by the Servicer. Such purchases
may occur when prevailing interest rates are below the interest rates on the
Mortgage Loans and Mortgagors request (and/or the Servicer offers) modifications
as an alternative to refinancings through other mortgage originators. If a REMIC
election is made with respect to all or a portion of the related Trust Fund, the
Servicer will indemnify the REMIC against liability for any prohibited
transactions taxes and any related interest, additions or penalties imposed on
the REMIC as a result of any such modification or purchase.
The Agreement will provide that if the Servicer in its individual capacity
agrees to refinance any Mortgage Loan as described above, such Mortgage Loan
will be assigned to the Servicer by the Trustee upon certification that the
Principal Balance of such Mortgage Loan and accrued and unpaid interest thereon
at the Remittance Rate has been deposited in the Collection Account.
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent public accountants
will furnish to the Trustee on or before April 15 of each year, beginning with
April 15 in the fiscal year which begins not less than three months after the
date of the initial issue of Certificates, a statement as to compliance by the
Servicer with certain standards relating to the servicing of the Mortgage Loans.
The Agreement will also provide for delivery to the Trustee on or before
April 15 of each fiscal year, beginning with April 15 in the fiscal year which
begins not less than three months after the date of the initial issue of the
Certificates, a statement signed by an officer of the Servicer to the effect
that, to the best of such officer's knowledge, the Servicer has fulfilled its
obligations under the Agreement throughout the preceding year or, if there has
been a default in the fulfillment of any such obligation, describing each such
default.
THE TRUSTEE
Any commercial bank or trust company serving as Trustee may have normal
banking relationships with the Seller and the Servicer. In addition, the Seller
and the Trustee acting jointly will have the power and the responsibility for
appointing co-trustees or separate trustees of all or any part of the Trust Fund
relating to a particular series of Certificates. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Agreement shall be conferred or imposed upon the Trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee
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who shall exercise and perform such rights, powers, duties and obligations
solely at the direction of the Trustee.
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the signature and
countersignature of the Trustee on the Certificates) or of any Mortgage Loan or
related document, and will not be accountable for the use or application by the
Seller or Servicer of any funds paid to the Seller or Servicer in respect of the
Certificates or the related assets, or amounts deposited into the Collection
Account. If no Event of Default has occurred, the Trustee will be required to
perform only those duties specifically required of it under the Agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee will be required to examine them to
determine whether they conform to the requirements of the Agreement.
The Trustee may resign at any time, and the Seller may remove the Trustee if
the Trustee ceases to be eligible to continue as such under the Agreement, if
the Trustee becomes insolvent or in such other instances, if any, as are set
forth in the Agreement. Following any resignation or removal of the Trustee, the
Seller will be obligated to appoint a successor Trustee, any such successor to
be approved by the Guarantor if so specified in the Prospectus Supplement in the
event that the Guarantor has issued any Limited Guarantee with respect to the
Certificates. Any resignation or removal of the Trustee and appointment of a
successor Trustee does not become effective until acceptance of the appointment
by the successor Trustee.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Servicer or the paying agent will mail to
Certificateholders a statement prepared by it and generally setting forth, to
the extent applicable to any series, among other things:
(i) The aggregate amount of the related distribution allocable to
principal, separately identifying the amount allocable to each class;
(ii) The amount of such distribution allocable to interest separately
identifying the amount allocable to each class;
(iii) The amount of servicing compensation received by the Servicer in
respect of the Mortgage Loans during the month preceding the month of the
Distribution Date;
(iv) The aggregate Certificate Principal Balance (or Notional Principal
Balance) of each class of Certificates after giving effect to distributions
and allocations, if any, of losses on the Mortgage Loans on such
Distribution Date;
(v) The aggregate Certificate Principal Balance of any class of Accrual
Certificates after giving effect to any increase in such Certificate
Principal Balance that results from the accrual of interest that is not yet
distributable thereon;
(vi) The aggregate amount of any advances made by the Servicer included
in the amounts distributed to Certificateholders on such Distribution Date;
(vii) If any class of Certificates has priority in the right to receive
Principal Prepayments, the amount of Principal Prepayments in respect of the
Mortgage Loans; and
(viii) The aggregate Principal Balance of Mortgage Loans which were
delinquent as to a total of one, two or three or more installments of
principal and interest or were in foreclosure.
The Servicer will provide Certificateholders which are federally insured
savings and loan associations with certain reports and with access to
information and documentation regarding the Mortgage Loans included in the Trust
Fund sufficient to permit such associations to comply with applicable
regulations of the Office of Thrift Supervision.
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EVENTS OF DEFAULT
Events of Default under the Agreement with respect to a series of
Certificates will consist of: (i) any failure by the Servicer in the performance
of any obligation under the Agreement which causes any payment required to be
made under the terms of the Certificates or the Agreement not to be timely made,
which failure continues unremedied for a period of three business days after the
date upon which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee or the Seller, or
to the Servicer, the Seller and the Trustee by Certificateholders representing
not less than 25% of the Voting Rights of any class of Certificates; (ii) any
failure on the part of the Servicer duly to observe or perform in any material
respect any other of the covenants or agreements on the part of the Servicer in
the Certificates or in the Agreement which failure continues unremedied for a
period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by the
Trustee, or to the Servicer and the Trustee by Certificateholders representing
not less than 25% of the Voting Rights of all classes of Certificates; (iii) the
entering against the Servicer of a decree or order of a court, agency or
supervisory authority having jurisdiction in the premises for the appointment of
a conservator, receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, provided that any such decree or order
shall have remained in force undischarged or unstayed for a period of 60 days;
(iv) the consent by the Servicer to the appointment of a conservator, receiver,
liquidator or liquidating committee in any insolvency, readjustment of debt,
marshalling of assets and liabilities, voluntary liquidation or similar
proceedings of or relating to the Servicer or of or relating to all or
substantially all of its property; (v) the admission by the Servicer in writing
of its inability to pay its debts generally as they become due, the filing by
the Servicer of a petition to take advantage of any applicable insolvency or
reorganization statute, the making of an assignment for the benefit of its
creditors or the voluntary suspension of the payment of its obligations; and
(vi) notice by the Servicer that it is unable to make an Advance required to be
made pursuant to the Agreement.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Agreement remains unremedied by the
Servicer, the Trustee, or holders of Certificates evidencing interests
aggregating more than 50% of such Certificates, may terminate all of the rights
and obligations of the Servicer under the Agreement, whereupon the Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the Agreement and will be entitled to similar compensation arrangements,
provided that if the Trustee had no obligation under the Agreement to make
advances of delinquent principal and interest on the Mortgage Loans upon the
failure of the Servicer to do so, or if the Trustee had such obligation but is
prohibited by law or regulation from making such advances, the Trustee will not
be required to assume such obligation of the Servicer. The Servicer shall be
entitled to payment of certain amounts payable to it under the Agreement,
notwithstanding the termination of its activities as servicer. No such
termination will affect in any manner the Guarantor's obligations under any
Limited Guarantee, except that the obligation of the Servicer to make advances
of delinquent payments of principal and interest (adjusted to the applicable
Remittance Rate) will become the direct obligations of the Guarantor under the
Advance Guarantee until a new servicer is appointed. In the event that the
Trustee is unwilling or unable so to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a housing and home finance
institution with a net worth of at least $15,000,000 and is a FNMA or FHLMC
approved seller/servicer in good standing and, if the Guarantor has issued any
Limited Guarantee with respect to the Certificates, approved by the Guarantor,
to act as successor to the Company, as servicer, under such Agreement. In
addition, if the Guarantor has issued any Limited Guarantee with respect to the
related series of Certificates, the Guarantor will have the right to replace any
successor servicer with an institution meeting the requirements described in the
preceding sentence. The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the Servicer under such Agreement.
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No holder of Certificates will have any right under the Agreement to
institute any proceeding with respect to the Agreement, unless such holder
previously has given to the Trustee written notice of default and unless the
holders of Certificates of any class evidencing, in the aggregate, 25% or more
of the interests in such class have made written request to the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity and the Trustee for 60 days after receipt of
such notice, request and offer of indemnity has neglected or refused to
institute any such proceedings. However, the Trustee is under no obligation to
exercise any of the trusts or powers vested in it by the Agreement or to make
any investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
The Agreement may be amended by the Seller, the Servicer and the Trustee,
and if the Guarantor has issued any Limited Guarantee with respect to the
Certificates, with the consent of the Guarantor, but without Certificateholder
consent, to cure any ambiguity, to correct or supplement any provision therein
which may be inconsistent with any other provision therein, to take any action
necessary to maintain REMIC status of any Trust Fund as to which a REMIC
election has been made, to avoid or minimize the risk of the imposition of any
tax on the Trust Fund pursuant to the Code or to make any other provisions with
respect to matters or questions arising under the Agreement which are not
materially inconsistent with the provisions of the Agreement; provided that such
action will not, as evidenced by an opinion of counsel satisfactory to the
Trustee, adversely affect in any material respect the interests of any
Certificateholders of that series. The Agreement may also be amended by the
Seller, the Servicer and the Trustee with the consent of holders of Certificates
evidencing interests aggregating not less than 66 2/3% of all interests of each
class affected by such amendment, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Agreement or
of modifying in any manner the rights of Certificateholders of that series;
provided, however, that no such amendment may (i) reduce in any manner the
amount of, or delay the timing of, payments received on Mortgage Loans which are
required to be distributed in respect of any Certificate without the consent of
the holder of such Certificate, or (ii) reduce the aforesaid percentage of
Certificates, the holders of which are required to consent to any such
amendment, without the consent of the holders of all Certificates of such
affected class then outstanding.
TERMINATION; PURCHASE OF MORTGAGE LOANS
The obligations of the parties to the Agreement for each Series will
terminate upon (i) the purchase of all the Mortgage Loans, as described in the
applicable Prospectus Supplement or (ii) the later of (a) the distribution to
Certificateholders of that series of final payment with respect to the last
outstanding Mortgage Loan, or (b) the disposition of all property acquired upon
foreclosure or deed-in-lieu of foreclosure with respect to the last outstanding
Mortgage Loan and the remittance to the Certificateholders of all funds due
under the Agreement. In no event, however, will the trust created by an
Agreement continue beyond the expiration of 21 years from the death of the
survivor of the descendants living on the date of the Agreement of a specific
person named in such Agreement. With respect to each series, the Trustee will
give or cause to be given written notice of termination of the Agreement to each
Certificateholder, and the final distribution under the Agreement will be made
only upon surrender and cancellation of the related Certificates at an office or
agency specified in the notice of termination.
