<PAGE>
PROSPECTUS SUPPLEMENT
[LOGO]
(TO PROSPECTUS DATED AUGUST 18, 1998)
$350,539,000 (APPROXIMATE)
CHASE FUNDING
MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES 1998-1
[LOGO]
MORSERV, INC.
Depositor
ADVANTA MORTGAGE CORP. USA
Subservicer
CHASE MANHATTAN MORTGAGE CORPORATION
Master Servicer
<TABLE>
<C> <C> <S>
$42,500,000.. 6.450% Class IA-1
Certificates
$16,000,000.. 6.080% Class IA-2
Certificates
$24,000,000.. 6.175% Class IA-3
Certificates
$15,000,000.. 6.340% Class IA-4
Certificates
$14,347,000.. 6.690%(1) Class IA-5
Certificates
$13,000,000.. 6.315% Class IA-6
Certificates
$5,053,000.. 6.590% Class IM-1
Certificates
$ 2,897,000 6.930% Class IM-2
Certificates
$ 1,955,000 7.640%(2) Class IB Certificates
$136,261,000 (3) Class IIA-1
Certificates
$45,000,000 6.100% Class IIA-2
Certificates
$15,105,000 (3) Class IIM-1
Certificates
$10,271,000 (3) Class IIM-2
Certificates
$ 9,150,000 (3) Class IIB
Certificates
</TABLE>
- ------------------------------
(1) The Pass-Through Rate for the Class IA-5 Certificates on any Distribution
Date will equal 6.690%; provided, however, that on any Distribution Date
after the Optional Termination Date (defined herein), the Pass-Through Rate
for the Class IA-5 Certificates will equal 7.190%.
(2) The Pass-Through Rate for the Class IB Certificates on any Distribution Date
will equal the lesser of (i) the per annum rate set forth above for such
Class and (ii) the weighted average Net Mortgage Rate on the Fixed Rate
Mortgage Loans (each as defined herein).
(3) The Pass-Through Rates for the Group II Certificates (other than the Class
IIA-2 Certificates) adjust monthly as described herein. See "Description of
the Certificates--Distributions--Interest."
------------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SUBSERVICER, THE
TRUSTEE, THE MASTER SERVICER OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT
PROVIDED HEREIN. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
------------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE S-16 HEREIN AND BEGINNING ON PAGE 15 IN THE
ACCOMPANYING PROSPECTUS.
---------------------
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.
<TABLE>
<CAPTION>
ORIGINAL CERTIFICATE UNDERWRITING
PRINCIPAL BALANCE(1) PRICE TO PUBLIC DISCOUNT
-------------------- --------------- -------------
<S> <C> <C> <C>
Class IA-1....................................................... $ 42,500,000 100% 0.150%
Class IA-2....................................................... $ 16,000,000 100% 0.200%
Class IA-3....................................................... $ 24,000,000 100% 0.250%
Class IA-4....................................................... $ 15,000,000 100% 0.290%
Class IA-5....................................................... $ 14,347,000 100% 0.375%
Class IA-6....................................................... $ 13,000,000 100% 0.290%
Class IM-1....................................................... $ 5,053,000 100% 0.425%
Class IM-2....................................................... $ 2,897,000 100% 0.500%
Class IB......................................................... $ 1,955,000 100% 0.600%
Class IIA-1...................................................... $ 136,261,000 100% 0.225%
Class IIA-2...................................................... $ 45,000,000 100% 0.235%
Class IIM-1...................................................... $ 15,105,000 100% 0.290%
Class IIM-2...................................................... $ 10,271,000 100% 0.375%
Class IIB........................................................ $ 9,150,000 100% 0.470%
Total............................................................ $ 350,539,000 $ 350,539,000 $ 876,104
<CAPTION>
PROCEEDS TO
DEPOSITOR(2)
-------------
<S> <C>
Class IA-1....................................................... $ 42,436,250
Class IA-2....................................................... 15,968,000
Class IA-3....................................................... 23,940,000
Class IA-4....................................................... 14,956,500
Class IA-5....................................................... 14,293,199
Class IA-6....................................................... 12,962,300
Class IM-1....................................................... 5,031,525
Class IM-2....................................................... 2,882,515
Class IB......................................................... 1,943,270
Class IIA-1...................................................... 135,954,413
Class IIA-2...................................................... 44,894,250
Class IIM-1...................................................... 15,061,196
Class IIM-2...................................................... 10,232,484
Class IIB........................................................ 9,106,995
Total............................................................ $ 349,662,896
</TABLE>
- ------------------------------
(1) Subject to a permitted variance of plus or minus 10%.
(2) Less expenses payable by the Depositor, estimated to be $491,000 and plus
accrued interest.
------------------------------
The Offered Certificates are offered subject to prior sale and subject to
the Underwriters' right to reject orders in whole or in part. It is expected
that delivery of the Offered Certificates will be made in book-entry form only
though the facilities of The Depository Trust Company, CEDEL Bank, societe
anonyme and the Euroclear System on or about August 20, 1998 (the "Closing
Date"). The Offered Certificates will be offered in Europe and the United States
of America.
CHASE SECURITIES INC. PRUDENTIAL SECURITIES INCORPORATED
(JOINT BOOK LEAD)
The date of this Prospectus Supplement is August 18, 1998.
<PAGE>
(COVER PAGE CONTINUED)
The Mortgage Loan Asset-Backed Certificates, Series 1998-1 (the "Certificates"),
will consist of: (a) (i) the Class IA-1, Class IA-2, Class IA-3, Class IA-4,
Class IA-5 and Class IA-6 Certificates (collectively, the "Class A Group I
Certificates"), (ii) the Class IM-1 and Class IM-2 Certificates (together, the
"Mezzanine Group I Certificates") and (iii) the Class IB Certificates (the
"Class IB Certificates" and together with the Mezzanine Group I Certificates,
the "Subordinated Group I Certificates" and the Subordinated Group I
Certificates together with the Class A Group I Certificates, the "Group I
Certificates"); (b) (i) the Class IIA-1 and Class IIA-2 Certificates
(collectively, "Class A Group II Certificates"), (ii) the Class IIM-1 and Class
IIM-2 Certificates (together, the "Mezzanine Group II Certificates") and (iii)
the Class IIB Certificates (the "Class IIB Certificates" and together with the
Mezzanine Group II Certificates, the "Subordinated Group II Certificates" and
the Subordinated Group II Certificates together with the Class A Group II
Certificates, the "Group II Certificates"); and (c) the Class R Certificates
(the "Residual Certificates"). The Group I Certificates and the Group II
Certificates are each referred to herein as a "Certificate Group" and
collectively as the "Certificate Groups." Only the Group I Certificates and the
Group II Certificates (collectively, the "Offered Certificates") are offered
hereby.
The Certificates will represent the entire beneficial ownership interest in
a trust fund (the "Trust Fund") to be created pursuant to a Pooling and
Servicing Agreement, dated as of August 1, 1998, among MorServ, Inc., as
depositor (the "Depositor"), Advanta Mortgage Corp. USA, as subservicer (the
"Subservicer" or "Advanta"), Chase Manhattan Mortgage Corporation, as master
servicer (the "Master Servicer" or "Chase Manhattan Mortgage") and Citibank,
N.A., as trustee (the "Trustee"). The Trust Fund will consist of a pool (the
"Mortgage Pool") of conventional, sub-prime mortgage loans (the "Mortgage
Loans") secured by first liens on real properties (each, a "Mortgaged Property")
and certain other assets described herein. The Mortgage Pool will be divided
into two separate groups of Mortgage Loans (each, a "Loan Group") based on
whether the interest rate for the related Mortgage Loans is fixed or adjustable.
The Group I Certificates will represent an undivided ownership interest in a
Loan Group of fixed rate Mortgage Loans (the "Fixed Rate Mortgage Loan Group")
and the Group II Certificates will represent an undivided ownership interest in
a Loan Group of adjustable rate Mortgage Loans (the "Adjustable Rate Mortgage
Loan Group"). See "The Mortgage Pool." Distributions in respect of the Group I
Certificates will generally be calculated with reference to the Fixed Rate
Mortgage Loan Group. Distributions in respect of the Group II Certificates will
generally be calculated with reference to the Adjustable Rate Mortgage Loan
Group.
For federal income tax purposes, the Trust Fund will include two segregated
asset pools, with respect to which elections will be made to treat each as a
"real estate mortgage investment conduit" (a "REMIC"). As described more fully
herein and in the Prospectus, the Certificates, other than the Residual
Certificates, will constitute "regular interests" in the Master REMIC. The
Residual Certificates will represent the sole class of "residual interests" in
both the Master REMIC and the Subsidiary REMIC. See "Federal Income Tax
Consequences" herein and in the Prospectus.
Each Loan Group is subject to optional termination under the limited
circumstances described herein. Any such optional termination will result in an
early retirement of the Certificates in the Certificate Group related to such
Loan Group. Distributions to Certificateholders will be made on the 25th day of
each month or, if such 25th day is not a Business Day, on the first Business Day
thereafter (each, a "Distribution Date"), commencing in September 1998.
The Offered Certificates evidence interests in the Trust Fund only and are
payable solely from amounts received with respect thereto.
THE YIELD TO INVESTORS ON THE CERTIFICATES OF EACH CERTIFICATE GROUP WILL BE
SENSITIVE TO, AMONG OTHER THINGS, THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS, LIQUIDATIONS, REPURCHASES AND DEFAULTS) OF, AND LOSSES
ON, THE MORTGAGE LOANS IN THE RELATED LOAN GROUP AND, IN CERTAIN CIRCUMSTANCES,
THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, LIQUIDATIONS,
REPURCHASES AND DEFAULTS)
S-2
<PAGE>
OF, AND LOSSES ON, THE MORTGAGE LOANS IN THE OTHER LOAN GROUP, AS DESCRIBED
HEREIN. BECAUSE CERTAIN OF THE MORTGAGE LOANS CONTAIN PREPAYMENT PENALTIES, THE
RATE OF PRINCIPAL PAYMENTS MAY BE LESS THAN THE RATE OF PRINCIPAL PAYMENTS FOR
MORTGAGE LOANS WHICH DO NOT CONTAIN PREPAYMENT PENALTIES. THE YIELD TO INVESTORS
ON THE CLASS IB CERTIFICATES WILL BE NEGATIVELY AFFECTED TO THE EXTENT THAT THE
PASS-THROUGH RATE ON SUCH CERTIFICATE IS DETERMINED BY THE WEIGHTED AVERAGE NET
MORTGAGE RATE ON THE FIXED RATE MORTGAGE LOANS, AS DESCRIBED HEREIN. THE YIELD
TO INVESTORS ON THE GROUP II CERTIFICATES WILL ALSO BE SENSITIVE TO THE LEVEL OF
THE LONDON INTERBANK OFFERED RATE FOR ONE-MONTH UNITED STATES DOLLAR DEPOSITS,
CALCULATED AS DESCRIBED HEREIN ("ONE-MONTH LIBOR"). IN ADDITION, THE YIELD TO
INVESTORS ON THE GROUP II CERTIFICATES WILL BE SENSITIVE TO THE LEVEL OF THE
MORTGAGE INDEX (AS DEFINED HEREIN) AND THE ADDITIONAL LIMITATIONS ON THE
PASS-THROUGH RATE FOR THE GROUP II CERTIFICATES, AS DESCRIBED HEREIN. NO
REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OR TIMING OF PREPAYMENTS ON
THE MORTGAGE LOANS, THE AMOUNT AND TIMING OF LOSSES THEREON, THE LEVEL OF ONE-
MONTH LIBOR OR THE MORTGAGE INDEX OR THE RESULTING YIELD TO MATURITY OF THE
OFFERED CERTIFICATES.
Chase Securities Inc. and Prudential Securities Incorporated (each, an
"Underwriter") intend to make a secondary market in the Offered Certificates but
have no obligation to do so. There is currently no secondary market for the
Offered Certificates and there can be no assurance that such a market will
develop or, if it does develop, that it will continue or that such market will
provide sufficient liquidity to Certificateholders.
------------------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus dated August 18, 1998 (the "Prospectus") which accompanies this
Prospectus Supplement 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.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Offered
Certificates. Such transactions may include stabilizing and the purchase of the
Offered Certificates to cover syndicate short positions. See "Method of
Distribution."
------------------------
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-3
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY OF TERMS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE ACCOMPANYING PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY OF
TERMS ARE DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS.
SEE "INDEX OF DEFINED TERMS" BEGINNING ON PAGE S-83 OF THIS PROSPECTUS
SUPPLEMENT FOR THE LOCATION OF THE DEFINITIONS OF CERTAIN CAPITALIZED TERMS.
<TABLE>
<S> <C>
Title of Certificates............. Chase Funding Mortgage Loan Asset-Backed Certificates,
Series 1998-1 (the "Certificates"), consisting of: (a)
(i) the Class IA-1, Class IA-2, Class IA-3, Class IA-4,
Class IA-5 and Class IA-6 Certificates (collectively,
the "Class A Group I Certificates"), (ii) the Class IM-1
and Class IM-2 Certificates (together, the "Mezzanine
Group I Certificates") and (iii) the Class IB
Certificates (the "Class IB Certificates" and together
with the Mezzanine Group I Certificates, the
"Subordinated Group I Certificates" and the Subordinated
Group I Certificates together with the Class A Group I
Certificates, the "Group I Certificates"); (b) (i) the
Class IIA-1 and Class IIA-2 Certificates (together, the
"Class A Group II Certificates"), (ii) the Class IIM-1
and Class IIM-2 Certificates (together, the "Mezzanine
Group II Certificates") and (iii) the Class IIB
Certificates (the "Class IIB Certificates" and together
with the Mezzanine Group II Certificates, the
"Subordinated Group II Certificates" and the
Subordinated Group II Certificates together with the
Class A Group II Certificates, the "Group II
Certificates"); and (c) the Class R Certificates (the
"Residual Certificates"). The Group I Certificates and
the Group II Certificates are each referred to herein as
a "Certificate Group" and collectively as the
"Certificate Groups." Only the Group I Certificates and
the Group II Certificates (collectively, the "Offered
Certificates") are offered hereby. References to "Class
A," "Class M-1," "Class M-2," "Class B," "Mezzanine
Certificates" and "Subordinated Certificates" are
references to Certificates of either or both Certificate
Groups of similar designations, as the context requires.
Depositor......................... MorServ, Inc. (the "Depositor") a wholly-owned, limited
purpose subsidiary of Chase Manhattan Mortgage (defined
below). Neither the Depositor nor any of its affiliates,
including The Chase Manhattan Bank and Chase Manhattan
Mortgage, has guaranteed or is otherwise obligated with
respect to the Certificates.
Seller and Master Servicer........ Chase Manhattan Mortgage Corporation, a New Jersey
corporation, as seller (the "Seller" or "Chase Manhattan
Mortgage") and as master servicer (in such capacity, the
"Master Servicer"). See "Chase Manhattan Mortgage
Corporation." The Mortgage Loans were originated by
Chase Manhattan Mortgage and will be acquired by the
Depositor on the Closing Date (defined herein). Neither
the Depositor nor Chase Manhattan Mortgage has
guaranteed, or is otherwise obligated with respect to,
the
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Certificates. The Master Servicer will (a) provide
certain administrative services and file certain reports
with regard to the Certificates, (b) provide certain
reports to the Trustee regarding the Mortgage Loans and
the Certificates and (c) receive payments with respect
to the Mortgage Loans from the Subservicer and, in its
capacity as paying agent for the Certificates (in such
capacity, the "Paying Agent"), remit such payments to
the Certificateholders as described herein. The Master
Servicer will be entitled to (i) a monthly Master
Servicer Fee with respect to each Mortgage Loan, as
described herein and (ii) any interest earned on funds
in the Certificate Account and the Distribution Account
(defined herein).
Subservicer....................... Advanta Mortgage Corp. USA (the "Subservicer" or
"Advanta"). Except as specified herein or as the context
otherwise requires, all references to the "Servicer" in
the Prospectus shall be deemed to refer to the
Subservicer and the rights and duties of the "Servicer"
described in the Prospectus will instead generally be
those of the Subservicer pursuant to the terms of the
Pooling and Servicing Agreement. See "Servicing of Mort-
gage Loans--The Subservicer."
Trustee........................... Citibank, N.A., a national banking corporation, not in
its individual capacity but solely as trustee on behalf
of the Certificateholders (the "Trustee").
Cut-off Date...................... August 1, 1998.
Closing Date...................... On or about August 20, 1998.
Description of Certificates
A. General...................... The Certificates will be issued pursuant to a Pooling
and Servicing Agreement, dated as of August 1, 1998 (the
"Pooling and Servicing Agreement"), among the Depositor,
the Subservicer, the Master Servicer and the Trustee.
The Offered Certificates and the Residual Certificates
will represent the entire beneficial ownership interest
in a trust fund (the "Trust Fund"), which will consist
of a pool (the "Mortgage Pool") of conventional,
sub-prime mortgage loans (the "Mortgage Loans") secured
by first liens on real properties (each, a "Mortgaged
Property") and certain other assets described herein.
The Mortgage Pool will be divided into two separate
groups of Mortgage Loans (each, a "Loan Group") based on
whether the interest rate for the related Mortgage Loans
is fixed or adjustable. The Group I Certificates will
represent an undivided ownership interest in a Loan
Group of fixed rate Mortgage Loans (the "Fixed Rate
Mortgage Loan Group") and the Group II Certificates will
represent an undivided ownership interest in a Loan
Group of adjustable rate Mortgage Loans (the "Adjustable
Rate Mortgage Loan Group"). The aggregate unpaid
principal balance of the Mortgage Loans in the Fixed
Rate Mortgage Loan Group (the "Fixed Rate Mortgage
Loans") as of the Cut-off Date is referred to herein as
the
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
"Fixed Rate Cut-off Date Principal Balance"; the
aggregate unpaid balance of the Mortgage Loans in the
Adjustable Rate Mortgage Loan Group (the "Adjustable
Rate Mortgage Loans") as of the Cut-off Date is referred
to herein as the "Adjustable Rate Cut-off Date Principal
Balance"; and the aggregate unpaid principal balance of
all Mortgage Loans as of the Cut-off Date is referred to
herein as the "Cut-off Date Principal Balance." See "The
Mortgage Pool" herein.
The Original Certificate Principal Balances, the
Pass-Through Rates and the Last Scheduled Distribution
Dates for the Offered Certificates are as follows:
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL LAST
CERTIFICATE PASS- SCHEDULED
PRINCIPAL THROUGH DISTRIBUTION
CLASS BALANCE (1) RATE DATE(2)
- --------------- -------------- ----------- ----------------------
<S> <C> <C> <C>
GROUP I
CERTIFICATES
Class IA-1..... $ 42,500,000 6.450% May 25, 2013
Class IA-2..... $ 16,000,000 6.080% May 25, 2013
Class IA-3..... $ 24,000,000 6.175% August 25, 2020
Class IA-4..... $ 15,000,000 6.340% April 25, 2025
Class IA-5..... $ 14,347,000 6.690%(3) May 25, 2028
Class IA-6..... $ 13,000,000 6.315% May 25, 2013
Class IM-1..... $ 5,053,000 6.590% May 25, 2028
Class IM-2..... $ 2,897,000 6.930% May 25, 2028
Class IB....... $ 1,955,000 7.640%(4) May 25, 2028
GROUP II
CERTIFICATES
Class IIA-1.... $ 136,261,000 (5) July 25, 2028
Class IIA-2.... $ 45,000,000 6.100% December 25, 2015
Class IIM-1.... $ 15,105,000 (5) July 25, 2028
Class IIM-2.... $ 10,271,000 (5) July 25, 2028
Class IIB...... $ 9,150,000 (5) July 25, 2028
</TABLE>
----------------------------------------------------------
(1) The Original Certificate Principal Balance
of the Offered Certificates will be subject
to a permitted variance of plus or minus
10%.
(2) Calculated in accordance with the
assumptions for the determination of Last
Scheduled Distribution Date set forth
herein under "Yield, Prepayment and
Maturity Considerations." It is expected
that the actual last Distribution Date for
each Class of Certificates will occur
significantly earlier.
(3) The Pass-Through Rate for the Class IA-5
Certificates on any Distribution Date will
equal 6.690%; provided, however, that on
any Distribution Date after the Optional
Termination Date (defined herein) the
Pass-Through Rate for the Class IA-5
Certificates will equal 7.190%.
(4) The Pass-Through Rate for the Class IB
Certificates on any Distribution Date will
equal the lesser of (i) the per annum rate
for such Class set forth above and (ii) the
weighted average Net Mortgage Rate on the
Fixed Rate Mortgage Loans.
(5) The Pass-Through Rates for the Group II
Certificates (other than with respect to
the Class IIA-2 Certificates) adjust
monthly as described below.
<TABLE>
<S> <C>
The Pass-Through Rates per annum for the Group II
Certificates (other than for the Class IIA-2
Certificates) will be equal to the least of (i) the
London interbank offered rate for one month United
States dollar deposits, calculated as described under
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
"Description of the Certificates--Calculation of One-
Month LIBOR" ("One-Month LIBOR"), plus the Pass-Through
Margin (defined below) for such Class, (ii) the "Maximum
Funds Cap" for the Group II Certificates, which is
defined as the weighted average of the maximum lifetime
Mortgage Rates on the Adjustable Rate Mortgage Loans
less the Servicing Fee and the Master Servicer Fee, and
(iii) the "Available Funds Cap" for the Group II
Certificates, which is defined as a per annum rate equal
to 12 times the quotient of (x) the total scheduled
interest on the Mortgage Loans in the Adjustable Rate
Mortgage Loan Group based on the Net Mortgage Rates
(defined herein) in effect on the related Due Date
divided by (y) the aggregate principal balance of the
Group II Certificates.
The "Pass-Through Margin" for each Class of Group II
Certificates (other than for the Class IIA-2
Certificates) is as follows: for any Distribution Date
on or before the applicable Optional Termination Date
(defined herein): Class IIA-1, 0.160%; Class IIM-1,
0.340%; Class IIM-2, 0.520% and Class IIB, 1.170%; and
for any Distribution Date after the applicable Optional
Termination Date: Class IIA-1, 0.320%; Class IIM-1,
0.510%; Class IIM-2, 0.780%; and Class IIB, 1.755%.
If on any Distribution Date, the Pass-Through Rate for a
Class of Group II Certificates is based upon its
Available Funds Cap, the excess of (i) the amount of
interest that such Class would have been entitled to
receive on such Distribution Date had the Pass-Through
Rate for that Class not been calculated based on the
Available Funds Cap up to but not exceeding the Maximum
Funds Cap over (ii) the amount of interest such Class
received on such Distribution Date based on the
Available Funds Cap, together with the unpaid portion of
any such excess from prior Distribution Dates (and
interest accrued thereon at the then applicable
Pass-Through Rate, without giving effect to the Avail-
able Funds Cap) is the "Adjustable Rate Certificate
Carryover" for such Class. Any Adjustable Rate
Certificate Carryover will be paid on future
Distribution Dates from and to the extent of funds
available therefor as described herein. The ratings of
the Group II Certificates do not address the likelihood
of the payment of any Adjustable Rate Certificate
Carryover.
B. Form of Certificates......... The Offered Certificates will initially be issued in
book-entry form. Persons acquiring beneficial ownership
interests in the Offered Certificates ("Certificate
Owners") may elect to hold their Offered Certificate
interests through The Depository Trust Company ("DTC"),
in the United States, or Cedel Bank, societe anonyme
("CEDEL") or the Euroclear System ("Euroclear"), in
Europe. Transfers within DTC, CEDEL or Euroclear, as the
case may be, will be in accordance with the usual rules
and operating procedures of the relevant system. So long
as the Offered Certificates are Book-Entry Certificates
(as defined herein), such Certificates will be evidenced
by one or more Certificates registered in the name of
Cede & Co. ("Cede"), as
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
the nominee of DTC or one of the relevant depositaries
(collectively, the "European Depositaries").
Cross-market transfers between persons holding directly
or indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly through
CEDEL or Euroclear, on the other, will be effected in
DTC through Citibank N.A. ("Citibank") or Chase, the
relevant depositaries of CEDEL or Euroclear,
respectively, and each a participating member of DTC.
The interests of the Offered Certificateholders will be
represented by book entries on the records of DTC and
participating members thereof. No Certificate Owner will
be entitled to receive a definitive certificate
representing such person's interest, except in the event
that Definitive Certificates (as defined herein) are
issued under the limited circumstances described under
"Description of the Certificates--Book-Entry
Certificates" herein. All references in this Prospectus
Supplement to the Offered Certificates reflect the
rights of Certificate Owners only as such rights may be
exercised through DTC and its participating
organizations for so long as the Offered Certificates
are held by DTC. See "Risk Factors-- Consequences of
Owning Book-Entry Certificates," "Description of the
Certificates--Book-Entry Certificates" and "Annex I"
hereto.
C. Distributions................ Distributions on the Offered Certificates will be made
on the 25th day of each month or, if such day is not a
Business Day, on the first Business Day thereafter,
commencing in September 1998 (each, a "Distribution
Date"). Distributions on each Distribution Date will be
made to Certificateholders of record as of the close of
business on the last day of the month preceding the
month of such Distribution Date (each, a "Record Date"),
except that the final distribution on any Offered
Certificate will be made only upon presentation and
surrender of such Offered Certificate at the office or
agency of the Paying Agent in New York, New York.
Distributions on the Offered Certificates on each
Distribution Date will be applied to the payment of
principal and interest on such Certificates in
accordance with the priorities described in this
Prospectus Supplement. Subject in certain cases to the
crosscollateralization provisions of the Pooling and
Servicing Agreement described below under "Description
of the Certificates--Overcollateralization and Crosscol-
lateralization Provisions," (i) the rights of the
holders of the Class IB Certificates to receive
distributions with respect to the Fixed Rate Mortgage
Loans are subordinate to the rights of the holders of
the Mezzanine Group I Certificates, which in turn are
subordinate to the rights of the holders of the Class A
Group I Certificates and (ii) the rights of the holders
of the Class IIB Certificates to receive distributions
with respect to the Adjustable Rate Mortgage Loans are
subordinate to rights of the holders of the Mezzanine
Group II Certificates, which in turn are subordinate to
the rights of the holders of the Class A Group II
Certificates, in each case to the extent described
herein. The
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rights of the holders of the Residual Certificates to
receive distributions with respect to the Mortgage Loans
are subordinate to the rights of the Offered
Certificateholders, to the extent described herein.
1. Interest................... On each Distribution Date, the interest distributable
with respect to the Group I Certificates and the Class
IIA-2 Certificates is the interest which has accrued
thereon at the related Pass-Through Rate during the
calendar month immediately preceding the calendar month
in which such Distribution Date occurs less Prepayment
Interest Shortfalls (defined herein); and the interest
distributable with respect to the Group II Certificates
(other than with respect to the Class IIA-2
Certificates) is the interest which has accrued thereon
at the related Pass-Through Rate from and including the
preceding Distribution Date (or from the Closing Date,
in the case of the first Distribution Date) to and
including the day prior to the current Distribution Date
less Prepayment Interest Shortfalls. Each period
referred to in the prior sentence relating to the
accrual of interest is the "Accrual Period" for the
related Class of Offered Certificates.
All calculations of interest on the Group I Certificates
and Class IIA-2 Certificates will be made on the basis
of a 360-day year assumed to consist of twelve 30-day
months. All calculations of interest on the Group II
Certificates (other than the Class IIA-2 Certificates)
will be made on the basis of a 360-day year and the
actual number of days elapsed in the applicable Accrual
Period.
2. Principal.................. On each Distribution Date, monthly distributions that
reduce the Certificate Principal Balances of the Offered
Certificates: (i) will generally reflect collections of
principal in respect of the Mortgage Loans in the
related Loan Group; and (ii) until certain
overcollateralization levels have been reached, will
include excess interest collected on the Mortgage Loans.
See "Description of the Certificates--Distributions" and
"--Overcollateralization and Crosscollateralization
Provisions."
Credit Enhancement................ The Credit Enhancement provided for the benefit of the
Holders of the Offered Certificates consists of (x) with
respect to the Class A Certificates and, to a limited
extent, the Mezzanine Certificates, the provisions with
respect to preferential distributions of principal and
interest described herein and (y) the application of
excess interest on the Mortgage Loans under the
overcollateralization and crosscollateralization
mechanics discussed herein.
SENIOR AND SUBORDINATED DISTRIBUTIONS: On each
Distribution Date, distributions with respect to
principal of and interest on the Certificates of each
Certificate Group will be made first to the Class A
Certificates, in the manner described herein under
"Description of the Certificates--Distributions"),
second to the Class M-1 Certificates, third to the Class
M-2 Certificates,
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fourth to the Class B Certificates and finally to the
Residual Certificates.
Initially, principal will be distributed exclusively to
the Class A Certificates of a Certificate Group until
the Stepdown Date (defined herein). On or after the
Stepdown Date, so long as a Trigger Event (defined
herein) is not in effect for such Loan Group, principal
not required to be distributed with respect to the Class
A Certificates of that Certificate Group will be
distributed to the Class M-1 Certificates of that
Certificate Group generally until the excess of the
aggregate Stated Principal Balances (defined herein) of
the Mortgage Loans in the related Loan Group over the
sum of the Certificate Principal Balances of the Class A
and Class M-1 Certificates of the related Certificate
Group is equal to 8.50% for the Fixed Rate Mortgage Loan
Group and 22.00% for the Adjustable Rate Mortgage Loan
Group, of such Stated Principal Balances; thereafter,
principal not required to be distributed with respect to
the Class A and Class M-1 Certificates of that
Certificate Group will be distributed to the Class M-2
Certificates of that Certificate Group generally until
the excess of the aggregate Stated Principal Balances of
the Mortgage Loans in the related Loan Group over the
sum of the Certificate Principal Balances of the Class
A, Class M-1 and Class M-2 Certificates of the related
Certificate Group is equal to 4.20% for the Fixed Rate
Mortgage Loan Group and 12.48% for the Adjustable Rate
Mortgage Loan Group, of the applicable Stated Principal
Balances; thereafter principal not required to be
distributed with respect to Class A, Class M-1 and Class
M-2 Certificates of that Certificate Group will be
distributed to the Class B Certificates of that
Certificate Group generally until the excess of the
aggregate Stated Principal Balances of the Mortgage
Loans in the related Loan Group over the sum of the
Certificate Principal Balances of the Class A, Class
M-1, Class M-2 and Class B Certificates of the related
Certificate Group is equal to 1.30% for the Fixed Rate
Mortgage Loan Group and 4.00% for the Adjustable Rate
Mortgage Loan Group, of the applicable Stated Principal
Balances; thereafter principal not required to be
distributed to the Offered Certificates will be
distributed to the Residual Certificates.
See "Description of the
Certificates--Distributions--Distributions of
Principal."
OVERCOLLATERALIZATION AND CROSSCOLLATERALIZATION. The
cashflow provisions described herein are expected to
result initially in an increased rate of amortization of
the Class A Certificates of each Certificate Group
relative to the amortization of the Mortgage Loans in
the related Loan Group through the application of excess
interest received on the Mortgage Loans in such Loan
Group to the payment of the principal of Class A
Certificates of such Certificate Group until a required
level of overcollateralization is achieved. In addition,
the cashflow provisions require, under certain
circumstances, that excess interest generated by
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one Loan Group be applied towards the payment of
Certificates related to the other Loan Group
("crosscollateralization"). As a result, the aggregate
Stated Principal Balances of the Mortgage Loans in each
Loan Group are expected, from time to time, to exceed
the aggregate Certificate Principal Balances of the
Offered Certificates in the related Certificate Group
(such excess, "overcollateralization"). Once the
required level of overcollateralization is reached, and
subject to the provisions described in the next
paragraph, the increased rate of amortization of the
Class A Certificates will cease, unless necessary to
maintain the required level of overcollateralization.
The Pooling and Servicing Agreement provides that,
subject to certain floors, caps and triggers, the
required level of overcollateralization with respect to
a Loan Group may increase or decrease over time as
described herein. An increase would result in a
temporary period of faster amortization of the Class A
Certificates in the related Certificate Group in order
to increase the actual level of overcollateralization to
its required level; a decrease would result in a
temporary period of slower amortization in order to
reduce the actual level of overcollateralization to its
required level. See "Description of the Certificates--
Overcollateralization and Crosscollateralization
Provisions."
REALIZED LOSSES. If on any Distribution Date the
Certificate Principal Balances of the Offered
Certificates of a Certificate Group exceed the Stated
Principal Balances of the Mortgage Loans in the related
Loan Group, the Certificate Principal Balances of the
related Subordinated Certificates (but not the Class A
Certificates) of such Certificate Group will be reduced,
in reverse order of seniority (first Class B, second
Class M-2 and third Class M-1), by the amount of the
excess; any such excess is referred to as an "Applied
Realized Loss Amount." Thereafter, such Subordinated
Certificates are only entitled to distributions of
interest and principal with respect to their Certificate
Principal Balances as so reduced, and the amount of any
Applied Realized Loss Amount will be payable to the
applicable Class of Subordinated Certificates only to
the extent of future excess cash flow as described
herein. See "Description of the Certifi-
cates--Overcollateralization and Crosscollateralization
Provisions."
The Mortgage Loans................ The Mortgage Loans will be divided into two separate
groups (each, a "Loan Group") based on whether the
interest rate for the related Mortgage Loan is fixed or
adjustable. The Mortgage Loans are secured by first
liens on real properties (each, a "Mortgaged Property").
The Fixed Rate Mortgage Loan Group consists of all the
fixed rate Mortgage Loans. The Adjustable Rate Mortgage
Loan Group consists of all the adjustable rate Mortgage
Loans. The aggregate principal balance of the Mortgage
Loans as of August 1, 1998 (the "Cut-off Date") was
approximately $350,539,533. As of the Cut-off Date, the
aggregate principal balance of the Mortgage Loans in the
Fixed Rate
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Mortgage Loan Group (the "Fixed Rate Mortgage Loans")
was approximately $134,752,087. As of the Cut-off Date,
the aggregate principal balance of the Mortgage Loans in
the Adjustable Rate Mortgage Loan Group (the "Adjustable
Rate Mortgage Loans") was approximately $215,787,446.
References herein to percentages of Mortgage Loans refer
in each case to the percentage of the aggregate
principal balance of the Mortgage Loans or, as the case
may be, the Mortgage Loans in the applicable Mortgage
Group, 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
due on or prior to the Cut-off Date, whether or not
received. References to percentages of Mortgaged
Properties refer, in each case, to the percentages of
aggregate principal balances of the related Mortgage
Loans (determined as described in the preceding
sentence.)
FIXED RATE MORTGAGE LOAN GROUP. The following summarizes
certain approximate characteristics of the Fixed Rate
Mortgage Loans as of the Cut-off Date:
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Number of Mortgage Loans.................. 1,679
Aggregate Outstanding Principal Balance... $134,752,087
Average Outstanding Principal Balance..... $80,257
Range of Outstanding Principal Balances... $6,864 to $698,009
Weighted Average Mortgage Rate............ 9.424%
Range of Mortgage Rates................... 6.450% to 14.650%
Weighted Average Loan-to-Value Ratio...... 71.08%
Range of Loan-to-Value Ratios............. 9.09% to 93.45%
Weighted Average Stated Remaining Term.... 262 months
Range of Stated Remaining Terms........... 115 months to 360 months
Number of Mortgage Loans with Prepayment
Penalties............................... 1,269
Product Type:
10 year fixed........................... 1.20%
15 year fixed........................... 16.16%
20 year fixed........................... 5.33%
25 year fixed........................... 0.11%
30 year fixed........................... 45.80%
Balloon Loan............................ 31.39%
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ADJUSTABLE RATE MORTGAGE LOAN GROUP. The following
summarizes certain approximate characteristics of the
Adjustable Rate Mortgage Loans as of the Cut-off Date:
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Number of Mortgage Loans.................. 1,883
Aggregate Outstanding Principal Balance... $215,787,446
Average Outstanding Principal Balance..... $114,598
Range of Outstanding Principal Balances... $12,670 to $817,019
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Mortgage Rates:
Current Weighted Average Mortgage
Rate.................................. 9.550%
Range of Current Mortgage Rates......... 6.500% to 14.375%
Weighted Average Maximum Mortgage
Rate ................................. 16.500%
Range of Maximum Mortgage Rates......... 12.500% to 20.375%
Weighted Average Lifetime Minimum
Mortgage Rate......................... 9.546%
Range of Minimum Lifetime Mortgage
Rates................................. 6.500% to 14.375%
Weighted Average Loan-to-Value Ratio...... 77.10%
Range of Loan-to-Value Ratios............. 13.64% to 95.00%
Weighted Average Stated Remaining Term.... 357 months
Range of Stated Remaining Terms........... 346 months to 360 months
Number of Mortgage Loans with Prepayment
Penalties............................... 962
Product type:
6 month LIBOR........................... 3.99%
1/29 Loan............................... 8.13%
2/28 Loan............................... 49.98%
3/27 Loan............................... 32.66%
5/25 Loan............................... 4.57%
Other................................... 0.67%
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All the Adjustable Rate Mortgage Loans are expected to
be subject to periodic interest rate adjustment caps,
lifetime interest rate ceilings and lifetime interest
rate floors. As described herein under "The Mortgage
Pool --General," the Mortgage Rates for all of the
Adjustable Rate Mortgage Loans will generally be subject
to adjustment semi-annually to equal the sum, rounded to
the nearest 0.125%, of the Mortgage Index and the Gross
Margin for such Mortgage Loan, subject to the effects of
any applicable Periodic Rate Cap, Maximum Mortgage Rate
and Minimum Mortgage Rate (each, as defined herein).
The Mortgage Index applicable to any semi-annual
Adjustment Date for substantially all of the Adjustable
Rate Mortgage Loans will be the average of the London
interbank offered rates for six-month U.S. dollar
deposits in the London market, as set forth in The Wall
Street Journal, or, if the Mortgage Index ceases to be
published in The Wall Street Journal or becomes
unavailable for any reason, then the Mortgage Index
shall be a new index selected by the Trustee, as holder
of the related Mortgage Note (defined herein), based on
comparable information, in each case as most recently
announced as of a date 45
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days prior to such Adjustment Date. The Mortgage Index
value published on August 17, 1998 was 5.71875%. See
"The Mortgage Pool."