As described in the applicable Prospectus Supplement, the Agreement for each
series may permit, but not require, the Seller, the Servicer or another party to
purchase from the Trust Fund for such series all remaining Mortgage Loans and
all property acquired in respect of the Mortgage Loans, at a price described in
the Prospectus Supplement, subject to the condition that the aggregate
outstanding principal balance of the Mortgage Loans for such series at the time
of purchase shall be less than a percentage of the aggregate principal balance
at the Cut-Off Date specified in the Prospectus Supplement. The exercise of such
right will result in the early retirement of the Certificates of that series.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
GENERAL
The Mortgages will be either deeds of trust or mortgages. A mortgage creates
a lien upon the real property encumbered by the mortgage. It 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 filing with a state or county
office. There are two parties to a mortgage: the mortgagor, who is the borrower
and homeowner or the land trustee or the trustee of an inter vivos revocable
trust (as described below), and the mortgagee, who is the lender. Under the
mortgage instrument, the mortgagor delivers to the mortgagee a note or bond and
the mortgage. In the case of a land trust, there are three parties because title
to the property is held by a land trustee under a land trust agreement of which
the borrower/homeowner is the beneficiary; at origination of a mortgage loan,
the borrower executes a separate undertaking to make payments on the mortgage
note. In the case of an inter vivos revocable trust, there are three parties
because title to the property is held by the trustee under the trust instrument
of which the home occupant is the primary beneficiary; at origination of a
mortgage loan, the primary beneficiary and the trustee execute a mortgage note
and the trustee executes a mortgage or deed of trust, with the primary
beneficiary agreeing to be bound by its terms. Although a deed of trust is
similar to a mortgage, a deed of trust normally has three parties, the
borrower-homeowner 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 and generally with a power of sale,
to the trustee to secure payment of the obligation. The trustee's authority
under a deed of trust and the mortgagee's authority under a mortgage are
governed by the law of the state in which the real property is located, as well
as by federal law, the express provisions of the deed of trust or mortgage and,
in some cases, the directions of the beneficiary.
FORECLOSURE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In some states, the
trustee must record a notice of default and send a copy to the borrower-trustor
and any person who has recorded a request for a copy of a notice of default and
notice of sale. In addition, the trustee must provide notice in some states to
any other individual having an interest in the real property, including any
junior lien holders. The borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. 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.
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 defendant.
Judicial foreclosure proceedings are often not protested by any of the parties
defendant. However, when the
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mortgagee's right to foreclose is contested, the legal proceedings necessary to
resolve the issue can be time consuming. After the completion of judicial
foreclosure, the court generally issues a judgment of foreclosure and appoints a
referee or other court officer to conduct the sale of the property.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder. In either event, the amounts expended are added to the
balance due on the junior loan, and the rights of the junior mortgagee may be
subrogated to the rights of the senior mortgagees. In addition, in the event
that the foreclosure of a junior mortgage triggers the enforcement of a
"due-on-sale" clause, the junior mortgagee may be required to pay the full
amount of the senior mortgages to the senior mortgagees. Accordingly, with
respect to those Mortgage Loans which are junior mortgage loans, if the lender
purchases the property, the lender's title will be subject to all senior liens
and claims and certain governmental liens. The proceeds received by the referee
or trustee from the sale are applied first to the costs, fees and expenses of
sale and then in satisfaction of the indebtedness secured by the mortgage or
deed of trust under which the sale was conducted. Any remaining proceeds are
generally payable to the holders of junior mortgages or deeds of trust and other
liens and claims in order of their priority, whether or not the borrower is in
default. Any additional proceeds are generally payable to the mortgagor or
trustor. The payment of the proceeds to the holders of junior mortgages may
occur in the foreclosure action of the senior mortgagee or may require the
institution of separate legal proceeds.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated officer or by the trustee is a public sale.
However, because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the physical condition of the
property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust, accrued and unpaid interest and expenses of foreclosure. Thereafter, the
lender will assume the burdens of ownership, including obtaining casualty
insurance, paying taxes 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. Any loss may be reduced by the receipt of any
mortgage insurance proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that the lenders reinstate loans or
recast payment schedules in order to accommodate borrowers who are suffering
from temporary financial disability. In other cases, courts have limited the
right of a lender to foreclose if the default under the mortgage instrument is
not monetary, such as the borrower's failure to adequately maintain the property
or the borrower's execution of a second mortgage or deed of trust affecting the
property.
Some courts have been faced with the issue of whether or not federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that borrowers under deeds of trust or mortgages receive notices
in addition to the statutorily prescribed minimum. 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, or under a mortgage having a power
of sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
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RIGHT OF REDEMPTION
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, the right to redeem is an equitable right. The equity of redemption,
which is a non-statutory right that must be exercised prior to a foreclosure
sale, should be distinguished from statutory rights of redemption. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, 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 is to diminish the
ability of the lender to sell the foreclosed property. The rights 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.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
ANTI-DEFICIENCY STATUTES
Certain states have imposed statutory prohibitions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
BANKRUPTCY LAWS
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon collateral and/or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, the filing of a
petition acts as a stay against the enforcement of remedies in connection with
the collection of a debt. Moreover, a court with federal bankruptcy jurisdiction
may permit a debtor through his or her Chapter 11 or Chapter 13 plan of
reorganization to cure a monetary default in respect of a mortgage loan on a
debtor's residence by paying arrearages within a reasonable time period and
reinstating the original mortgage loan payment schedule even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been entered
in state court (provided no sale of the residence had yet occurred) prior to the
filing of the debtor's petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified if
the borrower has filed a petition under Chapter 11 or Chapter 13. These courts
have suggested that such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule
and reducing the lender's security interest to the value of the residence, thus
leaving the lender a general unsecured creditor for the difference between the
value of the residence and the outstanding balance of the loan. If the borrower
has
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filed a petition under Chapter 13, federal bankruptcy law and limited case law
indicate that the foregoing modifications could not be applied to the terms of a
loan secured solely by property that is the principal residence of the debtor.
In all cases, the secured creditor is entitled to the value of its security plus
post-petition interest, attorneys' fees, if specifically provided for, and costs
to the extent the value of the security exceeds the debt.
TAX LIENS
The Internal Revenue Code of 1986, as amended, provides priority to certain
tax liens over the lien of the mortgage. This may have the effect of delaying or
interfering with the enforcement of rights with respect to a defaulted Mortgage
Loan.
CONSUMER PROTECTION LAWS
Substantive requirements are imposed upon mortgage lenders in connection
with the origination and the servicing of mortgage loans by numerous federal and
some state consumer protection laws. These laws and their implementing
regulations include the federal Truth in Lending Act (and Regulation Z), Real
Estate Settlement Procedures Act (and Regulation X), Equal Credit Opportunity
Act (and Regulation B), Fair Credit Billing Act, Fair Credit Reporting Act, Fair
Housing Act, as well as other related statutes and regulations. These federal
laws impose specific statutory liabilities upon lenders who originate mortgage
loans and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans In particular, the
originators' failure to comply with certain requirements of the federal
Truth-in-Lending Act, as implemented by Regulation Z, could subject both
originators and assignees of such obligations to monetary penalties and could
result in obligors rescinding the mortgage loans against either the originators
or assignees.
On March 21, 1994, the United States Court of Appeals for the 11th Circuit
ruled in the case of Rodash v. AIB Mortgage Co. that the federal Truth in
Lending Act requires mortgage lenders to disclose to borrowers the collection of
certain intangible taxes and courier fees as prepaid finance charges. Since the
Rodash decision, class action lawsuits have been brought against numerous
mortgage lending institutions alleging certain violations of the Truth in
Lending Act concerning the improper disclosure of various fees.
For Truth in Lending violations, one of the remedies available to the
borrowers under certain affected non-purchase money mortgage loans is
rescission, which, if elected by the borrower, would serve to cancel the loan
and merely require the borrower to pay the principal balance of the mortgage
loan, less a credit for interest paid, closing costs and prepaid finance
charges.
Unless otherwise specified in the Prospectus Supplement, the Seller or
another Representing Party will represent in the Agreement that all applicable
laws, including the Truth in Lending Act, were complied with in connection with
origination of the Mortgage Loans. In the event that such representation is
breached in respect of any Mortgage Loan in a manner that materially and
adversely affects Certificateholders, the Seller or such Representing Party will
be obligated to repurchase the affected Mortgage Loan at a price equal to the
unpaid principal balance thereof plus accrued interest as provided in the
Agreement or to substitute a new mortgage loan in place of the affected Mortgage
Loan.
ENFORCEABILITY OF DUE-ON-SALE CLAUSES
Unless the Prospectus Supplement indicates otherwise, all of the Mortgage
Loans will contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of a loan if the borrower sells, transfers, or conveys
the property. The enforceability of these clauses was the subject of legislation
or litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses
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and permits lenders to enforce these clauses in accordance with their terms,
subject to certain limited exceptions contained in the Garn-St Germain Act and
regulations promulgated by Office of Thrift Supervision (the "OTS"), as
successor to the Federal Home Loan Bank Board. The Garn-St Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
Due-on-sale clauses contained in mortgage loans originated by federal
savings and loan associations or federal savings banks are fully enforceable
pursuant to regulations of the OTS which preempt state law restrictions on the
enforcement of due-on-sale clauses.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act (including federal savings
and loan associations and federal savings banks) may not exercise a due-on-sale
clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of three years or less and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St Germain Act by the Federal Home Loan
Bank Board as succeeded by the OTS also prohibit the imposition of a prepayment
penalty upon the acceleration of a loan pursuant to a due-on-sale clause. If
interest rates were to rise above the interest rates on the Mortgage Loans, then
any inability of the Servicer to enforce due-on-sale clauses may result in the
Trust Fund including a greater number of loans bearing below-market interest
rates than would otherwise be the case, since a transferee of the property
underlying a Mortgage Loan would have a greater incentive in such circumstances
to assume the transferor's Mortgage Loan. Any inability of the Servicer to
enforce due-on-sale clauses may affect the average life of the Mortgage Loans
and the number of Mortgage Loans that may be outstanding until maturity.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The OTS, 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 interest rate limits by adopting, before April
1, 1983, a law or constitutional provision which expressly rejects application
of the federal law. In addition, even where Title V is not so rejected, any
state is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V.
Under the Agreement for each series of Certificates, the Seller will
represent and warrant to the Trustee that the Mortgage Loans have been
originated in compliance in all material respects with applicable state laws,
including usury laws.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination for such borrower's Mortgage Loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
borrowers who are members of the Army, Navy, Air Force, Marines, National Guard,
Reserves, Coast Guard, and officers of the U.S. Public Health Service ordered to
federal duty with the military. Because the Relief Act applies to borrowers who
enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability for the Master Servicer to collect full amounts of interest on certain
of the Mortgage Loans. Any shortfalls in interest collections resulting from
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the application for the Relief Act will be allocated on a PRO RATA basis to the
Certificates. In addition, the Relief Act imposes limitations that would impair
the ability of the Master Servicers to foreclose on an affected Mortgage Loan
during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that such a Mortgage Loan goes into default, there may be delays and
losses occasioned thereby.
Under the applicable Agreement, the Servicer will not be required to make
deposits to the Collection Account for a series of Certificates in respect of
any Mortgage Loan as to which the Relief Act has limited the amount of interest
the related borrower is required to pay each month, and Certificateholders will
bear such loss.
LATE CHARGES, DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENT
Notes and mortgages may contain provisions that obligate the borrower to pay
a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon involuntary prepayment is unclear under the laws of many states.
Most conventional single-family mortgage loans may be prepaid in full or in part
without penalty. The regulations of the Federal Home Loan Bank Board, as
succeeded by the OTS, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher mortgage
rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans.
ENVIRONMENTAL CONSIDERATIONS
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the definition
of owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility.
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Conservation Act") amended, among other things, the provisions of CERCLA
with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The
Conservation Act provides that "merely having the capacity to influence, or
unexercised right to control" operations does not constitute participation
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous
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substance handling and disposal practices, or assumes day-to-day management of
all operational functions of the mortgaged property. The Conservation Act also
provides that a lender will continue to have the benefit of the secured creditor
exemption even if it forecloses on a mortgaged property, purchases it at a
foreclosure sale or accepts a deed-in-lieu of foreclosure provided that the
lender seeks to sell the mortgaged property at the earliest practicable
commercially reasonable time on commercially reasonable terms.
Other federal and state laws in certain circumstances may impose liability
on a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a mortgaged property on
which contaminants other than CERCLA hazardous substances are present, including
petroleum, agricultural chemicals, hazardous wastes, asbestos, radon, and
lead-based paint. Such cleanup costs may be substantial. It is possible that
such cleanup costs could become a liability of a Trust Fund and reduce the
amounts otherwise distributable to the holders of the related series of
Certificates. Moreover, certain federal statutes and certain states by statute
impose a lien for any cleanup costs incurred by such state on the property that
is the subject of such cleanup costs (an "Environmental Lien"). All subsequent
liens on such property generally are subordinated to Environmental Liens. In the
latter states, the security interest of the Trustee in a related parcel of real
property that is subject to such an Environmental Lien could be adversely
affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Neither the Seller nor any replacement
Servicer will be required by any Agreement to undertake any such evaluations
prior to foreclosure or accepting a deed-in-lieu of foreclosure. The Seller does
not make any representations or warranties or assume any liability with respect
to the absence or effect of contaminants on any related real property or any
foreclose on related real property or accept a deed-in-lieu of foreclosure if it
knows or reasonably believes that there are material contaminated conditions on
such property. A failure so to foreclose may reduce the amounts otherwise
available to Certificateholders of the related series.
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 Mortgaged Properties will have been
conducted.
FORFEITURE IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all parties
"known to have an alleged interest in the property," including the holders of
mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
LEGAL INVESTMENT MATTERS
The Prospectus Supplement for each series of Certificates will specify,
which, if any, of the classes of Certificates offered thereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). The appropriate characterization
of those Certificates not qualifying as "mortgage related securities"
("Non-SMMEA Certificates") under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to
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purchase such Certificates, may be subject to interpretive uncertainties.
Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Non-SMMEA Certificates constitute legal investments for them.
Generally, only classes of Certificates that (i) are rated in one of the two
highest rating categories by one or more nationally recognized statistical
rating organizations and (ii) are part of a series evidencing interests in a
Trust Fund consisting of Mortgage Loans originated by certain types of
originators as specified in SMMEA, will be "mortgage related securities" for
purposes of SMMEA. As "mortgage related securities", such classes will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including but not limited
to, state-chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state government
employee retirement systems) 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 that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities.
Pursuant to SMMEA, a number of states enacted legislation, on or before the
October 3, 1991 cutoff for such enactments, limiting to varying extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities," in most cases by requiring the affected investors
to rely solely upon existing state law, and not SMMEA. Accordingly, the
investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in 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 "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
Section 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards in 12 C.F.R. Section 1.5 concerning
"safety and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. Section 1.2(1) to include certain "residential
mortgage-related securities." As so defined, "residential mortgage-related
security" means, in relevant part, "mortgage related security" within the
meaning of SMMEA. The National Credit Union Administration ("NCUA") has adopted
rules, codified at 12 C.F.R. Part 703, which permit federal credit unions to
invest in "mortgage related securities" under certain limited circumstances,
other than stripped mortgage related securities and residual interests in
mortgage related securites, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F. R. Section 703.140.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Council (the "FFIEC"), which has been adopted
by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the Office of Thrift Supervision, effective
May 26, 1998, and by the NCUA, effective October 1, 1998. The 1998 Policy
Statement sets forth general guidelines which depository institutions must
follow in managing risks (including market, credit, liquidity, operational
(transaction), and legal risks) applicable to all securities (including mortgage
pass-through securities and mortgage-derivative products) used for investment
purposes. Until October 1, 1998, federal credit unions will still be subject to
the FFIEC's now-superseded "Supervisory Policy Statement on Securities
Activities" dated
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January 28, 1992, as adopted by the NCUA with certain modifications, which
prohibited depository institutions from investing in certain "high-risk mortgage
securities," except under limited circumstances, and set forth certain
investment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain series or classes may be deemed to be unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
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, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and with regard to any Certificates issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain Certificates as "mortgage related
securities," no representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
Investors should consult their own legal advisors in determining whether and to
what extent the Certificates constitute legal investments for such investors
and, if applicable, whether SMMEA has been overridden in any jurisdiction
relevant to such investor.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended, (the "Code") impose
requirements on employee benefit plans (including retirement plans and
arrangements, collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested) subject to ERISA or the Code
(collectively, "Plans") and on persons who are fiduciaries with respect to such
Plans. Among other things, ERISA requires that the assets of a Plan subject to
ERISA 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
Plan. ERISA also imposes certain duties on persons who are fiduciaries with
respect to a Plan. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a Plan
generally is considered to be a fiduciary of such Plan. In addition to the
imposition by ERISA of general fiduciary standards of investment prudence and
diversification, ERISA and Section 4975 of 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.
The United States Department of Labor (the "DOL") has issued regulations
concerning the definition of what constitutes the assets of a Plan (DOL 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 and Section 4975 of
the Code to be assets of the investing Plan in certain circumstances. In such a
case, the fiduciary making such an investment for the Plan could be deemed to
have delegated the fiduciary's asset management responsibility, the underlying
assets and properties could be subject to the reporting and disclosure
requirements of ERISA, and transactions involving the underlying assets and
properties could be subject to the fiduciary responsibility requirements of
ERISA and Section 4975 of the Code. Certain exceptions to the regulation may
apply in the case of a Plan's investment in the Certificates, but it cannot be
predicted in advance whether such exceptions will apply due to the factual
nature of the conditions to be met. Accordingly,
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because the Mortgage Loans may be deemed Plan assets of each Plan that purchases
Certificates, an investment in the Certificates by a Plan might give rise to a
prohibited transaction under ERISA Sections 406 or 407 and be subject to an
excise tax under Code Section 4975 unless a statutory or administrative
exemption applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTE 83-1") exempts from
the prohibited transaction rules of ERISA and Section 4975 of the Code certain
transactions relating to the operation of residential mortgage pool investment
trusts and the direct or indirect sale, exchange, transfer 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 involving the origination, maintenance and termination of
mortgage pools consisting of mortgage loans secured by either 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.
PTE 83-1 sets forth three general conditions which must be satisfied for any
transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments in
an amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor (other than generally in the event of a
default by the pool sponsor which causes the pool trustee to assume duties of
the sponsor); and (iii) a limitation on the amount of the payments 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.
Although the Trustee for any series of Certificates will be unaffiliated
with the Servicer, there can be no assurance that the first or third conditions
of PRE 83-1 referred to above will be satisfied with respect to any
Certificates. In addition, the nature of a trust fund's assets or the
characteristics of one or more classes of the related series of Certificates may
not be included within the scope of PTE 83-1 or any other class exemption under
ERISA.
Several underwriters of mortgage-backed securities have applied for and
obtained individual prohibited transaction exemptions which are in some respects
broader than PTE 83-1. Such exemptions only apply to mortgage-backed securities
which, in addition to satisfying other conditions, are sold in an offering with
respect to which such underwriter serves as the sole or a managing underwriter,
or as a selling or placement agent. If such an exemption might be applicable to
a series of Certificates, the related Prospectus Supplement will refer to such
possibility. In addition, there may also be other class exemptions that are
available to provide relief from the prohibited transaction provisions of ERISA
and the Code.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Certificates must make its
own determination as to whether the general and the specific conditions of PTE
83-1 have been satisfied, or as to the availability of any other prohibited
transaction exemptions. Each Plan fiduciary should also determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the Certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
Any Plan proposing to invest in Certificates should consult with its counsel
to confirm that such investment will not result in a prohibited transaction and
will satisfy the other requirements of ERISA and the Code. The sale of
Certificates to a Plan is in no respect a representation by any party that this
investment meets all relevant legal requirements with respect to investments by
Plans generally or by any particular Plan, or that this investment is
appropriate for Plans generally or for any particular Plan.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following generally describes the anticipated material federal income
tax consequences of purchasing, owning and disposing of Certificates. It does
not address special rules which may apply to particular types of investors. The
authorities on which this discussion is based are subject to change or differing
interpretations, and any such change or interpretation could apply
retroactively. Investors should consult their own tax advisors regarding the
Certificates.
For purposes of this discussion, unless otherwise specified, the term
"Owner" will refer to the beneficial owner of a Certificate.
REMIC ELECTIONS
Under the Internal Revenue Code of 1986, as amended (the "Code"), an
election may be made to treat the Trust Fund related to each Series of
Certificates (or segregated pools of assets within the Trust Fund) as a "real
estate mortgage investment conduit" ("REMIC") within the meaning of Section
860D(a) of the Code. If one or more REMIC elections are made, the Certificates
of any class will be either "regular interests" in a REMIC within the meaning of
Section 860G(a)(1) of the Code ("Regular Certificates") or "residual interests"
in a REMIC within the meaning of Section 860G(a)(2) of the Code ("Residual
Certificates"). The Prospectus Supplement for each Series of Certificates will
indicate whether an election will be made to treat the Trust Fund as one or more
REMICs, and if so, which Certificates will be Regular Certificates and which
will be Residual Certificates.
If a REMIC election is made, the Trust Fund, or each portion thereof that is
treated as a separate REMIC, will be referred to as a "REMIC Pool". If the Trust
Fund is comprised of two REMIC Pools, one will be an "Upper-Tier REMIC" and one
a "Lower-Tier REMIC". The assets of the Lower-Tier REMIC will consist of the
Mortgage Loans and related Trust Fund assets. The assets of the Upper-Tier REMIC
will consist of all of the regular interests issued by the Lower-Tier REMIC.