Servicing......................... Advanta (the "Subservicer") will serve as the servicer
of the Mortgage Loans under the Pooling and Servicing
Agreement. The Subservicer will be responsible for the
servicing of the Mortgage Loans and will receive from
interest collected on the Mortgage Loans a monthly
servicing fee on each Mortgage Loan equal to the Stated
Principal Balance thereof multiplied by one-twelfth of
the Servicing Fee Rate (such product, the "Servicing
Fee"). See "Servicing of Mortgage Loans--Servicing
Compensation and Payment of Expenses" herein. The
Subservicer is obligated to make cash advances
("Advances") with respect to delinquent payments of
principal of and interest on any Mortgage Loan to the
extent described herein. The Trustee will be obligated
to make any such Advance if the Subservicer fails in its
obligation to do so, to the extent provided in the
Pooling and Servicing Agreement. See "Servicing of
Mortgage Loans-- Advances."
Optional Termination.............. On any Distribution Date on which the aggregate unpaid
principal balance of the Mortgage Loans (the "Stated
Principal Balance") of either Loan Group is less than or
equal to 10% of the Cut-off Date Principal Balance for
all Mortgage Loans in such Loan Group (an "Optional
Termination Date"), the Master Servicer will have the
option (but not the obligation) to purchase, in whole,
the Mortgage Loans and the REO Property (as defined
herein), if any, remaining in such Loan Group and
thereby effect the early retirement of all Certificates
in the related Certificate Group. See "Description of
the Certificates-- Optional Termination."
Federal Income Tax Consequences... For federal income tax purposes, the Trust Fund will
include two segregated asset pools, with respect to
which elections will be made to treat each as a "real
estate mortgage investment conduit" ("REMIC"). The
Offered Certificates will constitute "regular interests"
in the Master REMIC. As such, the Offered Certificates
will be treated as debt instruments issued by a REMIC.
The Residual Certificates will represent the sole class
of residual interests in the Master REMIC and the
Subsidiary REMIC. Certain Classes of Offered
Certificates may be issued with original issue discount
("OID") for federal income tax purposes. See "Federal
Income Tax Consequences" herein and in the Prospectus.
ERISA Considerations.............. The acquisition of a Class A Certificate by an employee
benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or a plan or
arrangement subject to Section 4975 of the Code (each of
the foregoing, a "Plan") could, in some instances,
result in a "prohibited transaction" or other violation
of the fiduciary responsibility provisions of ERISA and
Code Section 4975.
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However, certain exemptions from the prohibited
transaction rules of ERISA could be applicable to the
acquisition of Class A Certificates. Subject to the
considerations and conditions described under "ERISA
Considerations" herein, it is expected that the Class A
Certificates may be purchased by a Plan.
Any Plan fiduciary considering whether to purchase any
Class of the Class A Certificates on behalf of a Plan
should consult with its counsel regarding the
applicability of the provisions of ERISA and the Code.
The Subordinated Certificates may not be purchased by
Plans except as provided herein. See "ERISA
Considerations" herein and in the Prospectus.
Legal Investment.................. The Offered Certificates will not constitute "mortgage
related securities" under the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). No
representation is made as to the appropriate
characterization of the Offered Certificates under any
laws relating to investment restrictions and investors
should consult their own counsel as to whether they have
the legal authority to invest in non-SMMEA Securities
such as the Offered Certificates. See "Risk
Factors--Limited Liquidity; Lack of SMMEA Eligibility"
herein and "Legal Investment Considerations" herein and
"Legal Investment" in the Prospectus.
Ratings........................... It is a condition of the issuance of the Offered
Certificates that (i) the Class A Certificates be rated
"AAA" by each of Standard & Poor's, a Division of the
McGraw-Hill Companies, Inc. ("S&P") and Fitch IBCA, Inc.
("Fitch," and together with S&P, the "Rating Agencies"),
(ii) the Class M-1 Certificates be rated at least "AA"
by each of S&P and Fitch, (iii) the Class M-2
Certificates be rated at least "A" by each of S&P and
Fitch; and (iv) the Class B Certificates be rated at
least "BBB-" by S&P and at least "BBB" by Fitch.
The security 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
Rating Agencies. The ratings assigned to the Group II
Certificates do not address the likelihood of the pay-
ment of any Adjustable Rate Certificate Carryover. The
Depositor has not requested a rating of the Offered
Certificates by any rating agency other than the Rating
Agencies; there can be no assurance, however, as to
whether any other rating agency will rate any Class of
the Offered Certificates or, if it does, what rating
would be assigned by such other rating agency. The
rating assigned by such other rating agency to any Class
of the Offered Certificates could be lower than the
respective ratings assigned by the Rating Agencies. See
"Ratings" herein.
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RISK FACTORS
INVESTORS SHOULD CONSIDER THE FOLLOWING RISKS IN CONNECTION WITH THE
PURCHASE OF THE OFFERED CERTIFICATES.
CONSEQUENCES OF OWNING BOOK-ENTRY CERTIFICATES. Issuance of the Offered
Certificates in book-entry form may reduce the liquidity of the Offered
Certificates in the secondary trading market since investors may be unwilling to
purchase Offered Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates--Book-Entry Certificates."
Since transactions in the Offered Certificates can be effected only through
DTC, CEDEL, Euroclear, participating organizations, indirect participants and
certain banks, the ability of a Certificate Owner to pledge an Offered
Certificate to persons or entities that do not participate in the DTC, CEDEL or
Euroclear system may be limited due to lack of a physical certificate
representing the Offered Certificates. See "Description of the
Certificates--Book-Entry Certificates."
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Offered Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of Certificate Owners either directly or
indirectly through indirect participants. Certificate Owners will not be
recognized as Certificateholders of the Offered Certificates as such term is
used in the Pooling and Servicing Agreement, and Certificate Owners will be
permitted to exercise the rights of Offered Certificateholders only indirectly
through DTC and its Participants. See "Description of the
Certificates--Book-Entry Certificates."
CASH FLOW CONSIDERATIONS AND RISKS. Even assuming that the Mortgaged
Properties provide adequate security for the Mortgage Loans, substantial delays
could be encountered in connection with the liquidation of Mortgage Loans that
are delinquent and resulting shortfalls in distributions to the
Certificateholders could occur. Further, liquidation expenses (such as legal
fees, real estate taxes, and maintenance and preservation expenses) will reduce
the security for such Mortgage Loans and thereby reduce the proceeds payable to
the Certificateholders. In the event any of the Mortgaged Properties fail to
provide adequate security for the related Mortgage Loans, the Offered
Certificates (particularly the most subordinate Classes) could experience a
loss.
SUBORDINATION--LIMITED PROTECTION AFFORDED TO OFFERED CERTIFICATES. The
rights of the Class M-1 Certificates of each Certificate Group to receive
distributions with respect to the Mortgage Loans of the related Loan Group will
be subordinate to the rights of the Class A Certificates of such Certificate
Group to receive such distributions; the rights of the Class M-2 Certificates of
each Certificate Group to receive distributions with respect to the Mortgage
Loans of the related Loan Group will be subordinate to the rights of the Class A
and the Class M-1 Certificates of such Certificate Group to receive such
distributions; and the rights of the Class B Certificates of each Certificate
Group to receive distributions with respect to the Mortgage Loans of the related
Loan Group will be subordinate to the rights of the Class A, Class M-1 and Class
M-2 Certificates of such Certificate Group to receive such distributions. The
subordination of the Subordinated Certificates of each Certificate Group
relative to the Class A Certificates of such Certificate Group (and of the more
lower-ranking Classes of the Subordinated Certificates of each Certificate Group
to the higher-ranking Classes thereof) is intended to enhance the likelihood of
regular receipt by each Class A Certificate of the full amount of the monthly
distributions allocable to them, and to afford protection against losses. If
such protection is eliminated, the risk of losses on the Mortgage Loans will be
borne by the Class A Certificates.
SUBORDINATION--ALLOCATION OF LOSSES TO SUBORDINATED CERTIFICATES. If
Realized Losses are incurred with respect to the Mortgage Loans in a Loan Group
to the extent that the aggregate Certificate Principal Balance of the Offered
Certificates of such Certificate Group exceeds the Stated Principal Balances of
the Mortgage Loans in such Loan Group, the Certificate Principal Balances of the
Subordinated Certificates of such Certificate Group will be reduced in reverse
order of seniority (first Class B, second Class M-2 and
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third Class M-1) by the amount of the excess. Consequently, the yields to
maturity on the Mezzanine Certificates and Class B Certificates of each
Certificate Group will be sensitive, in varying degrees, to defaults on the
Mortgage Loans in such Loan Group (and the timing thereof). Investors should
fully consider the risks associated with an investment in the Mezzanine
Certificates or Class B Certificates, including the possibility that such
investors may not fully recover their initial investment as a result of Realized
Losses.
OVERCOLLATERALIZATION PROVISIONS. The operation of the
overcollateralization provisions of the Pooling and Servicing Agreement will
affect the weighted average life of the Certificates of each Certificate Group
and consequently the yield to maturity of such Certificates. Unless and until
the required amount of overcollateralization for such Certificate Group is
reached, Net Excess Cashflow (defined herein) for the related Loan Group will be
applied as distributions of principal of the Class A Certificates of such
Certificate Group, thereby reducing the weighted average lives thereof. The
actual required amount of overcollateralization for a Certificate Group may
change from Distribution Date to Distribution Date pursuant to the terms of the
Pooling and Servicing Agreement, producing uneven distributions of accelerated
payments in respect of principal for such Certificate Group. There can be no
assurance as to when or whether the required amount of overcollateralization for
a Certificate Group will be reached.
Net Excess Cashflow for a particular Loan Group generally is the excess of
interest collected or advanced on the Mortgage Loans in such Loan Group over the
interest required to pay interest on the Certificates in the related Certificate
Group and certain Trust Fund expenses allocable to such Certificate Group.
Mortgage Loans with higher Net Mortgage Rates will contribute more interest to
the Net Excess Cashflow. Mortgage Loans with higher Net Mortgage Rates may
prepay faster than Mortgage Loans with relatively lower Net Mortgage Rates in
response to a given change in market interest rates. Any such disproportionate
prepayments of Mortgage Loans in a Loan Group that have higher Net Mortgage
Rates may adversely affect the amount of Net Excess Cashflow for such Loan
Group.
As a result of the interaction of the foregoing factors, the effect of the
overcollateralization provisions on the weighted average life of the Offered
Certificates may vary significantly over time. See "Yield, Prepayment and
Maturity Considerations" herein and "Yield, Maturity and Weighted Average Life
Considerations" in the Prospectus.
PREPAYMENT CONSIDERATIONS AND RISKS. Each Loan Group's prepayment
experience may be affected by a wide variety of factors, including general
economic conditions, interest rates, the availability of alternative financing
and homeowner mobility. In addition, substantially all of the Mortgage Loans
contain due-on-sale provisions and the Subservicer intends to enforce such
provisions unless (i) such enforcement is not permitted by applicable law or
(ii) the Subservicer, in a manner consistent with accepted servicing practices,
permits the purchaser of the related Mortgaged Property to assume the Mortgage
Loan. To the extent permitted by applicable law, such assumption will not
release the original borrower from its obligation under any such Mortgage Loan.
See "Yield, Prepayment and Maturity Considerations" herein and "Certain Legal
Aspects of Mortgage Loans--Enforceability of Due-on-Sale Clauses" in the
Prospectus for a description of certain provisions of the Mortgage Loans that
may affect the prepayment experience thereof. The yield to maturity and weighted
average life of the Offered Certificates in each Certificate Group will be
affected primarily by the rate and timing of principal payments (including
prepayments, liquidations, repurchases and defaults) of, and losses on, the
Mortgage Loans in the related Loan Group.
The yield to investors on the Group II Certificates other than the Class
IIA-2 Certificates will also be sensitive to the level of One-Month LIBOR, the
level of the Mortgage Index and the additional limitations on the Pass-Through
Rate described herein. In addition, the yield to maturity of the Offered
Certificates purchased at a discount or premium will be more sensitive to the
rate and timing of payments thereon. Certificateholders should consider, in the
case of the Offered Certificates purchased at a discount, the risk that a slower
than anticipated rate of principal payments could result in an actual yield that
is lower than
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the anticipated yield and, in the case of the Offered Certificates purchased at
a premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield that is lower than the anticipated yield.
Because certain of the Mortgage Loans contain prepayment penalties, the rate of
principal prepayments may be less than the rate of principal prepayments for
mortgage loans which do not contain prepayment penalties. No representation is
made as to the anticipated rate of prepayments on the Mortgage Loans, the amount
and timing of losses thereon, the level of One-Month LIBOR or the Mortgage Index
or the resulting yield to maturity of any Offered Certificates. Any reinvestment
risks resulting from a faster or slower incidence of prepayments on the Mortgage
Loans will be borne entirely by the Offered Certificateholders as described
herein. See "Yield, Prepayment and Maturity Considerations" herein and "Yield
Considerations" in the Prospectus.
RISK OF HIGHER DELINQUENCIES ASSOCIATED WITH GUIDELINES. The B&C
Underwriting Guidelines (as described herein under "Chase Manhattan Mortgage
Corporation--Underwriting Standards--B&C Quality Loans") consider the credit
quality of a mortgagor and the value of the mortgaged property. The Originators
provide loans primarily to mortgagors who do not qualify for loans conforming to
Fannie Mae or FHLMC guidelines. Furthermore, the B&C Underwriting Guidelines do
not prohibit a borrower from obtaining secondary financing at the time of
origination of the Originator's first lien, which financing would reduce the
equity the borrower would otherwise have in the related mortgaged property.
As a result of the B&C Underwriting Guidelines, the Mortgage Loans are
likely to experience rates of delinquency, foreclosure and bankruptcy that are
higher, and that may be substantially higher, than those experienced by mortgage
loans underwritten to Fannie Mae and FHLMC conforming guidelines. Furthermore,
changes in the values of Mortgaged Properties may have a greater effect on the
delinquency, foreclosure, bankruptcy and loss experience of the Mortgage Loans
than on mortgage loans originated in a more traditional manner. No assurance can
be given that the values of the Mortgaged Properties will not experience an
overall decline in value.
EFFECT OF MORTGAGE LOAN YIELD ON GROUP II CERTIFICATES PASS-THROUGH RATE;
BASIS RISK. The calculation of the Pass-Through Rate on each Class of the Group
II Certificates (other than the Class IIA-2 Certificates) is based upon the
value of an index (One-Month LIBOR) which is different from the value of the
index applicable to substantially all the Adjustable Rate Mortgage Loans
(Six-Month LIBOR) as described under "The Mortgage Pool--General" and is subject
to the Available Funds Cap. The Available Funds Cap effectively limits the
amount of interest accrued on each Class of the Group II Certificates (other
than the Class IIA-2 Certificates) to the weighted average of the Mortgage Rates
on the Adjustable Rate Mortgage Loans, less the Servicing Fee Rate and the
Master Servicer Fee Rate. Approximately 3.99% of the Adjustable Rate Mortgage
Loans as of the Cut-off Date adjust semi-annually based upon the London
interbank offered rate for Six-Month United States dollar deposits ("Six-Month
LIBOR"), whereas the Pass-Through Rate on each Class of the Group II
Certificates (other than the Class IIA-2 Certificates) adjusts monthly based
upon One-Month LIBOR as described under "Description of the
Certificates--Calculation of One-Month LIBOR", subject to the Available Funds
Cap. Consequently, the Pass-Through Rate on each Class of the Group II
Certificates (other than the Class IIA-2 Certificates) for any Distribution Date
may be reduced as a result. Approximately 8.13% of the Adjustable Rate Mortgage
Loans as of the Cut-off Date are 1/29 Loans that provide for a fixed interest
rate for a period of approximately one year following origination. Approximately
49.98% of the Adjustable Rate Mortgage Loans as of the Cut-off Date are 2/28
Loans that provide for a fixed interest rate for a period of approximately two
years following origination. Approximately 32.66% of the Adjustable Rate
Mortgage Loans as of the Cut-off Date are 3/27 Loans that provide for a fixed
interest rate for a period of approximately three years following origination.
Approximately 4.57% of the Adjustable Rate Mortgage Loans as of the Cut-off Date
are 5/25 Loans which provide for a fixed interest rate for a period of
approximately five years following origination. Thereafter, substantially all of
such Mortgage Loans provide for interest rate and payment adjustments in a
manner similar to the Six-Month LIBOR Loans. A decline in the level of One-Month
LIBOR during the period when some of the Adjustable Rate Mortgage
S-18
<PAGE>
Loans are not yet subject to adjustment could reduce the yield to maturity on
the Group II Certificates (other than the Class IIA-2 Certificates). One-Month
LIBOR and Six-Month LIBOR may respond to different economic and market factors,
and there is not necessarily a correlation between them. Thus, it is possible,
for example, that One-Month LIBOR may rise during periods in which Six-Month
LIBOR is stable or is falling or that, even if both One-Month LIBOR and
Six-Month LIBOR rise during the same period, One-Month LIBOR may rise more
rapidly than Six-Month LIBOR. Furthermore, even if One-Month LIBOR and Six-Month
LIBOR were at the same level, various factors may cause the Available Funds Cap
to limit the amount of interest that would otherwise accrue on each Class of the
Group II Certificates (other than the Class IIA-2 Certificates). In particular,
the Pass-Through Rate on each Class of the Group II Certificates (other than the
Class IIA-2 Certificates) adjusts monthly, while the interest rates of the
Adjustable Rate Mortgage Loans adjust less frequently, with the result that the
operation of the Available Funds Cap may cause the Pass-Through Rates to be
reduced for extended periods in a rising interest rate environment. In addition,
the Adjustable Rate Mortgage Loans are subject to periodic (I.E., semi-annual)
adjustment caps and maximum rate caps, and the weighted average margin is
subject to change based upon prepayment experience, which also may result in the
Available Funds Cap limiting increases in the Pass-Through Rate for such Classes
of the Group II Certificates. Finally, the Adjustable Rate Mortgage Loans accrue
interest on the basis of a 360-day year assumed to consist of twelve 30-day
months, while calculations of interest on each Class of the Group II
Certificates (other than the Class IIA-2 Certificates) will be made on the basis
of the actual number of days elapsed in the related Accrual Period and a year of
360 days. This may result in the Available Funds Cap limiting the Pass-Through
Rate for such Classes of Certificates in Accrual Periods that have more than 30
days. Consequently, the interest which becomes due on the Adjustable Rate
Mortgage Loans (net of the sum of the Servicing Fee and the Master Servicer Fee)
with respect to any Distribution Date may not equal the amount of interest that
would accrue at One-Month LIBOR plus the margin on each Class of the Group II
Certificates (other than the Class IIA-2 Certificates) and the Pass-Through Rate
with respect to the Class IIA-2 Certificates during the related Accrual Period.
Furthermore, if the Available Funds Cap determines the Pass-Through Rate for a
Class of the Group II Certificates for a Distribution Date, the market value of
such Class of Certificates may be temporarily or permanently reduced.
CERTIFICATE RATING. The rating of each Class of the Offered Certificates
will depend primarily on an assessment by the Rating Agencies of the Mortgage
Loans as well as the structure of the transaction. The rating by the Rating
Agencies of any Class of Offered Certificates is not a recommendation to
purchase, hold or sell any Offered Certificates, inasmuch as such rating does
not comment as to the market price or suitability for a particular investor.
There is no assurance that the ratings will remain in place for any given period
of time or that the ratings will not be lowered or withdrawn by the Rating
Agencies. In general, the ratings address credit risk and do not address the
likelihood of prepayments. The ratings of each Class of the Offered Certificates
do not address the possibility of the imposition of United States withholding
tax with respect to non-U.S. persons.
BANKRUPTCY AND INSOLVENCY RISKS. The sale of the Mortgage Loans from the
Seller to the Depositor will be treated as a sale of the Mortgage Loans.
However, in the event of an insolvency of the Seller, the trustee in bankruptcy
of the Seller may attempt to recharacterize the sale of the Mortgage Loans as a
borrowing by the Seller, secured by a pledge of the applicable Mortgage Loans.
If the trustee in bankruptcy decided to challenge such transfer, delays in
payments of the Offered Certificates and reductions in the amounts thereof could
occur.
In the event of a bankruptcy or insolvency of the Subservicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or the
Certificateholders from appointing a successor Subservicer.
GEOGRAPHIC CONCENTRATION. As of the Cut-off Date, approximately 18.96% of
the Mortgaged Properties of the Fixed Rate Mortgage Loan Group and approximately
10.50% of the Mortgaged Properties of the Adjustable Rate Mortgage Loan Group
were located in the State of Florida. An overall decline in the
S-19
<PAGE>
Florida residential real estate market could adversely affect the values of the
Mortgaged Properties securing such Mortgage Loans such that the principal
balances of the related Mortgage Loans could equal or exceed the value of such
Mortgaged Properties. As the residential real estate market is influenced by
many factors, including the general condition of the economy and interest rates,
no assurances may be given that the Florida residential real estate market will
not weaken. If the Florida residential real estate market should experience an
overall decline in property values, the rates of losses on such Mortgage Loans
would be expected to increase, and could increase substantially.
DELINQUENT MORTGAGE LOANS. The Trust Fund may include Mortgage Loans which
are 59 or fewer days delinquent as of the Cut-off Date. It is expected that not
more than 1.24% of the Mortgage Loans (by Cut-off Date Principal Balance) will
be between 30 days and 59 days delinquent. If there are not sufficient funds
from amounts collected on the Mortgage Loans, the aggregate amount of principal
returned to any Class of Offered Certificateholders may be less than the
Certificate Principal Balance thereof on the day the such Class of Offered
Certificates were issued.
LIMITED LIQUIDITY; LACK OF SMMEA ELIGIBILITY. The Underwriters intend to
make a secondary market in the Offered Certificates, but will have no obligation
to do so. There can be no assurance that a secondary market for any Class of
Offered Certificates will develop, or if one does develop, that it will continue
or provide sufficient liquidity of investment or that it will remain for the
term of the related Class of Offered Certificates. The Offered Certificates will
not constitute "mortgage related securities" for purposes of SMMEA. Accordingly,
many institutions with legal authority to invest in SMMEA securities will not be
able to invest in the Offered Certificates, thereby limiting the market for the
Offered Certificates. In light of the foregoing, investors should consult their
own counsel as to whether they have the legal authority to invest in non-SMMEA
securities such as the Offered Certificates. See "Legal Investment
Considerations" herein and "Legal Investment" in the Prospectus.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE. The Depositor 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 Depositor has been advised by each of the Master Servicer, the
Subservicer 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
Depositor nor any affiliate of the Depositor has made any independent
investigation of the computer systems of the Master Servicer, the Subservicer or
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, the Master Servicer or the Subservicer 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.
For a discussion of additional risks pertaining to the Offered Certificates,
see "Risk Factors" in the Prospectus.
S-20
<PAGE>
THE MORTGAGE POOL
GENERAL
The mortgage pool with respect to the Certificates (the "Mortgage Pool")
will consist of approximately 3,562 conventional mortgage loans (the "Mortgage
Loans") evidenced by promissory notes (each, a "Mortgage Note") having an
aggregate principal balance on August 1, 1998 (the "Cut-off Date") of
approximately $350,539,533. References herein to percentages of Mortgage Loans
refer in each case to the percentage of the aggregate principal balance of the
Mortgage Loans or, as the case may be, the Mortgage Loans in the applicable
Mortgage Group, 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
Scheduled 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 real properties (the
"Mortgaged Properties"), including single-family residences, two- to-four family
dwelling units, attached planned unit developments, condominiums, detached
planned unit developments, manufacturing housing and small mixed use properties.
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 "Pooling and Servicing Agreement") to be dated as of August 1,
1998 by and among MorServ, Inc., as depositor (the "Depositor"), Advanta
Mortgage Corp. USA, as subservicer ("Advanta" or the "Subservicer"), Chase
Manhattan Mortgage Corporation, as master servicer (the "Master 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.
All of the Mortgage Loans will provide for the amortization of the amount
financed over a series of monthly payments. The Mortgage Loans to be included in
the Trust Fund will have been originated or purchased by Chase Manhattan
Mortgage Corporation (the "Seller") and will have been originated substantially
in accordance with the Seller's underwriting criteria for sub-prime ("B&C")
quality mortgage loans described herein under "Chase Manhattan Mortgage
Corporation--Underwriting Standards--B&C Quality Mortgage Loans." Sub-prime
mortgage loans are generally mortgage loans made to borrowers who do not qualify
for financing under conventional underwriting criteria due to prior credit
difficulties, the inability to satisfy conventional documentation standards, or
both.
Scheduled monthly payments made by the Mortgagors on the Mortgage Loans
("Scheduled Payments") either earlier or later than the scheduled due dates
thereof will not affect the amortization schedule or the relative application of
such payments to principal and interest. Substantially all of the Mortgage Notes
will provide for a fifteen (15) day grace period for monthly payments. Any
Mortgage Loan may be prepaid in full or in part at any time; however,
approximately 77.55% of the Fixed Rate Mortgage Loans and approximately 53.28%
of the Adjustable Rate Mortgage Loans provide for the payment by the borrower of
a prepayment charge in limited circumstances on full or partial prepayments made
during the prepayment penalty term. The weighted average prepayment penalty term
is approximately 35 months with respect to the Fixed Rate Mortgage Loans which
have prepayment penalties and approximately 28 months with respect to the
Adjustable Rate Mortgage Loans which have prepayment penalties. In general, the
related Mortgage Note will provide that a prepayment charge will apply if,
during the prepayment penalty term, the borrower prepays such Mortgage Loan in
full or in part. The amount of the prepayment charge will generally be equal to
six months' advance interest calculated on the basis of the rate in effect at
the time of such prepayment on the amount prepaid in excess of 20% of the
original balance of such Mortgage Loan. The enforceability of prepayment
penalties is unclear under the laws of many states. See "Certain
S-21
<PAGE>
Legal Aspects of the Mortgage Loans--Late Charges, Default Interest and
Limitations on Payment" in the Prospectus.
Approximately 3.99% of the Adjustable Rate Mortgage Loans (the "Six Month
LIBOR Loans") substantially all of which will have a Mortgage Rate which is
subject to semi-annual adjustment on the first day of the months specified in
the related Mortgage Note (each such date, an "Adjustment Date") to equal the
sum, rounded to the nearest 0.125%, of (i) the average of the London interbank
offered rates for six-month U.S. dollar deposits in the London market, as set
forth in The Wall Street Journal, or, if such rate ceases to be published in The
Wall Street Journal or becomes unavailable for any reason, then based upon a new
index selected by the Trustee, as holder of the related Mortgage Note, based on
comparable information, in each case as most recently announced as of a date 45
days prior to such Adjustment Date (the "Mortgage Index"), and (ii) a fixed
percentage amount specified in the related Mortgage Note (the "Gross Margin");
provided, however, that the Mortgage Rate will not increase or decrease by more
than 1.00% on any Adjustment Date (the "Periodic Rate Cap") and, provided
further, that it will not be higher than the Maximum Mortgage Rate or lower than
the Minimum Mortgage Rate (each as defined below). Substantially all of the Six
Month LIBOR Loans were originated with Mortgage Rates less than the sum of the
then applicable Mortgage Index and the related Gross Margin. Substantially all
of the Six Month LIBOR Loans will provide that over the life of each such
Adjustable Rate Mortgage Loan the Mortgage Rate will in no event be more than
the initial Mortgage Rate plus 6.00% (such sum, the "Maximum Mortgage Rate").
Substantially all of the Six Month LIBOR Loans provide that in no event will the
Mortgage Rate for each such Six Month LIBOR Loan be less than the initial
Mortgage Rate (such rate, the "Minimum Mortgage Rate"). Effective with the first
payment due on a Adjustable Rate Mortgage Loan after each related Adjustment
Date, the monthly payment will be adjusted to an amount which will fully
amortize the outstanding principal balance of the Mortgage Loan over its
remaining term.
Approximately 8.13% of the Adjustable Rate Mortgage Loans as of the Cut-off
Date (the "1/29 Loans"), bear interest at a fixed rate for a period of one year
after origination and thereafter have semiannual interest rate and payment
adjustments at frequencies and in substantially the same manner as the Six-Month
LIBOR Loans. Substantially all of the 1/29 Loans are subject to a 2.00% Periodic
Rate Cap with respect to the first Adjustment Date and a 1.00% Periodic Rate Cap
with respect to each Adjustment Date thereafter, and have a Maximum Mortgage
Rate equal to the initial Mortgage Rate plus 7.00%.
Approximately 49.98% of the Adjustable Rate Mortgage Loans as of the Cut-off
Date (the "2/28 Loans"), bear interest at a fixed rate of interest for a period
of two years after origination and thereafter have semiannual interest rate and
payment adjustments at frequencies and in substantially the same manner as the
Six-Month LIBOR Loans. Substantially all of the 2/28 Loans are subject to a
3.00% Periodic Rate Cap with respect to the first Adjustment Date and a 1.50%
Periodic Rate Cap with respect to each Adjustment Date thereafter, and have a
Maximum Mortgage Rate equal to the initial Mortgage Rate plus 7.00%.
Approximately 32.66% of the Adjustable Rate Mortgage Loans as of the Cut-off
Date (the "3/27 Loans"), bear interest at a fixed rate of interest for a period
of three years after origination and thereafter have semiannual interest rate
and payment adjustments at frequencies and in substantially the same manner as
the Six-Month LIBOR Loans. Substantially all of the 3/27 Loans are subject to a
3.00% Periodic Rate Cap with respect to the first Adjustment Date and a 1.50%
Periodic Rate Cap with respect to each Adjustment Date thereafter, and have a
Maximum Mortgage Rate equal to the initial Mortgage Rate plus 7.00%.
Approximately 4.57% of the Adjustable Rate Mortgage Loans as of the Cut-off
Date (the "5/25 Loans"), bear interest at a fixed rate for a period of five
years after origination and thereafter have semiannual interest rate and payment
adjustments at frequencies and in substantially the same manner as the Six-Month
LIBOR Loans. Substantially all of the 5/25 Loans are subject to a 3.00% Periodic
Rate Cap
S-22
<PAGE>
with respect to the first Adjustment Date and a 1.50% Periodic Rate Cap with
respect to each Adjustment Date thereafter, and have a Maximum Mortgage Rate
equal to the initial Mortgage Rate plus 7.00%.
FIXED RATE MORTGAGE LOAN GROUP. As of the Cut-off Date, the aggregate
principal balance of the Fixed Rate Mortgage Loans was approximately
$134,752,087. As of the Cut-off Date, the average outstanding principal balance
of the Fixed Rate Mortgage Loans was approximately $80,257, the minimum
outstanding principal balance was approximately $6,864, the maximum outstanding
principal balance was approximately $698,009, the lowest Mortgage Rate and the
highest Mortgage Rate were 6.450% and 14.650% per annum, respectively, and the
weighted average Mortgage Rate was approximately 9.424% per annum. Approximately
31.39% of the Fixed Rate Mortgage Loans (each, a "Balloon Loan") have original
terms to stated maturity of approximately 15 years and provide for level monthly
payments based on a 30-year amortization schedule with a balloon payment of the
remaining outstanding principal balance (a "Balloon Amount") due on each such
Mortgage Loan at its stated maturity.
ADJUSTABLE RATE MORTGAGE LOAN GROUP. As of the Cut-off Date, the aggregate
principal balance of the Adjustable Rate Mortgage Loans is approximately
$215,787,446. As of the Cut-off Date the average outstanding principal balance
of the Adjustable Rate Mortgage Loans was approximately $114,598, the minimum
outstanding principal balance was approximately $12,670, the maximum outstanding
principal balance was approximately $817,019, the lowest current Mortgage Rate
and the highest current Mortgage Rate were approximately 6.500% and 14.375% per
annum, respectively, and the weighted average Mortgage Rate was approximately
9.550% per annum.
The "Loan-to-Value Ratio" of a Mortgage Loan is equal to (i) the principal
balance of such Mortgage Loan at the date of origination, divided by (ii) the
Collateral Value of the related Mortgaged Property. The "Collateral Value" of a
Mortgaged Property is the lesser of (x) the appraised value based on an
appraisal made for the Seller by an independent fee appraiser at the time of the
origination of the related Mortgage Loan, and (y) the sales price of such
Mortgaged Property at such time of origination. With respect to a Mortgage Loan
the proceeds of which were used to refinance an existing mortgage loan, the
"Collateral Value" is the appraised value of the Mortgaged Property based upon
the appraisal obtained at the time of refinancing. The weighted average
Loan-to-Value Ratio as of the Cut-off Date for the Fixed Rate Mortgage Loans was
approximately 71.08% and the weighted average Loan-to-Value Ratio as of the Cut-
off Date for the Adjustable Rate Mortgage Loans was approximately 77.10%.
Approximately 1.24% of the Mortgage Loans were contractually delinquent for
thirty or more days as of the Cut-off Date.
S-23
<PAGE>
MORTGAGE LOANS
The following tables describe the Mortgage Loans and the related Mortgaged
Properties as of the close of business on the Cut-off Date. The sum of the
columns below may not equal the total indicated due to rounding.
FIXED RATE LOAN GROUP
MORTGAGE RATES FOR THE FIXED RATE MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
RANGE OF MORTGAGE RATES MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
6.00%--6.49%.................................................. 1 $ 75,149 0.1%
6.50%--6.99%.................................................. 4 258,198 0.2
7.00%--7.49%.................................................. 27 1,914,087 1.4
7.50%--7.99%.................................................. 126 10,492,800 7.8
8.00%--8.49%.................................................. 152 12,912,048 9.6
8.50%--8.99%.................................................. 327 29,051,357 21.6
9.00%--9.49%.................................................. 203 16,484,964 12.2
9.50%--9.99%.................................................. 285 22,792,062 16.9
10.00%--10.49%................................................ 185 13,297,627 9.9
10.50%--10.99%................................................ 155 12,262,595 9.1
11.00%--11.49%................................................ 77 4,774,041 3.5
11.50%--11.99%................................................ 66 5,978,478 4.4
12.00%--12.49%................................................ 29 1,862,171 1.4
12.50%--12.99%................................................ 18 1,093,097 0.8
13.00%--13.49%................................................ 9 528,164 0.4
13.50%--13.99%................................................ 10 623,176 0.5
14.00%--14.49%................................................ 4 275,820 0.2
14.50%--14.99%................................................ 1 76,251 0.1
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the Mortgage Rates borne by the Fixed Rate Mortgage
Loans ranged from 6.450% per annum to 14.650% per annum and the weighted
average Mortgage Rate of the Fixed Rate Mortgage Loans was approximately
9.424% per annum.
S-24
<PAGE>
REMAINING MONTHS TO STATED MATURITY FOR THE FIXED RATE MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
REMAINING TERM MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
109 to 120 months............................................. 47 $ 1,619,382 1.2%
157 to 168 months............................................. 2 139,910 0.1
169 to 180 months............................................. 814 63,937,439 47.4
229 to 240 months............................................. 108 7,186,701 5.3
289 to 300 months............................................. 1 154,734 0.1
337 to 348 months............................................. 1 102,323 0.1
349 to 360 months............................................. 706 61,611,598 45.7
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the remaining terms to stated maturity of the Fixed
Rate Mortgage Loans ranged from 115 months to 360 months and the weighted
average remaining term to stated maturity of the Fixed Rate Mortgage Loans
was approximately 262 months.
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES FOR THE FIXED RATE MORTGAGE LOAN
GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
RANGE OF ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Up to $100,000................................................ 1,301 $ 72,261,618 53.6%
$100,001--$150,000............................................ 226 26,744,887 19.8
$150,001--$200,000............................................ 78 13,409,893 10.0
$200,001--$250,000............................................ 29 6,652,202 4.9
$250,001--$300,000............................................ 19 5,205,702 3.9
$300,001--$350,000............................................ 9 2,871,694 2.1
$350,001--$400,000............................................ 3 1,149,171 0.9
$400,001--$450,000............................................ 9 3,811,607 2.8
$450,001--$500,000............................................ 4 1,947,303 1.4
$650,001--$700,000............................................ 1 698,009 0.5
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the outstanding principal balances of the Fixed Rate
Mortgage Loans ranged from approximately $6,864 to approximately $698,009
and the average outstanding principal balance of the Fixed Rate Mortgage
Loans was approximately $80,257.
S-25
<PAGE>
STATE DISTRIBUTIONS OF FIXED RATE MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
STATE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Arizona....................................................... 64 $ 4,530,664 3.4%
Arkansas...................................................... 1 28,573 0.0
California.................................................... 90 13,625,263 10.1
Colorado...................................................... 45 4,213,409 3.1
Connecticut................................................... 36 4,344,092 3.2
Delaware...................................................... 5 418,428 0.3
Washington, DC................................................ 1 111,974 0.1
Florida....................................................... 343 25,545,296 19.0
Georgia....................................................... 102 6,659,207 4.9
Idaho......................................................... 27 2,037,758 1.5
Illinois...................................................... 28 1,958,428 1.5
Indiana....................................................... 78 5,096,526 3.8
Iowa.......................................................... 3 157,621 0.1
Kansas........................................................ 3 73,377 0.1
Kentucky...................................................... 55 3,219,471 2.4
Louisiana..................................................... 37 2,137,359 1.6
Maine......................................................... 2 320,683 0.2
Maryland...................................................... 17 1,387,722 1.0
Massachusetts................................................. 28 3,727,857 2.8
Michigan...................................................... 49 3,404,517 2.5
Minnesota..................................................... 20 1,245,566 0.9
Mississippi................................................... 8 670,618 0.5
Missouri...................................................... 16 751,572 0.6
Montana....................................................... 2 154,456 0.1
Nevada........................................................ 4 279,648 0.2
New Hampshire................................................. 6 488,376 0.4
New Jersey.................................................... 30 3,569,713 2.6
New Mexico.................................................... 22 1,238,364 0.9
New York...................................................... 74 9,656,102 7.2
North Carolina................................................ 26 2,006,363 1.5
North Dakota.................................................. 2 46,797 0.0
Ohio.......................................................... 61 3,545,987 2.6
Oklahoma...................................................... 11 571,957 0.4
Oregon........................................................ 12 1,026,570 0.8
Pennsylvania.................................................. 29 2,319,967 1.7
Rhode Island.................................................. 5 790,536 0.6
South Carolina................................................ 41 2,523,811 1.9
Tennessee..................................................... 180 12,644,226 9.4
Texas......................................................... 20 1,115,755 0.8
Utah.......................................................... 32 2,374,232 1.8
Vermont....................................................... 2 153,574 0.1
Virginia...................................................... 21 1,595,177 1.2
Washington.................................................... 18 2,002,039 1.5
West Virginia................................................. 9 364,975 0.3
Wisconsin..................................................... 13 549,197 0.4
Wyoming....................................................... 1 68,284 0.1
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) No more than approximately 0.57% of the Fixed Rate Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code area.