The discussion below under the heading "REMIC Certificates" considers Series
for which a REMIC election will be made. Series for which no such election will
be made are addressed under "Non-REMIC Certificates".
REMIC CERTIFICATES
The discussion in this section applies only to a Series of Certificates for
which a REMIC election is made.
TAX OPINION.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Upon the issuance of each Series of Certificates for which a REMIC
election is made, Morgan, Lewis & Bockius LLP, counsel to the Seller, will
deliver its opinion, dated as of the date of such issuance, generally to the
effect that, with respect to each such Series of Certificates, under then
existing law and assuming compliance by the Seller, the Servicer and the Trustee
for such Series with all of the provisions of the related Agreement (and such
other agreements and representations as may be referred to in such opinion),
each REMIC Pool will be a REMIC, and the Certificates of such Series will be
treated as either Regular Certificates or Residual Certificates.
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STATUS OF CERTIFICATES.
The Certificates will be:
- assets described in Code Section 7701(a)(19)(C) (relating to the
qualification of certain corporations, trusts, or associations as real
estate investment trusts); and
- "real estate assets" under Code Section 856(c)(5)(B) (relating to real
estate interests, interests in real estate mortgages, and shares or
certificates of beneficial interests in real estate investment trusts),
to the extent the assets of the related REMIC Pool are so treated. Interest on
the Regular Certificates will be "interest on obligations secured by mortgages
on real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) in the same proportion that the income of the REMIC Pool is
so treated. If at all times 95% or more of the assets or income of the REMIC
Pool qualifies under the foregoing Code sections, the Certificates (and income
thereon) will so qualify in their entirety.
In the event the assets of the related REMIC Pool include buy-down Mortgage
Loans, it is unclear whether the related buy-down funds would qualify under the
foregoing Code sections.
The rules described in the two preceding paragraphs will be applied to a
Trust Fund consisting of two REMIC Pools as if the Trust Fund were a single
REMIC holding the assets of the Lower-Tier REMIC.
INCOME FROM REGULAR CERTIFICATES.
GENERAL. Except as otherwise provided in this tax discussion, Regular
Certificates will be taxed as newly originated debt instruments for federal
income tax purposes. Interest, original issue discount and market discount
accrued on a Regular Certificate will be ordinary income to the Owner. All
Owners must account for interest income under the accrual method of accounting,
which may result in the inclusion of amounts in income that are not currently
distributed in cash.
Except as otherwise noted, the discussion below is based upon regulations
adopted by the Internal Revenue Service applying the original issue discount
rules of the Code ("the OID Regulations").
ORIGINAL ISSUE DISCOUNT. Certain Regular Certificates may have "original
issue discount." An Owner must include original issue discount in income as it
accrues, without regard to the timing of payments.
The total amount of original issue discount on a Regular Certificate is the
excess of its "stated redemption price at maturity" over its "issue price." The
issue price for any Regular Certificate is the price (including any accrued
interest) at which a substantial portion of the class of Certificates including
such Regular Certificate are first sold to the public. In general, the stated
redemption price at maturity is the sum of all payments made on the Regular
Certificate, other than payments of interest that (i) are actually payable at
least annually over the entire life of the Certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of fixed and
variable rates). The stated redemption price at maturity of a Regular
Certificate always includes its original principal amount, but generally does
not include distributions of stated interest, except in the case of Accrual
Certificates, and, as discussed below, Interest Only Certificates. An "Interest
Only Certificate" is a Certificate entitled to receive distributions of some or
all of the interest on the Mortgage Loans or other assets in a REMIC Pool and
that has either a notional or nominal principal amount. Special rules for
Regular Certificates that provide for interest based on a variable rate are
discussed below in "Income from Regular Certificates--Variable Rate Regular
Certificates".
With respect to an Interest Only Certificate, the stated redemption price at
maturity is likely to be the sum of all payments thereon, determined in
accordance with the Prepayment Assumption (as defined below). In that event,
Interest Only Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with some principal
amount, the stated redemption price at
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maturity might be determined under the general rules described in the preceding
paragraph. If, applying those rules, the stated redemption price at maturity
were considered to equal the principal amount of such Certificate, then the
rules described below under "Premium" would apply. The Prepayment Assumption is
the assumed rate of prepayment of the Mortgage Loans used in pricing the Regular
Certificates. The Prepayment Assumption will be set forth in the related
Supplement.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered zero if it is less than 0.25% of the Certificate's stated
redemption price at maturity multiplied by the Certificate's weighted average
maturity. The weighted average maturity of a Regular Certificate is computed
based on the number of full years (i.e., rounding down partial years) each
distribution of principal (or other amount included in the stated redemption
price at maturity) is scheduled to be outstanding. The schedule of such
distributions likely should be determined in accordance with the Prepayment
Assumption.
The Owner of a Regular Certificate generally must include in income the
original issue discount that accrues for each day on which the Owner holds such
Certificate, including the date of purchase, but excluding the date of
disposition. The original issue discount accruing in any period equals:
PV End + Dist--PV Beg
Where:
PV End = present value of all remaining distributions to be made as of the end
of the period;
Dist = distributions made during the period includible in the stated redemption
price at maturity; and
PV Beg = present value of all remaining distributions as of the beginning of the
period.
The present value of the remaining distributions is calculated based on (i)
the original yield to maturity of the Regular Certificate, (ii) events
(including actual prepayments) that have occurred prior to the end of the period
and (iii) the Prepayment Assumption. For these purposes, the original yield to
maturity of a Regular Certificate will be calculated based on its issue price,
assuming that the Certificate will be prepaid in all periods in accordance with
the Prepayment Assumption, and with compounding at the end of each accrual
period used in the formula.
Assuming the Regular Certificates have monthly Distribution Dates, discount
would be computed under the formula generally for the one-month periods (or
shorter initial period) ending on each Distribution Date. The original issue
discount accruing during any accrual period is divided by the number of days in
the period to determine the daily portion of original issue discount for each
day.
The daily portions of original issue discount generally will increase if
prepayments on the underlying Mortgage Loans exceed the Prepayment Assumption
and decrease if prepayments are slower than the Prepayment Assumption (changes
in the rate of prepayments having the opposite effect in the case of an Interest
Only Certificate). If the relative principal payment priorities of the classes
of Regular Certificates of a Series change, any increase or decrease in the
present value of the remaining payments to be made on any such class will affect
the computation of original issue discount for the period in which the change in
payment priority occurs.
If original issue discount computed as described above is negative for any
period, the Owner generally will not be allowed a current deduction for the
negative amount but instead will be entitled to offset such amount only against
future positive original issue discount from such Certificate.
ACQUISITION PREMIUM. If an Owner of a Regular Certificate acquires such
Certificate at a price greater than its "adjusted issue price," but less than
its remaining stated redemption price at maturity, the daily portion for any day
(as computed above) is reduced by an amount equal to the product of (i) such
daily portion and (ii) a fraction, the numerator of which is the amount by which
the price exceeds the adjusted issue price and the denominator of which is the
sum of the daily portions for such Regular Certificate for all days on and after
the date of purchase. The adjusted issue price of a Regular Certificate
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on any given day is its issue price, increased by all original issue discount
that has accrued on such Certificate and reduced by the amount of all previous
distributions on such Certificate of amounts included in its stated redemption
price at maturity.
Market Discount. A Regular Certificate may have market discount (as defined
in the Code). Market discount equals the excess of the adjusted issue price of a
Certificate over the Owner's adjusted basis in the Certificate. The Owner of a
Certificate with market discount must report ordinary interest income, as the
Owner receives distributions on the Certificate of principal or other amounts
included in its stated redemption price at maturity, equal to the lesser of (a)
the excess of the amount of those distributions over the amount, if any, of
accrued original issue discount on the Certificate or (b) the portion of the
market discount that has accrued and not previously been included in income.
Also, such Owner must treat gain from the disposition of the Certificate as
ordinary income to the extent of any accrued, but unrecognized, market discount.
Alternatively, an Owner may elect in any taxable year to include market discount
in income currently as it accrues on all market discount instruments acquired by
the Owner in that year or thereafter. An Owner may revoke such an election only
with the consent of the Internal Revenue Service.
In general terms, market discount on a Regular Certificate may be treated,
at the Owner's election, as accruing either (a) on the basis of a constant yield
(similar to the method described above for accruing original issue discount) or
(b) alternatively, either (i) in the case of a Regular Certificate issued
without original issue discount, in the ratio of stated interest distributable
in the relevant period to the total stated interest remaining to be distributed
from the beginning of such period (computed taking into account the Prepayment
Assumption) or (ii) in the case of a Regular Certificate issued with original
issue discount, in the ratio of the amount of original issue discount accruing
in the relevant period to the total remaining original issue discount at the
beginning of such period. An election to accrue market discount on a Regular
Certificate on a constant yield basis is irrevocable with respect to that
Certificate.
An Owner may be required to defer a portion of the deduction for interest
expense on any indebtedness that the Owner incurs or maintains in order to
purchase or carry a Regular Certificate that has market discount. The deferred
amount would not exceed the market discount that has accrued but not been taken
into income. Any such deferred interest expense is, in general, allowed as a
deduction not later than the year in which the related market discount income is
recognized.
Market discount with respect to a Regular Certificate will be considered to
be zero if such market discount is de minimis under a rule similar to that
described above in the fourth paragraph under "Original Issue Discount". Owners
should consult their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election with respect
to market discount.
Discount on a Regular Certificate that is neither original issue discount
nor market discount, as defined above, must be allocated ratably among the
principal payments on the Certificate and included in income (as gain from the
sale or exchange of the Certificate) as the related principal payments are made
(whether as scheduled payments or prepayments).
PREMIUM. A Regular Certificate, other than an Accrual Certificate or, as
discussed above under "Original Issue Discount", an Interest Only Certificate,
purchased at a cost (net of accrued interest) greater than its principal amount
generally is considered to be purchased at a premium. The Owner may elect under
Code Section 171 to amortize such premium under the constant yield method, using
the Prepayment Assumption. To the extent the amortized premium is allocable to
interest income from the Regular Certificate, it is treated as an offset to such
interest rather than as a separate deduction. An election made by an Owner would
generally apply to all its debt instruments and may not be revoked without the
consent of the Internal Revenue Service.
SPECIAL ELECTION TO APPLY OID RULES. In lieu of the rules described above
with respect to DE MINIMIS discount, acquisition premium, market discount and
premium, an Owner of a Regular Certificate may elect to accrue such discount, or
adjust for such premium, by applying the principles of the OID rules described
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above. An election made by a taxpayer with respect to one obligation can affect
other obligations it holds. Owners should consult with their tax advisors
regarding the merits of making this election.