S-26
<PAGE>
LOAN-TO-VALUE RATIOS FOR THE FIXED RATE MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
RANGE OF LOAN-TO-VALUE RATIOS MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
50.00% or less................................................ 224 $ 11,555,190 8.6%
50.01%--55.00%................................................ 78 5,718,453 4.2
55.01%--60.00%................................................ 137 11,015,810 8.2
60.01%--65.00%................................................ 152 13,396,579 9.9
65.01%--70.00%................................................ 189 15,292,521 11.3
70.01%--75.00%................................................ 223 19,440,750 14.4
75.01%--80.00%................................................ 413 34,586,889 25.7
80.01%--85.00%................................................ 145 13,112,616 9.7
85.01%--90.00%................................................ 113 10,124,870 7.5
90.01%--95.00%................................................ 5 508,408 0.4
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the Loan-to-Value Ratios of the Fixed Rate Mortgage
Loans ranged from 9.09% to 93.45% and the weighted average Loan-to-Value
Ratio of the Fixed Rate Mortgage Loans was approximately 71.08%.
LOAN PURPOSE FOR THE FIXED RATE MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
LOAN PURPOSE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Purchase...................................................... 220 $ 18,407,752 13.7%
Refinance--Rate/Term.......................................... 225 18,204,977 13.5
Refinance--Cashout............................................ 691 54,118,700 40.2
Refinance--Debt Consolidation................................. 510 41,221,001 30.6
Refinance--Home Improvement................................... 33 2,799,658 2.1
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
TYPE OF MORTGAGED PROPERTIES FOR THE FIXED RATE MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
PROPERTY TYPE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Single-family Residence....................................... 1,316 $ 106,515,058 79.0%
Two-to-Four Family Dwelling Unit.............................. 123 11,947,655 8.9
Attached Planned Unit Development............................. 15 1,120,771 0.8
Condominium................................................... 43 2,927,178 2.2
Detached Planned Unit Development............................. 38 4,565,739 3.4
Small Mixed Use............................................... 6 522,659 0.4
Manufactured Housing.......................................... 138 7,153,027 5.3
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
S-27
<PAGE>
DOCUMENTATION SUMMARY FOR THE FIXED RATE MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
DOCUMENTATION MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Full Documentation............................................ 1,343 $ 101,702,940 75.5%
24 Month Bank Statement....................................... 101 $ 11,711,875 8.7
Reduced Documentation......................................... 56 6,548,781 4.9
Stated Income................................................. 179 14,788,491 11.0
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
OCCUPANCY TYPES FOR THE FIXED RATE MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
OCCUPANCY TYPE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Owner Occupied................................................ 1,501 $ 123,399,173 91.6%
Second Home................................................... 7 429,333 0.3
Investment.................................................... 171 10,923,581 8.1
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) Based upon representations of the related Mortgagor at the time of
origination.
MORTGAGE LOAN AGE SUMMARY FOR THE FIXED RATE MORTGAGE LOAN GROUP (1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
MORTGAGE LOAN AGE (MONTHS) MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
0............................................................. 5 $ 353,600 0.3%
1............................................................. 275 22,695,785 16.8
2............................................................. 347 27,956,077 20.7
3............................................................. 384 31,411,351 23.3
4............................................................. 420 31,684,257 23.5
5............................................................. 170 13,598,344 10.1
6............................................................. 17 1,657,526 1.2
7............................................................. 23 2,376,354 1.8
8............................................................. 17 1,494,719 1.1
9............................................................. 10 820,515 0.6
10............................................................ 7 386,453 0.3
11............................................................ 1 74,873 0.1
14............................................................ 3 242,234 0.2
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) The weighted average age of the Fixed Rate Mortgage Loans is approximately 3
months.
S-28
<PAGE>
CREDIT GRADE SUMMARY FOR THE FIXED RATE MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
CREDIT GRADE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
AO............................................................ 748 $ 61,286,586 45.5%
A-............................................................ 572 49,129,109 36.5
B............................................................. 190 13,466,402 10.0
B-............................................................ 78 5,294,905 3.9
C............................................................. 67 4,237,901 3.1
C-............................................................ 15 851,094 0.6
D............................................................. 9 486,091 0.4
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
YEAR OF ORIGINATION FOR THE FIXED RATE MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
YEAR OF ORIGINATION MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
1997.......................................................... 60 $ 5,279,059 3.9%
1998.......................................................... 1,619 129,473,028 96.1
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
PREPAYMENT PENALTIES FOR THE FIXED RATE MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
PREPAYMENT PENALTY TERM MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
None.......................................................... 410 $ 30,253,728 22.5%
12 months..................................................... 62 8,400,282 6.2
24 months..................................................... 23 1,997,054 1.5
36 months..................................................... 1,141 89,464,095 66.4
60 months..................................................... 43 4,636,928 3.4
----- ------------------- -----
Totals.................................................... 1,679 $ 134,752,087 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) The weighted average prepayment penalty term with respect to the Fixed Rate
Mortgage Loans having prepayment penalties is approximately 35 months.
S-29
<PAGE>
ADJUSTABLE RATE LOAN GROUP
CURRENT MORTGAGE RATES FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
RANGE OF CURRENT MORTGAGE RATES MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
6.50%--6.99%................................................. 3 $ 443,953 0.2%
7.00%--7.49%................................................. 13 2,150,007 1.0
7.50%--7.99%................................................. 64 8,293,288 3.8
8.00%--8.49%................................................. 144 18,926,585 8.8
8.50%--8.99%................................................. 273 36,898,199 17.1
9.00%--9.49%................................................. 261 29,412,534 13.6
9.50%--9.99%................................................. 416 47,842,455 22.2
10.00%--10.49%................................................ 239 24,632,329 11.4
10.50%--10.99%................................................ 254 27,201,169 12.6
11.00%--11.49%................................................ 106 10,127,857 4.7
11.50%--11.99%................................................ 66 6,103,918 2.8
12.00%--12.49%................................................ 25 2,003,583 0.9
12.50%--12.99%................................................ 14 1,426,561 0.7
13.00%--13.49%................................................ 4 234,237 0.1
14.00%--14.49%................................................ 1 90,770 0.0
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the current Mortgage Rates borne by the Adjustable
Rate Mortgage Loans ranged from 6.500% per annum to 14.375% per annum and
the weighted average Mortgage Rate borne by the Adjustable Rate Mortgage
Loans was approximately 9.550% per annum.
REMAINING MONTHS TO STATED MATURITY FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
REMAINING TERM MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
337 to 348 months............................................. 4 $ 1,218,554 0.6%
349 to 360 months............................................. 1,879 214,568,892 99.4
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the remaining terms to stated maturity of the
Adjustable Rate Mortgage Loans ranged from 346 months to 360 months and the
weighted average remaining term to stated maturity of the Adjustable Rate
Mortgage Loans was approximately 357 months.
S-30
<PAGE>
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
RANGE OF ORIGINAL MORTGAGE LOAN NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
PRINCIPAL BALANCES MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Up to $100,000................................................ 1,015 $ 67,601,871 31.3%
$100,001--$150,000............................................ 485 59,138,392 27.4
$150,001--$200,000............................................ 198 34,076,720 15.8
$200,001--$250,000............................................ 76 16,859,929 7.8
$250,001--$300,000............................................ 52 14,293,893 6.6
$300,001--$350,000............................................ 18 5,878,834 2.7
$350,001--$400,000............................................ 15 5,583,558 2.6
$400,001--$450,000............................................ 3 1,284,967 0.6
$450,001--$500,000............................................ 18 8,752,918 4.1
$700,001--$750,000............................................ 1 748,729 0.3
$750,001--$800,000............................................ 1 750,616 0.3
$800,001--$850,000............................................ 1 817,019 0.4
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the outstanding principal balances of the Adjustable
Rate Mortgage Loans ranged from approximately $12,670 to approximately
$817,019 and the average outstanding principal balance of the Adjustable
Rate Mortgage Loans was approximately $114,598.
S-31
<PAGE>
STATE DISTRIBUTIONS OF ADJUSTABLE RATE MORTGAGED PROPERTIES (1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
STATE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Arizona....................................................... 65 $ 7,116,060 3.3%
Arkansas...................................................... 3 142,663 0.1
California.................................................... 74 14,189,047 6.6
Colorado...................................................... 99 12,750,811 5.9
Connecticut................................................... 53 8,685,788 4.0
Delaware...................................................... 1 155,284 0.1
Washington, DC................................................ 7 653,510 0.3
Florida....................................................... 216 22,653,048 10.5
Georgia....................................................... 62 8,006,355 3.7
Idaho......................................................... 35 2,955,009 1.4
Illinois...................................................... 51 5,289,689 2.5
Indiana....................................................... 49 4,143,922 1.9
Iowa.......................................................... 4 213,792 0.1
Kansas........................................................ 1 44,941 0.0
Kentucky...................................................... 43 3,886,555 1.8
Louisiana..................................................... 12 1,061,367 0.5
Maine......................................................... 5 508,375 0.2
Maryland...................................................... 41 5,206,937 2.4
Massachusetts................................................. 65 8,569,574 4.0
Michigan...................................................... 169 17,063,184 7.9
Minnesota..................................................... 45 4,946,328 2.3
Mississippi................................................... 5 336,321 0.2
Missouri...................................................... 23 2,002,984 0.9
Montana....................................................... 1 26,563 0.0
Nebraska...................................................... 1 72,692 0.0
Nevada........................................................ 3 782,929 0.4
New Hampshire................................................. 13 1,401,471 0.6
New Jersey.................................................... 78 10,840,314 5.0
New Mexico.................................................... 41 4,079,417 1.9
New York...................................................... 72 11,008,172 5.1
North Carolina................................................ 30 3,717,429 1.7
North Dakota.................................................. 2 223,391 0.1
Ohio.......................................................... 107 9,373,297 4.3
Oklahoma...................................................... 20 1,463,627 0.7
Oregon........................................................ 6 944,616 0.4
Pennsylvania.................................................. 31 2,816,867 1.3
Rhode Island.................................................. 8 990,137 0.5
South Carolina................................................ 16 1,569,642 0.7
Tennessee..................................................... 44 5,126,613 2.4
Texas......................................................... 39 4,713,532 2.2
Utah.......................................................... 60 7,565,720 3.5
Vermont....................................................... 33 3,221,764 1.5
Virginia...................................................... 33 4,325,499 2.0
Washington.................................................... 27 4,517,149 2.1
West Virginia................................................. 4 284,758 0.1
Wisconsin..................................................... 86 6,140,301 2.8
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) No more than approximately 0.48% of the Adjustable Rate Mortgage Loans will
be secured by Mortgaged Properties located in any one zip code area.
S-32
<PAGE>
LOAN-TO-VALUE RATIOS FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
RANGE OF LOAN-TO-VALUE RATIOS MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
50.00% or less................................................ 75 $ 6,516,527 3.0%
50.01%--55.00%................................................ 42 4,528,166 2.1
55.01%--60.00%................................................ 76 7,143,984 3.3
60.01%--65.00%................................................ 88 9,092,716 4.2
65.01%--70.00%................................................ 156 17,416,922 8.1
70.01%--75.00%................................................ 252 29,159,382 13.5
75.01%--80.00%................................................ 644 79,709,368 36.9
80.01%--85.00%................................................ 239 27,999,712 13.0
85.01%--90.00%................................................ 307 33,804,244 15.7
90.01%--95.00%................................................ 4 416,426 0.2
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the Loan-to-Value Ratios of the Adjustable Rate
Mortgage Loans ranged from 13.64% to 95.00% and the weighted average
Loan-to-Value Ratio of the Adjustable Rate Mortgage Loans was approximately
77.10%.
LOAN PURPOSE FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
LOAN PURPOSE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Purchase...................................................... 697 $ 79,936,239 37.0%
Refinance--Rate/Term.......................................... 212 23,110,210 10.7
Refinance--Cashout............................................ 579 66,559,682 30.8
Refinance--Debt Consolidation................................. 379 43,875,076 20.3
Refinance--Home Improvement................................... 16 2,306,239 1.1
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
TYPE OF MORTGAGED PROPERTIES FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
PROPERTY TYPE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Single-family Residence....................................... 1,531 $ 175,590,842 81.4%
Two-to-Four-Family Dwelling Unit.............................. 142 15,121,943 7.0
Condominum.................................................... 70 6,909,087 3.2
Attached Planned Unit Development............................. 45 4,687,836 2.2
Detached Planned Unit Development............................. 90 13,161,505 6.1
Manufactured Housing.......................................... 5 316,233 0.1
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
S-33
<PAGE>
DOCUMENTATION SUMMARY FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
DOCUMENTATION MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Full Documentation............................................ 1,433 $ 148,407,304 68.8%
24 Month Bank Statement....................................... 136 24,288,401 11.3
Reduced Documentation......................................... 94 16,478,259 7.6
Stated Income................................................. 220 26,613,482 12.3
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
OCCUPANCY TYPES FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
OCCUPANCY TYPE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
Owner Occupied................................................ 1,722 $ 201,184,423 93.2%
Second Home................................................... 17 2,171,450 1.0
Investment.................................................... 144 12,431,574 5.8
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) Based upon representations of the related Mortgagor at the time of
origination.
MORTGAGE LOAN AGE SUMMARY FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
MORTGAGE LOAN AGE (MONTHS) MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
0............................................................. 5 $ 386,750 0.2%
1............................................................. 362 41,180,056 19.1
2............................................................. 381 43,344,582 20.1
3............................................................. 485 54,664,926 25.3
4............................................................. 445 50,923,797 23.6
5............................................................. 177 20,978,815 9.7
6............................................................. 10 1,329,269 0.6
7............................................................. 5 418,309 0.2
8............................................................. 3 605,515 0.3
10............................................................ 5 675,349 0.3
11............................................................ 1 61,522 0.0
12............................................................ 1 63,572 0.0
13............................................................ 1 817,019 0.4
14............................................................ 2 337,964 0.2
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) The weighted average age of the Adjustable Rate Mortgage Loans is
approximately 3 months.
S-34
<PAGE>
CREDIT GRADE SUMMARY FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
CREDIT GRADE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
AO............................................................ 599 $ 76,486,938 35.4%
A-............................................................ 766 90,778,312 42.1
B............................................................. 254 26,689,422 12.4
B-............................................................ 114 10,249,437 4.7
C............................................................. 91 6,999,569 3.2
C-............................................................ 37 3,055,530 1.4
D............................................................. 22 1,528,238 0.7
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
YEAR OF ORIGINATION FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
YEAR OF ORIGINATION MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
1997.......................................................... 18 $ 2,979,250 1.4%
1998.......................................................... 1,865 212,808,196 98.6
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
PREPAYMENT PENALTIES FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
PREPAYMENT PENALTY TERM MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
None.......................................................... 921 $ 100,816,200 46.7%
12 Months..................................................... 74 11,043,768 5.1
24 Months..................................................... 481 60,045,042 27.8
36 Months..................................................... 404 43,365,262 20.1
60 Months..................................................... 3 517,175 0.2
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) The weighted average prepayment penalty term with respect to the Adjustable
Rate Mortgage Loans having prepayment penalties is approximately 28 months.
S-35
<PAGE>
MAXIMUM MORTGAGE RATES FOR THE ADJUSTABLE RATE
MORTGAGE LOAN GROUP(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
RANGE OF MAXIMUM MORTGAGE RATES MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
12.50%--12.99%................................................ 1 $ 58,893 0.0%
13.00%--13.49%................................................ 2 184,552 0.1
13.50%--13.99%................................................ 9 1,147,091 0.5
14.00%--14.49%................................................ 19 3,221,783 1.5
14.50%--14.99%................................................ 75 10,382,336 4.8
15.00%--15.49%................................................ 144 18,420,330 8.5
15.50%--15.99%................................................ 265 35,217,980 16.3
16.00%--16.49%................................................ 266 29,903,350 13.9
16.50%--16.99%................................................ 408 47,432,457 22.0
17.00%--17.49%................................................ 240 24,529,418 11.4
17.50%--17.99%................................................ 246 25,555,442 11.8
18.00%--18.49%................................................ 103 10,208,354 4.7
18.50%--18.99%................................................ 64 5,987,274 2.8
19.00%--19.49%................................................ 24 1,912,967 0.9
19.50%--19.99%................................................ 13 1,348,279 0.6
20.00%--20.49%................................................ 4 276,940 0.1
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
- ------------------------
(1) As of the Cut-off Date, the Maximum Mortgage Rates for the Adjustable Rate
Mortgage Loans ranged from 12.500% per annum to 20.375% per annum and the
weighted average Maximum Mortgage Rate for the Adjustable Rate Mortgage
Loans was 16.500% per annum.
S-36
<PAGE>
NEXT ADJUSTMENT DATE FOR THE ADJUSTABLE RATE MORTGAGE
LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
NEXT ADJUSTMENT DATE MORTGAGE LOANS BALANCE OUTSTANDING LOAN GROUP
- -------------------------------------------------------------- ----------------- ------------------- -------------
<S> <C> <C> <C>
October 1998.................................................. 19 $ 2,612,069 1.2%
November 1998................................................. 17 1,746,046 0.8
December 1998................................................. 16 1,727,902 0.8
January 1999.................................................. 16 1,742,227 0.8
March 1999.................................................... 26 3,319,184 1.5
April 1999.................................................... 36 4,507,315 2.1
May 1999...................................................... 40 4,812,426 2.2
June 1999..................................................... 34 4,068,557 1.9
July 1999..................................................... 23 3,322,805 1.5
August 1999................................................... 1 63,572 0.0
September 1999................................................ 1 61,522 0.0
October 1999.................................................. 5 675,349 0.3
December 1999................................................. 3 605,515 0.3
January 2000.................................................. 4 290,766 0.1
February 2000................................................. 9 1,165,577 0.5
March 2000.................................................... 94 10,867,436 5.0
April 2000.................................................... 218 25,701,416 11.9
May 2000...................................................... 216 24,767,165 11.5
June 2000..................................................... 175 20,141,503 9.3
July 2000..................................................... 188 22,595,997 10.5
March 2001.................................................... 51 5,818,317 2.7
April 2001.................................................... 144 15,291,844 7.1
May 2001...................................................... 189 20,720,985 9.6
June 2001..................................................... 138 15,860,916 7.4
July 2001..................................................... 125 13,096,610 6.1
August 2001................................................... 3 289,000 0.1
March 2003.................................................... 4 670,914 0.3
April 2003.................................................... 28 3,146,694 1.5
May 2003...................................................... 26 2,749,419 1.3
June 2003..................................................... 20 1,883,669 0.9
July 2003..................................................... 12 1,366,979 0.6
August 2003................................................... 2 97,750 0.0
----- ------------------- -----
Totals.................................................... 1,883 $ 215,787,446 100.0%
----- ------------------- -----
----- ------------------- -----
</TABLE>
ASSIGNMENT OF THE MORTGAGE LOANS
The Depositor 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 Pooling and Servicing 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.
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In addition, the Depositor 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 Depositor will cause the assignments to be recorded in the
appropriate public records.
REPRESENTATIONS AND WARRANTIES
The Depositor 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 Trust Fund--The Mortgage Pools" 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 Certificate Owners for a breach of such representations or
warranties. The Trustee will enforce the repurchase obligations of the
Depositor. In lieu of such repurchase obligation, the Depositor 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 Trust
Fund--The Mortgage Pools" in the Prospectus.
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<PAGE>
CHASE MANHATTAN MORTGAGE CORPORATION
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 a 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 Mortgage's real estate loans primarily are made to homeowners based on
the security of one- to four-family residences.
UNDERWRITING STANDARDS
B&C QUALITY MORTGAGE LOANS. The following is a description of the
underwriting procedures customarily employed by Chase Manhattan Mortgage with
respect to B&C quality mortgage loans (the "B&C Underwriting Guidelines"). Prior
to the funding of any B&C quality mortgage loan, Chase Manhattan Mortgage
underwrites the related mortgage loan in accordance with the underwriting
standards established by Chase Manhattan Mortgage.
The B&C Underwriting Guidelines consider the value and adequacy of the
mortgaged property as collateral for the proposed mortgage loan but also take
into consideration the borrower's credit standing and repayment ability. On a
case by case basis, Chase Manhattan Mortgage may determine that, based upon
compensating factors, a prospective borrower not strictly qualifying under the
underwriting risk category guidelines described below warrants an underwriting
exception. Compensating factors may include, without limitation, relatively low
loan-to-value ratio, relatively low debt-to-income ratio, stable employment and
time in the same residence. It is expected that a significant number of the
Mortgage Loans underwritten in accordance with the B&C Underwriting Guidelines
will have been originated based on such underwriting exceptions.
The B&C Underwriting Guidelines permit loans with loan-to-value ratios at
origination of up to 95%, depending on among other things, the program, type and
use of the property, creditworthiness of the borrower and debt-to-income ratio.
Chase Manhattan Mortgage requires title insurance on all B&C quality
mortgage loans secured by liens on real property. Chase Manhattan Mortgage also
requires that fire and hazard insurance coverage be maintained on the mortgaged
property in an amount at least equal to the principal balance or the replacement
cost of the mortgaged property, whichever is less. Flood insurance is also
required for any mortgage loan with respect to which the related mortgaged
property is located in either flood zone "A" or "V" as determined by the Federal
Emergency Management Agency.
The B&C Underwriting Guidelines are less stringent than the standards
generally acceptable to FNMA and FHLMC with regard to the borrower's credit
standing and repayment ability. Borrowers who qualify generally would not
satisfy FNMA and FHLMC underwriting guidelines for any number of reasons,
including, without limitation, unsatisfactory payment histories or
debt-to-income ratios, or a record of major derogatory credit items such as
outstanding judgments or prior bankruptcies.
Chase Manhattan Mortgage offers four types of income documentation programs
under the B&C Underwriting Guidelines: Full Documentation, 24 Month Bank
Statement, Reduced Documentation and Stated Income. In general, for mortgage
loans underwitten pursuant to the Full Documentation program, Chase Manhattan
Mortgage verifies income and assets through alternate documentation or written
third party verifications. The 24 Month Bank Statement program utilizes the last
24 months of bank statements to support income. In general, this documentation
type is available to AO, A-, B and B- credit grades. In
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<PAGE>
general, the Reduced Documentation program is available for AO through D credit
grades in the case of self-employed borrowers and AO, A- and B credit grades in
the case of salaried borrowers. Under the Reduced Documentation program, the
maximum loan-to-value ratio for salaried borrowers is 70%, and asset
verification for source of down payment is required if the loan-to-value ratio
is 70% or greater. In general, the Stated Income program is a no income/no asset
(except that asset verification is required if the loan-to-value ratio is 70% or
greater) program for credit grades AO through C, in the case of self-employed
borrowers, and for credit grades AO, A- and B, in the case of salaried
borrowers. The maximum loan-to-value for salaried borrowers is 70%. Income from
the application as stated by the borrower is used to qualify.
The B&C Underwriting Guidelines utilize various credit grade categories to
grade the likelihood that the mortgagor will satisfy the repayment conditions of
the mortgage loan. These credit grade categories establish the maximum permitted
loan-to-value ratio, debt-to-income ratio and loan amount, given the borrower's
credit history considered in a manner generally consistent with subprime
mortgage industry practice, the occupancy status of the mortgaged property, the
type of mortgaged property and documentation type. A summary of such categories
is set forth below.
CREDIT GRADE CATEGORY: "AO"
DEBT-TO-INCOME RATIO: Maximum of 45%
MORTGAGE HISTORY: No delinquencies of 30 days or more during the previous 12
months; no more than one such delinquency during the previous 24 months.
CONSUMER/REVOLVING CREDIT HISTORY: No more than one delinquency (in the case
of "major" credit) or two delinquencies (in the case of "minor" credit)
during the previous 12 months; provided that no such delinquencies may have
exceeded 59 days; no more than two ("major" credit) or three ("minor"
credit) such delinquencies during the previous 24 months ("major" credit
being defined as installment debt with monthly payments over $100 and
revolving accounts with credit limits over $2,500).
COLLECTIONS/CHARGEOFFS: All in previous 36 months must be satisfied.
BANKRUPTCY/FORECLOSURE: Must be discharged over three years from the date of
application; substantial re-establishment of credit required.
CREDIT GRADE CATEGORY: "A-"
DEBT-TO-INCOME RATIO: Maximum of 45%
MORTGAGE HISTORY: No more than two delinquencies of 30 days or more during
the previous 12 months; provided that no such delinquencies may have
exceeded 59 days.
CONSUMER/REVOLVING CREDIT HISTORY: No delinquencies of 60 days or more
during the previous 12 months (during the case of "major" credit) or no
delinquencies of 90 days or more during the previous 12 months (in the case
of "minor" credit).
COLLECTIONS/CHARGEOFFS: All except for up to $1,000 in previous 36 months
must be satisfied.
BANKRUPTCY/FORECLOSURE: Must be discharged over two years from the date of
application (or three years, if the loan-to-value ratio exceeds 85%);
substantial re-establishment of credit required.
CREDIT GRADE CATEGORY: "B"
DEBT-TO-INCOME RATIO: Maximum of 50%
MORTGAGE HISTORY: No more than three delinquencies of 30 days or more during
the previous 12 months; provided that no such delinquencies may have
exceeded 59 days.
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<PAGE>
CONSUMER/REVOLVING CREDIT HISTORY: No delinquencies of 90 days or more
during the previous 12 months (in the case of "major" credit) and no
delinquencies of 120 days or more during the previous 12 months (in the case
of "minor" credit).
COLLECTIONS/CHARGEOFFS: All except for up to $2,500 in previous 36 months
must be satisfied.
BANKRUPTCY/FORECLOSURE: Must be discharged over eighteen months from the
date of application; substantial re-establishment of credit required.
CREDIT GRADE CATEGORY: "B-"
DEBT-TO-INCOME RATIO: Maximum of 50%
MORTGAGE HISTORY: No more than four delinquencies of 30 days or more during
the previous 12 months, provided that no such delinquency may have exceeded
59 days; and no more than one delinquency of 60 days or more during the
previous 12 months, provided that no such delinquency may have exceeded 89
days.
CONSUMER/REVOLVING CREDIT HISTORY: No delinquencies of 90 days or more
during the previous 12 months (in the case of "major" credit) and no
delinquencies of 120 days or more during the previous 12 months (in the case
of "minor" credit).
COLLECTIONS/CHARGEOFFS: All except for up to $2,500 in previous 36 months
must be satisfied.
BANKRUPTCY/FORECLOSURE: Must be discharged over eighteen months from the
date of application; substantial re-establishment of credit required.
CREDIT GRADE CATEGORY: "C"
DEBT-TO-INCOME RATIO: Maximum of 55%
MORTGAGE HISTORY: No more than five delinquencies of 30 days or more during
the previous 12 months, provided that no such delinquency may have exceeded
59 days; and no more than two delinquencies of 60 days or more during the
previous 12 months, provided that no such delinquency may have exceeded 89
days; and no more than one delinquency of 90 days or more during the
previous 12 months, provided that; such delinquency may not have exceeded
119 days.
CONSUMER/REVOLVING CREDIT HISTORY: No delinquencies of 120 days or more on
any "major" credit during the previous 12 months.
COLLECTIONS/CHARGEOFFS: All except for up to $5,000 in previous 36 months
must be satisfied.
BANKRUPTCY/FORECLOSURE: Must be discharged over one year from date of
application; substantial re-establishment of credit required.
CREDIT GRADE CATEGORY: "C-"
DEBT-TO-INCOME RATIO: Maximum of 55%
MORTGAGE HISTORY: Borrower cannot be more than four months delinquent at
time of loan closing.
CONSUMER/REVOLVING CREDIT HISTORY: Borrower exhibits significant past or
present credit problems.
COLLECTIONS/CHARGEOFFS: All except for up to $5,000 in previous 36 months
must be satisfied.
BANKRUPTCY/FORECLOSURE: Chapter 13 and foreclosures must be discharged or
consummated prior to loan application. Chapter 7 must be discharged or
consummated over one year from date of application.
S-41
<PAGE>
CREDIT GRADE CATEGORY: "D"
DEBT-TO-INCOME RATIO: Maximum of 60%
MORTGAGE HISTORY: History disregarded; default action allowable.
CONSUMER/REVOLVING CREDIT HISTORY: "Major" and "minor" credit disregarded.
COLLECTIONS/CHARGEOFFS: All except for up to $5,000 in previous 36 months
must be satisfied.
BANKRUPTCY/FORECLOSURE: Current Chapter 13 bankruptcy and foreclosures paid
through loan. Chapter 7 bankruptcy must be discharged prior to loan
application.
S-42
<PAGE>
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Subservicer will service the Mortgage Loans in accordance with the terms
set forth in the Pooling and Servicing Agreement. The Subservicer may perform
any of its obligations under the Pooling and Servicing Agreement through one or
more subservicers. Notwithstanding any such subservicing arrangement, the
Subservicer will remain liable for its servicing duties and obligations under
the Pooling and Servicing Agreement as if the Subservicer alone were servicing
the Mortgage Loans.
THE SUBSERVICER
The information set forth below concerning the Subservicer has been provided
to the Depositor by the Subservicer. Neither the Depositor, the Seller, the
Trustee, the Underwriters nor any of their respective affiliates have made any
independent investigation of such information.
ADVANTA
Advanta Mortgage Corp. USA ("Advanta") will act as the Subservicer of the
Mortgage Loans pursuant to the Pooling and Servicing Agreement. Advanta is an
indirect subsidiary of Advanta Corp., a Delaware corporation ("Advanta Parent"),
a publicly traded company based in Springhouse, Pennsylvania with assets as of
June 30, 1998 of approximately $3.1 billion.
Advanta Parent, through its subsidiaries (including Advanta) had managed
assets (including mortgage loans) in excess of $10.4 billion as of June 30,
1998.
On October 28, 1997, Advanta Parent announced that it had reached a
definitive agreement under which Fleet Financial Group, Inc. ("Fleet") would
acquire Advanta Parent's consumer credit card business and would combine it with
Fleet's consumer credit card business (the "Transaction"). On February 20, 1998,
a special meeting of stockholders of Advanta Parent was held whereby the
stockholders approved the Transaction with Fleet. The Transaction was completed
on the same day. In addition, Advanta Parent completed its cash tender offer
(the "Tender Offer") to purchase approximately $850 million of its Class A and
Class B common stock at $40 per share net, and its Stock Appreciation Income
Linked Securities Depositary shares at $32.80 per share net. The Tender Offer
commenced on January 20, 1998 and expired at 12:00 midnight, New York City time
on February 20, 1998. Advanta Parent continues to operate its mortgage and
business services companies, including Advanta.
The ability of Advanta Parent's subsidiaries to honor their financial and
other obligations is to some extent influenced by the financial conditions of
Advanta Parent. Such obligations of Advanta, insofar as they relate to the Trust
with respect to the Mortgage Loans, primarily consist of Advanta's limited
advancing obligation and its obligation to service the Mortgage Loans.
As of June 30, 1998, Advanta and its subsidiaries were servicing
approximately 92,000 mortgage loans in the Owned and Managed Servicing Portfolio
representing an aggregate outstanding principal balance of approximately $6.2
billion, and approximately 127,000 mortgage loans in the Third-Party Servicing
Portfolio representing an aggregate outstanding principal balance of
approximately $8.2 billion.
The Certificates will not represent an interest in or obligation of, nor are
the Mortgage Loans guaranteed by, Advanta or the Advanta Parent. Additional
information with respect to Advanta and Advanta Parent is available in the
various reports filed by Advanta and Advanta Parent with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.
OWNED AND MANAGED SERVICING PORTFOLIO. The following tables set forth
information relating to the delinquency, loan loss and foreclosure experience of
Advanta for its servicing portfolio, excluding certain loans serviced by Advanta
that were not originated or purchased and are underwritten by affiliates of
Advanta (the "Owned and Managed Servicing Portfolio"), of fixed and adjustable
rate mortgage loans as
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<PAGE>
of June 30, 1998, and for each of the four prior years ended December 31. In
addition to the Owned and Managed Servicing Portfolio, Advanta serviced as of
June 30, 1998, approximately 127,000 mortgage loans with an aggregate principal
balance as of such date of approximately $8.2 billion; such loans were not
originated by Advanta or affiliates of Advanta and are being serviced for third
parties on a contract servicing basis (the "Third Party Servicing Portfolio").
No loans in the Third Party Servicing Portfolio are included in the tables set
forth below.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF
ADVANTA'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDING
YEAR ENDING DECEMBER 31, JUNE 30,
---------------------------------------------------------------------------------------------- -----------
1994 1995 1996 1997 1998
---------------------- ---------------------- ---------------------- ---------------------- -----------
BY BY BY BY
DOLLAR DOLLAR DOLLAR DOLLAR
BY NO. AMOUNT BY NO. AMOUNT BY NO. AMOUNT BY NO. AMOUNT BY NO.
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
----------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio....... 26,446 $1,346,100 32,592 $1,797,582 43,303 $2,595,981 74,525 $4,888,936 91,746
Delinquency
percentage(1)
30-59 days...... 2.01% 1.57% 2.67% 2.44% 3.07% 2.90% 3.13% 2.99% 2.56%
60-89 days...... 0.57 0.45% 0.72 0.71 0.85 0.90 0.98 0.98 0.84
90 days or
more.......... 1.85 1.51 1.69 1.23 1.45 1.26 1.39 1.28 1.48
----------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
Total........... 4.43% 3.53% 5.08% 4.38% 5.37% 5.06% 5.50% 5.25% 4.88%
Foreclosure
rate(2)....... 1.35% 1.38% 1.29% 1.53% 1.62% 1.92% 2.10% 2.32% 2.15%
REO
properties(3)... 0.47% -- 0.52% -- 0.42% -- 0.40% -- 0.70%
<CAPTION>
BY
DOLLAR
AMOUNT
OF LOANS
---------
<S> <C>
Portfolio....... $6,162,373
Delinquency
percentage(1)
30-59 days...... 2.36%
60-89 days...... 0.81
90 days or
more.......... 1.42
---------
Total........... 4.59%
Foreclosure
rate(2)....... 2.31%
REO
properties(3)... --
</TABLE>
- ------------------------
(1) The period of delinquency is based on the number of days payments are
contractually past due. The delinquency statistics for the period exclude
loans in foreclosure.
(2) "Foreclosure Rate" is the number of mortgage loans or the dollar amount of
mortgage loans in foreclosure as a percentage of the total number of
mortgage loans or the dollar amount of mortgage loans, as the cases may be,
as of the date indicated.
(3) REO Properties (i.e., "real estate owned" properties--properties relating to
mortgages foreclosed or for which deeds in lieu of foreclosure have been
accepted, and held by Advanta pending disposition) percentages are
calculated using the number of loans, not the dollar amount.
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<PAGE>
LOAN LOSS EXPERIENCE
OF ADVANTA'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS*
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDING DECEMBER 31, ENDING
------------------------------------------------------ JUNE 30,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Average amount outstanding(1).............. $ 1,225,529 $ 1,540,238 $ 2,102,643 $ 3,677,342 $ 5,501,780
Gross losses(2)............................ $ 20,886 $ 13,978 $ 15,184 $ 18,897 $ 14,361
Recoveries(3).............................. $ 179 $ 148 $ 117 $ 45 $ 40
Net losses(4).............................. $ 20,707 $ 13,830 $ 15,067 $ 18,852 $ 14,321
Net losses as a percentage of average
amount outstanding(s)(5)................. 1.69% 0.90% 0.72% 0.51% 0.52%
</TABLE>
- ------------------------
(1) "Average Amount Outstanding" during the period is the arithmetic average of
the principal balances of the mortgage loans outstanding on the last
business day of each month during the period.
(2) "Gross Losses" are amounts which have been determined to be uncollectible
relating to mortgage loans for each respective period.
(3) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries."
(5) June 30, 1998 percentage has been based on annualized net losses.
Advanta experienced an increase in the net loss rate on its Owned and
Managed Servicing Portfolio during the period 1990 through 1994. It believes
that such increase was due to four primary factors; the seasoning of its
portfolio, economic conditions, a decline in property values in certain regions
and the acceleration of charge-offs on loans in 1994. In addition, the level of
net losses during such period was negatively impacted by the performance of the
Non-Income Verification ("NIV") loan program. The net loss rate as a percentage
of the average amount outstanding on its Owned and Managed Servicing Portfolio,
excluding NIV loans, is 1.42% for the period ending December 31, 1994.*
COLLECTION PROCEDURES. Advanta employs a variety of collection techniques
during the various stages of delinquency. The primary purpose of all collection
efforts performed by Advanta is to bring a delinquent mortgage loan current in
as short a time as possible. Phone calls are used as the principal form of
contacting a mortgagor. Advanta utilizes a predictive dialing system for the
effective management of collection calling activity. Prior to initiating
foreclosure proceedings, Advanta makes every reasonable effort to determine the
reason for the default; whether the delinquency is a temporary or permanent
condition; and the mortgagor's attitude toward the obligation. Advanta will take
action to foreclose a mortgage only once every reasonable effort to cure the
default has been made and a projection of the ultimate gain or loss on REO sale
is determined. Foreclosures are processed within individual state guidelines and
in accordance with the provisions of the mortgage and applicable state law.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Subservicer will be paid a monthly fee from interest collected with
respect to each Mortgage Loan (as well as from any liquidation proceeds from a
Liquidated Mortgage Loan that are applied to accrued and unpaid interest) equal
to the Stated Principal Balance thereof multiplied by one-twelfth of the
- ------------------------
* Owned and managed portfolio statistics restated to exclude interest advances
on serviced portfolio to be consistent with presentation of owned portfolio.
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<PAGE>
Servicing Fee Rate (such product, the "Servicing Fee"). The "Servicing Fee Rate"
for each Mortgage Loan will equal 0.50% per annum. The amount of the monthly
Servicing Fee is subject to adjustment with respect to prepaid Mortgage Loans,
as described herein under "--Adjustment to Servicing Fee in Connection with
Certain Prepaid Mortgage Loans." The Subservicer is also entitled to receive, as
additional servicing compensation, all assumption fees and other similar charges
and all investment income earned on amounts on deposit in the Collection
Account. The Subservicer is obligated to pay certain ongoing expenses associated
with the Mortgage Loans in connection with its responsibilities under the
Pooling and Servicing Agreement.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE LOANS
When a Mortgagor prepays all or a portion of a Mortgage Loan between
scheduled monthly payment dates ("Due Dates"), the Mortgagor pays interest on
the amount prepaid only to the date of prepayment. Prepayments received during
the prior Due Period (defined herein) are included in the distribution to
Certificate Owners on the Distribution Date thereby causing a shortfall in
interest. In order to mitigate the effect of any such shortfall in interest
distributions to Certificate Owners on any Distribution Date, the amount of the
Servicing Fee otherwise payable to the Subservicer for such month shall, to the
extent of such shortfall, be deposited by the Subservicer in the Collection
Account for distribution to the Certificate Owners on such Distribution Date
(the amount of such deposit, "Compensating Interest"). However, any such
reduction in the Servicing Fee will be limited to the product of (i) one-twelfth
of 0.35% and (ii) the aggregate outstanding principal balance of the Mortgage
Loans with respect to the related Distribution Date. Any such deposit by the
related Subservicer will be reflected in the distributions to the Owners of the
Certificates made on the Distribution Date to which such Due Period relates. Any
such shortfall in excess of Compensating Interest (such excess, the "Prepayment
Interest Shortfall") will be allocated on such Distribution Date pro rata among
the outstanding Classes of Certificates based upon the amount of interest each
such Class would otherwise be paid on such Distribution Date.
ADVANCES
Subject to the following limitations, on the Business Day prior to each
Servicer Remittance Date, the Subservicer will be required to advance its own
funds, or funds in the Collection Account that are not required to be
distributed on the related Distribution Date, in an amount equal to the
aggregate of payments of principal and interest on the Mortgage Loans (adjusted
to the applicable Net Mortgage Rate) that were due on the related Due Date and
delinquent on the related Servicer Remittance Date, together with an amount
equivalent to interest (adjusted to the applicable Net Mortgage Rate) deemed due
on each Mortgage Loan as to which the related Mortgaged Property has been
acquired by the Subservicer through foreclosure or deed-in-lieu of foreclosure
in connection with a defaulted Mortgage Loan ("REO Property"), such latter
amount to be calculated after taking into account any rental income from such
Mortgaged Property (any such advance, an "Advance", and the date of any such
Advance, as described herein, a "Servicer Advance Date").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Offered Certificates rather than to guarantee or
insure against losses. The Subservicer is obligated to make Advances with
respect to delinquent payments of principal of or interest on each Mortgage Loan
(with such payments of interest adjusted to the related Net Mortgage Rate) to
the extent that such Advances are, in its judgment, reasonably recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan; provided, however, that the Subservicer need not
make Advances with respect to the principal portion of any Balloon Amount but
the Subservicer will be required to Advance amortizing interest on a Balloon
Loan until the principal balance thereof is reduced to zero. If the Subservicer
determines on any Servicer Remittance Date to make an Advance, such Advance will
be included with the distribution to holders of the Offered Certificates on the
related Distribution Date. Any failure by the Subservicer to make an Advance as
required under the Pooling and
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<PAGE>
Servicing Agreement will constitute an event of default thereunder, in which
case the Trustee, as successor servicer, or such other entity as may be
appointed as successor servicer, will be obligated to make any such Advance in
accordance with the terms of the Pooling and Servicing Agreement.
MASTER SERVICER
Chase Manhattan Mortgage will act as "Master Servicer." The Master Servicer
will (a) provide certain administrative services and file certain reports with
regard to the Certificates, (b) provide certain reports to the Trustee regarding
the Mortgage Loans and the Certificates and (c) receive payments with respect to
the Mortgage Loans from the Subservicer and, in its capacity as paying agent for
the Certificates, remit such payments to the Certificateholders as described
herein. The Master Servicer will pay certain administrative expenses of the
Trust including the fees of the Trustee. The Master Servicer will be entitled to
a monthly "Master Servicer Fee" with respect to each Mortgage Loan, payable on
each Remittance Date, in an amount equal to the sum of (i) one-twelfth of the
Master Servicer Fee Rate multiplied by the principal balance of such Mortgage
Loan and (ii) all late payment fees and prepayment penalties and all investment
income earned on funds in the Certificate Account and the Distribution Account.
The "Master Servicer Fee Rate" is 0.0091% per annum.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. A copy of the Pooling and Servicing Agreement will be attached as an
exhibit to the Current Report on Form 8-K of the Depositor 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 Pooling and Servicing 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
Pooling and Servicing Agreement. When particular provisions or terms used in the
Pooling and Servicing Agreement are referred to, the actual provisions
(including definitions of terms) are incorporated by reference.
The Chase Funding Mortgage Loan Asset-Backed Certificates, Series 1998-1
(the "Certificates") will consist of: (a) the Class IA-1, Class IA-2, Class
IA-3, Class IA-4, Class IA-5 and Class IA-6 Certificates (collectively, the
"Class A Group I Certificates"), the Class IM-1 Certificates (the "Class IM-1
Certificates") and Class IM-2 Certificates (the "Class IM-2 Certificates" and
together with the Class IM-1 Certificates, the "Mezzanine Group I Certificates")
and the Class IB Certificates (the "Class IB Certificates" and together with the
Mezzanine Group I Certificates, the "Subordinated Group I Certificates" and the
Subordinated Group I Certificates together with the Class A Group I
Certificates, the "Group I Certificates"); (b) the Class IIA-1 and Class IIA-2
Certificates (together, the "Class A Group II Certificates" and together with
the Class A Group I Certificates, the "Class A Certificates"), the Class IIM-1
Certificates (the "Class IIM-1 Certificates" and together with the Class IM-1
Certificates, the "Class M-1 Certificates") and Class IIM-2 Certificates (the
"Class IIM-2 Certificates" and together with the Class IIM-1 Certificates, the
"Mezzanine Group II Certificates" and together with the IM-2 Certificates, the
"Class M-2 Certificates") and the Class IIB Certificates (the "Class IIB
Certificates" and together with the Mezzanine Group II Certificates, the
"Subordinated Group II Certificates" and together with the Class IB
Certificates, the "Class B Certificates", and the Subordinated Group II
Certificates together with the Class A Group II Certificates, the "Group II
Certificates"); and (c) the Class R Certificates (the "Residual Certificates").
The Mezzanine Group I Certificates and the Mezzanine Group II Certificates are
referred to collectively as the "Mezzanine Certificates". The Subordinated Group
I Certificates and the Subordinated Group II Certificates are referred to
collectively as the "Subordinated Certificates." The Group I Certificates and
the Group II Certificates are referred to as the "Offered Certificates". As used
herein, a "Certificate Group" is either the Group I Certificates or the Group II
Certificates, as the context requires.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar denominations
of $25,000 and integral multiples of $1,000 in excess thereof.
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the Offered
Certificates ("Certificate Owners") may elect to hold their Offered Certificates
through the Depository Trust Company ("DTC") in the United States, or CEDEL or
Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations which are participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates which equal the
aggregate principal balance of the Offered Certificates and will initially be
registered in the name of Cede & Co. ("Cede"), the nominee of DTC. CEDEL and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in CEDEL's and
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Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank will act as depositary for CEDEL and Chase
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing Certificate Principal Balances of $25,000 and
integral multiples of $1,000 in excess thereof. Except as described below, no
person acquiring a Book-Entry Certificate (each, a "beneficial owner") will be
entitled to receive a physical certificate representing such Offered Certificate
(a "Definitive Certificate"). Unless and until Definitive Certificates are
issued, it is anticipated that the only Certificateholder of the Offered
Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will not
be Certificateholders as that term is used in the Pooling and Servicing
Agreement. Certificate Owners are only permitted to exercise their rights
indirectly through the participating organizations that utilize the services of
DTC, including securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations ("Participants") and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant and on
the records of CEDEL or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and organizations which have indirect access to the DTC system,
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"), with whom Certificate Owners have accounts
with respect to Offered Certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate Owners. Accordingly, although Certificate Owners will not
possess certificates, the Rules provide a mechanism by which Certificate Owners
will receive distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Offered Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Certificate Owners who are not Participants may
transfer ownership of Offered Certificates only through Participants and
Indirect Participants by instructing such Participants and Indirect Participants
to transfer Offered Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Offered Certificates, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of Offered Certificates
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the Participants and Indirect
Participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in CEDEL,
or Euroclear as a result of a transaction with a Participant will be made
during, subsequent securities settlement processing and dated the business day
following, the DTC settlement date. Such credits or any transactions in such
securities, settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear, as a result of sales of securities by or through a
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CEDEL Participant (as defined, below) or Euroclear Participant (as defined
below) to a DTC Participant, will be received with value on the DTC settlement
date but will be available in the relevant CEDEL or Euroclear cash account only
as of the business day following settlement in DTC. For information with respect
to tax documentation procedures, relating to the Offered Certificates, see
"Federal Income Tax Consequences--Taxation of Certain Foreign Investors" in the
Prospectus and "Global, Clearance, Settlement And Tax Documentation
Procedures--Certain U.S. Federal Income Tax Documentation Requirements" in Annex
I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterpart in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York
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(the "Euroclear Operator"), under contract with Euroclear Clearance Systems
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the beneficial owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede. Distributions with respect to Offered
Certificates held through CEDEL or Euroclear will be credited to the cash
accounts of CEDEL Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. See "Federal Income Tax
Consequences--Taxation of Certain Foreign Investors" and "--Backup Withholding"
in the Prospectus. Because DTC can only act on behalf of Financial
Intermediaries, the ability of a beneficial owner to pledge Book-Entry
Certificates to persons or entities that do not participate in the depository
system, or otherwise take actions in respect of such Book-Entry Certificates,
may be limited due to the lack of physical certificates for such Book-Entry
Certificates. In addition, issuance of the Book-Entry Certificates in book-entry
form may reduce the liquidity of such Offered Certificates in the secondary
market since certain potential investors may be unwilling to purchase Offered
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust Fund provided by the Subservicer to
Cede, as nominee of DTC, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting DTC or the Relevant Depositary, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates of such beneficial owners are
credited.
DTC has advised the Depositor and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Certificates under the Pooling and
Servicing Agreement only at the direction of one or more Financial
Intermediaries to
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whose DTC accounts the Book-Entry Certificates are credited, to the extent that
such actions are taken on behalf of Financial Intermediaries whose holdings
include such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a Holder of an
Offered Certificate under the Pooling and Servicing Agreement on behalf of a
CEDEL Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to the ability of the Relevant Depositary to
effect such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Offered Certificates
which conflict with actions taken with respect to other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depositary with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor at its sole
option, elects to terminate a book-entry system through DTC or (c) after the
occurrence of an Event of Default (as defined herein), beneficial owners having
not less than 51% of the Voting Rights (as defined herein) evidenced by the
Offered Certificates advise the Trustee and DTC through the Financial
Intermediaries and the DTC participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of beneficial owners of such Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
holders of the Offered Certificates under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
PAYMENTS ON MORTGAGE LOANS; COLLECTION ACCOUNT; CERTIFICATE ACCOUNT;
DISTRIBUTION ACCOUNT
The Pooling and Servicing Agreement provides that the Subservicer for the
benefit of the Certificateholders shall establish and maintain a Collection
Account (the "Collection Account"), into which the Subservicer is generally
required to deposit or cause to be deposited, promptly upon receipt and in any
event within two Business Days, the payments and collections described in
"Description of the Certificates--Certificates Evidencing Interests in Mortgage
Loans--Payments on Mortgage Loans" in the Prospectus, except that the
Subservicer may deduct its Servicing Fee and any expenses of liquidating
defaulted Mortgage Loans or property acquired in respect thereof. The Pooling
and Servicing Agreement permits the Master 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 Pooling and Servicing Agreement), that mature, unless payable on
demand, no later than the Business Day preceding the 18th day of each month, or,
if such day is not a business day, the preceding business day (the "Servicer
Remittance Date"). The Subservicer 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 Subservicer from time to time. The Subservicer will be
required to deposit the amount of any losses incurred in respect to any such
investments out of its own funds as such losses are realized.
The Master Servicer will be obligated to establish an account (the
"Certificate Account"), into which the Subservicer will deposit or cause to be
deposited not later than 1:00 p.m. Pacific Time on the Servicer Remittance Date
from amounts on deposit in the Collection Account, the Interest Funds and
Principal Funds for each Loan Group and the Master Servicer Fee with respect to
such Distribution Date. Subject to
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the restrictions set forth in the Pooling and Servicing Agreement, the Master
Servicer is permitted to direct that the funds in the Certificate Account be
invested so long as such investments mature, unless payable on demand, no later
than two Business Days prior to the Distribution Date. All income and gain
realized from any such investment will belong to the Master Servicer and is
subject to its withdrawal or order from the Certificate Account. The Master
Servicer will be required to deposit in the Certificate Account out of its own
funds the amount of any losses incurred in respect of any such investment, as
such losses are realized.
The Master Servicer, as initial Paying Agent, is obligated under the Pooling
and Servicing Agreement to establish and maintain a separate trust account (the
"Distribution Account"), into which the Master Servicer is obligated to deposit
on the Business Day preceding each Distribution Date, an amount equal to the
Interest Funds and Principal Funds for each Loan Group with respect to such
Distribution Date. Subject to the restrictions set forth in the Pooling and
Servicing Agreement, the Master Servicer is permitted to direct that the funds
in the Distribution Account be invested so long as such investments mature,
unless payable on demand, no later than the related Distribution Date. All
income and gain realized from any such investment will belong to the Master
Servicer and is subject to its withdrawal or order from the Distribution
Account. The Master Servicer will be required to deposit in the Distribution
Account out of its own funds the amount of any losses incurred in respect of any
such investment, as such losses are realized.
The "Interest Funds" with respect to each Loan Group are equal to the sum,
without duplication, of (i) all scheduled interest collected during the related
Due Period less the Servicing Fee and Master Servicer Fee, (ii) all Advances
relating to interest, (iii) all Compensating Interest and (iv) Liquidation
Proceeds (to the extent such Liquidation Proceeds relate to interest) less all
non-recoverable Advances relating to interest and certain expenses reimbursed
during the related Due Period.
The "Principal Funds" with respect to each Loan Group are equal to the sum,
without duplication, of (i) the scheduled principal collected during the related
Due Period or advanced on or before the related Servicer Remittance Date, (ii)
prepayments collected in the related Prepayment Period, (iii) the Stated
Principal Balance of each Mortgage Loan that was repurchased by the Depositor,
(iv) the amount, if any, by which the aggregate unpaid principal balance of any
replacement Mortgage Loans is less than the aggregate unpaid principal balance
of any Mortgage Loans delivered by the Seller in connection with a substitution
of a Mortgage Loan and (v) all Liquidation Proceeds collected during the related
Due Period (to the extent such Liquidation Proceeds related to principal) less
all non-recoverable Advances relating to principal and all non-recoverable
servicing advances reimbursed during the related Due Period.
The "Due Period" with respect to any Distribution Date is the period
beginning on the second day of the calendar month preceding the calendar month
in which such Distribution Date occurs (or, in the case of the first
Distribution Date, on the Cut-off Date) and ending on the Due Date in the month
in which such Distribution Date occurs. The "Prepayment Period" with respect to
any Distribution Date is the calendar month preceding the month in which such
Distribution Date occurs.
DISTRIBUTIONS
GENERAL. Distributions on the Certificates will be made by the Paying Agent
on the 25th day of each month, or if such day is not a Business Day, on the
first Business Day thereafter, commencing in September 1998 (each, a
"Distribution Date"), to the persons in whose names such Certificates are
registered at the close of business on the last Business Day of the month
preceding the month of such Distribution Date (the "Record Date").
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the Certificate Register
or, in the case of any Certificateholder that holds 100% of a Class of
Certificates or who holds a Class of Certificates with an aggregate initial
Certificate Principal Balance of $1,000,000 or more and that has so notified the
Trustee in writing in accordance with
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the Pooling and Servicing Agreement, by wire transfer in immediately available
funds to the account of such Certificateholder at a bank or other depository
institution having appropriate wire transfer facilities; provided, however, that
the final distribution in retirement of the Certificates will be made only upon
presentation and surrender of such Certificates at the Corporate Trust Office of
the Master Servicer. On each Distribution Date, a Holder of a Certificate will
receive such Holder's Percentage Interest of the amounts required to be
distributed with respect to the applicable Class of Certificates. The
"Percentage Interest" evidenced by a Certificate will equal the percentage
derived by dividing the denomination of such Certificate by the aggregate
denominations of all Certificates of the applicable Class.
DISTRIBUTIONS OF INTEREST. On each Distribution Date, the interest
distributable with respect to the Group I Certificates and the Class IIA-2
Certificates is the interest which has accrued thereon at the related
Pass-Through Rate during the calendar month immediately preceding the calendar
month in which such Distribution Date occurs less Prepayment Interest
Shortfalls; and the interest distributable with respect to the Group II
Certificates (other than with respect to the Class IIA-2 Certificates) is the
interest which has accrued thereon at the then applicable related Pass-Through
Rate from and including the preceding Distribution Date (or from the Closing
Date in the case of the first Distribution Date) to and including the day prior
to the current Distribution Date less Prepayment Interest Shortfalls. Each
period referred to in the prior sentence relating to the accrual of interest is
the "Accrual Period" for the related Class of Offered Certificates.
All calculations of interest of the Group I Certificates and the Class IIA-2
Certificates will be made on the basis of a 360-day year assumed to consist of
twelve 30-day months. All calculations of interest on the Group II Certificates
(other than the Class IIA-2 Certificates) will be made on the basis of a 360-day
year and the actual number of days elapsed in the applicable Accrual Period.
On each Distribution Date, the Interest Funds for such Distribution Date
with respect to each Loan Group are required to be distributed in the following
order of priority, until such Interest Funds have been fully distributed:
(i) to each Class of the Class A Certificates of the Certificate Group
related to such Loan Group, the Current Interest and any Interest Carry
Forward Amount; provided, however, that if the Interest Funds for the Group
I Certificates are not sufficient to make a full distribution of the
aggregate Current Interest and the aggregate Interest Carry Forward Amount,
the Interest Funds for such Certificate Group will be distributed pro rata
among each Class of the Class A Group I Certificates based upon the ratio of
(x) the Current Interest and Interest Carry Forward Amount for each Class of
the Class A Certificates of such Certificate Group to (y) the total amount
of Current Interest and any Interest Carry Forward Amount for the Class A
Certificates of such Certificate Group;
(ii) to the Class M-1 Certificates of such Certificate Group, the
Current Interest for such Class and any Interest Carry Forward Amount;
(iii) to the Class M-2 Certificates of such Certificate Group, the
Current Interest for such Class and any Interest Carry Forward Amount;
(iv) to the Class B Certificates of such Certificate Group, the Current
Interest for such Class and any Interest Carry Forward Amount; and
(v) any remainder to be distributed as described below under
"--Overcollateralization and Crosscollateralization Provisions".
"Current Interest", with respect to each Class of the Offered Certificates
and each Distribution Date, is the interest accrued at the applicable
Pass-Through Rate for the applicable Accrual Period on the Certificate Principal
Balance of such Class plus any amount previously distributed with respect to
interest for such Class that is recovered as a voidable preference by a trustee
in bankruptcy.
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"Interest Carry Forward Amount", with respect to each Class of the Offered
Certificates and each Distribution Date, is the sum of (i) the excess of (A)
Current Interest for such Class with respect to prior Distribution Dates
(excluding any Adjustable Rate Certificate Carryover) over (B) the amount
actually distributed to such Class with respect to interest on such prior
Distribution Dates and (ii) interest on such excess (to the extent permitted by
applicable law) at the applicable Pass-Through Rate.
The "Pass-Through Rate" with respect to each Class of Group I Certificates
is the per annum rate set forth for each such Class on the cover page hereof;
provided, however, that the "Pass-Through Rate" for the Class IB Certificates on
any Distribution Date will equal the lesser of (i) the per annum rate for such
Class set forth on the cover page hereof and (ii) the weighted average Net
Mortgage Rates on the Fixed Rate Mortgage Loans and; provided, further, that the
Pass-Through Rate for the Class IA-5 Certificates on any Distribution Date after
the Optional Termination Date will equal 7.190%. The "Pass Through Rate" with
respect to each Class of Group II Certificates will be determined as described
below.
The Pass-Through Rates per annum for the Group II Certificates (other than
the Class IIA-2 Certificates) will be equal to the least of (i) the London
interbank offered rate for one month United States dollar deposits, calculated
as described under "Description of the Certificates--Calculation of One-Month
LIBOR" ("One-Month LIBOR"), plus the Pass-Through Margin (defined below) for
such Class, (ii) the "Maximum Funds Cap," which is defined as the weighted
average of the maximum lifetime Mortgage Rates on the Adjustable Rate Mortgage
Loans less the Servicing Fee and the Master Servicer Fee, and (iii) the
"Available Funds Cap" for the Group II Certificates, which is defined as a per
annum rate equal to 12 times the quotient of (x) the total scheduled interest on
the Adjustable Rate Mortgage Loans in the Adjustable Rate Mortgage Loan Group
based on the Net Mortgage Rates in effect on the related Due Date divided by (y)
the aggregate principal balance of the Group II Certificates. The Pass-Through
Rate with respect to the Class IIA-2 Certificates will be equal to 6.100% per
annum.
With respect to any Mortgage Loan, the "Net Mortgage Rate" is the Mortgage
Rate with respect to such Mortgage Loan less the sum of (i) the Servicing Fee
Rate and (ii) the Master Servicer Fee Rate.
The "Pass-Through Margin" for each Class of Group II Certificates (other
than the Class IIA-2 Certificates) is as follows: for any Distribution Date on
or before the applicable Optional Termination Date: Class IIA-1, 0.160%; Class
IIM-1, 0.340%; Class IIM-2, 0.520% and Class IIB, 1.170%; and for any
Distribution Date after the applicable Optional Termination Date: Class IIA-1,
0.320%; Class IIM-1, 0.510%; Class IIM-2, 0.780%; and Class IIB, 1.755%.
If on any Distribution Date, the Pass-Through Rate for a Class of Group II
Certificates is based upon its Available Funds Cap, the excess of (i) the amount
of interest that such Class would have been entitled to receive on such
Distribution Date had the Pass-Through Rate for that Class not been calculated
based on the Available Funds Cap, up to but not exceeding the Maximum Funds Cap
over (ii) the amount of interest such Class received on such Distribution Date
based on the Available Funds Cap, up to but not exceeding the Maximum Funds Cap,
together with the unpaid portion of any such excess from prior Distribution
Dates (and interest accrued thereon at the then applicable Pass-Through Rate,
without giving effect to the Available Funds Cap) is the "Adjustable Rate
Certificate Carryover" for such Class. Any Adjustable Rate Certificate Carryover
will be paid on future Distribution Dates from and to the extent of funds
available therefor as described herein. The ratings of the Group II Certificates
do not address the likelihood of the payment of any Adjustable Rate Certificate
Carryover.
DISTRIBUTIONS OF PRINCIPAL. On each Distribution Date, the Principal
Distribution Amount (as defined below) for such Distribution Date with respect
to each Loan Group is required to be distributed as follows until such Principal
Distribution Amount has been fully distributed:
(i) (a) with respect to Class A Group I Certificates, Class A Principal
Distribution Amount for the Group I Certificates is required to be
distributed as follows: first, the Class IA-6 Distribution Amount to the
Class IA-6 Certificates, and second, the remaining Class A Principal
Distribution Amount shall be paid sequentially to the Class IA-1, Class
IA-2, Class IA-3, Class IA-4, Class IA-5 and
S-55
<PAGE>
Class IA-6 Certificates, in that order, until the respective Certificate
Principal Balances thereof have been reduced to zero; provided, however,
that, on any Distribution Date on which the aggregate Certificate Principal
Balances of the Class A Group I Certificates are equal to or greater than
the Stated Principal Balances of the Fixed Rate Mortgage Loans, the Class A
Principal Distribution Amount for the Class A Group I Certificates will be
distributed pro rata and not as described above; and (b) with respect to
Class A Group II Certificates, Class A Principal Distribution Amount for the
Group II Certificates is required to be distributed as follows: first, the
Class IIA-2 Distribution Amount to the Class IIA-2 Certificates, and second,
the remaining Class A Principal Distribution Amount shall be paid
sequentially to the Class IIA-1 and Class IIA-2 Certificates, in that order,
until the respective Certificate Principal Balances thereof have been
reduced to zero; provided, however, that, on any Distribution Date on which
the aggregate Certificate Principal Balances of the Class A Group II
Certificates are equal to or greater than the Stated Principal Balances of
the Adjustable Rate Mortgage Loans, the Class A Principal Distribution
Amount for the Class A Group II Certificates will be distributed pro rata
and not as described above;
(ii) to the Class M-1 Certificates of each Certificate Group, the Class
M-1 Principal Distribution Amount for such Certificate Group;
(iii) to the Class M-2 Certificates of each Certificate Group, the Class
M-2 Principal Distribution Amount for such Certificate Group;
(iv) to the Class B Certificates of each Certificate Group, the Class B
Principal Distribution Amount for such Certificate Group; and
(v) any remainder to be distributed as described under
"--Overcollateralization and Crosscollateralization Provisions" below.
"Principal Distribution Amount", with respect to each Distribution Date and
a Certificate Group, is the sum of (i) the Principal Funds for such Distribution
Date for such Certificate Group and (ii) any Extra Principal Distribution Amount
(defined below) for such Distribution Date for the related Certificate Group.
"Class A Principal Distribution Amount", for a Certificate Group is (i) with
respect to any Distribution Date prior to the related Stepdown Date (defined
below) or as to which a Trigger Event (defined below) exists, 100% of the
Principal Distribution Amount for such Certificate Group for such Distribution
Date and (ii) with respect to any Distribution Date on or after the Stepdown
Date and as to which a Trigger Event does not exist, the excess of (A) the
Certificate Principal Balance of the Class A Certificates for such Certificate
Group immediately prior to such Distribution Date over (B) the lesser of (i)
approximately 84.00% for the Fixed Rate Mortgage Loan Group and approximately
64.00% (or approximately 62.50%, if a Stepup Trigger Event (defined below) has
occurred) for the Adjustable Rate Mortgage Loan Group, of the Stated Principal
Balances of the Mortgage Loans in such Loan Group on the preceding Due Date and
(ii) the Stated Principal Balances of the Mortgage Loans in such Loan Group on
the preceding Due Date less approximately $673,760 for the Fixed Rate Mortgage
Loan Group and approximately $1,078,935 for the Adjustable Rate Mortgage Loan
Group.
"Class IA-6 Distribution Amount", for any Distribution Date, is the product
of (i) a fraction, the numerator of which is the Certificate Principal Balance
of the Class IA-6 Certificates and the denominator of which is the aggregate
Certificate Principal Balance of all Class A Certificates for the Fixed Rate
Mortgage Loan Group, in each case immediately prior to such Distribution Date,
(ii) the Class A Principal
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<PAGE>
Distribution Amount with respect to the Fixed Rate Mortgage Loan Group for such
Distribution Date and (iii) the applicable percentage for such Distribution Date
set forth in the following table:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
September 1998 through August 2001................................................ 0%
September 2001 through August 2003................................................ 45%
September 2003 through August 2004................................................ 80%
September 2004 through August 2005................................................ 100%
September 2005 and thereafter..................................................... 300%
</TABLE>
"Class IIA-2 Distribution Amount", for any Distribution Date prior to the
Distribution Date occurring in September 2001, is the product of (i) a fraction,
the numerator of which is the Certificate Principal Balance of the Class IIA-2
Certificates and the denominator of which is the aggregate Certificate Principal
Balance of all Group II Class A Certificates, in each case immediately prior to
such Distribution Date, (ii) the Class A Principal Distribution Amount with
respect to the Adjustable Rate Mortgage Loan Group for such Distribution Date
and (iii) the applicable percentage for such Distribution Date set forth in the
following table:
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
September 1998 through November 1999.............................................. 0%
December 1999 through August 2001................................................. 500%
</TABLE>
With respect to the Distribution Date occurring in September 2001 and each
Distribution Date thereafter until the Certificate Principal Balance of the
Class IIA-2 Certificates has been reduced to zero, the Class IIA-2 Distribution
Amount will be the Class A Principal Distribution Amount with respect to the
Adjustable Rate Mortgage Loan Group for such Distribution Date.
"Class M-1 Principal Distribution Amount", for a Certificate Group and with
respect to any Distribution Date on or after the related Stepdown Date is 100%
of the Principal Distribution Amount for the related Certificate Group if the
Certificate Principal Balance of each Class of Class A Certificates for such
Certificate Group has been reduced to zero and a Trigger Event has occurred, or,
if any Class A Certificates for such Certificate Group are still outstanding,
and as long as a Trigger Event is not in effect for such Certificate Group, is
the excess of (i) the sum for such Certificate Group of (A) the Certificate
Principal Balance of the related Class A Certificates (after taking into account
distributions of the Class A Principal Distribution Amount to such Class A
Certificates for such Distribution Date) and (B) the Certificate Principal
Balance of the related Class M-1 Certificates immediately prior to such
Distribution Date over (ii) the lesser of (A) approximately 91.50% for the Fixed
Rate Mortgage Loan Group and approximately 78.00% (or approximately 76.50%, if a
Stepup Trigger Event has occurred) for the Adjustable Rate Mortgage Loan Group
of the Stated Principal Balances of the Mortgage Loans in such Loan Group on the
preceding Due Date and (B) the Stated Principal Balances of the Mortgage Loans
in such Loan Group on the preceding Due Date less approximately $673,760 for the
Fixed Rate Mortgage Loan Group and approximately $1,078,935 for the Adjustable
Rate Mortgage Loan Group. Notwithstanding the foregoing, on any Distribution
Date prior to the Stepdown Date on which the Certificate Principal Balance of
each Class of Class A Certificates for a Certificate Group has been reduced to
zero, the Class M-1 Principal Distribution Amount for such Certificate Group
will equal the lesser of (A) the outstanding Certificate Principal Balance of
the related Class M-1 Certificates and (B) 100% of the Principal Distribution
Amount for such Certificate Group.
"Class M-2 Principal Distribution Amount", for a Certificate Group and with
respect to any Distribution Date on or after the related Stepdown Date, is 100%
of the Principal Distribution Amount for the related Certificate Group if the
Certificate Principal Balance of each Class of Class A and Class M-1
Certificates for such Certificate Group has been reduced to zero and a Trigger
Event has occurred, or, if the Class A and Class M-1 Certificates for such
Certificate Group are still outstanding and as long as a Trigger Event is not in
effect for such Certificate Group, is the excess of (i) of the sum for such
Certificate
S-57
<PAGE>
Group of (A) the Certificate Principal Balance of the Class A Certificates
(after taking into account distributions of the Class A Principal Distribution
Amount to such Class A Certificates for such Distribution Date), (B) the
Certificate Principal Balance of the related Class M-1 Certificates (after
taking into account distribution of the Class M-1 Principal Distribution Amount
to such Class M-1 Certificates for such Distribution Date) and (C) the
Certificate Principal Balance of the related Class M-2 Certificates immediately
prior to such Distribution Date over (ii) the lesser of (A) approximately 95.80%
for the Fixed Rate Mortgage Loan Group and approximately 87.52% (or
approximately 86.02%, if a Stepup Trigger Event has occurred) for the Adjustable
Rate Mortgage Loan Group, of the aggregate Stated Principal Balances of the
Mortgage Loans in such Loan Group on the preceding Due Date and (B) the Stated
Principal Balances of the Mortgage Loans in such Loan Group on the preceding Due
Date less approximately $673,760 for the Fixed Rate Mortgage Loan Group and
approximately $1,078,935 for the Adjustable Rate Mortgage Loan Group.
Notwithstanding the foregoing, on any Distribution Date prior to the Stepdown
Date on which the aggregate Certificate Principal Balance of each class of Class
A Certificates and the Class M-1 Certificates for a Certificate Group has been
reduced to zero, the Class M-2 Principal Distribution Amount for such
Certificate Group will equal the lesser of (A) the outstanding Certificate
Principal Balance of the related Class M-2 Certificates and (B) 100% of the
Principal Distribution Amount for such Certificate Group.
"Class B Principal Distribution Amount", for a Certificate Group and with
respect to any Distribution Date on or after the related Stepdown Date and as
long as a Trigger Event is not in effect for such Certificate Group, is the
excess of (i) of the sum for such Certificate Group of (A) the Certificate
Principal Balance of the related Class A Certificates (after taking into account
distributions of the Class A Principal Distribution Amount for such Distribution
Date), (B) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account distribution of the Class M-1 Principal Distribution
Amount to such Class M-1 Certificates for such Distribution Date), (C) the
Certificate Principal Balance of the related Class M-2 Certificates (after
taking into account distributions of the Class M-2 Principal Distribution Amount
to such Class M-2 Certificates for such Distribution Date) and (D) the
Certificate Principal Balance of the related Class B Certificates immediately
prior to such Distribution Date over (ii) the lesser of (A) approximately 98.70%
for the Fixed Rate Mortgage Loan Group and approximately 96.00% (or
approximately 94.50%, if a Stepup Trigger Event has occurred) for the Adjustable
Rate Mortgage Loan Group, of the Stated Principal Balances of the Mortgage Loans
in such Loan Group on the preceding Due Date and (B) the Stated Principal
Balances of the Mortgage Loans in such Loan Group on the preceding Due Date less
approximately $673,760 for the Fixed Rate Mortgage Loan Group and approximately
$1,078,935 for the Adjustable Rate Mortgage Loan Group, provided, however, that
after the Certificate Principal Balances of the Class A, Class M-1 and Class M-2
Certificates for such Certificate Group are reduced to zero, the Class B
Principal Distribution Amount for such Distribution Date will equal 100% of the
Principal Distribution Amount for the related Loan Group.
"Extra Principal Distribution Amount", for a Mortgage Loan Group and with
respect to any Distribution Date, is (i) prior to the Stepdown Date, the excess
of (A) the sum of (i) the aggregate Certificate Principal Balances of the
Certificates of the related Certificate Group and (ii) approximately $875,888
for the Fixed Rate Mortgage Loan Group and approximately $4,315,740 (or
$5,934,143, if a Stepup Trigger Event has occurred) for the Adjustable Rate
Mortgage Loan Group over (B) the Stated Principal Balances of the Mortgage Loans
in such Loan Group and (ii) on and after the Stepdown Date, the excess of (A)
the sum of (i) the aggregate Certificate Principal Balances of the Certificates
of such Certificate Group and (II) the greater of (x) 1.30% for the Fixed Rate
Mortgage Loan Group and 4.00% (or 5.50%, if a Stepup Trigger Event has occurred)
for the Adjustable Rate Mortgage Loan Group of the Stated Principal Balances of
the Mortgage Loans in the related Loan Group and (y) approximately $673,760 for
the Fixed Rate Mortgage Loan Group and approximately $1,078,935 for the
Adjustable Rate Mortgage Loan Group over (B) the Stated Principal Balances of
the Mortgage Loans in the related Certificate Group.
S-58
<PAGE>
"Stepdown Date", with respect to each Certificate Group, is the later to
occur of (i) the Distribution Date in September 2001 or (ii) the first
Distribution Date on which (A) the Certificate Principal Balance of the Class A
Certificates in such Certificate Group is less than or equal to (B) 84.00%, for
the Fixed Rate Mortgage Loan Group, and 64.00% (or 62.50%, if a Stepup Trigger
Event has occurred), for the Adjustable Rate Mortgage Loan Group, of the Stated
Principal Balances of the Mortgage Loans in the related Loan Group.
A "Trigger Event", with respect to each Certificate Group and a Distribution
Date after the Stepdown Date, exists if the product of (i) 2.0, for the Fixed
Rate Mortgage Loan Group, and 2.5, for the Adjustable Rate Mortgage Loan Group
and (ii) the quotient of (A) the aggregate Stated Principal Balance of all
Mortgage Loans 60 or more days delinquent for each Loan Group (including
Mortgage Loans in foreclosure and REO Properties) and (B) the Stated Principal
Balance of that Loan Group as of the preceding Servicer Advance Date equals or
exceeds the Required Percentage. A "Required Percentage," with respect to each
Certificate Group and a Distribution Date after the Stepdown Date is equal to
the quotient of (x) the excess (i) the Stated Principal Balance of such Loan
Group over (ii) the Certificate Principal Balance of the most senior Class of
Certificates of such Certificate Group outstanding as of the preceding Servicer
Advance Date and (y) the Stated Principal Balance of such Loan Group. As used
herein, the Certificate Principal Balance of the most senior Class of
Certificates of the Group I Certificates will equal the aggregate Certificate
Principal Balance of the Class A Group I Certificates for such date of
calculation.