RETAIL REGULAR CERTIFICATES. For purposes of the original issue and market
discount rules, a repayment in full of a Retail Certificate that is subject to
payment in units or other increments, rather than on a pro rata basis with other
Retail Certificates, will be treated in the same manner as any other prepayment.
VARIABLE RATE REGULAR CERTIFICATES. The Regular Certificates may provide
for interest that varies based on an interest rate index. The OID Regulations
provide special rules for calculating income from certain "variable rate debt
instruments" or "VRDIs." A debt instrument must meet certain technical
requirements to qualify as a VRDI, which are outlined in the next paragraph.
Under the regulations, income on a VRDI is calculated by (1) creating a
hypothetical debt instrument that pays fixed interest at rates equivalent to the
variable interest, (2) applying the original issue discount rules of the Code to
that fixed rate instrument, and (3) adjusting the income accruing in any accrual
period by the difference between the assumed fixed interest amount and the
actual amount for the period. In general, where a variable rate on a debt
instrument is based on an interest rate index (such as LIBOR), a fixed rate
equivalent to a variable rate is determined based on the value of the index as
of the issue date of the debt instrument. In cases where rates are reset at
different intervals over the life of a VRDI, adjustments are made to ensure that
the equivalent fixed rate for each accrual period is based on the same reset
interval.
A debt instrument must meet a number of requirements in order to qualify as
a VRDI. A VRDI cannot be issued at a premium above its principal amount that
exceeds a specified percentage of its principal amount (15% or if less, 1.5%
times its weighted average life). As a result, Interest Only Certificates will
never be VRDIs. Also, a debt instrument that pays interest based on a multiple
of an interest rate index is not a VRDI if the multiple is less than or equal to
0.65 or greater than 1.35, unless, in general, interest is paid based on a
single formula that lasts over the life of the instrument. A debt instrument is
not a VRDI if it is subject to caps and floors, unless they remain the same over
the life of the instrument or are not expected to change significantly the yield
on the instrument. Variable rate Regular Certificates other than Interest Only
Certificates may or may not qualify as VRDIs depending on their terms.
In a case where a variable rate Regular Certificate does not qualify as a
VRDI, it will be treated under the OID Regulations as a contingent payment debt
instrument. The Internal Revenue Service has issued final regulations addressing
contingent payment debt instruments, but such regulations are not applicable by
their terms to REMIC regular interests. Until further guidance is forthcoming,
one method of calculating income on such a Regular Certificate that appears to
be reasonable would be to apply the principles governing VRDIs outlined above.
SUBORDINATED CERTIFICATES. Certain Series of Certificates may contain one
or more classes of subordinated Certificates. In the event there are defaults or
delinquencies on the related Mortgage Loans, amounts that otherwise would be
distributed on a class of subordinated Certificates may instead be distributed
on other more senior classes of Certificates. Since Owners of Regular
Certificates are required to report income under an accrual method, Owners of
subordinated Certificates will be required to report income without giving
effect to delays and reductions in distributions on such Certificates
attributable to defaults or delinquencies on the Mortgage Loans, except to the
extent that it can be established that amounts are uncollectible. As a result,
the amount of income reported by an Owner of a subordinated Certificate in any
period could significantly exceed the amount of cash distributed to such Owner
in that period. The Owner will eventually be allowed a loss (or 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. Such a loss could in some circumstances
be a capital loss. Also, the timing and amount of such losses or reductions in
income are uncertain. Owners of subordinated Certificates should consult their
tax advisors on these points.
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INCOME FROM RESIDUAL CERTIFICATES.
TAXATION OF REMIC INCOME. Generally, Owners of Residual Certificates in a
REMIC Pool ("Residual Owners") must report ordinary income or loss equal to
their pro rata shares (based on the portion of all Residual Certificates they
own) of the taxable income or net loss of the REMIC. Such income must be
reported regardless of the timing or amounts of distributions on the Residual
Certificates.
The taxable income of a REMIC Pool is generally determined under the accrual
method of accounting in the same manner as the taxable income of an individual
taxpayer. Taxable income is generally gross income, including interest and
original issue discount income, if any, on the assets of the REMIC Pool and
income from the amortization of any premium on Regular Certificates, minus
deductions. Market discount (as defined in the Code) with respect to Mortgage
Loans held by a REMIC Pool is recognized in the same fashion as if it were
original issue discount. Deductions include interest and original issue discount
expense on the Regular Certificates, reasonable servicing fees attributable to
the REMIC Pool, other administrative expenses and amortization of any premium on
assets of the REMIC Pool. As previously discussed, the timing of recognition of
"negative original issue discount," if any, on a Regular Certificate is
uncertain; as a result, the timing of recognition of the corresponding income to
the REMIC Pool is also uncertain.
If the Trust Fund consists of an Upper-Tier REMIC and a Lower-Tier REMIC,
the OID Regulations provide that the regular interests issued by the Lower-Tier
REMIC to the Upper- Tier REMIC will be treated as a single debt instrument for
purposes of the original issue discount provisions. A determination that these
regular interests are not treated as a single debt instrument would have a
material adverse effect on the Owners of Residual Certificates issued by the
Lower-Tier REMIC.
A Residual Owner may not amortize the cost of its Residual Certificate.
Taxable income of the REMIC Pool, however, will not include cash received by the
REMIC Pool that represents a recovery of the REMIC Pool's initial basis in its
assets, and such basis will include the issue price of the Residual Certificates
(assuming the issue price is positive). Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificate over its life. The period of time over which such issue price is
effectively amortized, however, may be longer than the economic life of the
Residual Certificate. The issue price of a Residual Certificate is the price at
which a substantial portion of the class of Certificates including the Residual
Certificate are first sold to the public (or if the Residual Certificate is not
publicly offered, the price paid by the first buyer).
A subsequent Residual Owner must report the same amounts of taxable income
or net loss attributable to the REMIC Pool as an original Owner. No adjustments
are made to reflect the purchase price.
LOSSES. A Residual Owner that is allocated a net loss of the REMIC Pool may
not deduct such loss currently to the extent it exceeds the Owner's adjusted
basis (as defined in "Sale or Exchange of Certificates" below) in its Residual
Certificate. A Residual Owner that is a U.S. person (as defined below in
"Taxation of Certain Foreign Investors"), however, may carry over any disallowed
loss to offset any taxable income generated by the same REMIC Pool.
EXCESS INCLUSIONS. A portion of the taxable income allocated to a Residual
Certificate is subject to special tax rules. That portion, referred to as an
"excess inclusion," is calculated for each calendar quarter and equals the
excess of such taxable income for the quarter over the daily accruals for the
quarter. The daily accruals equal the product of (i) 120% of the federal
long-term rate under Code Section 1274(d) for the month which includes the
Closing Date (determined on the basis of quarterly compounding and properly
adjusted for the length of the quarter) and (ii) the adjusted issue price of the
Certificate at the beginning of such quarter. The adjusted issue price of a
Residual Certificate at the beginning of a quarter is the issue price of the
Certificate, plus the amount of daily accruals on the Certificate for all prior
quarters, decreased (but not below zero) by any prior distributions on the
Certificate. If the aggregate value of the Residual Certificates is not
considered to be "significant," then to the extent provided in
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Treasury regulations, a Residual Owner's entire share of REMIC taxable income
will be treated as an excess inclusion. The regulations that have been adopted
under Code Sections 860A through 86OG (the "REMIC Regulations") do not contain
such a rule.
Excess inclusions generally may not be offset by unrelated losses or loss
carryforwards or carrybacks of a Residual Owner. In addition, for all taxable
years beginning after August 20, 1996, and unless a Residual Owner elects
otherwise for all other taxable years, the alternate minimum taxable income of a
Residual Owner for a taxable year may not be less than the Residual Owner's
excess inclusions for the taxable year and excess inclusions are disregarded
when calculating a Residual Owner's alternate minimum tax operating loss
deduction.
Excess inclusions are treated as unrelated business taxable income for an
organization subject to the tax on unrelated business income. In addition, under
Treasury regulations yet to be issued, if a real estate investment trust,
regulated investment company or certain other pass-through entities are Residual
Owners, a portion of the distributions made by such entities may be treated as
excess inclusions.
DISTRIBUTIONS. Distributions on a Residual Certificate (whether at their
scheduled times or as a result of prepayments) generally will not result in any
taxable income or loss to the Residual Owner. If the amount of any distribution
exceeds a Residual Owner's adjusted basis in its Residual Certificate, however,
the Residual Owner will recognize gain (treated as gain from the sale or
exchange of its Residual Certificate) to the extent of such excess. See "Sale or
Exchange of Certificates" below.
PROHIBITED TRANSACTIONS; SPECIAL TAXES. Net income recognized by a REMIC
Pool from "prohibited transactions" is subject to a 100% tax and is disregarded
in calculating the REMIC Pool's taxable income. In addition, a REMIC Pool is
subject to federal income tax at the highest corporate rate on "net income from
foreclosure property." A 100% tax also applies to certain contributions to a
REMIC Pool made after it is formed. It is not anticipated that any REMIC Pool
will (i) engage in prohibited transactions in which it recognizes a significant
amount of net income, (ii) receive contributions of property that are subject to
tax, or (iii) derive a significant amount of net income from foreclosure
property that is subject to tax.
NEGATIVE VALUE RESIDUAL CERTIFICATES. The federal income tax treatment of
any consideration paid to a transferee on a transfer of a Residual Certificate
is unclear. Such a transferee should consult its tax advisor. The preamble to
the REMIC Regulations indicates that the Internal Revenue Service may issue
future guidance on the tax treatment of such payments.
In addition, on December 23, 1996, the Internal Revenue Service released
final regulations under Code Section 475 relating to the requirement that a
dealer mark certain securities to market. These regulations provide that a REMIC
residual interest that is acquired on or after January 4, 1995 is not a
"security" for the purposes of Section 475 of the Code, and thus is not subject
to the mark to market rules.
The method of taxation of Residual Certificates described in this section
can produce a significantly less favorable after-tax return for a Residual
Certificate than would be the case if the Certificate were taxable as a debt
instrument. Also, a Residual Owner's return may be adversely affected by the
excess inclusions rules described above. In certain periods, taxable income and
the resulting tax liability for a Residual Owner may exceed any distributions it
receives. In addition, a substantial tax may be imposed on certain transferors
of a Residual Certificate and certain Residual Owners that are "pass-thru"
entities. See "Transfers of Residual Certificates" below. Investors should
consult their tax advisors before purchasing a Residual Certificate.
SALE OR EXCHANGE OF CERTIFICATES.
An Owner generally will recognize gain or loss upon sale or exchange of a
Regular or Residual Certificate equal to the difference between the amount
realized and the Owner's adjusted basis in the Certificate. The adjusted basis
in a Certificate generally will equal the cost of the Certificate, increased by
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income previously recognized, and reduced (but not below zero) by previous
distributions, and by any amortized premium in the case of a Regular
Certificate, or net losses allowed as a deduction in the case of a Residual
Certificate.