With respect to the Adjustable Rate Mortgage Loan Group, a "Stepup Trigger
Event" exists with respect to a Distribution Date (and thereafter will exist
with respect to each subsequent Distribution Date) if either
(A) Realized Losses with respect to the Adjustable Rate Mortgage Loans
as of such Distribution Date equal or exceed the following levels (expressed
as a percentage of aggregate principal balance of the Adjustable rate
Mortgage Loans as of the Cut-off Date)
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
September 1998 through August 2000................................................ 1.00%
September 2000 through August 2001................................................ 1.25%
September 2001 through August 2002................................................ 2.00%
September 2002 through August 2003................................................ 3.00%
September 2003 and thereafter..................................................... 4.00%
</TABLE>
or (B) the three month rolling average of Adjustable Rate Mortgage Loans
that are 60 days or more delinquent (calculated as set forth in the Pooling
and Servicing Agreement) as of such Distribution Date equals or exceeds the
following levels (expressed as a percentage of the aggregate principal
balance of the Adjustable Rate Mortgage Loans as of such Distribution Date):
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
September 1998 through August 2002................................................ 8.00%
September 2002 through August 2004................................................ 10.00%
September 2004 through August 2005................................................ 12.00%
September 2005 through August 2006................................................ 14.00%
September 2006 and thereafter..................................................... 16.00%
</TABLE>
OVERCOLLATERALIZATION AND CROSSCOLLATERALIZATION PROVISIONS
As set forth below, Interest Funds and Principal Funds with respect to a
Certificate Group not otherwise required to be distributed with respect to
principal of and interest on the Certificates of such Certificate Group ("Net
Excess Cashflow") will be required to be applied as an Extra Principal
Distribution Amount with respect to the other Mortgage Loan Group whenever the
Stated Principal Balances of the Mortgage Loans in such Loan Group do not
exceed, by the required amount, the aggregate Certificate
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<PAGE>
Principal Balances of the related Certificates. If on any Distribution Date,
after giving effect to any Extra Principal Distribution Amount, the aggregate
Certificate Principal Balances of the Offered Certificates with respect to a
Mortgage Loan Group exceed the Stated Principal Balances of the Mortgage Loans
in the related Loan Group, the Certificate Principal Balances of the
Subordinated Certificates of such Group will be reduced, in inverse order of
seniority (beginning with the Class B Certificates) by an amount equal to such
excess.
If the Certificate Principal Balance of a Class of Subordinated Certificates
is reduced, that Class thereafter will be entitled to distributions of interest
and principal only with respect to the Certificate Principal Balance as so
reduced. On subsequent Distribution Dates, however, as described below, Interest
Funds and Principal Funds with respect to each Certificate Group not otherwise
required to be distributed with respect to principal of and interest on the
Certificates of such Certificate Group will be applied to reduce Unpaid Realized
Loss Amounts previously allocated to such Certificates in order of seniority.
On each Distribution Date, Interest Funds and Principal Funds with respect
to each Loan Group not otherwise required to be distributed with respect to
principal of and interest on the Certificates of such Certificate Group as
described above will be required to be distributed as follows until fully
distributed:
(i) the Extra Principal Distribution Amount for such Loan Group;
(ii) to the Class M-1 Certificates of such Certificate Group, any Unpaid
Realized Loss Amount for such Class;
(iii) to the Class M-2 Certificates of such Certificate Group, any Unpaid
Realized Loss Amount for such Class;
(iv) to the Class B Certificates of such Certificate Group, the Unpaid
Realized Loss Amount for such Class;
(v) for distribution to the Certificates in the other Certificate Group
to the extent that any of the amounts listed above with respect to the other
Certificate Group have not otherwise been funded in full for such
Distribution Date in accordance with the priorities set forth above;
(vi) in the case of the Adjustable Rate Mortgage Loan Group, to the
Group II Certificates, on a pro rata basis, the Adjustable Rate Certificate
Carryover; and
(vii) to the Residual Certificates, the remaining amount.
"Applied Realized Loss Amount", with respect to any Class of the
Subordinated Certificates and as to any Distribution Date, means the sum of the
Realized Losses with respect to Mortgage Loans which have been applied in
reduction of the Certificate Principal Balance of such Class.
"Realized Loss" is the excess of the Stated Principal Balance of a defaulted
Mortgage Loan over the net liquidation proceeds with respect thereto that are
allocated to principal.
"Unpaid Realized Loss Amount", with respect to any Class of the Subordinated
Certificates and as to any Distribution Date, is the excess of (i) Applied
Realized Loss Amounts with respect to such Class over (ii) the sum of all
distributions in reduction of the Applied Realized Loss Amounts on all previous
Distribution Dates. Any amounts distributed to a Class of Subordinated
Certificates in respect of any Unpaid Realized Loss Amount will not be applied
to reduce the Certificate Principal Balance of such Class.
CALCULATION OF ONE-MONTH LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Group II Certificates, other than
the Class IIA-2 Certificates (each such date, an "Interest Determination Date"),
the Master Servicer will determine the London interbank offered rate for
one-month United States dollar deposits ("One-Month LIBOR") for such Accrual
Period on the basis of the (i) offered rates for one-month United States dollar
deposits, as such rates appear on Telerate page 3750, as of 11:00 a.m. (London
time) on such Interest Determination Date or (ii) if such rate does not
S-60
<PAGE>
appear on Telerate Page 3750 as of 11:00 a.m., (London time), the Master
Servicer will determine such rate on the basis of the offered rates of the
Reference Banks for one-month United States dollar deposits, as such rates
appear on the Reuters Screen LIBO Page, as of 11:00 a.m. (London time) on such
Interest Determination Date. As used in this section, "LIBOR Business Day" means
a day on which banks are open for dealing in foreign currency and exchange in
London and New York City; "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such
other page as may replace the LIBO page on that service for the purpose of
displaying London interbank offered rates of major banks); and "Reference Banks"
means leading banks selected by the Master Servicer and engaged in transactions
in Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) whose quotations appear on the
Reuters Screen LIBO Page on the Interest Determination Date in question, (iii)
which have been designated as such by the Master Servicer and (iv) not
controlling, controlled by, or under common control with, the Depositor, the
Master Servicer, the Seller or any successor Subservicer.
If one-month LIBOR is determined pursuant to clause (ii) above, on each
Interest Determination Date, One-Month LIBOR for the related Accrual Period for
the Group II Certificates, other than the Class IIA-2 Certificates, will be
established by the Master Servicer as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period for the Group II Certificates shall be the arithmetic mean of such
offered quotations (rounded upwards if necessary to the nearest whole
multiple of 0.03125%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period shall be the higher of (x) One-Month LIBOR as determined on
the previous Interest Determination Date and (y) the Reserve Interest Rate.
The "Reserve Interest Rate" shall be the rate per annum that the Master
Servicer determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 0.03125%) of the one-month United
States dollar lending rates which New York City banks selected by the Master
Servicer are quoting on the relevant Interest Determination Date to the
principal London offices of leading banks in the London interbank market or,
in the event that the Master Servicer can determine no such arithmetic mean,
(ii) the lowest one-month United States dollar lending rate which New York
City banks selected by the Master Servicer are quoting on such Interest
Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Master Servicer and the Master Servicer's calculation of the rate of
interest applicable to the Group II Certificates, other than the Class IIA-2
Certificates, for the related Accrual Period for such Group II Certificates
shall (in the absence of manifest error) be final and binding.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Master Servicer will forward to each
Certificateholder, the Subservicer, the Trustee and the Depositor a statement
generally setting forth, among other information:
(i) the amount of the related distribution to holders of the
Certificates allocable to principal, separately identifying (A) the
aggregate amount of any principal prepayments included therein, (B) the
aggregate amount of all scheduled payments of principal included therein and
(C) any Extra Principal Distribution Amount;
(ii) the amount of such distribution to holders of the Certificates
allocable to interest;
(iii) the Interest Carry-Forward Amount;
(iv) the Certificate Principal Balance of the Certificates after giving
effect to the distribution of principal on such Distribution Date;
S-61
<PAGE>
(v) the aggregate outstanding principal balance of the Offered
Certificates for the following Distribution Date;
(vi) the amount of the Servicing Fee paid to or retained by the
Subservicer for the related Due Period;
(vii) the Pass-Through Rate for each Class of Certificates for such
Distribution Date;
(viii) the amount of Advances included in the distribution on such
Distribution Date;
(ix) the number and aggregate principal amounts of Mortgage Loans in
each Loan Group (A) delinquent (exclusive of Mortgage Loans in foreclosure)
(1) 30 days, (2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days,
and (B) in foreclosure and delinquent (1) 30 days, (2) 31 to 60 days, (3) 61
to 90 days and (4) 91 or more days, in each case as of the close of business
on the last day of the calendar month preceding such Distribution Date;
(x) with respect to any Mortgage Loan that became an REO Property in
each Loan Group during the preceding calendar month, the loan number and
Stated Principal Balance of such Mortgage Loan as of the close of business
on the fifteenth day of the month of such Distribution Date (or, if not a
Business Day, the immediately preceding Business Day) (the "Determination
Date") and the date of acquisition thereof;
(xi) with respect to each Loan Group, whether a Trigger Event has
occurred;
(xii) the total number and principal balance of any REO Properties in
each Loan Group as of the close of business on the related Determination
Date; and
(xiii) any Adjustable Rate Certificate Carryover paid and all remaining
Adjustable Rate Certificate Carryover remaining on each Class of the
Adjustable Rate Certificate on such Distribution Date.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will prepare and deliver to each
Certificateholder of record during the previous calendar year a statement
containing information necessary to enable Certificateholders to prepare their
tax returns. Such statements will not have been examined and reported upon by an
independent public accountant.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Depositor, the
Subservicer, the Master Servicer, and the Trustee, without the consent of
Certificateholders, for any of the purposes set forth under "Description of the
Certificates--Miscellaneous--Amendment" in the Prospectus. In addition, the
Pooling and Servicing Agreement may be amended by the Depositor, the
Subservicer, the Master Servicer and the Trustee and the holders of a Majority
in Interest of each Class of Certificates affected thereby for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Pooling and Servicing Agreement or of modifying in any manner
the rights of the Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of, payments
required to be distributed on any Certificate without the consent of the Holder
of such Certificate; (ii) adversely affect in any material respect the interests
of the holders of any Class of Certificates in a manner other than as described
in clause (i) above, without the consent of the holders of Certificates of such
Class evidencing, as to such Class, Percentage Interests aggregating 66%; or
(iii) reduce the aforesaid percentage of aggregate outstanding principal amounts
of Certificates of each Class, the holders of which are required to consent to
any such amendment, without the consent of the holders of all Certificates of
such Class.
OPTIONAL TERMINATION
The Master Servicer will have the right (but not the obligation) to
repurchase all remaining Mortgage Loans and REO Properties in either Loan Group
and thereby effect early retirement of all the Certificates of the related
Certificate Group, subject to the Stated Principal Balance of the Mortgage Loans
and REO Properties in such Loan Group at the time of repurchase being less than
or equal to 10% of the Cut-off
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<PAGE>
Date Principal Balance of the Mortgage Loans in such Loan Group (an "Optional
Termination Date"). In the event such option is exercised by the Depositor, the
repurchase will be made at a price equal to the sum of (i) 100% of the Stated
Principal Balance of each Mortgage Loan (other than in respect of REO Property)
plus accrued interest thereon at the applicable Mortgage Rate, net of the
Servicing Fee and any unreimbursed Advances, (ii) the appraised value of any REO
Property (up to the Stated Principal Balance of the related Mortgage Loan), and
(iii) any unreimbursed out-of-pocket costs and expenses and the principal
portion of Advances, in each case previously incurred by the Subservicer in the
performance of its servicing obligations. Proceeds from such repurchase will be
distributed to the Certificateholders in the related Certificate Group in the
priority described above. The proceeds from any such distribution may not be
sufficient to distribute the full amount to which each Class of Certificates is
entitled if the purchase price is based in part of the appraised value of any
REO Property and such appraised value is less than the Stated Principal Balance
of the related Mortgage Loan. Any repurchase of the Mortgage Loans and REO
Properties will result in an early retirement of the Certificates in the related
Certificate Group.
OPTIONAL PURCHASE OF DEFAULTED LOANS
As to any Mortgage Loan which is delinquent in payment by 91 days or more,
the Master Servicer may, at its option, purchase such Mortgage Loan at a price
equal to 100% of the Stated Principal Balance thereof plus accrued interest
thereon at the applicable Mortgage Rate, from the date through which interest
was last paid by the related mortgagor or advanced to the first day of the month
in which such amount is to be distributed.
EVENTS OF DEFAULT
Events of Default will consist of: (i) any failure by the Subservicer to
deposit in the Collection Account or the Certificate Account the required
amounts or remit to the Trustee any payment (including an Advance required to be
made under the terms of the Pooling and Servicing Agreement) which continues
unremedied for five Business Days after written notice of such failure shall
have been given to the Subservicer and the Depositor by the Trustee or the
Depositor, or to the Subservicer, the Depositor and the Trustee by the holders
of Certificates evidencing not less than 25% of the Voting Rights evidenced by
the Certificates; (ii) any failure by the Subservicer to observe or perform in
any material respect any other of its covenants or agreements, or any breach of
a representation or warranty made by the Subservicer in the Pooling and
Servicing Agreement, which continues unremedied for 60 days after the giving of
written notice of such failure to the Subservicer by the Trustee, the Master
Servicer or the Depositor, or to the Subservicer, the Depositor, the Master
Servicer and the Trustee by the holders of Certificates evidencing not less than
25% of the Voting Rights evidenced by the Certificates; or (iii) insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, and certain actions by or on behalf of the Subservicer indicating
its insolvency or inability to pay its obligations. As of any date of
determination, (i) holders of the Offered Certificates will be allocated 95% of
all Voting Rights, allocated among the Offered Certificates in proportion to
their respective outstanding Certificate Principal Balances and (ii) holders of
the Residual Certificates will be allocated all of the remaining Voting Rights.
Voting Rights will be allocated among the Certificates of each such Class in
accordance with their respective Percentage Interests.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under the Pooling and Servicing Agreement
remains unremedied, the Trustee shall, but only upon the receipt of instructions
from the holders of Certificates having not less than 25% of the Voting Rights
evidenced by the Certificates, terminate all of the rights and obligations of
the Subservicer under the Pooling and Servicing Agreement and in and to the
Mortgage Loans, whereupon the Trustee will succeed to all of the
responsibilities and duties of the Subservicer under the Pooling and Servicing
Agreement, including the obligation to make Advances. No assurance can be given
that termination of the rights and obligations of the Subservicer under the
Pooling and Servicing Agreement
S-63
<PAGE>
would not adversely affect the servicing of the Mortgage Loans, including the
delinquency experience of the Mortgage Loans.
No Certificateholder, solely by virtue of such Holder's status as a
Certificateholder, will have any right under the Pooling and Servicing Agreement
to institute any proceeding with respect thereto, unless such Holder previously
has given to the Trustee written notice of the continuation of an Event of
Default and unless the holders of Certificates having not less than 25% of the
Voting Rights evidenced by the Certificates 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 has
neglected or refused to institute any such proceeding.
THE TRUSTEE
Citibank, N.A. will be the Trustee under the Pooling and Servicing
Agreement. The Depositor, the Master Servicer and the Subservicer may maintain
other banking relationships in the ordinary course of business with the Trustee.
The Corporate Trust Office of the Trustee is located at 111 Wall Street, New
York, New York 10043, or at such other addresses as the Trustee may designate
from time to time.
S-64
<PAGE>
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The weighted average life of, and the yield to maturity on each Class of the
Offered Certificates will be directly related to the rate of payment of
principal (including prepayments) of the Mortgage Loans in the related Loan
Group. The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social, legal
and other factors and has fluctuated considerably in recent years. In addition,
the rate of principal prepayments may differ among pools of mortgage loans at
any time because of specific factors relating to the mortgage loans in the
particular pool, including, among other things, the age of the mortgage loans,
the geographic locations of the properties securing the loans, the extent of the
mortgagor's equity in such properties, and changes in the mortgagors' housing
needs, job transfers and employment status, as well as whether the related
mortgage loan is subject to a prepayment penalty. In addition, the Seller may
solicit mortgagors to refinance their Mortgage Loans for a variety of reasons.
Any such refinancings will affect the rate of principal prepayments on the
Mortgage Pool.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors who purchase the Offered Certificates at prices
other than par, even if the average rate of principal prepayments is consistent
with the expectations of investors. In general, the earlier the payment of
principal of the Mortgage Loans the greater the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the Offered
Certificates may not be offset by a subsequent like reduction (or increase) in
the rate of principal prepayments. Investors must make their own decisions as to
the appropriate prepayment assumptions to be used in deciding whether to
purchase any of the Offered Certificates. The Depositor does not make any
representations or warranties as to the rate of prepayment or the factors to be
considered in connection with such determinations.
The weighted average life and yield to maturity of each Class of Offered
Certificates will also be influenced by the amount of Net Excess Cashflow
generated by the Mortgage Loans and applied in reduction of the Certificate
Principal Balances of such Certificates. The level of Net Excess Cashflow
available on any Distribution Date to be applied in reduction of the Certificate
Principal Balances of the Class A Certificates will be influenced by, among
other factors, (i) the overcollateralization level of the assets in the related
Loan Group at such time (i.e., the extent to which interest on the related
Mortgage Loans is accruing on a higher Stated Principal Balance than the
Certificate Principal Balance of the related Class A Certificates), (ii) the
delinquency and default experience of the related Mortgage Loans, (iii) the
level of One-Month LIBOR and the Mortgage Index for the Adjustable Rate Mortgage
Loans, and (iv) the provisions of the Pooling and Servicing Agreement that
permit Net Excess Cashflow to be distributed to the Residual Certificates when
required overcollateralization levels have been met. To the extent that greater
amounts of Net Excess Cashflow are distributed in reduction of the Certificate
Principal Balances of a Class of Offered Certificates, the weighted average life
thereof can be expected to shorten. No assurance, however, can be given as to
the amount of Net Excess Cashflow distributed at any time or in the aggregate.
See "Description of the Offered Certificates--Overcollateralization and
Crosscollateralization Provisions" herein.
The Class IA-6 Certificates are not expected to receive distributions of
principal until the Distribution Date in September 2001 (except as otherwise
described herein). Thereafter, the relative entitlement of the Class IA-6
Certificates to payments in respect of principal is subject to increase in
accordance with the calculation of the Class IA-6 Distribution Amount. See
"Description of the Certificates--Distributions" herein.
The Class IIA-2 Certificates are not expected to receive distributions of
principal until the Distribution Date in December 1999 (except as otherwise
described herein). Thereafter, the relative entitlement of the Class IIA-2
Certificates to payments in respect of principal is subject to increase in
accordance with the
S-65
<PAGE>
calculation of the Class IIA-2 Distribution Amount. See "Description of the
Certificates--Distributions" herein.
PREPAYMENTS AND YIELDS FOR OFFERED CERTIFICATES
Generally, if purchased at other than par, the yield to maturity on the
Offered Certificates will be affected by the rate of the payment of principal of
the Mortgage Loans in the related Loan Group. If the actual rate of payments on
the Mortgage Loans in a Loan Group is slower than the rate anticipated by an
investor who purchases related Offered Certificates at a discount, the actual
yield to such investor will be lower than such investor's anticipated yield. If
the actual rate of payments on the Mortgage Loans in a Loan Group is faster than
the rate anticipated by an investor who purchases related Offered Certificates
at a premium, the actual yield to such investor will be lower than such
investor's anticipated yield.
All the Mortgage Loans in the Fixed Rate Mortgage Loan Group are fixed rate
mortgage loans. In general, if prevailing interest rates fall significantly
below the interest rates on fixed rate mortgage loans, such mortgage loans are
likely to be subject to higher prepayment rates than if prevailing rates remain
at or above the interest rates on such mortgage loans. Conversely, if prevailing
interest rates rise appreciably above the interest rates on fixed rate mortgage
loans, such mortgage loans are likely to experience a lower prepayment rate than
if prevailing rates remain at or below the interest rates on such mortgage
loans.
All the Mortgage Loans in the Adjustable Rate Mortgage Loan Group are
adjustable rate Mortgage Loans. As is the case with conventional fixed rate
mortgage loans, adjustable rate mortgage loans may be subject to a greater rate
of principal prepayments in a declining interest rate environment. For example,
if prevailing interest rates fall significantly, adjustable rate mortgage loans
could be subject to higher prepayment rates than if prevailing interest rates
remain constant because the availability of fixed rate mortgage loans at lower
interest rates may encourage mortgagors to refinance their adjustable rate
mortgage loans to a lower fixed interest rate. Nevertheless, no assurance can be
given as to the level of prepayment that the Mortgage Loans will experience.
Although the Mortgage Rates on the Mortgage Loans in the Adjustable Rate
Mortgage Loan Group are subject to adjustment, the Mortgage Rates adjust less
frequently than the Pass-Through Rate on the Group II Certificates and adjust by
reference to the Mortgage Index. Changes in One-Month LIBOR may not correlate
with changes in the Mortgage Index and also may not correlate with prevailing
interest rates. It is possible that an increased level of One-Month LIBOR could
occur simultaneously with a lower level of prevailing interest rates which would
be expected to result in faster prepayments, thereby reducing the weighted
average life of the Group II Certificates. The Mortgage Rate applicable to the
Mortgage Loans in the Adjustable Rate Mortgage Loan Group and any Adjustment
Date will be based on the Mortgage Index value most recently announced generally
as of a date 45 days prior to such Adjustment Date. Thus, if the Mortgage Index
value with respect to a Mortgage Loan in the Adjustable Rate Mortgage Loan Group
rises, the lag in time before the corresponding Mortgage Rate increases will,
all other things being equal, slow the upward adjustment of the Available Funds
Cap on the Group II Certificates. See "The Mortgage Pool."
Although the Pooling and Servicing Agreement provides a mechanism to pay any
Adjustable Rate Certificate Carryover, there is no assurance that funds will be
available to pay such amount. The ratings assigned to the Group II Certificates
do not address the likelihood of the payment of, any such amount.
The extent to which the yield to maturity of the Offered Certificates may
vary from the anticipated yield will depend upon the degree to which it is
purchased at a discount or premium and, correspondingly, the degree to which the
timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the Mortgage Loans in the related Loan Group. In particular, in the
case of an Offered Certificate purchased at a discount, an investor should
consider the risk that a slower than anticipated rate of principal payments,
liquidations and purchases of the Mortgage Loans in the related Loan Group could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of an Offered Certificate purchased at a premium, the
risk that a faster than anticipated rate of principal payments,
S-66
<PAGE>
liquidations and purchases of such Mortgage Loans in the related Loan Group
could result in an actual yield to such investor that is lower than the
anticipated yield.
The Last Scheduled Distribution Date for each Class of the Offered
Certificates is the date on which the Certificate Principal Balance thereof
would be reduced to zero assuming, among other things, that no prepayments are
received on the Mortgage Loans in the related Loan Group and that scheduled
monthly payments of principal of and interest on each of such Mortgage Loans are
timely received and that excess interest is not used to make accelerated
payments of principal. The actual final Distribution Date with respect to each
Class of Offered Certificates could occur significantly earlier than its Last
Scheduled Distribution Date because (i) prepayments are likely to occur which
will be applied to the payment of the Certificate Principal Balances thereof,
(ii) excess interest to the extent available will be applied as an accelerated
payment of principal on the Offered Certificates as described herein and (iii)
the Master Servicer may purchase all the Mortgage Loans in a Loan Group when
outstanding Stated Principal Balances thereof has declined to 10% or less of the
Cut-off Date Principal Balance of such Loan Group.
Prepayments on mortgage loans are commonly measured relative to a prepayment
model or standard. The models used in this Prospectus Supplement ("Prepayment
Models") are based on an assumed rate of prepayment each month of the then
unpaid principal balance of a pool of mortgage loans similar to the Mortgage
Loans in each Loan Group. For the Fixed Rate Mortgage Loan Group, the Prepayment
Model used in this Prospectus Supplement ("Home Equity Prepayment" or "HEP") is
a prepayment assumption which represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of mortgage
loans for the life of such mortgage loans. 22% HEP, which represents 100% of the
Prepayment Model for the Fixed Rate Mortgage Loan Group, assumes prepayment
rates of 2.2% per annum of the then outstanding principal balance of the related
Mortgage Loans in the first month of the life of such Mortgage Loans and an
additional 2.2% per annum in each month thereafter up to and including the tenth
month. Beginning in the eleventh month and in each month thereafter during the
life of such Mortgage Loans, 22% HEP assumes a constant prepayment rate of 22%
per annum. For the Adjustable Rate Mortgage Loan Group, the Prepayment Model
used in this Prospectus Supplement ("Constant Prepayment Rate" or "CPR") is a
prepayment assumption which represents a constant assumed rate of prepayment
each month relative of the then outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans. 27% CPR, which represents
100% of the Prepayment Model for the Adjustable Rate Mortgage Loan Group,
assumes a constant prepayment rate of 27% per annum.
As used in the following tables "0% of the Prepayment Model" assumes no
prepayments on the Mortgage Loans; "80% of the Prepayment Model" assumes the
Mortgage Loans will prepay at rates equal to 80% of the related Prepayment
Model; "100% of the Prepayment Model" assumes the Mortgage Loans will prepay at
rates equal to 100% of the related Prepayment Model; "150% of the Prepayment
Model" assumes the Mortgage Loans will prepay at rates equal to 150% of the
related Prepayment Model; and "200% of the Prepayment Model" assumes the
Mortgage Loans will prepay at rates equal to 200% of the Prepayment Model
assumed prepayment rates.
There is no assurance, however, that prepayments on the Mortgage Loans will
conform to any level of the Prepayment Model, and no representation is made that
the Mortgage Loans will prepay at the prepayment rates shown or any other
prepayment rate. The rate of principal payments on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates. Other factors affecting prepayment of
mortgage loans include changes in obligors' housing needs, job transfers and
unemployment. In the case of mortgage loans in general, if prevailing interest
rates fall significantly below the interest rates on such mortgage loans, the
mortgage loans are likely to be subject to higher prepayment rates than if
prevailing interest rates remain at or above the rates borne by such mortgage
loans. Conversely, if prevailing interest rates rise above the interest on such
mortgage loans, the rate of prepayment would be expected to decrease.
S-67
<PAGE>
The following tables have been prepared on the basis of the following
assumptions (collectively, the "Modeling Assumptions"): (i) the Mortgage Loans
of the related Loan Group prepay at the indicated percentage of the related
Prepayment Model; (ii) distributions on the Offered Certificates are received,
in cash, on the 25th day of each month, commencing September 25, 1998, in
accordance with the payment priorities defined herein; (iii) no defaults or
delinquencies in, or modifications, waivers or amendments respecting, the
payment by the Mortgagors of principal and interest on the Mortgage Loans occur;
(iv) scheduled payments are assumed to be received on the related Due Date
commencing on August 1, 1998, and prepayments represent payment in full of
individual Mortgage Loans and are assumed to be received on the last day of each
Due Period, commencing September 1, 1998, and include 30 days' interest thereon;
(v) the level of one year CMT remains constant at 5.31%, the level of Six-Month
LIBOR remains constant at 5.7188%, and the level of One-Month LIBOR remains
constant at 5.640625%; (vi) the Pass-Through Rates for the Group II Certificates
remain constant at the rates applicable prior to the related Optional
Termination Date; (vii) the Closing Date for the Certificates is August 20,
1998; (viii) the Mortgage Rate for each Adjustable Rate Mortgage Loan is
adjusted on its next Mortgage Rate Adjustment Date (and on any subsequent
Mortgage Rate Adjustment Dates, if necessary) to equal the sum of (a) the
assumed level of the Mortgage Index and (b) the respective Gross Margin (such
sum being subject to the applicable periodic adjustment caps and floors); (ix)
overcollateralization levels are initially set as specified in the Pooling and
Servicing Agreement, and thereafter decrease in accordance with the provisions
of the Pooling and Servicing Agreement; (x) the Mortgage Loans in the Fixed Rate
Mortgage Loan Group are purchased on the first applicable Optional Termination
Date and the Mortgage Loans in the Adjustable Rate Mortgage Loan Group are
purchased on the first applicable Optional Termination Date; (xi) each Loan
Group consists of Mortgage Loans having the approximate characteristics
described below:
FIXED RATE MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
ORIGINAL
ORIGINAL AMORTIZATION REMAINING
CURRENT NET TERM TERM TERM
BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS) (IN MONTHS)
- ---------- ----------------- ----------------- --------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
$42,301,587.. 9.570% 9.070% 180 360 177
1,619,382.. 8.622 8.122 120 120 117
21,775,762.. 8.893 8.393 180 180 177
7,186,701.. 9.324 8.824 240 240 238
61,868,655.. 9.543 9.043 360 360 357
</TABLE>
ADJUSTABLE RATE MORTGAGE LOAN GROUP
<TABLE>
<CAPTION>
NUMBER OF
MONTHS
UNTIL
NET ORIGINAL REMAINING RESET NEST RATE
CURRENT MORTGAGE MORTGAGE TERM TERM GROSS PERIODIC CHANGE ADJUSTMENT
BALANCE RATE RATE (IN MONTHS) (IN MONTHS) MARGIN CAP FREQUENCY DATE
- ---------- ----------- ----------- --------------- --------------- ----------- ----------- --------------- -----------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,443,741.. 9.882% 9.382% 360 356 5.693% 2.000% 12 22
17,543,997.. 9.515 9.015 360 357 5.493 1.000 6 9
14,732,428.. 9.570 9.070 360 354 6.270 1.494 6 18
25,701,416.. 9.567 9.067 360 356 6.059 1.500 6 20
24,767,165.. 9.716 9.216 360 357 5.991 1.500 6 21
20,050,733.. 9.612 9.112 360 358 5.958 1.498 6 22
22,595,997.. 9.455 8.955 360 359 5.896 1.500 6 23
41,344,637.. 9.586 9.086 360 356 5.857 1.500 6 32
29,125,788.. 9.536 9.036 360 358 5.440 1.500 6 34
9,867,358.. 9.303 8.803 360 357 5.695 1.500 6 57
8,614,186.. 9.252 8.752 360 357 5.528 1.000 6 4
<CAPTION>
CURRENT
BALANCE INDEX
- ---------- -------------
<C> <C>
$1,443,741 1 yr. CMT
17,543,997 6 mo. LIBOR
14,732,428 6 mo. LIBOR
25,701,416 6 mo. LIBOR
24,767,165 6 mo. LIBOR
20,050,733 6 mo. LIBOR
22,595,997 6 mo. LIBOR
41,344,637 6 mo. LIBOR
29,125,788 6 mo. LIBOR
9,867,358. 6 mo. LIBOR
8,614,186. 6 mo. LIBOR
</TABLE>
S-68
<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
------------------------------------------------------------- ----------------------
DISTRIBUTION DATE 0% 80% 100% 150% 200% 0% 80%
- ------------------------------------------- --- --- ----- ----- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Initial.................................... 100 100 100 100 100 100 100
August 25, 1999............................ 94 49 37 8 0 100 100
August 25, 2000............................ 90 0 0 0 0 100 96
August 25, 2001............................ 85 0 0 0 0 100 0
August 25, 2002............................ 80 0 0 0 0 100 0
August 25, 2003............................ 75 0 0 0 0 100 0
August 25, 2004............................ 70 0 0 0 0 100 0
August 25, 2005............................ 64 0 0 0 0 100 0
August 25, 2006............................ 59 0 0 0 0 100 0
August 25, 2007............................ 53 0 0 0 0 100 0
August 25, 2008............................ 47 0 0 0 0 100 0
August 25, 2009............................ 40 0 0 0 0 100 0
August 25, 2010............................ 33 0 0 0 0 100 0
August 25, 2011............................ 24 0 0 0 0 100 0
August 25, 2012............................ 15 0 0 0 0 100 0
August 25, 2013............................ 0 0 0 0 0 0 0
August 25, 2014............................ 0 0 0 0 0 0 0
August 25, 2015............................ 0 0 0 0 0 0 0
August 25, 2016............................ 0 0 0 0 0 0 0
August 25, 2017............................ 0 0 0 0 0 0 0
August 25, 2018............................ 0 0 0 0 0 0 0
August 25, 2019............................ 0 0 0 0 0 0 0
August 25, 2020............................ 0 0 0 0 0 0 0
August 25, 2021............................ 0 0 0 0 0 0 0
August 25, 2022............................ 0 0 0 0 0 0 0
August 25, 2023............................ 0 0 0 0 0 0 0
August 25, 2024............................ 0 0 0 0 0 0 0
August 25, 2025............................ 0 0 0 0 0 0 0
August 25, 2026............................ 0 0 0 0 0 0 0
August 25, 2027............................ 0 0 0 0 0 0 0
August 25, 2028............................ 0 0 0 0 0 0 0
Weighted Average Life in years(1).......... 8.8 1.0 0.9 0.6 0.5 14.8 2.5
<CAPTION>
DISTRIBUTION DATE 100% 150% 200%
- ------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Initial.................................... 100 100 100
August 25, 1999............................ 100 100 44
August 25, 2000............................ 41 0 0
August 25, 2001............................ 0 0 0
August 25, 2002............................ 0 0 0
August 25, 2003............................ 0 0 0
August 25, 2004............................ 0 0 0
August 25, 2005............................ 0 0 0
August 25, 2006............................ 0 0 0
August 25, 2007............................ 0 0 0
August 25, 2008............................ 0 0 0
August 25, 2009............................ 0 0 0
August 25, 2010............................ 0 0 0
August 25, 2011............................ 0 0 0
August 25, 2012............................ 0 0 0
August 25, 2013............................ 0 0 0
August 25, 2014............................ 0 0 0
August 25, 2015............................ 0 0 0
August 25, 2016............................ 0 0 0
August 25, 2017............................ 0 0 0
August 25, 2018............................ 0 0 0
August 25, 2019............................ 0 0 0
August 25, 2020............................ 0 0 0
August 25, 2021............................ 0 0 0
August 25, 2022............................ 0 0 0
August 25, 2023............................ 0 0 0
August 25, 2024............................ 0 0 0
August 25, 2025............................ 0 0 0
August 25, 2026............................ 0 0 0
August 25, 2027............................ 0 0 0
August 25, 2028............................ 0 0 0
Weighted Average Life in years(1).......... 2.0 1.4 1.0
</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-69
<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
------------------------------------------------------------- ----------------------
DISTRIBUTION DATE 0% 80% 100% 150% 200% 0% 80%
- ------------------------------------------ --- --- ----- ----- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Initial................................... 100 100 100 100 100 100 100
August 25, 1999........................... 100 100 100 100 100 100 100
August 25, 2000........................... 100 100 100 45 0 100 100
August 25, 2001........................... 100 91 47 0 0 100 100
August 25, 2002........................... 100 42 2 0 0 100 100
August 25, 2003........................... 100 5 0 0 0 100 100
August 25, 2004........................... 100 0 0 0 0 100 67
August 25, 2005........................... 100 0 0 0 0 100 35
August 25, 2006........................... 100 0 0 0 0 100 23
August 25, 2007........................... 100 0 0 0 0 100 7
August 25, 2008........................... 100 0 0 0 0 100 0
August 25, 2009........................... 100 0 0 0 0 100 0
August 25, 2010........................... 100 0 0 0 0 100 0
August 25, 2011........................... 100 0 0 0 0 100 0
August 25, 2012........................... 100 0 0 0 0 100 0
August 25, 2013........................... 62 0 0 0 0 100 0
August 25, 2014........................... 55 0 0 0 0 100 0
August 25, 2015........................... 46 0 0 0 0 100 0
August 25, 2016........................... 37 0 0 0 0 100 0
August 25, 2017........................... 27 0 0 0 0 100 0
August 25, 2018........................... 17 0 0 0 0 100 0
August 25, 2019........................... 8 0 0 0 0 100 0
August 25, 2020........................... 0 0 0 0 0 96 0
August 25, 2021........................... 0 0 0 0 0 79 0
August 25, 2022........................... 0 0 0 0 0 59 0
August 25, 2023........................... 0 0 0 0 0 38 0
August 25, 2024........................... 0 0 0 0 0 15 0
August 25, 2025........................... 0 0 0 0 0 0 0
August 25, 2026........................... 0 0 0 0 0 0 0
August 25, 2027........................... 0 0 0 0 0 0 0
August 25, 2028........................... 0 0 0 0 0 0 0
Weighted Average Life in years(1)......... 17.1 3.9 3.1 2.0 1.5 24.4 6.9
<CAPTION>
DISTRIBUTION DATE 100% 150% 200%
- ------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Initial................................... 100 100 100
August 25, 1999........................... 100 100 100
August 25, 2000........................... 100 100 56
August 25, 2001........................... 100 27 0
August 25, 2002........................... 100 0 0
August 25, 2003........................... 47 0 0
August 25, 2004........................... 11 0 0
August 25, 2005........................... 0 0 0
August 25, 2006........................... 0 0 0
August 25, 2007........................... 0 0 0
August 25, 2008........................... 0 0 0
August 25, 2009........................... 0 0 0
August 25, 2010........................... 0 0 0
August 25, 2011........................... 0 0 0
August 25, 2012........................... 0 0 0
August 25, 2013........................... 0 0 0
August 25, 2014........................... 0 0 0
August 25, 2015........................... 0 0 0
August 25, 2016........................... 0 0 0
August 25, 2017........................... 0 0 0
August 25, 2018........................... 0 0 0
August 25, 2019........................... 0 0 0
August 25, 2020........................... 0 0 0
August 25, 2021........................... 0 0 0
August 25, 2022........................... 0 0 0
August 25, 2023........................... 0 0 0
August 25, 2024........................... 0 0 0
August 25, 2025........................... 0 0 0
August 25, 2026........................... 0 0 0
August 25, 2027........................... 0 0 0
August 25, 2028........................... 0 0 0
Weighted Average Life in years(1)......... 5.1 3.0 2.1
</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-70