Except as described below, any gain or loss on the sale or exchange of a
Certificate held as a capital asset will be capital gain or loss and will be
long-term or short-term depending on whether the Certificate has been held for
more than one year or one year or less. Such gain or loss will be ordinary
income or loss (i) for a bank or thrift institution, and (ii) in the case of a
Regular Certificate, (a) to the extent of any accrued, but unrecognized, market
discount, or (b) to the extent income recognized by the Owner is less than the
income that would have been recognized if the yield on such Certificate were
110% of the applicable federal rate under Code Section 1274(d).
A Residual Owner should be allowed a loss upon termination of the REMIC Pool
equal to the amount of the Owner's remaining adjusted basis in its Residual
Certificates. Whether the termination will be treated as a sale or exchange
(resulting in a capital loss) is unclear.
Except as provided in Treasury regulations, the wash sale rules of Code
Section 1091 (relating to the disallowance of losses on the sale or disposition
of certain stock or securities) will apply to dispositions of a Residual
Certificate where the seller of the interest, during the period beginning six
months before the sale or disposition of the interest and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any REMIC residual
interest, or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a residual interest.
TAXATION OF CERTAIN FOREIGN INVESTORS.
REGULAR CERTIFICATES. A Regular Certificate held by an Owner that is a
non-U.S. person (as defined below), and that has no connection with the United
States other than owning the Certificate, will not be subject to U.S.
withholding or income tax with respect to the Certificate provided such Owner
(i) is not a "10-percent shareholder", related to the issuer, within the meaning
of Code Section 871(h)(3)(B) or a controlled foreign corporation, related to the
issuer, described in Code Section 881(c)(3)(C), and (ii) provides an appropriate
statement, signed under penalties of perjury, identifying the Owner and stating,
among other things, that the Owner is a non-U.S. person. If these conditions are
not met, a 30% withholding tax will apply to interest (including original issue
discount) unless an income tax treaty reduces or eliminates such tax or unless
the interest is effectively connected with the conduct of a trade or business
within the United States by such Owner. In the latter case, such Owner will be
subject to United States federal income tax with respect to all income from the
Certificate at regular rates then applicable to U.S. taxpayers (and in the case
of a corporation, possibly also the "branch profits tax").
The term "non-U.S. person" means any person other than a U.S. person. A U.S.
person is a citizen or resident of the United States, a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, any 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 fiduciaries have the authority to control
all substantial decisions of the trust, or an estate that is subject to U.S.
federal income tax regardless of the source of its income.
RESIDUAL CERTIFICATES. A Residual Owner that is a non-U.S. person, and that
has no connection with the United States other than owning a Residual
Certificate, will not be subject to U.S. withholding or income tax with respect
to the Certificate (other than with respect to excess inclusions) provided that
(i) the conditions described in the second preceding paragraph with respect to
Regular Certificates are met and (ii) in the case of a Residual Certificate in a
REMIC Pool holding Mortgage Loans, the Mortgage Loans were originated after July
18, 1984. Excess inclusions are subject to a 30% withholding tax in all events
(notwithstanding any contrary tax treaty provisions) when distributed to the
Residual Owner (or when the Residual Certificate is disposed of). The Code
grants the Treasury Department authority to issue
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regulations requiring excess inclusions to be taken into account earlier if
necessary to prevent avoidance of tax. The REMIC Regulations do not contain such
a rule. The preamble thereto states that the Internal Revenue Service is
considering issuing regulations concerning withholding on distributions to
foreign holders of residual interests to satisfy accrued tax liability due to
excess inclusions.
With respect to a Residual Certificate that has been held at any time by a
non-U.S. person, the Trustee (or its agent) will be entitled to withhold (and to
pay to the Internal Revenue Service) any portion of any payment on such Residual
Certificate that the Trustee reasonably determines is required to be withheld.
If the Trustee (or its agent) reasonably determines that a more accurate
determination of the amount required to be withheld from a distribution can be
made within a reasonable period after the scheduled date for such distribution,
it may hold such distribution in trust for the Residual Owner until such
determination can be made.
Special tax rules and restrictions that apply to transfers of Residual
Certificates to and from non-U.S. persons are discussed in the next section.
TRANSFERS OF RESIDUAL CERTIFICATES.
Special tax rules and restrictions apply to transfers of Residual
Certificates to disqualified organizations or foreign investors, and to
transfers of noneconomic Residual Certificates.
DISQUALIFIED ORGANIZATIONS. In order to comply with the REMIC rules of the
Code, the Agreement will provide that no legal or beneficial interest in a
Residual Certificate may be transferred to, or registered in the name of, any
person unless (i) the proposed purchaser provides to the Trustee an "affidavit"
(within the meaning of the REMIC Regulations) to the effect that, among other
items, such transferee is not a "disqualified organization" (as defined below),
is not purchasing a Residual Certificate as an agent for a disqualified
organization (i.e., as a broker, nominee, or other middleman) and is not an
entity that holds REMIC residual securities as nominee to facilitate the
clearance and settlement of such securities through electronic book-entry
changes in accounts of participating organizations (a "Book-Entry Nominee") and
(ii) the transferor states in writing to the Trustee that it has no actual
knowledge that such affidavit is false.
If, despite these restrictions, a Residual Certificate is transferred to a
disqualified organization, the transfer may result in a tax equal to the product
of (i) the present value of the total anticipated future excess inclusions with
respect to such Certificate and (ii) the highest corporate marginal federal
income tax rate. Such a tax generally is imposed on the transferor, except that
if the transfer is through an agent for a disqualified organization, the agent
is liable for the tax. A transferor is not liable for such tax if the transferee
furnishes to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer, the transferor
does not have actual knowledge that the affidavit is false.
A disqualified organization may hold an interest in a REMIC Certificate
through a "pass-thru entity" (as defined below). In that event, the pass-thru
entity is subject to tax (at the highest corporate marginal federal income tax
rate) on excess inclusions allocable to the disqualified organization. However,
such tax will not apply to the extent the pass-thru entity receives affidavits
from record holders of interests in the entity stating that they are not
disqualified organizations and the entity does not have actual knowledge that
the affidavits are false; provided that all partners of an "electing large
partnership" (as defined in the Code) are deemed to be disqualified
organizations for purposes of such tax..
For these purposes, (i) "disqualified organization" means the United States,
any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing, certain organizations that are exempt from taxation under the Code
(including tax on excess inclusions) and certain corporations operating on a
cooperative basis, and (ii) "pass-thru entity" means any regulated investment
company, real estate investment trust, common trust fund, partnership, trust or
estate and certain corporations operating on a cooperative basis. Except as may
be provided in
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Treasury regulations, any person holding an interest in a pass-thru entity as a
nominee for another will, with respect to that interest, be treated as a
pass-thru entity.
FOREIGN INVESTORS. Under the REMIC Regulations, a transfer of a Residual
Certificate to a non-U.S. person that will not hold the Certificate in
connection with a U.S. trade or business will be disregarded for all federal tax
purposes if the Certificate has "tax avoidance potential." A Residual
Certificate has tax avoidance potential unless, at the time of transfer, the
transferor reasonably expects that:
(i) for each excess inclusion, the REMIC will distribute to the
transferee residual interest holder an amount that will equal at least 30
percent of the excess inclusion, and
(ii) each such amount will be distributed at or after the time at which
the excess inclusion accrues and not later than the close of the calendar
year following the calendar year of accrual.
A transferor has such reasonable expectation if the above test would be met
assuming that the REMIC's Mortgage Loans will prepay at each rate between 50
percent and 200 percent of the Prepayment Assumption.
The REMIC Regulations also provide that a transfer of a Residual Certificate
from a non-U.S. person to a U.S. person (or to a non-U.S. person that will hold
the Certificate in connection with a U.S. trade or business) is disregarded if
the transfer has "the effect of allowing the transferor to avoid tax on accrued
excess inclusions."
In light of these provisions, the Agreement provides that a Residual
Certificate may not be purchased by or transferred to any person that is not a
U.S. person, unless (i) such person holds the Certificate in connection with the
conduct of a trade or business within the United States and furnishes the
transferor and the Trustee with an effective Internal Revenue Service Form 4224,
or (ii) the transferee delivers to both the transferor and the Trustee an
opinion of nationally recognized tax counsel to the effect that such transfer is
in accordance with the requirements of the Code and the regulations promulgated
thereunder and that such transfer will not be disregarded for federal income tax
purposes.
NONECONOMIC RESIDUAL CERTIFICATES. Under the REMIC Regulations, a transfer
of a "noneconomic" Residual Certificate will be disregarded for all federal
income tax purposes if a significant purpose of the transfer is to impede the
assessment or collection of tax. Such a purpose 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 to lack such knowledge if:
(i) the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and found that
the transferee had historically paid its debts as they came due and found no
significant evidence to indicate that the transferee will not continue to
pay its debts as they become due, and
(ii) the transferee represents to the transferor that it understands
that, as the holder of the noneconomic residual interest, it may incur tax
liabilities in excess of any cash flows generated by the interest and that
it intends to pay taxes associated with holding the residual interest as
they become due.
A Residual Certificate (including a Certificate with significant value at
issuance) is noneconomic unless, at the time of the transfer, (i) the present
value of the expected future distributions on the Certificate at least equals
the product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the transfer
occurs, and (ii) the transferor reasonably expects that the transferee will
receive distributions on the Certificate, at or after the time at which taxes
accrue, in an amount sufficient to pay the taxes.
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The Agreement will provide that no legal or beneficial interest in a
Residual Certificate may be transferred to, or registered in the name of, any
person unless the transferor represents to the Trustee that it has conducted the
investigation of the transferee, and made the findings, described in the
preceding paragraph, and the proposed transferee provides to the Trustee the
transferee representations described in the preceding paragraph, and agrees that
it will not transfer the Certificate to any person unless that person agrees to
comply with the same restrictions on future transfers.
SERVICING COMPENSATION AND OTHER REMIC POOL EXPENSES.
Under Code Section 67, an individual, estate or trust is allowed certain
itemized deductions only to the extent that such deductions, in the aggregate,
exceed 2% of the Owner's adjusted gross income, and such a person is not allowed
such deductions to any extent in computing its alternative minimum tax
liability. Under Treasury regulations, if such a person is an Owner of a REMIC
Certificate, the REMIC Pool is required to allocate to such a person its share
of the servicing fees and administrative expenses paid by a REMIC together with
an equal amount of income. Those fees and expenses are deductible as an offset
to the additional income, but subject to the 2% floor.
In the case of a REMIC Pool that has multiple classes of Regular
Certificates with staggered maturities, fees and expenses of the REMIC Pool
would be allocated entirely to the Owners of Residual Certificates. However, if
the REMIC Pool were a "single-class REMIC" as defined in applicable Treasury
regulations, such deductions would be allocated proportionately among the
Regular and Residual Certificates.