<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
------------------------------------------------------------- ----------------------
DISTRIBUTION DATE 0% 80% 100% 150% 200% 0% 80%
- ---------------------------------------- --- ----- ----- ----- ----- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial................................. 100 100 100 100 100 100 100
August 25, 1999......................... 100 100 100 100 100 100 100
August 25, 2000......................... 100 100 100 100 100 100 100
August 25, 2001......................... 100 100 100 100 13 100 100
August 25, 2002......................... 100 100 100 83 1 99 90
August 25, 2003......................... 100 100 100 41 0 98 82
August 25, 2004......................... 100 100 100 0 0 96 69
August 25, 2005......................... 100 100 85 0 0 94 56
August 25, 2006......................... 100 100 79 0 0 86 28
August 25, 2007......................... 100 100 0 0 0 78 14
August 25, 2008......................... 100 89 0 0 0 70 7
August 25, 2009......................... 100 0 0 0 0 62 0
August 25, 2010......................... 100 0 0 0 0 54 0
August 25, 2011......................... 100 0 0 0 0 46 0
August 25, 2012......................... 100 0 0 0 0 38 0
August 25, 2013......................... 100 0 0 0 0 0 0
August 25, 2014......................... 100 0 0 0 0 0 0
August 25, 2015......................... 100 0 0 0 0 0 0
August 25, 2016......................... 100 0 0 0 0 0 0
August 25, 2017......................... 100 0 0 0 0 0 0
August 25, 2018......................... 100 0 0 0 0 0 0
August 25, 2019......................... 100 0 0 0 0 0 0
August 25, 2020......................... 100 0 0 0 0 0 0
August 25, 2021......................... 100 0 0 0 0 0 0
August 25, 2022......................... 100 0 0 0 0 0 0
August 25, 2023......................... 100 0 0 0 0 0 0
August 25, 2024......................... 100 0 0 0 0 0 0
August 25, 2025......................... 89 0 0 0 0 0 0
August 25, 2026......................... 0 0 0 0 0 0 0
August 25, 2027......................... 0 0 0 0 0 0 0
August 25, 2028......................... 0 0 0 0 0 0 0
Weighted Average Life in years(1)....... 27.3 10.7 8.4 4.9 2.9 11.8 7.0
<CAPTION>
DISTRIBUTION DATE 100% 150% 200%
- ---------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Initial................................. 100 100 100
August 25, 1999......................... 100 100 100
August 25, 2000......................... 100 100 100
August 25, 2001......................... 100 100 100
August 25, 2002......................... 89 88 90
August 25, 2003......................... 79 73 0
August 25, 2004......................... 64 0 0
August 25, 2005......................... 49 0 0
August 25, 2006......................... 21 0 0
August 25, 2007......................... 0 0 0
August 25, 2008......................... 0 0 0
August 25, 2009......................... 0 0 0
August 25, 2010......................... 0 0 0
August 25, 2011......................... 0 0 0
August 25, 2012......................... 0 0 0
August 25, 2013......................... 0 0 0
August 25, 2014......................... 0 0 0
August 25, 2015......................... 0 0 0
August 25, 2016......................... 0 0 0
August 25, 2017......................... 0 0 0
August 25, 2018......................... 0 0 0
August 25, 2019......................... 0 0 0
August 25, 2020......................... 0 0 0
August 25, 2021......................... 0 0 0
August 25, 2022......................... 0 0 0
August 25, 2023......................... 0 0 0
August 25, 2024......................... 0 0 0
August 25, 2025......................... 0 0 0
August 25, 2026......................... 0 0 0
August 25, 2027......................... 0 0 0
August 25, 2028......................... 0 0 0
Weighted Average Life in years(1)....... 6.6 5.3 4.1
</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-71
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS IM-1 CLASS IM-2
------------------------------------------------------------- ----------------------
DISTRIBUTION DATE 0% 80% 100% 150% 200% 0% 80%
- ---------------------------------------- --- ----- ----- ----- ----- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial................................. 100 100 100 100 100 100 100
August 25, 1999......................... 100 100 100 100 100 100 100
August 25, 2000......................... 100 100 100 100 100 100 100
August 25, 2001......................... 100 100 100 100 100 100 100
August 25, 2002......................... 100 90 73 41 21 100 90
August 25, 2003......................... 100 73 56 27 0 100 73
August 25, 2004......................... 100 59 43 0 0 100 59
August 25, 2005......................... 100 47 33 0 0 100 47
August 25, 2006......................... 100 38 25 0 0 100 38
August 25, 2007......................... 100 30 0 0 0 100 30
August 25, 2008......................... 100 24 0 0 0 100 24
August 25, 2009......................... 100 0 0 0 0 100 0
August 25, 2010......................... 100 0 0 0 0 100 0
August 25, 2011......................... 100 0 0 0 0 100 0
August 25, 2012......................... 100 0 0 0 0 100 0
August 25, 2013......................... 78 0 0 0 0 78 0
August 25, 2014......................... 75 0 0 0 0 75 0
August 25, 2015......................... 71 0 0 0 0 71 0
August 25, 2016......................... 68 0 0 0 0 68 0
August 25, 2017......................... 63 0 0 0 0 63 0
August 25, 2018......................... 59 0 0 0 0 59 0
August 25, 2019......................... 55 0 0 0 0 55 0
August 25, 2020......................... 51 0 0 0 0 51 0
August 25, 2021......................... 46 0 0 0 0 46 0
August 25, 2022......................... 41 0 0 0 0 41 0
August 25, 2023......................... 35 0 0 0 0 35 0
August 25, 2024......................... 29 0 0 0 0 29 0
August 25, 2025......................... 22 0 0 0 0 21 0
August 25, 2026......................... 0 0 0 0 0 0 0
August 25, 2027......................... 0 0 0 0 0 0 0
August 25, 2028......................... 0 0 0 0 0 0 0
Weighted Average Life in years(1)....... 21.5 7.3 5.9 4.2 3.6 21.5 7.2
<CAPTION>
DISTRIBUTION DATE 100% 150% 200%
- ---------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Initial................................. 100 100 100
August 25, 1999......................... 100 100 100
August 25, 2000......................... 100 100 100
August 25, 2001......................... 100 100 100
August 25, 2002......................... 73 41 18
August 25, 2003......................... 56 27 0
August 25, 2004......................... 43 0 0
August 25, 2005......................... 33 0 0
August 25, 2006......................... 25 0 0
August 25, 2007......................... 0 0 0
August 25, 2008......................... 0 0 0
August 25, 2009......................... 0 0 0
August 25, 2010......................... 0 0 0
August 25, 2011......................... 0 0 0
August 25, 2012......................... 0 0 0
August 25, 2013......................... 0 0 0
August 25, 2014......................... 0 0 0
August 25, 2015......................... 0 0 0
August 25, 2016......................... 0 0 0
August 25, 2017......................... 0 0 0
August 25, 2018......................... 0 0 0
August 25, 2019......................... 0 0 0
August 25, 2020......................... 0 0 0
August 25, 2021......................... 0 0 0
August 25, 2022......................... 0 0 0
August 25, 2023......................... 0 0 0
August 25, 2024......................... 0 0 0
August 25, 2025......................... 0 0 0
August 25, 2026......................... 0 0 0
August 25, 2027......................... 0 0 0
August 25, 2028......................... 0 0 0
Weighted Average Life in years(1)....... 5.9 4.1 3.5
</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-72
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS IB CLASS IIA-1
------------------------------------------------------------- ----------------------
DISTRIBUTION DATE 0% 80% 100% 150% 200% 0% 80%
- ------------------------------------------ --- --- ----- ----- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Initial................................... 100 100 100 100 100 100 100
August 25, 1999........................... 100 100 100 100 100 96 62
August 25, 2000........................... 100 100 100 100 100 96 54
August 25, 2001........................... 100 100 100 100 100 96 45
August 25, 2002........................... 100 90 72 25 0 96 37
August 25, 2003........................... 100 71 47 5 0 96 29
August 25, 2004........................... 100 51 28 0 0 96 23
August 25, 2005........................... 100 34 13 0 0 96 18
August 25, 2006........................... 100 21 1 0 0 96 14
August 25, 2007........................... 100 10 0 0 0 96 11
August 25, 2008........................... 100 1 0 0 0 96 0
August 25, 2009........................... 100 0 0 0 0 96 0
August 25, 2010........................... 100 0 0 0 0 96 0
August 25, 2011........................... 100 0 0 0 0 96 0
August 25, 2012........................... 100 0 0 0 0 96 0
August 25, 2013........................... 78 0 0 0 0 96 0
August 25, 2014........................... 74 0 0 0 0 96 0
August 25, 2015........................... 69 0 0 0 0 96 0
August 25, 2016........................... 63 0 0 0 0 92 0
August 25, 2017........................... 57 0 0 0 0 87 0
August 25, 2018........................... 51 0 0 0 0 81 0
August 25, 2019........................... 45 0 0 0 0 75 0
August 25, 2020........................... 39 0 0 0 0 68 0
August 25, 2021........................... 32 0 0 0 0 59 0
August 25, 2022........................... 25 0 0 0 0 50 0
August 25, 2023........................... 17 0 0 0 0 44 0
August 25, 2024........................... 8 0 0 0 0 36 0
August 25, 2025........................... 0 0 0 0 0 28 0
August 25, 2026........................... 0 0 0 0 0 19 0
August 25, 2027........................... 0 0 0 0 0 0 0
August 25, 2028........................... 0 0 0 0 0 0 0
Weighted Average Life in years(1)......... 20.2 6.3 5.1 3.6 3.2 23.2 3.4
<CAPTION>
DISTRIBUTION DATE 100% 150% 200%
- ------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Initial................................... 100 100 100
August 25, 1999........................... 53 32 11
August 25, 2000........................... 44 21 0
August 25, 2001........................... 31 4 0
August 25, 2002........................... 28 4 0
August 25, 2003........................... 20 0 0
August 25, 2004........................... 15 0 0
August 25, 2005........................... 11 0 0
August 25, 2006........................... 0 0 0
August 25, 2007........................... 0 0 0
August 25, 2008........................... 0 0 0
August 25, 2009........................... 0 0 0
August 25, 2010........................... 0 0 0
August 25, 2011........................... 0 0 0
August 25, 2012........................... 0 0 0
August 25, 2013........................... 0 0 0
August 25, 2014........................... 0 0 0
August 25, 2015........................... 0 0 0
August 25, 2016........................... 0 0 0
August 25, 2017........................... 0 0 0
August 25, 2018........................... 0 0 0
August 25, 2019........................... 0 0 0
August 25, 2020........................... 0 0 0
August 25, 2021........................... 0 0 0
August 25, 2022........................... 0 0 0
August 25, 2023........................... 0 0 0
August 25, 2024........................... 0 0 0
August 25, 2025........................... 0 0 0
August 25, 2026........................... 0 0 0
August 25, 2027........................... 0 0 0
August 25, 2028........................... 0 0 0
Weighted Average Life in years(1)......... 2.5 1.1 0.6
</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-73
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS
CLASS IIA-2 IIM-1
--------------------------------- ---------
DISTRIBUTION DATE 0% 80% 100% 150% 200% 0%
- --------------------------------------------------------- --- --- ----- ----- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Initial.................................................. 100 100 100 100 100 100
August 25, 1999.......................................... 100 100 100 100 100 100
August 25, 2000.......................................... 98 40 31 19 14 100
August 25, 2001.......................................... 95 5 2 0 0 100
August 25, 2002.......................................... 92 0 0 0 0 100
August 25, 2003.......................................... 89 0 0 0 0 100
August 25, 2004.......................................... 85 0 0 0 0 100
August 25, 2005.......................................... 82 0 0 0 0 100
August 25, 2006.......................................... 77 0 0 0 0 100
August 25, 2007.......................................... 72 0 0 0 0 100
August 25, 2008.......................................... 67 0 0 0 0 100
August 25, 2009.......................................... 60 0 0 0 0 100
August 25, 2010.......................................... 53 0 0 0 0 100
August 25, 2011.......................................... 46 0 0 0 0 100
August 25, 2012.......................................... 37 0 0 0 0 100
August 25, 2013.......................................... 27 0 0 0 0 100
August 25, 2014.......................................... 16 0 0 0 0 100
August 25, 2015.......................................... 4 0 0 0 0 100
August 25, 2016.......................................... 0 0 0 0 0 100
August 25, 2017.......................................... 0 0 0 0 0 100
August 25, 2018.......................................... 0 0 0 0 0 100
August 25, 2019.......................................... 0 0 0 0 0 100
August 25, 2020.......................................... 0 0 0 0 0 100
August 25, 2021.......................................... 0 0 0 0 0 100
August 25, 2022.......................................... 0 0 0 0 0 99
August 25, 2023.......................................... 0 0 0 0 0 86
August 25, 2024.......................................... 0 0 0 0 0 72
August 25, 2025.......................................... 0 0 0 0 0 56
August 25, 2026.......................................... 0 0 0 0 0 37
August 25, 2027.......................................... 0 0 0 0 0 0
August 25, 2028.......................................... 0 0 0 0 0 0
Weighted Average Life in years(1)........................ 11.5 2.0 1.9 1.8 1.7 27.1
<CAPTION>
DISTRIBUTION DATE 80% 100% 150% 200%
- --------------------------------------------------------- --- ----- ----- -----
<S> <C> <C> <C> <C>
Initial.................................................. 100 100 100 100
August 25, 1999.......................................... 100 100 100 100
August 25, 2000.......................................... 100 100 100 100
August 25, 2001.......................................... 100 100 100 0
August 25, 2002.......................................... 74 55 98 0
August 25, 2003.......................................... 57 40 0 0
August 25, 2004.......................................... 45 29 0 0
August 25, 2005.......................................... 35 21 0 0
August 25, 2006.......................................... 27 0 0 0
August 25, 2007.......................................... 21 0 0 0
August 25, 2008.......................................... 0 0 0 0
August 25, 2009.......................................... 0 0 0 0
August 25, 2010.......................................... 0 0 0 0
August 25, 2011.......................................... 0 0 0 0
August 25, 2012.......................................... 0 0 0 0
August 25, 2013.......................................... 0 0 0 0
August 25, 2014.......................................... 0 0 0 0
August 25, 2015.......................................... 0 0 0 0
August 25, 2016.......................................... 0 0 0 0
August 25, 2017.......................................... 0 0 0 0
August 25, 2018.......................................... 0 0 0 0
August 25, 2019.......................................... 0 0 0 0
August 25, 2020.......................................... 0 0 0 0
August 25, 2021.......................................... 0 0 0 0
August 25, 2022.......................................... 0 0 0 0
August 25, 2023.......................................... 0 0 0 0
August 25, 2024.......................................... 0 0 0 0
August 25, 2025.......................................... 0 0 0 0
August 25, 2026.......................................... 0 0 0 0
August 25, 2027.......................................... 0 0 0 0
August 25, 2028.......................................... 0 0 0 0
Weighted Average Life in years(1)........................ 6.0 4.9 4.4 2.5
</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-74
<PAGE>
PERCENTAGE OF INITIAL PRINCIPAL BALANCE OUTSTANDING
AT THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT
MODEL SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS IIM-2 CLASS IIB
--------------------------------- ---------
DISTRIBUTION DATE 0% 80% 100% 150% 200% 0%
- --------------------------------------------------------- --- --- ----- ----- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Initial.................................................. 100 100 100 100 100 100
August 25, 1999.......................................... 100 100 100 100 100 100
August 25, 2000.......................................... 100 100 100 100 100 100
August 25, 2001.......................................... 100 100 100 100 0 100
August 25, 2002.......................................... 100 74 55 24 0 100
August 25, 2003.......................................... 100 57 40 0 0 100
August 25, 2004.......................................... 100 45 29 0 0 100
August 25, 2005.......................................... 100 35 21 0 0 100
August 25, 2006.......................................... 100 27 0 0 0 100
August 25, 2007.......................................... 100 21 0 0 0 100
August 25, 2008.......................................... 100 0 0 0 0 100
August 25, 2009.......................................... 100 0 0 0 0 100
August 25, 2010.......................................... 100 0 0 0 0 100
August 25, 2011.......................................... 100 0 0 0 0 100
August 25, 2012.......................................... 100 0 0 0 0 100
August 25, 2013.......................................... 100 0 0 0 0 100
August 25, 2014.......................................... 100 0 0 0 0 100
August 25, 2015.......................................... 100 0 0 0 0 100
August 25, 2016.......................................... 100 0 0 0 0 100
August 25, 2017.......................................... 100 0 0 0 0 100
August 25, 2018.......................................... 100 0 0 0 0 100
August 25, 2019.......................................... 100 0 0 0 0 100
August 25, 2020.......................................... 100 0 0 0 0 100
August 25, 2021.......................................... 100 0 0 0 0 100
August 25, 2022.......................................... 99 0 0 0 0 99
August 25, 2023.......................................... 86 0 0 0 0 86
August 25, 2024.......................................... 72 0 0 0 0 72
August 25, 2025.......................................... 56 0 0 0 0 56
August 25, 2026.......................................... 37 0 0 0 0 37
August 25, 2027.......................................... 0 0 0 0 0 0
August 25, 2028.......................................... 0 0 0 0 0 0
Weighted Average Life in years(1)........................ 27.1 6.0 4.9 3.9 3.0 27.1
<CAPTION>
DISTRIBUTION DATE 80% 100% 150% 200%
- --------------------------------------------------------- --- ----- ----- -----
<S> <C> <C> <C> <C>
Initial.................................................. 100 100 100 100
August 25, 1999.......................................... 100 100 100 100
August 25, 2000.......................................... 100 100 100 100
August 25, 2001.......................................... 100 100 100 0
August 25, 2002.......................................... 74 55 24 0
August 25, 2003.......................................... 57 40 0 0
August 25, 2004.......................................... 45 29 0 0
August 25, 2005.......................................... 35 19 0 0
August 25, 2006.......................................... 27 0 0 0
August 25, 2007.......................................... 19 0 0 0
August 25, 2008.......................................... 0 0 0 0
August 25, 2009.......................................... 0 0 0 0
August 25, 2010.......................................... 0 0 0 0
August 25, 2011.......................................... 0 0 0 0
August 25, 2012.......................................... 0 0 0 0
August 25, 2013.......................................... 0 0 0 0
August 25, 2014.......................................... 0 0 0 0
August 25, 2015.......................................... 0 0 0 0
August 25, 2016.......................................... 0 0 0 0
August 25, 2017.......................................... 0 0 0 0
August 25, 2018.......................................... 0 0 0 0
August 25, 2019.......................................... 0 0 0 0
August 25, 2020.......................................... 0 0 0 0
August 25, 2021.......................................... 0 0 0 0
August 25, 2022.......................................... 0 0 0 0
August 25, 2023.......................................... 0 0 0 0
August 25, 2024.......................................... 0 0 0 0
August 25, 2025.......................................... 0 0 0 0
August 25, 2026.......................................... 0 0 0 0
August 25, 2027.......................................... 0 0 0 0
August 25, 2028.......................................... 0 0 0 0
Weighted Average Life in years(1)........................ 6.0 4.8 3.6 3.0
</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-75
<PAGE>
ADDITIONAL INFORMATION
The Depositor has filed certain additional yield tables and other
computational materials with respect to the Class A Certificates with the
Securities and Exchange Commission in a report on Form 8-K. Such tables and
materials were prepared by the Underwriters at the request of certain
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and assumptions
may be based on assumptions that differ from the Modeling Assumptions.
Accordingly, such tables and other materials may not be relevant to or
appropriate for investors other than those specifically requesting them.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Trust Fund will include two segregated
asset pools, with respect to which elections will be made to treat each as a
separate REMIC. One REMIC (the "Subsidiary REMIC") will issue uncertificated
subclasses of nonvoting interest ("Subsidiary REMIC Regular Interests"), which
will be designated as the regular interests in the Subsidiary REMIC. The assets
of the Subsidiary REMIC will consist of the Mortgage Loans and all other
property in the the Trust Fund except for the property in the Trust Fund
allocated to the second REMIC (the "Master REMIC"). The Master REMIC will issue
the Regular Certificates, which will be designated as the regular interests in
the Master REMIC. The Residual Certificates will represent the beneficial
ownership of the residual interest in the Subsidiary REMIC and the residual
interest in the Master REMIC. The assets of the Master REMIC will consist of the
Subsidiary REMIC Regular Interests. Aggregate distributions on the Subsidiary
REMIC Regular Interests will equal the aggregate distributions on the Regular
Certificates issued by the Master REMIC.
Holders of Subordinate Certificates may be required to accrue income
currently even though their distributions may be reduced due to defaults and
delinquencies on the related Mortgage Loans. See "Federal Income Tax
Consequences" in the Prospectus.
ORIGINAL ISSUE DISCOUNT
For purposes of determining the amount and rate of accrual of original issue
discount and market discount, the Depositor intends to assume that there will be
prepayments on the Mortgage Loans in each Loan Group at a rate equal to 100% of
the applicable Prepayment Model, as described above. No representation is made
as to whether the Mortgage Loans will prepay at that rate or any other rate. See
"Yield, Prepayment and Maturity Considerations" herein and "Federal Income Tax
Consequences" in the Prospectus.
The Offered Certificates may be treated as being issued at a premium. In
such case, the Offered Certificateholders may elect under Section 171 of the
Code to amortize such premium under the constant yield method and to treat such
amortizable premium as an offset to interest income on the Certificates. Such
election, however, applies to all the Certificateholder's debt instruments held
during or after the first taxable year in which the election is first made, and
should only be made after consulting with a tax adviser.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder, such Certificateholder will be permitted to offset such
excess amounts only against the respective future income, if any, from such
Certificate. Although the tax treatment is uncertain, a Certificateholder may be
permitted to deduct a loss to the extent that such Holder's respective remaining
basis in such Certificate exceeds the maximum amount of future payments to which
such Holder is entitled, assuming no further Principal Prepayments on the
Mortgage Loans are received. Although the matter is not free from doubt, any
such loss might be treated as a capital loss.
S-76
<PAGE>
SPECIAL TAX ATTRIBUTES OF THE OFFERED CERTIFICATES
As is described more fully under "Federal Income Tax Consequences" in the
Prospectus, the Certificates will represent qualifying assets under Sections
856(c)(5)(B) and 7701(a)(19)(C)(v) of the Code, and net interest income
attributable to the Class A Certificates will be "interest on obligations
secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, to the extent the assets of the Trust Fund are assets
described in such sections. The Class A Certificates will represent qualifying
assets under Section 860G(a)(3) if acquired by a REMIC within the prescribed
time periods of the Code.
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Loan, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund will
engage in any prohibited transactions in which it would recognize a material
amount of net income.
In addition, certain contributions to a trust fund that elects to be treated
as a REMIC made after the day on which such trust fund issues all of its
interests could result in the imposition of a tax on the trust fund equal to
100% of the value of the contributed property (the "Contributions Tax"). The
Trust Fund will not accept contributions that would subject it to such tax.
In addition, a trust fund that elects to be treated as a REMIC may also be
subject to federal income tax at the highest corporate rate on "net income from
foreclosure property," determined by reference to the rules applicable to real
estate investment trusts. "Net income from foreclosure property" generally means
gain from the sale of a foreclosure property other than qualifying rents and
other qualifying income for a real estate investment trust. It is not
anticipated that the Trust Fund will recognize net income from foreclosure
property subject to federal income tax.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on the REMIC arises out of a breach of the Subservicer's or the
Trustee's obligations, as the case may be, under the Pooling and Servicing
Agreement and in respect of compliance with then applicable law, such tax will
be borne by the Subservicer or Trustee in either case out of its own funds. In
the event that either the Subservicer or the Trustee, as the case may be, fails
to pay or is not required to pay any such tax as provided above, such tax will
be paid by the Trust Fund first with amounts otherwise distributable to the
holders of Certificates in the manner provided in the Pooling and Servicing
Agreement. It is not anticipated that any material state or local income or
franchise tax will be imposed on the Trust Fund.
For further information regarding the federal income tax consequences of
investing in the Class Certificates, see "Federal Income Tax Consequences--REMIC
Certificates" in the Prospectus.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the federal,
state, local or foreign income tax consequences of the purchase, ownership and
disposition of the Offered Certificates.
S-77
<PAGE>
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits "parties in interest" with respect to an employee
benefit plan subject to ERISA and Section 4975 of the Code prohibits a
"disqualified person" with respect to a plan or other arrangement subject to the
excise tax provisions set forth under Section 4975 of the Code (each of the
foregoing, a "Plan") from engaging in certain transactions involving such Plan
and its assets unless a statutory, regulatory or administrative exemption
applies to the transaction. Section 4975 of the Code imposes certain excise
taxes on prohibited transactions involving plans described under that Section.
ERISA authorizes the imposition of civil penalties for prohibited transactions
involving plans not covered under Section 4975 of the Code. Any Plan fiduciary
which proposes to cause a Plan to acquire the Offered Certificates should
consult with its counsel with respect to the potential consequences under ERISA
and the Code of the Plan's acquisition and ownership of such Certificates. See
"ERISA Considerations" in the Prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Class A Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in the Class A Certificates should consider, among
other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted administrative exemptions to Chase
Securities Inc. (Prohibited Transaction 90-31, 55 Fed. Reg. 23144 (1990)) and to
Prudential Securities Incorporated (Prohibited Transaction Exemption 90-32; 55
Fed. Reg. 23147 (1990)) (together, the "Exemptions") from certain of the
prohibited transaction rules of ERISA and the related excise tax provisions of
Section 4975 of the Code with respect to the initial purchase, the holding and
the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemptions. The Exemptions apply to mortgage
loans such as the Mortgage Loans in the Trust Fund.
Among the conditions that must be satisfied for the Exemptions to apply are
the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's, a division of the McGraw-Hill Companies,
Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Rating Co. ("DCR") or Fitch IBCA, Inc. ("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the
S-78
<PAGE>
certificates; the sum of all payments made to and retained by the seller
pursuant to the assignment of the loans to the trust fund represents not
more than the fair market value of such loans; the sum of all payments made
to and retained by the servicer and any other servicer represents not more
than reasonable compensation for such person's services under the agreement
pursuant to which the loans are pooled and reimbursements of such person's
reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR for
at least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of certificates.
Moreover, the Exemptions provide relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust and the fiduciary (or its
affiliate) is an obligor on the receivables held in the trust provided that,
among other requirement, (i) in the case of an acquisition in connection with
the initial issuance of certificates, at least fifty percent (50%) of each class
of certificates in which Plans have invested is acquired by persons independent
of the Restricted Group; (ii) such fiduciary (or its affiliate) is an obligor
with respect to five percent (5%) or less of the fair market value of the
obligations contained in the trust; (iii) the Plan's investment in certificates
of any class does not exceed twenty-five percent (25%) of all of the
certificates of that class outstanding at the time of the acquisition; and (iv)
immediately after the acquisition, no more than twenty-five percent (25%) of the
assets of any Plan with respect to which such person is a fiduciary are invested
in certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemptions would not apply to Plans
sponsored by either Underwriter, the Trustee, the Master Servicer, the
Subservicer, any obligor with respect to Mortgage Loans included in the Trust
Fund constituting more than five percent of the aggregate unamortized principal
balance of the assets in the Trust Fund, or any affiliate of such parties (the
"Restricted Group").
It is expected that the Exemptions will apply to the acquisition and holding
of the Class A Certificates by Plans and that all conditions of the Exemptions
other than those within the control of the investors will be met. In addition,
as of the date hereof, there is no single Mortgagor that is the obligor on five
percent (5%) of the Mortgage Loans included in the Trust Fund by aggregate
unamortized principal balance of the assets of the Trust Fund.
The Exemptions do not apply to the initial purchase, the holding or the
subsequent resale of the Subordinated Certificates because the Subordinated
Certificates are subordinate to certain other Classes of Certificates.
CONSEQUENTLY, TRANSFERS OF THE SUBORDINATED CERTIFICATES WILL NOT BE REGISTERED
BY THE TRUSTEE UNLESS THE TRUSTEE RECEIVES: (I) A REPRESENTATION FROM THE
TRANSFEREE OF SUCH CERTIFICATE, ACCEPTABLE TO AND IN FORM AND SUBSTANCE
SATISFACTORY TO THE TRUSTEE, TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN
EMPLOYEE BENEFIT PLAN SUBJECT TO SECTION 406 OF ERISA OR A PLAN OR ARRANGEMENT
SUBJECT TO SECTION 4975 OF THE CODE, NOR A PERSON ACTING ON BEHALF OF ANY SUCH
PLAN OR ARRANGEMENT NOR USING THE ASSETS OF ANY SUCH PLAN OR ARRANGEMENT TO
EFFECT SUCH TRANSFER; (II) IF THE PURCHASER IS AN INSURANCE COMPANY, A
REPRESENTATION THAT THE PURCHASER IS AN INSURANCE COMPANY WHICH IS PURCHASING
SUCH CERTIFICATES WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL ACCOUNT"
(AS SUCH TERM IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60 ("PTCE 95-60")) AND THAT THE PURCHASE AND HOLDING OF SUCH
CERTIFICATES ARE COVERED
S-79
<PAGE>
UNDER PTCE 95-60; OR (III) AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE
THAT THE PURCHASE OR HOLDING OF SUCH CERTIFICATE BY A PLAN, ANY PERSON ACTING ON
BEHALF OF A PLAN OR USING SUCH PLAN'S ASSETS, WILL NOT RESULT IN THE ASSETS OF
THE TRUST FUND BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE PROHIBITED
TRANSACTION REQUIREMENTS OF ERISA AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE
TO ANY OBLIGATION IN ADDITION TO THOSE UNDERTAKEN IN THE POOLING AND SERVICING
AGREEMENT. SUCH REPRESENTATION AS DESCRIBED ABOVE SHALL BE DEEMED TO HAVE BEEN
MADE TO THE TRUSTEE BY THE TRANSFEREE'S ACCEPTANCE OF A SUBORDINATED
CERTIFICATE. IN THE EVENT THAT SUCH REPRESENTATION IS VIOLATED, OR ANY ATTEMPT
TO TRANSFER TO A PLAN OR PERSON ACTING ON BEHALF OF A PLAN OR USING SUCH PLAN'S
ASSETS IS ATTEMPTED WITHOUT SUCH OPINION OF COUNSEL, SUCH ATTEMPTED TRANSFER OR
ACQUISITION SHALL BE VOID AND OF NO EFFECT.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemptions, and the potential consequences
in their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Offered Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
LEGAL INVESTMENT MATTERS
The Offered Certificates will not constitute "mortgage related securities"
under the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"). The appropriate characterization of the Offered Certificates under
various legal investment restrictions, and thus the ability of investors subject
to these restrictions to purchase the Offered 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 Offered Certificates will constitute
legal investments for them.
The Depositor makes no representation as to the proper characterization of
the Offered Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
Offered 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 Offered Certificates) may adversely affect the liquidity of the Offered
Certificates. See "Legal Investment" in the Prospectus.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Offered Certificates will be applied by the Depositor to the purchase price of
the Mortgage Loans.
S-80
<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions of the underwriting agreement and the
terms agreement each dated August 18, 1998 (together, the "CSI Underwriting
Agreement") between the Depositor and Chase Securities Inc. ("CSI"), as
underwriter, and the underwriting agreement and the terms agreement each dated
August 18, 1998 (together, the "PSI Underwriting Agreement") between the Seller
and Prudential Securities Incorporated ("PSI"), as underwriter, the Offered
Certificates are being purchased from the Seller by the Underwriters in the
respective initial Certificate Principal Balance of each Class of Offered
Certificates set forth below, in each case upon issuance thereof. Each of CSI
and PSI is referred to herein as an "Underwriter," and together, as the
"Underwriters."
<TABLE>
<CAPTION>
CHASE PRUDENTIAL
SECURITIES SECURITIES
CLASS OF CERTIFICATE INC. INCORPORATED
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Class IA-1 Certificates...................................... $ 21,250,000 $ 21,250,000
Class IA-2 Certificates...................................... 8,000,000 8,000,000
Class IA-3 Certificates...................................... 12,000,000 12,000,000
Class IA-4 Certificates...................................... 7,500,000 7,500,000
Class IA-5 Certificates...................................... 7,173,500 7,173,500
Class IA-6 Certificates...................................... 6,500,000 6,500,000
Class IM-1 Certificates...................................... 2,526,500 2,526,500
Class IM-2 Certificates...................................... 1,448,500 1,448,500
Class IB Certificates........................................ 977,500 977,500
Class IIA-1 Certificates..................................... 68,130,500 68,130,500
Class IIA-2 Certificates..................................... 22,500,000 22,500,000
Class IIM-1 Certificates..................................... 7,552,500 7,552,500
Class IIM-2 Certificates..................................... 5,135,500 5,135,500
Class IIB Certificates....................................... 4,575,000 4,575,000
-------------- --------------
Total........................................................ $ 175,269,500 $ 175,269,500
-------------- --------------
-------------- --------------
</TABLE>
The Depositor has been advised that the Underwriters propose initially to
offer the Offered Certificates to certain dealers at such price less a selling
concession not to exceed the percentage of the Certificate denomination set
forth below, and that the Underwriters may allow and such dealers may reallow a
reallowance discount not to exceed the percentage of the Certificate
denomination set forth below:
<TABLE>
<CAPTION>
SELLING REALLOWANCE
CLASS OF CERTIFICATE CONCESSION DISCOUNT
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Class IA-1 Certificates............................................. 0.0900% 0.0450%
Class IA-2 Certificates............................................. 0.1200% 0.0600%
Class IA-3 Certificates............................................. 0.1500% 0.0750%
Class IA-4 Certificates............................................. 0.1750% 0.0875%
Class IA-5 Certificates............................................. 0.2250% 0.1125%
Class IA-6 Certificates............................................. 0.1750% 0.0875%
Class IM-1 Certificates............................................. 0.2500% 0.1250%
Class IM-2 Certificates............................................. 0.3000% 0.1500%
Class IB Certificates............................................... 0.3600% 0.1800%
Class IIA-1 Certificates............................................ 0.1350% 0.0675%
Class IIA-2 Certificates............................................ 0.1400% 0.0700%
Class IIM-1 Certificates............................................ 0.1750% 0.0875%
Class IIM-2 Certificates............................................ 0.2250% 0.1125%
Class IIB Certificates.............................................. 0.2800% 0.1400%
</TABLE>
S-81
<PAGE>
After the initial public offering, the public offering price, such
concessions and such discounts may be changed.
The Depositor has been advised by each Underwriter that it intends to make a
market in the Offered Certificates, but neither Underwriter has any obligation
to do so. There can be no assurance that a secondary market for the Offered
Certificates (or any particular Class thereof) will develop or, if it does
develop, that it will continue or that such market will provide sufficient
liquidity to Certificateholders.
Until the distribution of the Offered Certificates is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Offered
Certificates. As an exception to these rules, the Underwriters are permitted to
engage in certain transactions that stabilize the price of the Offered
Certificates. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Offered Certificates.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Depositor nor either of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Depositor nor any of the Underwriters
makes any representation that the Underwriters will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
Chase Securities Inc. is an affiliate of the Depositor and the Master
Servicer.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Morgan, Lewis
& Bockius LLP, New York, New York and for the Underwriters by Brown & Wood LLP,
New York, New York. The material federal income tax consequences of the
Certificates will be passed upon for the Depositor by Morgan, Lewis & Bockius
LLP.
S-82
<PAGE>
RATINGS
It is a condition of the issuance of the Offered Certificates that they be
each Class of Offered Certificates be assigned the ratings designated below by
S&P and Fitch.
<TABLE>
<CAPTION>
S&P FITCH
CLASS RATING RATING
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
IA-1..................................................................... AAA AAA
IA-2..................................................................... AAA AAA
IA-3..................................................................... AAA AAA
IA-4..................................................................... AAA AAA
IA-5..................................................................... AAA AAA
IA-6..................................................................... AAA AAA
IM-1..................................................................... AA AA
IM-2..................................................................... A A
IB....................................................................... BBB- BBB
IIA-1.................................................................... AAA AAA
IIA-2.................................................................... AAA AAA
IIM-1.................................................................... AA AA
IIM-2.................................................................... A A
IIB...................................................................... BBB- BBB
</TABLE>
The security ratings assigned to 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 Rating Agencies. The
ratings on the Offered Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Mortgage Loans, the
payment of the Adjustable Rate Certificate Carryover or the anticipated yields
in light of prepayments.
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'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 assigned by Fitch to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which such
certificates are issued. Fitch's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal aspects associated with such certificates, and the extent
to which the payment stream on the mortgage pool is adequate to make the
payments required by such certificates. Fitch ratings on such certificates do
not, however, constitute a statement regarding frequency of prepayments of the
mortgage loans.
The Depositor has not requested a rating of the Offered Certificates by 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 it
does, what ratings would be assigned by such other rating agency. The ratings
assigned by any such other rating agency to the Offered Certificates could be
lower than the respective ratings assigned by the Rating Agencies.