REPORTING AND ADMINISTRATIVE MATTERS.
Annual reports will be made to the Internal Revenue Service, and to Holders
of record of Regular Certificates, and Owners of Regular Certificates holding
through a broker, nominee or other middleman, that are not excepted from the
reporting requirements, of accrued interest, original issue discount,
information necessary to compute accruals of market discount, information
regarding the percentage of the REMIC Pool's assets meeting the qualified assets
tests described above under "Status of Certificates" and, where relevant,
allocated amounts of servicing fees and other Code Section 67 expenses. Holders
not receiving such reports may obtain such information from the related REMIC by
contacting the person designated in IRS Publication 938. Quarterly reports will
be made to Residual Holders showing their allocable shares of income or loss
from the REMIC Pool, excess inclusions, and Code Section 67 expenses.
The Trustee will sign and file federal income tax returns for each REMIC
Pool. To the extent allowable, the Trustee will act as the tax matters person
for each REMIC Pool. Each Owner of a Residual Certificate, by the acceptance of
its Residual Certificate, agrees that the Trustee will act as the Owner's agent
in the performance of any duties required of the Owner in the event that the
Owner is the tax matters person.
An Owner of a Residual Certificate is required to treat items on its federal
income tax return consistently with the treatment of the items on the REMIC
Pool's return, unless the Owner owns 100% of the Residual Certificate for the
entire calendar year or the Owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Pool. The Internal Revenue Service may
assess a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC level.
Any person that holds a Residual Certificate as a nominee for another person may
be required to furnish the REMIC Pool, in a manner to be provided in Treasury
regulations, the name and address of such other person and other information.
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NON-REMIC CERTIFICATES
The discussion in this Section applies only to a series of Certificates for
which no REMIC election is made.
TRUST FUND AS GRANTOR TRUST.
Upon issuance of each series of Certificates, Morgan, Lewis & Bockius LLP,
counsel to the Seller, will deliver its opinion, dated as of the date of such
issuance, to the effect that, under then current law, assuming compliance by the
Seller, the Servicer and the Trustee with all the provisions of the Agreement
(and such other agreements and representations as may be referred to in the
opinion), the Trust Fund will be classified for federal income tax purposes as a
grantor trust and not as an association taxable as a corporation.
Under the grantor trust rules of the Code, each Owner of a Certificate will
be treated for federal income tax purposes as the owner of an undivided interest
in the Mortgage Loans (and any related assets) included in the Trust Fund. The
Owner will include in its gross income, gross income from the portion of the
Mortgage Loans allocable to the Certificate, and may deduct its share of the
expenses paid by the Trust Fund that are allocable to the Certificate, at the
same time and to the same extent as if it had directly purchased and held such
interest in the Mortgage Loans and had directly received payments thereon and
paid such expenses. If an Owner is an individual, trust or estate, the Owner
will be allowed deductions for its share of Trust Fund expenses (including
reasonable servicing fees) only to the extent that the sum of those expenses and
the Owner's other miscellaneous itemized deductions exceeds 2% of adjusted gross
income, and will not be allowed to deduct such expenses for purposes of the
alternative minimum tax. Distributions on a Certificate will not be taxable to
the Owner, and the timing or amount of distributions will not affect the timing
or amount of income or deductions relating to a Certificate.
STATUS OF THE CERTIFICATES.
The Certificates, other than Interest Only Certificates, will be:
- "real estate assets" under Code Section 856(c)(5)(B) (relating to the
qualification of certain corporations, trusts, or associations as real
estate investment trusts); and
- assets described in Section 7701(a)(19)(B) of the Code (relating to real
estate interests, interests in real estate mortgages, and shares or
certificates of beneficial interests in real estate investment trusts),
to the extent the assets of the Trust Fund are so treated. Interest income from
such Certificates will be "interest on obligations secured by mortgages on real
property" under Code Section 856(c)(3)(B) to the extent the income of the Trust
Fund qualifies under that section. An "Interest Only Certificate" is a
Certificate which is entitled to receive distributions of some or all of the
interest on the Mortgage Loans or other assets in a REMIC Pool and that has
either a notional or nominal principal amount. Although it is not certain,
Certificates that are Interest Only Certificates should qualify under the
foregoing Code sections to the same extent as other Certificates.
POSSIBLE APPLICATION OF STRIPPED BOND RULES.
In general, the provisions of Section 1286 of the Code (the "stripped bond
rules") apply to all or a portion of those Certificates where there has been a
separation of the ownership of the rights to receive some or all of the
principal payments on a Mortgage Loan from the right to receive some or all of
the related interest payments. Certain Non-REMIC Certificates may be subject to
these rules either because they represent specifically the right to receive
designated portions of the interest or principal paid on the Mortgage Loans, or
because the Servicing Fee is determined to be excessive (each, a "Stripped
Certificate").
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Each Stripped Certificate will be considered to have been issued with
original issue discount for federal income tax purposes. Original issue discount
with respect to a Stripped Certificate must be included in ordinary income as it
accrues, which may be prior to the receipt of the cash attributable to such
income. For these purposes, under original issue discount regulations, each
Stripped Certificate should be treated as a single installment obligation for
purposes of calculating original issue discount and gain or loss on disposition.
The Internal Revenue Service has indicated that with respect to certain mortgage
loans, original issue discount would be considered zero either if (i) the
original issue discount did not exceed an amount that would be eligible for the
DE MINIMIS rule described above under "REMIC Certificates--Income From Regular
Certificates--Original Issue Discount", or (ii) the annual stated rate of
interest on the mortgage loan was not more than 100 basis points lower than on
the loan prior to its being stripped. In either such case the rules described
above under "REMIC Certificates--Income From Regular Certificates--Market
Discount" (including the applicable DE MINIMIS rule) would apply with respect to
the mortgage loan.
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES DO NOT APPLY.
If the stripped bond rules do not apply to a Certificate, then the Owner
will be required to include in income its share of the interest payments on the
Mortgage Loans held by the Trust Fund in accordance with its tax accounting
method. The Owner must also account for discount or premium on the Mortgage
Loans if it is considered to have purchased its interest in the Mortgage Loans
at a discount or premium. An Owner will be considered to have purchased an
interest in each Mortgage Loan at a price determined by allocating its purchase
price for the Certificate among the Mortgage Loans in proportion to their fair
market values at the time of purchase. It is likely that discount would be
considered to accrue and premium would be amortized, as described below, based
on an assumption that there will be no future prepayments of the Mortgage Loans,
and not based on a reasonable prepayment assumption. Legislative proposals which
are currently pending would, however, generally require a reasonable prepayment
assumption.
DISCOUNT. The treatment of any discount relating to a Mortgage Loan will
depend on whether the discount is original issue discount or market discount.
Discount at which a Mortgage Loan is purchased will be original issue discount
only if the Mortgage Loan itself has original issue discount; the issuance of
Certificates is not considered a new issuance of a debt instrument that can give
rise to original issue discount. A Mortgage Loan generally will be considered to
have original issue discount if the greater of the amount of points charged to
the borrower, or the amount of any interest foregone during any initial teaser
period, exceeds 0.25% of the stated redemption price at maturity times the
number of full years to maturity, or if interest is not paid at a fixed rate or
a single variable rate (disregarding any initial teaser rate) over the life of
the Mortgage Loan. It is not anticipated that the amount of original issue
discount, if any, accruing on the Mortgage Loans in each month will be
significant relative to the interest paid currently on the Mortgage Loans, but
there can be no assurance that this will be the case.
In the case of a Mortgage Loan that is considered to have been purchased
with market discount that exceeds a de minimis amount (generally, 0.25% of the
stated redemption price at maturity times the number of whole years to maturity
remaining at the time of purchase), the Owner will be required to include in
income in each month the amount of such discount that has accrued through such
month and not previously been included in income, but limited to the amount of
principal on the Mortgage Loan that is received by the Trust Fund in that month.
Because the Mortgage Loans will provide for monthly principal payments, such
discount may be required to be included in income at a rate that is not
significantly slower than the rate at which such discount accrues. Any market
discount that has not previously been included in income will be recognized as
ordinary income if and when the Mortgage Loan is prepaid in full. For a more
detailed discussion of the market discount rules of the Code, see "REMIC
Certificates--Income from Regular Certificates--Market Discount" above.
In the case of market discount that does not exceed a de minimis amount, the
Owner generally will be required to allocate ratably the portion of such
discount that is allocable to a Mortgage Loan among the
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principal payments on the Mortgage Loan and to include the discount in ordinary
income as the related principal payments are made (whether as scheduled payments
or prepayments).
PREMIUM. In the event that a Mortgage Loan is purchased at a premium, the
Owner may elect under Section 171 of the Code to amortize such premium under a
constant yield method based on the yield of the Mortgage Loan to such Owner,
provided that such Mortgage Loan was originated after September 27, 1985.
Premium allocable to a Mortgage Loan originated on or before that date should be
allocated among the principal payments on the Mortgage Loan and allowed as an
ordinary deduction as principal payments are made (whether as scheduled payments
or prepayments).
TAXATION OF CERTIFICATES IF STRIPPED BOND RULES APPLY.
If the stripped bond rules apply to a Certificate, income on the Certificate
will be treated as original issue discount and will be included in income as it
accrues under a constant yield method. More specifically, for purposes of
applying the original issue discount rules of the Code, the Owner will likely be
taxed as if it had purchased a newly issued, single debt instrument providing
for payments equal to the payments on the interests in the Mortgage Loans
allocable to the Certificate, and having original issue discount equal to the
excess of the sum of such payments over the Owner's purchase price for the
Certificate (which would be treated as the issue price). The amount of original
issue discount income accruing in any taxable year will be computed generally as
described above under "REMIC Certificates-- Income from Regular
Certificates--Original Issue Discount". It is possible, however, that the
calculation must be made using as the Prepayment Assumption an assumption of
zero prepayments. If the calculation is made assuming no future prepayments,
then the Owner should be allowed to deduct currently any negative amount of
original issue discount produced by the accrual formula.
Different approaches could be applied in calculating income under the
stripped bond rules. For example, a Certificate could be viewed as a collection
of separate debt instruments (one for each payment allocable to the Certificate)
rather than a single debt instrument. Also, in the case of an Interest-Only
Certificate, it could be argued that certain proposed regulations governing
contingent payment debt obligations apply. Owners should consult their own tax
advisors regarding the calculation of income under the stripped bond rules.
SALES OF CERTIFICATES.
A Certificateholder that sells a Certificate will recognize gain or loss
equal to the difference between the amount realized in the sale and its adjusted
tax basis in the Certificate. In general, such adjusted basis will equal the
Certificateholder's cost for the Certificate, increased by the amount of any
income previously reported with respect to the Certificate and decreased (but
not below zero) by the amount of any distributions received thereon, the amount
of any losses previously allowable to such Owner with respect to such
Certificate and any premium amortization thereon. Any such gain or loss would be
capital gain or loss if the Certificate was held as a capital asset, subject to
the potential treatment of gain as ordinary income to the extent of any accrued
but unrecognized market discount under the market discount rules of the Code, if
applicable.
FOREIGN INVESTORS.
Except as described in the following paragraph, an Owner that is not a U.S.
person (as defined under "REMIC Certificates--Taxation of Foreign Investors"
above) and that is not subject to federal income tax as a result of any direct
or indirect connection to the United States in addition to its ownership of a
Certificate will not be subject to United States income or withholding tax in
respect of a Certificate (assuming the underlying Mortgage Loans were originated
after July 18, 1984), if the Owner provides an appropriate statement, signed
under penalties of perjury, identifying the Owner and stating, among other
things, that the Owner is not a U.S. person. If these conditions are not met, a
30% withholding tax will
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apply to interest (including original issue discount) unless an income tax
treaty reduces or eliminates such tax or unless the interest is effectively
connected with the conduct of a trade or business within the United States by
such Owner. Income effectively connected with a U.S. trade or business will be
subject to United States federal income tax at regular rates then applicable to
U.S. taxpayers (and in the case of a corporation, possibly also the branch
profits tax).
In the event the Trust Fund acquires ownership of real property located in
the United States in connection with a default on a Mortgage Loan, then any
rental income from such property allocable to an Owner that is not a U.S. person
generally will be subject to a 30% withholding tax. In addition, any gain from
the disposition of such real property allocable to an Owner that is not a U.S.
person may be treated as income that is effectively connected with a U.S. trade
or business under special rules governing United States real property interests.
The Trust Fund may be required to withhold tax on gain realized upon a
disposition of such real property by the Trust Fund at a 35% rate.
REPORTING
Tax information will be reported annually to the Internal Revenue Service
and to Holders of Certificates that are not excluded from the reporting
requirements.
BACKUP WITHHOLDING
Distributions made on a Certificate and proceeds from the sale of a
Certificate to or through certain brokers may be subject to a "backup"
withholding tax of 31% unless, in general, the Owner of the Certificate complies
with certain procedures or is a corporation or other person exempt from such
withholding. Any amounts so withheld from distributions on the Certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the Owner's federal income tax.
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PLAN OF DISTRIBUTION
The Seller may sell Certificates of each series to or through underwriters
(the "Underwriters") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters, and also may sell and place Certificates
directly to other purchasers or through agents. The Seller intends that
Certificates will be offered through such various methods from time to time and
that offerings may be made concurrently through more than one of these methods
or that an offering of a particular series of Certificates may be made through a
combination of such methods.
The distribution of the Certificates may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more classes of Certificates of such series from the Underwriter or
Underwriters at a price specified in such Prospectus Supplement. Such purchaser
may thereafter from time to time offer and sell, pursuant to this Prospectus,
some or all of such Certificates so purchased directly, through one or more
underwriters to be designated at the time of the offering of such Certificates
or through broker-dealers acting as agent and/or principal. Such offering may be
restricted in the manner specified in such Prospectus Supplement and may be
effected from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.
In connection with the sale of the Certificates, Underwriters may receive
compensation from the Seller or from the purchasers of Certificates for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell the Certificates of a series to or through dealers and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the Underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of the Certificates of a series may be deemed to be
Underwriters and any discounts or commissions received by them from the Seller
and any profit on the resale of the Certificates by them may be deemed to be
underwriting discounts and commissions, under the Securities Act of 1933, as
amended (the "Act"). Any such Underwriters or agents will be identified, and any
such compensation received from the Seller will be described, in the applicable
Prospectus Supplement.
It is anticipated that the underwriting agreement pertaining to the sale of
any series or class of Certificates will provide that the obligations of the
underwriters will be subject to certain conditions precedent and that the
underwriters will be obligated to purchase all such Certificates if any are
purchased.
Under agreements which may be entered into by the Seller, Underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Seller against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Seller will authorize
Underwriters or other persons acting as the Seller's agents to solicit offers by
certain institutions to purchase the Certificates from the Seller pursuant to
contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational charitable
institutions and others, but in all cases such institutions must be approved by
the Seller. The obligation of any purchaser under any such contract will be
subject to the condition that the purchaser of the offered Certificates shall
not at the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject from purchasing such Certificates. The
Underwriters and such other agents will not have responsibility in respect of
the validity or performance of such contracts.
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The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any market, if established, will continue.
USE OF PROCEEDS
Substantially all of the net proceeds from the sale of each series of
Certificates will be applied by the Seller to the purchase price of the Mortgage
Loans underlying the Certificates of such Series.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby,
including certain federal income tax matters, will be passed upon for the Seller
by Morgan, Lewis & Bockius LLP, New York, New York.
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INDEX OF CERTAIN PROSPECTUS DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
15-Year.................................................................................................. 3
30-Year.................................................................................................. 3
Accrual Certificates..................................................................................... 10
Act...................................................................................................... 61
Advance Guarantee........................................................................................ 4
Agency Certificate(5).................................................................................... Cover
Agreement................................................................................................ 1
ARM Loans................................................................................................ 3
ARMs..................................................................................................... 3
Bankruptcy Bond.......................................................................................... 19
Book-Entry Nominee....................................................................................... 54
Buy-Down Fund............................................................................................ 13
Buy-Down Mortgage Loans.................................................................................. 3
Buy-Down Reserve......................................................................................... 13
Cash-Out Refinance Loans................................................................................. 13
CERCLA................................................................................................... 41
Certificate Rate......................................................................................... 10
Chase Manhattan Mortgage................................................................................. Cover
Cleanup Costs............................................................................................ 40
Code..................................................................................................... 6
Collection Account....................................................................................... 11
Commission............................................................................................... i
Compensating Interest Payment............................................................................ 21
Conservation Act......................................................................................... 41
Current Report........................................................................................... 13
Cut-Off Date............................................................................................. 10
Defective Mortgage Loan.................................................................................. 31
Delivery Date............................................................................................ 9
Denomination............................................................................................. 9
Deposit Guarantee........................................................................................ 4
Distribution Date........................................................................................ 11
DOL...................................................................................................... 44
Environmental Lien....................................................................................... 42
ERISA.................................................................................................... 6
Exchange Act............................................................................................. i
FHLMC.................................................................................................... 6
FNMA..................................................................................................... 6
Fund..................................................................................................... 21
Garn-St. Germain Act..................................................................................... 39
GIC...................................................................................................... 19
GNMA..................................................................................................... 6
Guarantor................................................................................................ 4
Insurance Proceeds....................................................................................... 14
Interest Accrual Period.................................................................................. 11
Interest-Only Certificates............................................................................... 47
Limited Guarantee........................................................................................ 4
Liquidation Proceeds..................................................................................... 14
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM PAGE
- --------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Lower-Tier REMIC......................................................................................... 46
Mortgage................................................................................................. 12
Mortgage Loan Schedule................................................................................... 29
Mortgage Loans........................................................................................... Cover
Mortgage Pool............................................................................................ 1
Mortgage Pool Insurance Policy........................................................................... 5
Mortgaged Properties..................................................................................... 12
NCUA..................................................................................................... 43
Nonrecoverable Advance................................................................................... 27
Non-SMMEA Certificates................................................................................... 42
Note..................................................................................................... 12
OID Regulations.......................................................................................... 47
OTS...................................................................................................... 40
Owner.................................................................................................... 46
Parties in Interest...................................................................................... 44
Paying Agent............................................................................................. 11
Plans.................................................................................................... 44
Policy Statement......................................................................................... 43
Primary Mortgage Insurance Policy........................................................................ 13
Principal Prepayments.................................................................................... 12
PTE 83-1................................................................................................. 45
PUD...................................................................................................... 12
Record Date.............................................................................................. 11
Regular Certificates..................................................................................... 46
Relief Act............................................................................................... 40
REMIC.................................................................................................... Cover
REMIC Pool............................................................................................... 46
REMIC Regulations........................................................................................ 52
Remittance Rate.......................................................................................... 2
Representing Party....................................................................................... 29
Reserve Account.......................................................................................... 15
Residual Certificates.................................................................................... 46
Residual Owners.......................................................................................... 48
RICO..................................................................................................... 42
Seller................................................................................................... Cover
Senior Certificates...................................................................................... 15
Servicer................................................................................................. Cover
SMMEA.................................................................................................... 6
Special Hazard Insurance Policy.......................................................................... 5
Stripped Bond Rules...................................................................................... 57
Stripped Certificate..................................................................................... 57
Subordinated Certificates................................................................................ 15
Superlien................................................................................................ 40
Title V.................................................................................................. 40
Trustee.................................................................................................. 9
Trust Fund............................................................................................... Cover
Underwriters............................................................................................. 61
Upper-Tier REMIC......................................................................................... 46
VRDI..................................................................................................... 50
</TABLE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER
OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
OFFERED CERTIFICATES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE SELLER SINCE SUCH DATE.
------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Terms of the Certificates...................... S-6
Risk Factors................................... S-20
The Mortgage Pool.............................. S-23
Prepayment and Yield Considerations............ S-41
Chase Manhattan Mortgage Corporation........... S-56
The Pooling and Servicing Agreement............ S-58
Description of the Certificates................ S-61
Federal Income Tax Considerations.............. S-76
ERISA Considerations........................... S-77
Legal Investment Matters....................... S-79
Use of Proceeds................................ S-80
Underwriting................................... S-80
Legal Matters.................................. S-80
Ratings........................................ S-80
Glossary....................................... S-82
PROSPECTUS
Prospectus Supplement.......................... ii
Available Information.......................... ii
Incorporation of Certain Documents by
Reference.................................... iii
Reports to Certificateholders.................. iii
Summary of Prospectus.......................... 1
Risk Factors................................... 7
Description of the Certificates................ 9
The Mortgage Pools............................. 12
Credit Support................................. 15
Yield, Maturity and Weighted Average Life
Considerations............................... 20
Chase Mortgage Finance Corporation............. 22
Underwriting Policies.......................... 23
Servicing of the Mortgage Loans................ 24
The Pooling and Servicing Agreement............ 29
Certain Legal Aspects of the Mortgage Loans.... 36
Legal Investment Matters....................... 42
ERISA Considerations........................... 44
Federal Income Tax Consequences................ 46
Plan of Distribution........................... 61
Use of Proceeds................................ 62
Legal Matters.................................. 62
Index.......................................... 63
</TABLE>
CHASE MORTGAGE
FINANCE CORPORATION
SELLER
$172,901,967
MULTI-CLASS MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 1998-AS1
[LOGO]
CHASE MANHATTAN
MORTGAGE CORPORATION
SERVICER
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
Securities Corporation
JULY 24, 1998
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