S-83
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
1/29 Loans............................................................................................... S-22
2/28 Loans............................................................................................... S-22
3/27 Loans............................................................................................... S-22
5/25 Loans............................................................................................... S-22
Accrual Period........................................................................................... S-9
Adjustable Cut-off Date Principal Balance................................................................ S-6
Adjustable Rate Certificate Carryover.................................................................... S-7
Adjustable Rate Mortgage Loan Group...................................................................... S-2
Adjustable Rate Mortgage Loans........................................................................... S-6
Adjustment Date.......................................................................................... S-22
Advance.................................................................................................. S-46
Advances................................................................................................. S-14
Advanta.................................................................................................. S-2
Applied Realized Loss Amount............................................................................. S-11
Available Funds Cap...................................................................................... S-7
B&C...................................................................................................... S-21
B&C Underwiting Guidelines............................................................................... S-39
Balloon Amount........................................................................................... S-23
Balloon Loan............................................................................................. S-23
Beneficial Owner......................................................................................... S-49
Book-Entry Certificates.................................................................................. S-48
Cede..................................................................................................... S-7
CEDEL.................................................................................................... S-7
CEDEL Participants....................................................................................... S-50
Certificate Account...................................................................................... S-52
Certificate Group........................................................................................ S-2
Certificate Owners....................................................................................... S-7
Certificates............................................................................................. S-2
Chase Manhattan Mortgage................................................................................. S-2
Citibank................................................................................................. S-8
Class A.................................................................................................. S-4
Class A Certificates..................................................................................... S-48
Class A Group I Certificates............................................................................. S-2
Class A Group II Certificates............................................................................ S-2
Class A Principal Distribution Amount.................................................................... S-56
Class IA-6 Distribution Amount........................................................................... S-56
Class IIA-2 Distribution Amount.......................................................................... S-57
Class B.................................................................................................. S-4
Class B Certificates..................................................................................... S-47
Class B Principal Distribution Amount.................................................................... S-57
Class IB Certificates.................................................................................... S-2
Class IIB Certificates................................................................................... S-2
Class M-1................................................................................................ S-4
Class M-1 Certificates................................................................................... S-48
Class M-1 Principal Distribution Amount.................................................................. S-57
Class M-2................................................................................................ S-4
Class M-2 Certificates................................................................................... S-48
Class M-2 Principal Distribution Amount.................................................................. S-57
</TABLE>
S-84
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Class IM-1 Certificates.................................................................................. S-48
Class IM-2 Certificates.................................................................................. S-48
Class IIM-1 Certificates................................................................................. S-48
Class IIM-2 Certificates................................................................................. S-48
Closing Date............................................................................................. Cover
Collateral Value......................................................................................... S-23
Compensating Interest.................................................................................... S-46
Constant Prepayment Rate................................................................................. S-67
Contributions Tax........................................................................................ S-77
Cooperative.............................................................................................. S-51
CPR...................................................................................................... S-67
crosscollateralization................................................................................... S-11
CSI...................................................................................................... S-81
CSI Underwriting Agreement............................................................................... S-81
Current Interest......................................................................................... S-54
Cut-off Date............................................................................................. S-11
DCR...................................................................................................... S-78
Definitive Certificate................................................................................... S-49
Depositor................................................................................................ S-2
Distribution Account..................................................................................... S-53
Distribution Date........................................................................................ S-2
DTC...................................................................................................... S-7
Due Dates................................................................................................ S-46
Due Period............................................................................................... S-53
ERISA.................................................................................................... S-14
Euroclear................................................................................................ S-7
Euroclear Operator....................................................................................... S-51
Euroclear Participants................................................................................... S-50
European Depositaries.................................................................................... S-8
Exemptions............................................................................................... S-78
Extra Principal Distribution Amount...................................................................... S-58
Financial Intermediary................................................................................... S-48
Fitch.................................................................................................... S-15
Fixed Rate Cut-off Date Principal Balance................................................................ S-6
Fixed Rate Mortgage Loan Group........................................................................... S-2
Fixed Rate Mortgage Loans................................................................................ S-5
Gross Margin............................................................................................. S-22
Group I Certificates..................................................................................... S-2
Group II Certificates.................................................................................... S-2
HEP...................................................................................................... S-67
Home Equity Prepayment................................................................................... S-67
Indirect Participants.................................................................................... S-49
Interest Carry Forward Amount............................................................................ S-55
Interest Determination Date.............................................................................. S-60
LIBO..................................................................................................... S-61
LIBOR Business Day....................................................................................... S-61
Loan Group............................................................................................... S-2
Loan-to-Value Ratio...................................................................................... S-23
Master REMIC............................................................................................. S-76
Master Servicer.......................................................................................... S-2
</TABLE>
S-85
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Master Servicer Fee...................................................................................... S-2
Master Servicer Fee Rate................................................................................. S-47
Maximum Funds Cap........................................................................................ S-7
Maximum Mortgage Rate.................................................................................... S-22
Mezzanine Certificates................................................................................... S-4
Mezzanine Group I Certificates........................................................................... S-2
Mezzanine Group II Certificates.......................................................................... S-2
Minimum Mortgage Rate.................................................................................... S-22
Modeling Assumptions..................................................................................... S-68
Moody's.................................................................................................. S-78
Mortgage Index........................................................................................... S-22
Mortgage Loans........................................................................................... S-2
Mortgage Note............................................................................................ S-21
Mortgage Pool............................................................................................ S-2
Mortgaged Property....................................................................................... S-2
Net Excess Cashflow...................................................................................... S-59
Net Mortgage Rate........................................................................................ S-55
NIV...................................................................................................... S-45
Offered Certificates..................................................................................... S-2
OID...................................................................................................... S-14
One-Month LIBOR.......................................................................................... S-7
Optional Termination Date................................................................................ S-14
overcollateralization.................................................................................... S-11
Participants............................................................................................. S-49
Pass-Through Margin...................................................................................... S-7
Pass-Through Rate........................................................................................ S-55
Paying Agent............................................................................................. S-5
Percentage Interest...................................................................................... S-54
Periodic Rate Cap........................................................................................ S-22
Plan..................................................................................................... S-14
Pooling and Servicing Agreement.......................................................................... S-5
Prepayment Interest Shortfall............................................................................ S-46
Prepayment Models........................................................................................ S-67
Prepayment Period........................................................................................ S-53
Principal Distribution Amount............................................................................ S-56
Principal Funds.......................................................................................... S-53
Prohibited Transactions Tax.............................................................................. S-77
Prospectus............................................................................................... S-3
PSI...................................................................................................... S-81
PSI Underwriting Agreement............................................................................... S-81
PTCE 95-60............................................................................................... S-79
Rating Agencies.......................................................................................... S-15
Realized Loss............................................................................................ S-60
Record Date.............................................................................................. S-8
Reference Banks.......................................................................................... S-61
Relevant Depositary...................................................................................... S-49
REMIC.................................................................................................... S-2
REO Property............................................................................................. S-46
Required Percentage...................................................................................... S-59
Residual Certificates.................................................................................... S-2
</TABLE>
S-86
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Restricted Group......................................................................................... S-79
Reuters Screen LIBO Page................................................................................. S-61
Rules.................................................................................................... S-49
S&P...................................................................................................... S-15
Scheduled Payments....................................................................................... S-21
Seller................................................................................................... S-4
Servicer Advance Date.................................................................................... S-46
Servicer Remittance Date................................................................................. S-52
Servicing Fee............................................................................................ S-14
Servicing Fee Rate....................................................................................... S-46
Six Month LIBOR Loans.................................................................................... S-22
SMMEA.................................................................................................... S-15
Stated Principal Balance................................................................................. S-14
Stepdown Date............................................................................................ S-59
Stepup Trigger Event..................................................................................... S-59
Subordinated Group II Certificates....................................................................... S-2
Subordinated Certificates................................................................................ S-4
Subordinated Group I Certificates........................................................................ S-4
Subservicer.............................................................................................. S-2
Subsidiary REMIC......................................................................................... S-76
Subsidiary REMIC Regular Interests....................................................................... S-76
Terms and Conditions..................................................................................... S-51
Third Party Servicing Portfolio.......................................................................... S-44
Trigger Event............................................................................................ S-59
Trust Fund............................................................................................... S-2
Trustee.................................................................................................. S-2
Underwriter.............................................................................................. S-3
Underwriters............................................................................................. S-81
Unpaid Realized Loss Amount.............................................................................. S-60
</TABLE>
S-87
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 1998-1 (the "Global Securities")
will be available only in book-entry form. Investors in the Global Securities
may hold such Global Securities through any of The Depository Trust Company
("DTC"), CEDEL or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
Eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations and prior mortgage pass-through certificate issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior mortgage pass-through certificate
issues. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
pass-through certificate issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional Eurobonds in same-day funds.
A-1
<PAGE>
Trading between DTC Seller and CEDEL or Euroclear Purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of either the actual number of days
in such accrual period and a year assumed to consist of 360 days or a 360-day
year of twelve 30-day months, as applicable to the related Class of Global
Securities. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary of the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be back-
valued to, and the interest on the Global Securities will accrue from, the value
date (which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the CEDEL or Euroclear cash debt will be valued instead as of the actual
settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of either the
actual number of days in such accrual period and a year assumed to consist of
360 days or a 360-day year of twelve 30-day months, as applicable to the related
Class of Global Securities. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the CEDEL
A-2
<PAGE>
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the CEDEL Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the CEDEL Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day period.
If settlement is not completed on the intended value date (i.e., the trade
fails), receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with Effectively Connected Income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or Reduced Rate for non-U.S. Persons Resident in Treaty Countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owners
or his agent.
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Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States, any state thereof or the District of Columbia (unless, in the case of a
Partnership, Treasury regulations provide otherwise), (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source or (iv) a trust if a court within the United States is
able to exercise primary supervision of the administration of the trust and one
or more United States persons have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date, that elect to
continue to be treated as United States persons will also be a U.S. Person. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
A-4
<PAGE>
PROSPECTUS
MORSERV, INC.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
This Prospectus relates to Pass-Through Certificates (the "Certificates")
issuable in Series which may be sold from time to time on terms determined at
the time of sale, evidencing specified interests in a trust fund (the "Trust
Fund"). As specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates will include certain mortgage related assets (the
"Mortgage Assets") consisting of (i) mortgage loans (the "Mortgage Loans") or
(ii) mortgage pass-through securities issued or guaranteed by FHLMC, FNMA or
GNMA (the "Agency Securities"), as more particularly described herein, having
aggregate outstanding principal balances of up to $1,000,000,000 and in certain
other property conveyed by MorServ, Inc. (the "Company"). The Mortgage Loans
included in any Mortgage Pool and the Agency Securities included in any pool of
Agency Securities will be described in the related Prospectus Supplement. The
Mortgage Loans and Agency Securities will have been acquired by the Company from
time to time in the open market or in privately negotiated transactions,
including transactions with affiliates. Certain of the Mortgage Loans and
mortgage loans underlying the Agency Securities may have been originated by
affiliates of the Company. Specific information, to the extent available,
regarding the size and composition of the pool of Mortgage Loans or Agency
Securities relating to each Series of Certificates will be set forth in the
related Prospectus Supplement. If specified in the related Prospectus
Supplement, a pool insurance policy, letter of credit, surety bond, guarantee,
or any combination thereof, or other forms of credit enhancement may be provided
with respect to a Series or Classes of Certificates evidencing interests in
Mortgage Loans. The Prospectus Supplement for a Series will name the entity,
which may be an affiliate of the Company, which will act directly or through one
or more Sub-servicers, as servicer (the "Servicer") of the Mortgage Loans for
such Series.
Each Series of Certificates will consist of one or more Classes or
Sub-classes of Certificates, which may include one or more senior Classes of
Certificates (the "Senior Certificates") and one or more subordinate Classes of
Certificates (the "Subordinated Certificates"). Unless otherwise specified in
the related Prospectus Supplement, the Subordinated Certificates will not be
offered hereby. Certificates of a Series may be divided into two or more Classes
or Sub-classes representing interests in specified percentages of principal or
interest, or both, in distributions on the pool of Mortgage Loans or Agency
Securities relating to such Series, as specified in the related Prospectus
Supplement. Each Prospectus Supplement will describe the Series and Class or
Classes of Certificates offered thereby including the percentage interest in
principal of and in interest represented thereby and the distributions of
principal or interest or both to any one or more of such Classes or Sub-classes
which may be on a sequential or pro rata basis, or such other manner specified
therein.
The Prospectus Supplement will set forth the Pass-Through Rate or other
applicable rate that will be passed through with respect to the Mortgage Assets,
together with the rate of interest that will be paid to Certificateholders of
each Class or Sub-class of such Series. Such Pass-Through Rate or other
applicable rate and any such rate of interest may be fixed, variable or
adjustable, as specified in the related Prospectus Supplement.
The Company's only obligations with respect to a Series of Certificates will
be pursuant to certain limited representations and warranties. Except for
certain representations and warranties relating to the Mortgage Loans and
certain other exceptions, the Servicer's obligations with respect to the
Certificates evidencing interests in a pool of Mortgage Loans are limited to its
contractual servicing obligations. Unless otherwise specified in the related
Prospectus Supplement, if the amount eligible for distribution to holders of
Certificates (or to Senior Certificateholders only in the case of a Series of
Certificates having a Class of Subordinated Certificates) evidencing interests
in a pool of Mortgage Loans on any Distribution Date is less than the amount due
them, the Servicer may be obligated, under certain terms and conditions, to
advance cash to such Certificateholders, to the extent such deficiency is
attributable to delinquent payments of principal and interest during the
immediately preceding Due Period (as defined herein) and only to the extent the
Servicer determines such advances are recoverable from future payments and
collections on the Mortgage Loans or otherwise (the "Advances"). See
"Description of the Certificates--Advances" and "--Distributions on
Certificates."
The intention of any underwriter to make a secondary market in the
Certificates will be set forth in the related Prospectus Supplement. There can
be no assurance that a secondary market for the Certificates will develop, or if
it does develop, that it will continue.
PROSPECTIVE INVESTORS IN THE CERTIFICATES SHOULD CONSIDER THE FACTORS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 15.
An election may be made to cause the Trust Fund relating to a Series of
Certificates to be treated as a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes. See "Certain Federal Income Tax
Consequences."
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
COMPANY, THE CHASE MANHATTAN CORPORATION, THE CHASE MANHATTAN BANK OR ANY OF
THEIR AFFILIATES. THE CERTIFICATES WILL NOT BE SAVINGS ACCOUNTS OR DEPOSITS AND
NEITHER THE CERTIFICATES, EXCEPT AS DESCRIBED HEREIN, NOR THE UNDERLYING
MORTGAGE LOANS OR AGENCY SECURITIES WILL BE 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.
--------------------------
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.
This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
--------------------------
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The date of this Prospectus is August 18, 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 Company 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 Company 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.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company 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 Company 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, MorServ, Inc., 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.
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<PAGE>
SUMMARY OF TERMS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE RELATED PROSPECTUS
SUPPLEMENT. CAPITALIZED TERMS USED HEREIN SHALL HAVE THE RESPECTIVE MEANINGS
ASSIGNED THEM HEREIN AND IN THE "GLOSSARY."
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Securities Offered........... Pass-Through Certificates (the "Certificates") evidencing
interests in pools of Mortgage Loans or Agency Securities
(each as defined below) may be issued from time to time in
Series pursuant to separate Pooling and Servicing Agreements
(each, an "Agreement") among MorServ, Inc. (the "Company"),
the servicer (the "Servicer") specified in the related
Prospectus Supplement for a Series of Certificates
evidencing interests in Mortgage Loans, the REMIC Servicer
(the "REMIC Servicer"), if any, specified in the related
Prospectus Supplement for a Series of Certificates
evidencing interests in Agency Securities and the Trustee
(the "Trustee") specified in the related Prospectus
Supplement for such Series of Certificates.
Depositor.................... The Company is a wholly-owned, limited purpose subsidiary of
Chase Manhattan Mortgage Corporation ("Chase Manhattan
Mortgage"). Unless otherwise expressly provided in the
related Prospectus Supplement, neither Chase Manhattan
Mortgage Corporation, The Chase Manhattan Bank nor any of
their affiliates, including the Company, has guaranteed, or
is or will be otherwise obligated with respect to the
Certificates of any Series. See "Special Considerations."
Servicer..................... The entity, which may be an affiliate of the Company, named
as servicer (the "Servicer") in the related Prospectus
Supplement for a Series of Certificates evidencing interests
in Mortgage Loans.
Seller....................... The entity or entities named as seller (the "Seller") in the
related Prospectus Supplement, which may be an affiliate of
the Company.
Trust Fund................... The Trust Fund for a Series of Certificates (each, a "Trust
Fund") will include certain mortgage related assets (the
"Mortgage Assets") and certain other property held in trust
for the benefit of the Certificateholders consisting of (a)
first lien mortgage loans (or participation interests
therein) secured by one- to four-family residential
properties (the "Mortgage Loans") or (b) mortgage
pass-through securities issued or guaranteed by the
Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") (the
"Agency Securities"), together with payments in respect of
such Mortgage Assets and certain other accounts, obliga-
tions or agreements, in each case as specified in the
related Prospectus Supplement.
A. The Mortgage Loans........ The Mortgage Loans evidenced by a Series of Certificates
(the "Mortgage Pool"), as specified in the related
Prospectus Supplement, may be fixed, adjustable or variable
rate Mortgage Loans. The Mortgage Loans may be conventional
Mortgage Loans (the "Conventional
</TABLE>
4
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<TABLE>
<S> <C>
Mortgage Loans") or Mortgage Loans insured by the Federal
Housing Administration (the "FHA Mortgage Loans") or
partially guaranteed by the Veterans Administration (the "VA
Mortgage Loans"). The Mortgage Loans will be secured by one-
to four-family residential properties. The adjustable rate
and variable rate Mortgage Loans (together, the "Adjustable
Rate Loans") may, as described in the related Prospectus
Supplement, permit or require periodic changes in the
interest rates borne by the Mortgage Loans (the "Adjustable
Mortgage Rates"), and in the monthly payments made on the
Mortgage Loans. The Mortgage Loans may include graduated
payment mortgage loans (the "GPM Loans"), which provide for
payments during the initial years of their term that are
less than the actual amount of principal and interest that
would be payable on a level debt service basis. The interest
not paid in the early years of such GPM Loans will be added
to the principal balance and paid, together with interest,
in later years. The related Prospectus Supplement will
specify any limit on the amount of GPM Loans which will be
included in a Mortgage Pool.
Unless otherwise specified in a related Prospectus
Supplement, each Mortgage Loan will have a 15- to 30-year
term at origination and a Loan-to-Value Ratio at origination
(as defined herein, the "Mortgage Loan-to-Value Ratio") not
to exceed 95%. Unless otherwise specified in a related
Prospectus Supplement, no Conventional Mortgage Loan will
have a Mortgage Loan-to-Value Ratio exceeding 80%, unless
covered by a primary mortgage insurance policy (a "Primary
Mortgage Insurance Policy") as described herein or in the
related Prospectus Supplement.
The Prospectus Supplement for each Series will provide
information with respect to (i) the aggregate principal
balance of the Mortgage Loans comprising, with respect to
each Series of Certificates, the pool of Mortgage Loans
transferred by the Company to the Trustee (the "Mortgage
Pool"), as of the date specified in the Prospectus Supple-
ment (the "Cut-off Date"); (ii) the weighted average of the
interest rates specified for each Mortgage Loan (the
"Mortgage Rate"), and, in the case of Adjustable Rate Loans,
the weighted average of the Adjustable Mortgage Rates as of
the Cut-off Date and maximum permitted Adjustable Mortgage
Rates, if any; (iii) the average outstanding principal
balance of the Mortgage Loans as of the Cut-off Date; (iv)
the weighted average term to maturity of the Mortgage Loans
as of the Cut-off Date and the range of the terms to
maturity; (v) the range of Mortgage Loan-to-Value Ratios of
the Mortgage Loans; (vi) the aggregate outstanding principal
balance, if any, of Buy-Down Loans (hereinafter described)
and GPM Loans as of the Cut-off Date; (vii) the amount of
any Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy and Mortgagor Bankruptcy Insurance (each as
hereinafter described) to be maintained with respect to the
Mortgage Pool; (viii) the amount of any Primary Mortgage
Insurance and Standard Hazard Insurance (hereinafter
described) required to be maintained with respect to each
Mortgage Loan; (ix) the aggregate outstanding principal
balance of Conventional Mortgage Loans,
</TABLE>
5
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<TABLE>
<S> <C>
FHA Mortgage Loans and VA Mortgage Loans; (x) the amount, if
any, and terms of any other form of Alternate Credit
Enhancement to be provided with respect to all or any
Mortgage Loans or the Mortgage Pool; and (xi) the geographic
location and types of one-to four-family residential
properties securing the Mortgage Loans (the "Mortgaged
Properties").
The Mortgage Loans will be purchased by the Company in the
open market or in privately negotiated transactions. either
directly or through an affiliate, from one or more Sellers.
Only to the extent described below and in the related
Prospectus Supplement, will the Mortgage Loans comprising
the Mortgage Pool relating to a Series of Certificates
evidencing interests in Mortgage Loans be guaranteed or
insured by any government agency or other insurer.
B. The Agency Securities..... The Agency Securities evidenced by a Series of Certificates
will consist of (i) Mortgage Participation Certificates
issued and guaranteed as to timely payment of interest and
unless otherwise specified in the related Prospectus
Supplement, ultimate payment of principal by FHLMC ("FHLMC
Certificates"), (ii) Guaranteed Mortgage Pass-Through
Certificates issued and guaranteed as to timely payment of
principal and interest by FNMA ("FNMA Certificates"), (iii)
"fully modified pass-through" mortgage-backed certificates
guaranteed as to timely payment of principal and interest by
the GNMA ("GNMA Certificates"), (iv) stripped
mortgage-backed securities representing an undivided
interest in all or a part of either the principal distribu-
tions (but not the interest distributions) or the interest
distributions (but not the principal distributions) or in
some specified portion of the principal and interest
distributions (but not all of such distributions) on certain
FHLMC, FNMA or GNMA Certificates and, unless otherwise
specified in the related Prospectus Supplement. guaranteed
to the same extent as the underlying securities, (v) another
type of pass-through certificate issued or guaranteed by
GNMA, FNMA or FHLMC and described in the related Prospectus
Supplement or (vi) a combination of such Agency Securities.
All GNMA Certificates will be backed by the full faith and
credit of the United States. Neither FHLMC nor FNMA
Certificates will be backed, directly or indirectly, by the
full faith and credit of the United States.
The types, aggregate principal amounts and characteristics
of the Agency Securities evidenced by a Series of
Certificates will be described in the related Prospectus
Supplement. Each Agency Security will evidence an interest
in a pool of mortgage loans of the type described herein and
in the related Prospectus Supplement. Substantially all of
the mortgage loans will be secured by one- to four-family
residences. The Agency Securities included in a Trust Fund
(hereinafter defined) will be registered in the name of the
Trustee for such Trust Fund (or its nominee). See "The Trust
Fund--Agency Securities" herein.
</TABLE>
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<TABLE>
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The Agency Securities may consist of pass-through securities
issued under FHLMC's or FNMA's Cash or Guarantor Program,
the GNMA I Program, the GNMA II Program or another program
specified in the Prospectus Supplement. Agency Securities
may be backed by fixed, variable or adjustable rate or
graduated payment mortgage loans.
Description of
Certificates............... Each Class of Certificates within a Series will evidence the
interest specified in the related Prospectus Supplement in
the Trust Fund.
Each Series of Certificates may consist of one or more
Classes, one or more of which may be Senior Certificates
("Senior Certificates") and one or more of which may be
Subordinated cCertificates ("Subordinated Certificates"). A
Class of Certificates of a Series may be divided into two or
more Sub-classes, as and on the terms specified in the
related Prospectus Supplement. Each Class or Sub-class of a
Series may evidence the right to receive a specified portion
(which may be 0%) of each distribution of principal or
interest or both, on the Mortgage Loans or Agency
Securities. Each Class or Sub-class of a Series may be
assigned a principal balance (the "Stated Balance") based on
the cash flow from the assets in the Trust Fund, and a
fixed, variable or adjustable stated annual interest rate,
and may be entitled to receive distributions in reduction of
Stated Balance to the extent available therefor in the
manner, priority and amounts specified in the related
Prospectus Supplement. A Class or Sub-class of Certificates
may be Certificates on which interest will accrue, but not
be paid, for the period set forth in the related Prospectus
Supplement (the "Compound Interest Certificates") . The
Certificates will be issuable in fully registered form in
the authorized denominations specified in the related
Prospectus Supplement. See "Description of the
Certificates." Certain Series or Classes of Certificates may
be enhanced by mortgage pool insurance, letters of credit,
surety bonds, guarantees, or any combination thereof, or
other forms of credit enhancement, in each case as described
herein and in the related Prospectus Supplement. The
Subordinated Certificates of a Series will be subordinated
in certain respects to the Senior Certificates of the same
Series. If a Series of Certificates contains more than one
Class of Subordinated Certificates, distributions and losses
will be allocated among such Classes in the manner specified
in the related Prospectus Supplement. The Certificates will
not be guaranteed or insured by any government agency.
Subordinated Certificates and
Reserve Fund............... One or more Classes of any Series evidencing interests in
Mortgage Loans may be Subordinated Certificates, as
specified in the related Prospectus Supplement. The rights
of the Subordinated Certificateholders to receive any or a
specified portion of distributions with respect to the
Mortgage Loans will be subordinated to the rights of Senior
Certificateholders to the extent of the amount specified in
the related Prospectus Supplement (the "Available
Subordination Amount"). If a Series of Certificates contains
more than one Class of Subordinated Certificates,
distributions and losses will be allocated
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among such Classes in the manner specified in the related
Prospectus Supplement. The rights of the Subordinated
Certificateholders, to the extent not subordinated, may be
on a parity with those of Senior Certificateholders. The
Available Subordination Amount for each Class of
Subordinated Certificates of a Series will be dependent upon
certain Mortgage Pool characteristics and other factors and
will be set forth in the related Prospectus Supplement.
Alternatively, if so specified in the related Prospectus
Supplement, Senior Certificateholders may be entitled to
receive all or some portion of the amounts otherwise
allocable to Subordinated Certificateholders under
circumstances and for the period of time specified in the
Prospectus Supplement, which will have the effect of
accelerating the amortization of the Senior Certificates and
thereby increasing over time the interest evidenced by the
Subordinated Certificates in the related Trust Fund. This
Subordination is intended to enhance the likelihood of
regular receipt by Senior Certificateholders of the full
amount of scheduled monthly payments of principal and
interest due to them and to protect the Senior
Certificateholders against losses. The Available Subordina-
tion Amount for each Class of Subordinated Certificates of a
Series will be dependent upon certain Mortgage Pool
characteristics and other factors and will be set forth in
the related Prospectus Supplement. See "Description of the
Certificates Distributions on Certificates."
The protection afforded to the Senior Certificateholders by
the preferential right of the Senior Certificateholders to
receive current distributions from the Mortgage Pool up to
the Available Subordination Amount may be enhanced, to the
extent specified in the related Prospectus Supplement, by
the establishment of a fund to make payments on the
Certificates to the extent funds are not otherwise available
(the "Reserve Fund"), which is funded by retention of a
portion of such amounts otherwise payable to the
Subordinated Certificateholders. The Reserve Fund may also
be funded, to the extent specified in the related Prospectus
Supplement, by one or more of an initial cash deposit, the
retention of specified periodic distributions of principal,
interest or both otherwise payable to Subordinated Certifi-
cateholders, or the provision of a letter of credit,
guarantee, insurance policy or other form of credit
enhancement or any combination thereof and of the foregoing
retained amounts. Unless otherwise specified in the related
Prospectus Supplement, the Reserve Fund will be part of the
Trust Fund.
The subordination features and the Reserve Fund described
above are intended to enhance the likelihood of timely
payment of principal and interest and to protect the Senior
Certificateholders against loss; however, in certain
circumstances the Reserve Fund could be depleted and
shortfalls could result. If, on a particular date when a
distribution is due the Senior Certificateholders, the
aggregate amount of payments received from the obligors on
the Mortgage Loans and Advances by the Servicer (as
described below), if any, and from the Reserve Fund of a
Series, if any, do not provide sufficient funds to make full
distributions to the Senior Certificateholders of a Series,
the
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amount of the shortfall, plus interest at the Pass-Through
Rates (hereinafter defined) of the Mortgage Loans to which
such shortfall is attributable or at the weighted average
Pass-Through Rate, as specified in the related Prospectus
Supplement, will be added to the amount the Senior
Certificateholders are entitled to receive on the next date
specified in the related Prospectus Supplement for payments
on the Certificates (the "Distribution Date"). Unless
otherwise described in the applicable Prospectus Supplement,
in the event the Reserve Fund, if any, is depleted before
the Available Subordination Amount is reduced to zero, such
Senior Certificateholders nevertheless will have a
preferential right to receive current distributions from the
Mortgage Pool to the extent of the then Available
Subordination Amount. Senior Certificateholders will bear
their proportionate share of losses realized on the Mortgage
Loans in excess of the Available Subordination Amount.
Insurance and Credit
Enhancement................ As an alternative, or in addition, to the credit enhancement
afforded by subordination of the Subordinated Certificates,
credit enhancement with respect to a Series of Certificates
evidencing interests in Mortgage Loans may be provided by
mortgage pool insurance or other forms of credit enhancement
acceptable to each nationally recognized rating agency
rating a Series of Certificates. Credit enhancement through
mortgage insurance or hazard insurance which may be
provided, as more fully described herein under the caption
"Description of Insurance" and in the applicable Prospectus
Supplement is summarized below.
(i) Mortgage Pool Insurance Policy. A Mortgage Pool
Insurance Policy or Policies may be obtained for a Series of
Certificates evidencing interests in Mortgage Loans and will
be maintained by the Servicer. The Mortgage Pool Insurance
Policy will be limited in scope, covering defaults on the
related Mortgage Loans in an initial amount of not less than
a specified percentage of the aggregate principal balance as
of the related Cut-off Date as st forth in the related
Prospectus Supplement.
(ii) Standard Hazard Insurance and Special Hazard
Insurance Policy. All of the Mortgage Loans will be covered
by Standard Hazard Insurance Policies insuring against
losses due to various causes, including fire, lightning, and
windstorm. With respect to the Mortgage Loans, certain other
physical risks that are not otherwise insured against may be
covered by a Special Hazard Insurance Policy or Policies, as
specified in the related Prospectus Supplement. Each Special
Hazard Insurance Policy will be limited in scope and will
cover losses in an initial amount equal to a set percentage
of the aggregate principal balance as of the related Cut-off
Date of the Mortgage Loans or other maximum coverage, as set
forth in the related Prospectus Supplement. Any hazard
losses not covered by either Standard Hazard Insurance
Policies on the Mortgage Loans, or a Special Hazard
Insurance Policy on the Mortgage Loans will not be insured
against and therefore will be borne by the related
Certificateholders.
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(iii) Mortgagor Bankruptcy Insurance. As specified in
the related Prospectus Supplement, Mortgagor Bankruptcy
Insurance may be obtained for a Series of Certificates
evidencing interests in Mortgage Loans covering certain
losses resulting from action which may be taken by a
bankruptcy court in connection with a Mortgage Loan. The
level of coverage of such insurance will be specified in the
applicable Prospectus Supplement.
(iv) FHA Insurance and VA Guarantee. To the extent
specified in the related Prospectus Supplement, all or a
portion of the Mortgage Loans may be subject to FHA
insurance or may be partially guaranteed by the VA.
(v) Alternate Credit Enhancement. To the extent
specified in the related Prospectus Supplement, the Company
may provide for alternative credit enhancement for all or
part of the related Trust Fund, Mortgage Pool, or all or any
Mortgage Loans included in the related Mortgage Pool, in the
form of a letter of credit, guarantee, surety bond or
insurance policy, or any combination thereof in each case
satisfactory to each rating agency rating the Series of
Certificates. See "Description of Insurance--Alternate
Credit Enhancement."
To the extent described in an applicable Prospectus
Supplement and to the extent that it will not result in the
downgrading of any rating on the related Certificates by any
nationally recognized rating agency rating such
Certificates, certain insurance policies (or deposits in
lieu thereof) may secure more than one Series of
Certificates. With respect to any Series of Certificates,
the Company also will have the right to substitute
comparable coverage from another insurer or provide
equivalent protection for any of certain insurance policies
(or deposits in lieu thereof) securing such Series of
Certificates so long as such substitution will not result in
the downgrading of any rating on the related Certificates by
any nationally recognized rating agency rating such
Certificates.
Advances..................... Unless otherwise specified in the related Prospectus
Supplement if the amount eligible for distribution to the
Certificateholders of a Series of Certificates evidencing
interests in Mortgage Loans on any Distribution Date is less
than the amount which is due such Certificateholders on such
Distribution Date, the related Agreement will provide that
the Servicer is obligated to make advances of cash (the
"Advances") to the Certificateholders, subject to the
limitations described in the applicable Prospectus
Supplement, to the extent that such deficiency is due to
delinquent payments of principal and interest during the
immediately preceding Due Period (as defined herein) and
only to the extent the Servicer determines such Advances are
recoverable from future payments and collections on the
Mortgage Loans or otherwise. See "Description of the
Certificates."
Interest..................... Except as otherwise set forth in the related Prospectus
Supplement, interest on each Mortgage Loan and Agency
Security will be passed through on the dates specified in
the related Prospectus Supplement (each, a "Distribution
Date"), commencing on the date and at the
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Pass-Through Rate or other applicable rate for that Mortgage
Loan or Agency Security specified in the related Prospectus
Supplement. To the extent specified in the related
Prospectus Supplement, the Pass-Through Rate for each
Mortgage Loan and Agency Security will equal the Mortgage
Rate then borne by such Mortgage Loan or the pass-through
rate of the Agency Security, less a fee for the servicing of
the Mortgage Loan or pool of Agency Securities and related
expenses specified in the related Prospectus Supplement (the
"Servicing Fee") and, to the extent specified in the related
Prospectus Supplement, less a fee for providing credit
enhancement (the "Guarantee Fee") and an amount retained by
the seller of the Mortgage Loan or Agency Security or to be
retained by the Company or the Servicer or otherwise sold as
set forth in the Prospectus Supplement, if any (the "Excess
Interest") or, such Servicing Fee and such Guarantee Fee, if
any, and such Excess Interest, if any, as may be deducted
from the distributions made on the Distribution Dates. To
the extent specified in the related Prospectus Supplement,
the Company may retain for its own account or, under certain
circumstances, dispose of the Excess Interest, if any, in
unrelated transactions. See "Description of the
Certificates--Compensation and Payment of Expenses." The
Servicing Fee may be fixed or may change as specified in the
related Prospectus Supplement. The weighted average
Pass-Through Rate or other applicable rate with respect to
Certificates which evidence the right to receive
distributions of income at a variable Pass-Through Rate or
other applicable rate (the "Variable Rate Certificates")
relating to adjustable rate Agency Securities or a Mortgage
Pool containing Adjustable Rate Loans may be expected to
change as the pass-through rates on the Mortgage Securities
or Adjustable Mortgage Rates and Pass-Through Rates or other
applicable rates on the Adjustable Rate Loans change, and,
with respect to Variable Rate Certificates relating to a
pool of fixed or adjustable rate Mortgage Loans or Agency
Securities, as payments of principal, including pre-
payments, are made on Mortgage Loans or Agency Securities,
as the case may be, bearing different Mortgage Rates or
pass-through rates, respectively. The related Prospectus
Supplement will set forth for each Class or Sub-class of
Certificates that has a Stated Balance the interest rate, if
any, for each such Class or Sub-class or the method of
determining such interest rate. See "Yield Considerations"
and "Description of the Certificates." As specified in the
related Prospectus Supplement, Classes of a Series of
Certificates or Sub-classes within a Class may be entitled
to receive no interest or interest which is not
proportionate to the principal allocable to such
Certificates.
Principal (Including
Prepayments)............... As described in the related Prospectus Supplement, principal
on each Mortgage Loan and Agency Security, including any
principal prepayments, will be passed through on each
Distribution Date. See "Maturity and Prepayment
Considerations" and "Description of the Certificates." If so
specified in the Prospectus Supplement with respect to a
Class or Sub-class of a Series having a Stated Balance, such
distributions may be made in reduction of the Stated
Balance, in an amount
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equal to the Certificate Remittance Amount (hereinafter
defined) and such other amounts as are specified in the
related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Certificate
Remittance Amount for any Distribution Date will equal the
amount by which the Stated Balance of such Class or
Sub-class (before taking into account the amount of interest
accrued and added on such Distribution Date to the Stated
Balance of any Class or Sub-class of Compound Interest
Certificates) exceeds the Asset Value (as defined herein) of
the Mortgage Loans in the related Mortgage Pool or of the
Agency Securities as of the Business Day prior to the
related Distribution Date. See "Maturity and Prepayment
Considerations" and "Description of the
Certificates--Payments on Mortgage Loans," and
"--Distributions on Certificates."
If so specified in the Prospectus Supplement relating to a
Class or Sub-class of Certificates of such Series having a
Stated Balance and less frequent than monthly Distribution
Dates, such Certificates may receive special distributions
in reduction of Stated Balance ( "Special Distributions") in
any month, other than a month in which a Distribution Date
occurs, if, as a result of principal prepayments on the
Mortgage Loans or the mortgage loans underlying the Agency
Securities in the related Trust Fund or low reinvestment
yields, the Trustee determines, based on assumptions
specified in the related Agreement, that the amount of cash
anticipated to be on deposit in the Certificate Account for
such Series on the next Distribution Date may be less than
the sum of the interest distributions and the amount of
distributions in reduction of Stated Balance otherwise
required to be made on such Distribution Date. Unless
otherwise specified in the related Prospectus Supplement,
Special Distributions will be made on such Certificates in
the same priority and manner as distributions in reduction
of Stated Balance would be made on the next Distribution
Date for such Certificates. See "Description of the
Certificates--Payments on the Mortgage Loans" and "--Special
Distributions."
Optional Termination......... If so specified in the related Prospectus Supplement, the
Company or the Servicer or such other party specified in the
related Prospectus Supplement at its option with respect to
any Series of Certificates may repurchase all Mortgage Loans
or Agency Securities remaining outstanding at such time and
under the circumstances specified in such Prospectus
Supplement. Unless otherwise provided in the related
Prospectus Supplement, the repurchase price will equal the
principal amount of such Mortgage Loans or Agency Securities
plus accrued interest from the first day of the month of
repurchase to the first day of the next succeeding month at
the Pass-Through Rates borne by such Mortgage Loans or
Agency Securities. See "Description of the
Certificates--Termination."
Federal Income Tax
Consequences............... If no election is made to treat the Trust Fund relating to a
Series of Certificates as a real estate mortgage investment
conduit ("REMIC") and the Trust Fund does not constitute a
"taxable mortgage pool" (a "TMP"), the Trust Fund will be
classified as a grantor trust and not as
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an association taxable as a corporation for federal income
tax purposes, and holders of Certificates therefore will be
treated as the owners of undivided pro rata interests in the
Mortgage Pool or pool of Agency Securities and any other
assets held by the Trust Fund. If an election is made to
treat the Trust Fund relating to a Series of Certificates as
a REMIC, each Class of Certificates will constitute "regular
interests" in a REMIC or "residual interests" in a REMIC, as
specified in the related Prospectus Supplement. Regardless
of whether a REMIC election is made, Certificates will be
considered to represent assets described in section 7701 (a)
(19) (C) (v) of the Internal Revenue Code of 1986, as
amended (the "Code"), "qualifying real property loans"
within the meaning of section 593(d)(1) of the Code and
"real estate assets" within the meaning of section 856(c)
(5) (A) of the Code, in each case, to the extent described
herein and in the Prospectus Supplement. If specified in the
related Prospectus Supplement, a separate REMIC Servicer may
be provided for, and be a party to, the Agreement. If no
REMIC election is made with respect to a Series of
Certificates, and the Trust Fund (or a portion of the Trust
Fund or such Series) is a TMP, such Trust Fund (or Series)
will be treated as a corporation for federal income tax
purposes and the Certificates will not have the tax
characteristics that they would have had if the Trust Fund
were treated as a grantor trust. See "Certain 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 the Code, should review carefully with its
legal advisors whether the purchase or holding of
Certificates could give rise to a transaction prohibited or
not otherwise permissible under ERISA or the Code. See
"ERISA Considerations."
Legal Investment............. 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"). 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 that 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 legal investments for them. See "Legal
Investment" herein.
Use of Proceeds.............. Substantially all of the net proceeds from the sale of a
Series of Certificates offered hereby and by the related
Prospectus Supplement will be applied to the simultaneous
purchase of the Mortgage Loans or Agency Securities
evidenced by such Series of Certificates and to reimburse
the amounts previously used to effect the purchase of the
Mortgage Loans or Agency Securities evidenced by the
Certificates,
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the costs of carrying the Mortgage Loans or Agency
Securities until sale of the Certificates and to pay other
expenses connected with pooling the Mortgage Loans or Agency
Securities and issuing the Certificates. See "Use of
Proceeds."
Rating....................... It is a condition to the issuance Certificates that they be
rated in one of the four highest rating categories of at
least one of Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., Moody's Investors Service,
Inc., Fitch Investors Service, L.P. or Duff & Phelps Credit
Rating Co.
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RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. GENERAL. 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 Available Subordination
Amount, applicable insurance policies or Alternate 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 Trust Fund--The Mortgage Pools."
2. LIMITED OBLIGATIONS. The Certificates will not represent an interest in
or obligation of the Company. 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 Corporation or any of
its affiliates, including the Company, any Sub-servicer or the Servicer.
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, the Company
publishes no 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.
4. INSURANCE AND ALTERNATE CREDIT ENHANCEMENT. If insurance policies or
Alternate Credit Enhancement are provided with respect to a Series of
Certificates, the insurance policies (including FHA insurance and the VA
guarantee) or Alternate Credit Enhancement on the Mortgage Loans, the Mortgage
Pools or all or any part of a Trust Fund will not cover all contingencies and
will cover certain contingencies only to a limited extent. See "Description of
Insurance--Mortgage Insurance on the Mortgage Loans," "Description of
Insurance--Hazard Insurance on the Mortgage Loans" and "Description of
Insurance--Alternate Credit Enhancement."
5. PREPAYMENT CONSIDERATIONS. The prepayment experience on the Mortgage
Loans and the mortgage loans underlying the Agency Securities will affect the
average life of the Certificates or each Class of Certificates. Prepayments on
the Mortgage Loans and the mortgage loans underlying the Agency Securities may
be influenced by a variety of economic, geographic, social and other factors,
including the difference between the interest rates on the Mortgage Loans or the
mortgage loans underlying the Agency Securities 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 and the
mortgage loans underlying the Agency Securities, the rate of prepayment would be
expected to increase. Conversely, if mortgage interest rates rise above the
interest rates on the Mortgage Loans and the mortgage loans underlying the
Agency Securities, the rate of prepayment would be expected to decrease. Other
factors affecting prepayment of mortgage loans include changes in housing needs,
job transfers, unemployment and servicing decisions. See "Maturity and
Prepayment Considerations."
6. SUBORDINATION. With respect to Certificates of a Series having a Class of
Subordinated Certificates, while the subordination feature is intended to
enhance the likelihood of timely payment of principal and
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interest to Senior Certificateholders, the Available Subordination Amount may be
limited, as specified in the Prospectus Supplement, the Reserve Fund, if any,
could be depleted in certain circumstances, and payments applied to the Senior
Certificates which are otherwise due to the Subordinated Certificates may be
less than losses.
7. FHLMC GUARANTY. Payment of principal and interest on the FHLMC
Certificates relating to a Series will be guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC") as specified herein. This guarantee will be
backed by the credit of FHLMC, a federally chartered corporation. The full faith
and credit of the United States will not, however, guarantee any payments on any
such FHLMC Certificates. Neither the United States nor any agency thereof is
obligated to finance FHLMC's operations or to assist FHLMC in any other manner.
8. FNMA GUARANTY. Full and timely payment of interest and principal on the
FNMA Certificates relating to a Series will be guaranteed by the Federal
National Mortgage Association ("FNMA"). This guarantee will be backed by the
credit of FNMA, a federally chartered, privately owned corporation. The full
faith and credit of the United States will not, however, guarantee any payments
on any such FNMA Certificates. Neither the United States nor any agency thereof
will be obligated to finance FNMAs operations or to assist FNMA in any other
manner.
THE TRUST FUND
GENERAL
The Trust Fund for any Series of Certificates may include Mortgage Loans,
Agency Securities and participation or pass-through interests in Mortgage Loans.
Each Trust Fund also may include (i) the amounts held from time to time in an
account (the "Certificate Account") maintained by the Servicer, the REMIC
Servicer or the Trustee pursuant to the Agreement, (ii) any property which
initially secured a Mortgage Loan and which is acquired by foreclosure or deed
in lieu of foreclosure,(iii) if so specified in the related Prospectus
Supplement, a Reserve Fund, (iv) any insurance policies and any Alternate Credit
Enhancement with respect to the Certificates, the Mortgage Loans or all or any
part of the Trust Fund, required to be maintained pursuant to the related
Agreement and (v) such other property as specified in the related Prospectus
Supplement.
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust Fund, containing one pool of Agency
Securities or one Mortgage Pool, respectively, having the aggregate principal
balance as of the specified day of the month of the creation of the pool (the
"Cut-off Date") as set forth in the related Prospectus Supplement. Holders of
Certificates of a Series will have interests only in such Mortgage Pool or pool
of Agency Securities, and will have no interest in the Mortgage Pools or pools
of Agency Securities created with respect to any other Series of Certificates.
Mortgage Assets will be purchased by the Company or an affiliate in the open
market or in privately negotiated transactions, including transactions with
affiliates. The following is a brief description of the Mortgage Assets expected
to be included in the Trust Funds. If specific information respecting the
Mortgage Assets is not known to the Company at the time Certificates initially
are offered, more general information of the nature described below 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.
A copy of the Pooling and Servicing Agreement with respect to each Series of
Certificates will be attached to the Form 8-K. A schedule of the Agency
Securities or Mortgage Loans, as appropriate, relating to such Series, will be
attached to the Pooling and Servicing Agreement delivered to the Trustee upon
delivery of the Certificates.
Whenever in this Prospectus terms such as "Mortgage Pool," "Trust Fund,"
"Agreement" or "Pass-Through Rate" are used, those terms respectively apply,
unless the context otherwise indicates, to one
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specific Mortgage Pool, Trust Fund, each Agreement and the Pass-Through Rate
applicable to the related Series of Certificates.
THE MORTGAGE POOLS
Each Mortgage Pool will consist of conventional mortgage loans, FHA-insured
mortgage loans or VA-guaranteed mortgage loans (the "Mortgage Loans") evidenced
by promissory notes (the "Mortgage Notes") secured by mortgages or deeds of
trust or other similar security instruments creating a first lien on one- to
four-family residential properties, including stock allocated to a dwelling unit
in a residential cooperative housing corporation (the "Mortgaged Properties").
The Mortgaged Properties will consist of detached individual dwelling units,
individual condominiums, individual cooperative apartment units, townhouses,
duplexes, row houses, individual units in planned-unit developments and other
attached dwelling units. To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may include investment properties and
vacation and second homes. The Company expects that the Mortgage Loans will have
been originated by FHA-approved mortgagees or FNMA/FHLMC-approved
seller/servicers in the ordinary course of their real estate lending activities.
For each such Series of Certificates, the Company will cause the Mortgage
Loans constituting the Mortgage Pool to be assigned to the trustee named in the
related Prospectus Supplement (the "Trustee"). The Servicer specified in the
related Prospectus Supplement (the "Servicer") will service the Mortgage Loans,
either by itself or through other mortgage servicing institutions
("Sub-servicers"), pursuant to the Agreement. The Servicer may be an affiliate
of the Company. See "Description of Certificates--Servicing." 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. The Mortgage Loan
documents may, as specified in the related Prospectus Supplement, be held for
the benefit of the Trustee by a Custodian (the "Custodian") appointed pursuant
to a Custodial Agreement (the "Custodial Agreement") among the Company, the
Trustee and the Custodian.
Each Mortgage Pool will be composed of Mortgage Loans bearing interest at
the annual fixed, variable or adjustable rates of interest specified in the
Prospectus Supplement. The difference between a Mortgage Rate and the related
Pass-Through Rate (less sub-servicing compensation, certain expenses of
servicing, costs of any credit enhancement and the amount, if any, of Excess
Interest ), will be retained by the Servicer as servicing compensation to it.
See "Description of the Certificates--Servicing Compensation and Payment of
Expenses."
The related Prospectus Supplement will specify for the Mortgage Loans
expected to be contained in the related Mortgage Pool, to the extent known,
among other things, the dates of origination of the Mortgage Loans; the Mortgage
Rates, and in the case of Adjustable Rate Loans, the initial Adjustable Mortgage
Rates, the index or formula, if any, used to determine the Adjustable Mortgage
Rate, the maximum permitted Adjustable Mortgage Rate, if any, and then-current
Adjustable Mortgage Rate; the Loan-to-Value Ratios; the minimum and maximum
outstanding principal balances as of the Cut-off Date and the average
outstanding principal balance; the outstanding principal balances of the
Conventional Mortgage Loans, FHA Mortgage Loans and VA Mortgage Loans included
in the Mortgage Pool; and the original maturities of the Mortgage Loans and the
last maturity date of any Mortgage Loan.
With respect to the Mortgage Loans in a Mortgage Pool, the Company, the
Servicer or another party, as specified in the related Prospectus Supplement,
will make representations and warranties as to the types and geographical
distribution of such Mortgage Loans and as to the accuracy in all material
respects of certain information furnished to the Trustee in respect of each such
Mortgage Loan. In addition, the Company, the Servicer or such other party, as
specified in the related Prospectus Supplement, will represent and warrant that,
as of the Cut-off Date, no Mortgage Loan was more than 30 days delinquent as to
payment of principal and interest. Upon a breach of any representation that
materially and adversely
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affects the interests of the Certificateholders in a Mortgage Loan, the Company,
the Servicer or such other party, as specified in the related Prospectus
Supplement, will be obligated either to cure the breach in all material respects
or to purchase the Mortgage Loan or, if so specified in the related Prospectus
Supplement, to substitute another Mortgage Loan as described below. This
repurchase or substitution obligation constitutes the sole remedy available to
the Certificateholders or the Trustee for a breach of representation by the
Company, the Servicer or such other party, respectively.
In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
Agreement, the Servicer, to the extent specified in the related Prospectus
Supplement, will make certain representations and warranties to the Trustee with
respect to the enforceability of coverage under any applicable Primary Mortgage
Insurance Policy, Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy or Mortgagor Bankruptcy Insurance. See "Description of Insurance" for
information regarding the extent of coverage under certain of such insurance
policies. If so specified in the related Prospectus Supplement, upon a breach of
the insurability representation that materially and adversely affects the
interests of the Certificateholders in a Mortgage Loan, the Servicer or such
other party will be obligated either to cure the breach in all material respects
or to purchase such Mortgage Loan at a price equal to the principal balance
thereof as of the date of purchase plus accrued interest at the Pass-Through
Rate to the first day of the month following the month of purchase. The purchase
obligation, if any, constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of any insurability
representation.
If so provided in the related Prospectus Supplement, if the Company
discovers or receives notice of any breach of its representations and warranties
within two years or such other period as may be specified in the related
Prospectus Supplement of the date of the initial issuance of the Certificates,
the Company may, rather than repurchase the Mortgage Loan as provided above,
remove such Mortgage Loan from the Trust Fund ("Deleted Mortgage Loan") and
substitute in its place another Mortgage Loan ("Substitute Mortgage Loan"). Any
Substitute Mortgage Loan will, on the date of substitution, (i) have an
outstanding principal balance, after deduction of all scheduled payments due in
the month of substitution, not in excess of the outstanding principal balance of
the Deleted Mortgage Loan (the amount of any shortfall to be distributed to
Certificateholders in the month of substitution), (ii) have a Mortgage Rate not
less than (and not more than 1% greater than) the Mortgage Rate of the Deleted
Mortgage Loan, (iii) have a Pass-Through Rate equal to the Pass-Through Rate of
the Deleted Mortgage Loan, (iv) have a remaining term to maturity not greater
than (and not more than two years less than) that of the Deleted Mortgage Loan,
and (v) comply with all of the representations and warranties set forth in the
Agreement as of the date of substitution. The foregoing cure, repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for any such breach.
THE AGENCY SECURITIES
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. GNMA is a wholly-owned corporate
instrumentality of the United States within the United States Department of
Housing and Urban Development ("HUD"). Section 306(g) of Title Ill of the
National Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
which are based on and backed by, and represent an interest in, a pool of
mortgage loans insured by FHA under the Housing Act, or Title V of the Housing
Act of 1949 ("FHA Loans"), or partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended, of Chapter 37 of Title 38,
United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guarantee under this subsection." In order to meet
its obligations under any such guarantee, GNMA, under Section 306 (d) of the
Housing Act, is authorized to borrow from the United States Treasury in an
amount which is at any
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time sufficient to enable GNMA, with no limitations as to amount, to perform its
obligations under its guarantee.
GNMA CERTIFICATES. Each GNMA Certificate relating to a Series (which may be
issued under either the GNMA I program or the GNMA II program) will be a "fully
modified pass-through" mortgage-backed certificate issued and serviced by a
mortgage banking company or other financial concern ("GNMA Issuer") approved by
GNMA, FNMA as a seller-servicer of FHA Loans or VA Loans or both. Each GNMA
Certificate will be based on and backed by a pool of FHA Loans and/or VA Loans.
Each such mortgage loan will be secured by a one- to four-family residential
property.
The full and timely payment of principal of and interest on each GNMA
Certificate relating to a Series will be guaranteed by GNMA, which obligation is
backed by the full faith and credit of the United States. Each such GNMA
Certificate will have an original maturity of not more than 30 years (but may
have original maturities of substantially less than 30 years). Each such GNMA
Certificate will provide for the payment by or on behalf of the GNMA Issuer to
the registered holder of such GNMA Certificate of scheduled monthly payments of
principal and interest equal to the Certificateholder's proportionate interest
in the aggregate amount of the monthly principal and interest payment on each
FHA Loan or VA Loan backing such GNMA Certificate, less the applicable servicing
and guarantee fee which together equal the difference between the interest on
the FHA or VA Loans and the rate on the GNMA Certificates. In addition, each
payment to a GNMA Certificateholder will include proportionate pass-through
payments to such holder of any prepayments of principal on the FHA Loans or VA
Loans backing such GNMA Certificate and liquidation proceeds in the event of a
foreclosure or other disposition of any such FHA Loan or VA Loan.
GNMA will approve the issuance of each such GNMA Certificate in accordance
with a guarantee agreement (a "Guaranty Agreement") between GNMA and the GNMA
Issuer. Pursuant to its Guaranty Agreement, a GNMA Issuer will be required to
advance its own funds in order to make timely payments of all amounts due on
each such GNMA Certificate, even if the payments received by the GNMA Issuer on
the FHA Loans or VA Loans backing each such GNMA Certificate are less than the
amounts due on each such GNMA Certificate.
No GNMA Issuer will insure or guarantee any Series or the GNMA Certificate
relating to any Series. Each GNMA Issuer will be obligated under Guaranty
Agreements with GNMA to service the pooled FHA Loans and VA Loans in accordance
with FHA and VA requirements and with generally accepted practices in the
mortgage lending industry. Each GNMA Issuer's responsibilities with respect to
the pooled FHA Loans and VA Loans will include collection of all principal and
interest payments and payments made by borrowers toward escrows established for
taxes and insurance premiums; maintenance of necessary hazard insurance
policies; institution of all actions necessary to foreclose on, or take other
appropriate action with respect to, loans in default; and collection of FHA
insurance and VA guarantee benefits.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate
relating to a Series as it becomes due, it must promptly notify GNMA and request
GNMA to make such payment. Upon notification and request, GNMA will make such
payments to the registered holder of such GNMA Certificate. In the event no
payment is made by a GNMA Issuer and the GNMA Issuer fails to notify and request
GNMA to make such payment, the holder of such GNMA Certificate will have
recourse only against GNMA to obtain such payment. The Trustee or its nominee,
as registered holder of the GNMA Certificates relating to a Series, will have
the right to proceed directly against GNMA under the terms of the Guaranty
Agreements relating to such GNMA Certificates for any amounts that are not paid
when due.
Regular monthly installment payments on each GNMA Certificate relating to a
Series will be comprised of interest due as specified on such GNMA Certificate
plus the scheduled principal payments on the FHA Loans or VA Loans underlying
such GNMA Certificate due on the first day of the month in which the scheduled
monthly installment on such GNMA Certificate is due. Such regular monthly
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installments on each such GNMA Certificate are required to be paid to the
Trustee as registered holder by the 15th day of each month in the case of a GNMA
I Certificate and are required to be mailed to the Trustee by the 20th day of
each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate relating to a Series or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
"buydown" mortgage loans for which funds will have been provided (and deposited
into escrow accounts) for application to the payment of a portion of the
borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from non-'buydown" GNMA Certificates and will include amounts
to be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest not so paid will
be added to the principal of such graduated payment mortgage loans and, together
with interest thereon, will be paid in subsequent years. The obligations of GNMA
and the Servicer of a GNMA Certificate will be the same irrespective of whether
the GNMA Certificates securing a Series of Certificates are backed by graduated
payment mortgage loans or "buydown" mortgage loans. No statistics comparable to
the FHA's prepayment experience on level payment, non-'buydown" mortgage loans
are available in respect of graduated payment or "buydown" mortgages. GNMA
Certificates related to a Series of Certificates may be held in book-entry form.
FEDERAL HOME LOAN MORTGAGE CORPORATION. FHLMC is a corporate
instrumentality of the United States created pursuant to Title III of the
Emergency Home Finance Act of 1970, as amended (the "FHLMC Act"). FHLMC's common
stock is owned by the Federal Home Loan Banks and its preferred stock is owned
by the stockholders of such Federal Home Loan Banks. FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced degree
of liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional mortgages. The principal
activity of FHLMC currently consists of the purchase of first lien conventional
residential mortgage loans or participation interests in such mortgage loans and
the resale of the mortgage loans so purchased in the form of mortgage
securities, primarily FHLMC Certificates. FHLMC is confined to purchasing, so
far as practicable, conventional mortgage loans and participation interests
therein which it deems to be of such quality, type and class as to meet
generally the purchase standards imposed by private institutional mortgage
investors.
FHLMC CERTIFICATES. Each FHLMC Certificate represents an undivided interest
in a pool of mortgage loans that may consist of fixed rate, first lien
conventional loans, FHA Loans or VA Loans ("FHLMC Certificate group"). FHLMC
Certificates are sold under the terms of a Mortgage Participation Certificate
Agreement. A FHLMC Certificate may be issued under either FHLMC's Cash Program
or Guarantor Program.
Mortgage loans underlying the FHLMC Certificates relating to a Series will
consist of fixed rate mortgage loans with original terms to maturity of between
ten and 30 years. Each such mortgage loan must meet the applicable standards set
forth in the FHLMC Act. A FHLMC Certificate group may include whole loans,
participation interests in whole loans and undivided interests in whole loans
and/or participations comprising another FHLMC Certificate group. Under the
Guarantor Program, any such FHLMC Certificate group may include only whole loans
or participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
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FHLMC Certificate group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
collection by such holder of all principal on the underlying mortgage loans,
without any offset or deduction, to the extent of such holder's pro rata share
thereof, but does not, except if and to the extent specified in the Prospectus
Supplement for a Series, guarantee the timely payment of scheduled principal.
Pursuant to its guarantees, FHLMC indemnifies holders of FHLMC Certificates
against any diminution in principal by reason of charges for property repairs,
maintenance and foreclosure. FHLMC may remit the amount due on account of its
guarantee of collection of principal at any time after default on an underlying
mortgage loan, but not later than (i) 30 days following foreclosure sale, (ii)
30 days following payment of the claim by any mortgage insurer, or (iii) 30 days
following the expiration of any right of redemption, whichever occurs later, but
in any event no later than one year after demand has been made upon the
mortgagor for accelerated payment of principal. In taking actions regarding the
collection of principal after default on the mortgage loans underlying FHLMC
Certificates, including the timing of demand for acceleration, FHLMC reserves
the right to exercise its judgment with respect to the mortgage loans in the
same manner as for mortgage loans which it has purchased but not sold. The
length of time necessary for FHLMC to determine that a mortgage loan should be
accelerated varies with the particular circumstances of each mortgagor, and
FHLMC has not adopted standards which require that the demand be made within any
specified period.
FHLMC Certificates are not guaranteed by the United States or by any Federal
Home Loan Bank and do not constitute debts or obligations of the United States
or any Federal Home Loan Bank. The obligations of FHLMC under its guarantee are
obligations solely of FHLMC and are not backed by, nor entitled to, the full
faith and credit of the United States. If FHLMC were unable to satisfy such
obligations, distributions to holders of FHLMC Certificates would consist solely
of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial payments of principal, and principal received by FHLMC by virtue of
condemnation, insurance or foreclosure, and repurchases of the mortgage loans by
FHLMC or the sellers of the mortgage loans. FHLMC is required to remit to each
registered FHLMC Certificateholder its pro rata share of principal payments on
the underlying mortgage loans, interest at the FHLMC pass-through rate and any
other sums such as prepayment fees, within 60 days of the date on which such
payments are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, there is no limitation on the amount by which
interest rates on the mortgage loans underlying a FHLMC Certificate may exceed
the pass-through rate on the FHLMC Certificate. Under such program, FHLMC
purchases groups of whole mortgage loans from sellers at specified percentages
of their unpaid principal balances, adjusted for accrued or prepaid interest,
which when applied to the interest rate of the mortgage loans and participations
purchased, results in the yield (expressed as a percentage) required by FHLMC.
The required yield, which includes a minimum servicing fee retained by the
servicer, is calculated using the outstanding principal balance of the mortgage
loans, an assumed term and a prepayment period as determined by FHLMC. No loan
or participation is purchased by FHLMC at greater than 100% of the outstanding
principal balance. The range of interest rates on the mortgage loans and
participations in a FHLMC Certificate group under the Cash Program will vary
since mortgage loans and participations are purchased and assigned to a FHLMC
Certificate group based upon their yield to FHLMC rather than on the interest
rate on the underlying mortgage loans. Under FHLMC's Guarantor Program, the
pass-through rate on a FHLMC Certificate is established based upon the lowest
interest rate on the underlying mortgage loans, minus a minimum servicing fee
and the amount of FHLMC's management and guaranty income as agreed upon between
the seller and FHLMC.
FHLMC Certificates duly presented for registration of transfer on or before
the last business day of a month are registered effective as of the first day of
that month. The first remittance check to a registered
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holder of a FHLMC Certificate will be mailed so as to be received normally by
the 15th day of the second month following the month in which the purchaser
became a registered holder of the FHLMC Certificate. Thereafter checks will be
mailed monthly to the registered holder so as to be received normally by the
15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of interest and principal each month to the
registered holders thereof in accordance with such holders' instructions.
The FHLMC Certificates relating to a Series may have other characteristics
and terms, different from those described above, so long as such FHLMC
Certificates and underlying mortgage loans meet the criteria of the rating
agency or agencies rating the Certificates of such Series. Such FHLMC
Certificates and underlying mortgage loans will be described in the related
Prospectus Supplement.
See "Additional Information" for the availability of further information
respecting FHLMC and FHLMC Certificates.
FEDERAL NATIONAL MORTGAGE ASSOCIATION. FNMA is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, as amended (the "Charter Act"). FNMA was
originally established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately managed corporation by legislation enacted in
1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from lenders, thereby replenishing their funds for additional
lending. It acquires funds to purchase loans from many capital market investors
that may not ordinarily invest in mortgage loans, thereby expanding the total
amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas. In
addition, FNMA issues mortgage-backed securities primarily in exchange for pools
of mortgage loans from lenders.
FNMA CERTIFICATES. FNMA Certificates are either Guaranteed Mortgage
Pass-Through Certificates or Stripped Mortgage Backed Securities. FNMA
Certificates represent fractional undivided interests in a pool of mortgage
loans formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
Mortgage loans underlying FNMA Certificates relating to a Series will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate (and the series pass-through rate payable
with respect to a FNMA Stripped Mortgage Backed Security) is equal to the lowest
interest rate of any mortgage loan in the related pool, less a specified minimum
annual percentage representing servicing compensation and FNMA's guaranty fee.
Under a regular servicing option (pursuant to which the mortgagee or other
servicer assumes the entire risk of foreclosure losses) the annual interest
rates on the mortgage loans underlying a FNMA Certificate will be between 50
basis points and 250 basis points greater than its annual pass-through rate (or
the series pass-through rate payable with respect to a FNMA Stripped Mortgage
Backed Security), and under a special servicing option (pursuant to which FNMA
assumes the entire risk for foreclosure losses), the annual interest rates on
the mortgage loans underlying a FNMA Certificate will generally be between 55
basis points and 255 basis points greater than the annual FNMA Certificate
pass-through rate (or the series pass-through rate, if a FNMA Stripped Mortgage
Backed Security).
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FNMA guarantees to each registered holder of a FNMA Certificate that it will
distribute amounts representing such holder's proportionate share of scheduled
principal and interest payments at the applicable pass-through rate provided for
by such FNMA Certificate on the underlying mortgage loans, whether or not
received. and such holder's proportionate share of the full principal amount of
any foreclosed or other finally liquidated mortgage loan, whether or not such
principal amount is actually recovered. The obligations of FNMA under its
guarantees are obligations solely of FNMA and are not backed by, nor entitled
to, the full faith and credit of the United States. Although the Secretary of
the Treasury of the United States has discretionary authority to lend FNMA up to
$2.25 billion outstanding at any time, neither the United States nor any agency
thereof is obligated to finance FNMA's operations or to assist FNMA in any other
manner. If FNMA were unable to satisfy its obligations, distributions to holders
of FNMA Certificates would consist solely of payments and other recoveries on
the underlying mortgage loans and, accordingly, monthly distributions to holders
of FNMA Certificates would be affected by delinquent payments and defaults on
such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage loans formed on
or after May 1, 1985 (other than FNMA Certificates backed by pools containing
graduated payment mortgage loans or mortgage loans secured by multifamily
projects) are available in book-entry form only. Distributions of principal and
interest on each FNMA Certificate will be made by FNMA on the 25th day of each
month to the persons in whose name the FNMA Certificate is entered in the books
of the Federal Reserve Bank of New York (or registered on the FNMA Certificate
register in the case of fully registered FNMA Certificates) as of the close of
business on the last day of the preceding month. With respect to FNMA
Certificates issued in book-entry form, distributions thereon will be made by
wire, and with respect to fully registered FNMA Certificates, distributions
thereon will be made by check.
The FNMA Certificates relating to a Series may have other characteristics
and terms, different from those described above, so long as such FNMA
Certificates and underlying mortgage loans meet the criteria of the rating
agency or agencies rating the Certificates of such Series. Such FNMA
Certificates and underlying mortgage loans will be described in the related
Prospectus Supplement.
See "Additional Information" for the availability of further information
respecting FNMA and FNMA Certificates.
OTHER AGENCY SECURITIES. If specified in the related Prospectus Supplement,
a Trust Fund may include other mortgage pass-through certificates issued or
guaranteed by GNMA, FNMA or FHLMC. The characteristics of any such mortgage
pass-through certificates will be described in such Prospectus Supplement. If so
specified, a combination of different types of Agency Securities may be held in
a Trust Fund.
SUBSTITUTION OF MORTGAGE ASSETS
Substitution of Mortgage Assets will be permitted in the event of breaches
of representations and warranties with respect to any original Mortgage Asset or
in the event the documentation with respect to any Mortgage Asset is determined
by the Trustee to be incomplete. The period during which such substitution will
be permitted generally will be indicated in the related Prospectus Supplement.
The related Prospectus Supplement will describe any other conditions upon which
Mortgage Assets may be substituted for Mortgage Assets initially included in the
Trust Fund.
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USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used to purchase the Mortgage Assets related to
such Series or to reimburse the amounts previously used to effect such a
purchase, the costs of carrying the Mortgage Assets until the sale of the
Certificates and other expenses connected with pooling the Mortgage Assets and
issuing the Certificates.
THE DEPOSITOR
MorServ, Inc. (the "Company") was incorporated in the State of Delaware on
December 2, 1993 and is a wholly-owned, limited-purpose subsidiary of Chase
Manhattan Mortgage Corporation ("Chase Manhattan Mortgage"). The Company
maintains its principal office at 343 Thornall Street, Edison, New Jersey 08837.
Its telephone number is 908-205-0600.
As described herein under "The Mortgage Pools," "Underwriting Policies," and
"Description of the Certificates--Representations and Warranties," the Company's
only obligations, if any, 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 Company will have no ongoing servicing
obligations or responsibilities with respect to any Mortgage Pool or pool of
Agency Securities. The Company 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. As described under "The Trust Fund--The Mortgage
Pools" and "--The Agency Securities," the Company anticipates that it will
acquire Mortgage Assets 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,
neither the Company, The Chase Manhattan Bank nor Chase Manhattan Mortgage, nor
any of their affiliates, will insure or guarantee the Certificates of any
Series.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Company, either directly
or through affiliates, from Sellers. Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans so acquired by the Company will have
been originated in accordance with the underwriting criteria specified below
under "Underwriting Standards".
UNDERWRITING STANDARDS
Unless otherwise specified in the related Prospectus Supplement, each Seller
will represent and warrant that all Mortgage Loans originated and/or sold by it
to the Company or one of its affiliates will have been underwritten in
accordance with standards consistent with those utilized by mortgage lenders
generally during the period of origination for similar types of loans. As to any
Mortgage Loan insured by the FHA or partially guaranteed by the VA, the Seller
will represent that it has complied with underwriting policies of the FHA or the
VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the mortgaged property as collateral. In general, a prospective borrower
applying for a mortgage loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report
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which summarizes the borrower's credit history with local merchants and lenders
and any record of bankruptcy. In most cases, an employment verification is
obtained from an independent source (typically the borrower's employer), which
verification reports the length of employment with that organization, the
borrower's current salary and whether it is expected that the borrower will
continue such employment in the future. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes, the estimated rental income (if considered applicable
by the appraiser) and the cost of replacing the home.
Once all applicable employment, credit and property information is received,
a determination generally is made as to whether the prospective borrower has
sufficient monthly income available (i) to meet the borrower's monthly
obligations on the proposed mortgage loan (generally determined on the basis of
the monthly payments due in the year of origination) and other expenses related
to the mortgaged property (such as property taxes and hazard insurance) and (ii)
to meet monthly housing expenses and other financial obligations and monthly
living expenses. The underwriting standards applied by Sellers, particularly
with respect to the level of loan documentation and the mortgagor's income and
credit history, may be varied in appropriate cases where factors such as low
Loan-to-Value Ratios or other favorable credit exist.
In the case of a Mortgage Loan secured by a leasehold interest in real
property, the title to which is held by a third party lessor, the Seller will
represent and warrant, among other things, that the remaining term of the lease
and any sublease is at least five years longer than the remaining term on the
Mortgage Note.
Certain of the types of Mortgage Loans that may be included in a Trust Fund
are recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such Mortgage Loans may
provide for escalating or variable payments by the Mortgagor. These types of
Mortgage Loans are underwritten on the basis of a judgment that the Mortgagors
have the ability to make the monthly payments required initially. In some
instances, however, a Mortgagor's income may not be sufficient to permit
continued loan payments as such payments increase. These types of Mortgage Loans
may also be underwritten primarily upon the basis of Loan-to-Value Ratios or
other favorable credit factors.
QUALIFICATIONS OF SELLERS
Unless otherwise specified in the related Prospectus Supplement, each Seller
will be required to satisfy the qualifications set forth herein. Each Seller
must be an institution experienced in originating and servicing mortgage loans
of the type contained in the related Mortgage Pool in accordance with accepted
practices and prudent guidelines, and must maintain satisfactory facilities to
Originate and service those mortgage loans. Each Seller must be a
seller/servicer approved by either FNMA or FHLMC. Each Seller must be a
mortgagee approved by the FHA or an institution the deposit accounts in which
are insured by the Federal Deposit Insurance Corporation. The Resolution Trust
Corporation, acting in its capacity as conservator or receiver of a depository
institution, may be a Seller if so specified in the related Prospectus
Supplement.
REPRESENTATIONS BY SELLERS; REPURCHASES
Each Seller will have made representations and warranties in respect of the
Mortgage Loans sold by such Seller and evidenced by a Series of Certificates.
Such representations and warranties unless otherwise
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provided in the related Prospectus Supplement generally include, among other
things: (i) that title insurance (or in the case of Mortgaged Properties located
in areas where such policies are generally not available, an attorney's
certificate of title) and any required hazard insurance policy and Primary
Mortgage Insurance Policy were effective at the origination of each Mortgage
Loan other than Cooperative Loans, and that each policy (or certificate of title
as applicable) remained in effect on the date of purchase of the Mortgage Loan
from the Seller by or on behalf of the Company; (ii) that the Seller had good
title to each such Mortgage Loan and such Mortgage Loan was subject to no
offsets, defenses, counterclaims or rights of rescission except to the extent
that any buydown agreement described herein may forgive certain indebtedness of
a Mortgagor; (iii) that each Mortgage Loan constituted a valid first lien on, or
a first perfected security interest with respect to, the Mortgaged Property
(subject only to permissible title insurance exceptions, if applicable, and
certain other exceptions described in the Agreement) and that the Mortgaged
Property was free from damage and was in good repair; (iv) that there were no
delinquent tax or assessment liens against the Mortgaged Property; and (v) that
each Mortgage Loan was made in compliance with, and is enforceable under, all
applicable local, state and federal laws and regulations in all material
respects.
Unless otherwise specified in the related Prospectus Supplement, the
representations and warranties of a Seller in respect of a Mortgage Loan will be
made not as of the Cut-off Date but as of the date on which such Seller sold the
Mortgage Loan to the Company or one of its affiliates. Under such circumstances,
a substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Certificates evidencing an interest in such
Mortgage Loan. Since the representations and warranties of a Seller do not
address events that may occur following the sale of a Mortgage Loan by such
Seller, its repurchase obligation described below will not arise if the relevant
event that would otherwise have given rise to such an obligation with respect to
a Mortgage Loan occurs after the date of sale of such Mortgage Loan by such
Seller to the Company or its affiliates. However, the Company will not include
any Mortgage Loan in the Trust Fund for any Series of Certificates if anything
has come to the Company's attention that would cause it to believe that the
representations and warranties of a Seller will not be accurate and complete in
all material respects in respect of such Mortgage Loan as of the date of initial
issuance of the related Series of Certificates. If the Servicer is also a Seller
of Mortgage Loans with respect to a particular Series, such representations will
be in addition to the representations and warranties made by the Servicer in its
capacity as the Servicer.
The Servicer or the Trustee, if the Servicer is the Seller, will promptly
notify the relevant Seller of any breach of any representation or warranty made
by it in respect of a Mortgage Loan that materially and adversely affects the
interests of the Certificateholders in such Mortgage Loan. Unless otherwise
specified in the related Prospectus Supplement, if such Seller cannot cure such
breach within 90 days after notice from the Servicer or the Trustee, as the case
may be, then such Seller will be obligated to repurchase such Mortgage Loan from
the Trust Fund at a price (the "Purchase Price") equal to 100% of the
outstanding principal balance thereof as of the date of the repurchase plus
accrued interest thereon to the first day of the month in which the Purchase
Price is to be distributed at the Mortgage Rate (less any unreimbursed Advances
or amount payable as related servicing compensation if the Seller is the
Servicer with respect to such Mortgage Loan). If a REMIC election is to be made
with respect to a Trust Fund, unless otherwise provided in the related
Prospectus Supplement, the Servicer or a holder of the related residual
certificate will be obligated to pay any prohibited transaction tax that may
arise in connection with any such repurchase. The Servicer, unless otherwise
specified in the related Prospectus Supplement, will be entitled to
reimbursement for any such payment from the assets of the related Trust Fund or
from any holder of the related residual certificate. See "Description of the
Certificates--General" herein and in the related Prospectus Supplement. Except
in those cases in which the Servicer is the Seller, the Servicer will be
required under the applicable Agreement to enforce this obligation for the
benefit of the Trustee and the Certificateholders, following the practices it
would employ in its good faith business judgment were it the owner of such
Mortgage Loan. In those cases where the Servicer is also the Seller, the Trustee
will be required to enforce this obligation for the benefit of the
Certificateholders, following the practices it would
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employ in its good faith business judgment were it the owner of such Mortgage
Loan. This repurchase obligation will constitute the sole remedy available to
Certificateholders or the Trustee for a breach of representation by a Seller.
Neither the Company nor the Servicer (unless the Servicer is the Seller)
will be obligated to purchase a Mortgage Loan if a Seller defaults on its
obligation to do so, and no assurance can be given that Sellers will carry out
their respective repurchase obligations with respect to Mortgage Loans.
The only representations and warranties, if any, to be made for the benefit
of Certificateholders in respect of any Mortgage Loan relating to the period
commencing on the date of sale of such Mortgage Loan (if such sale is prior to
the issuance of the Certificates) to the Company or its affiliate will be
certain limited representations of the Company and of the Servicer described
above under "The Trust Fund--The Mortgage Pools."
Unless otherwise provided in the related Prospectus Supplement, neither the
Company nor the Servicer will be obligated to purchase a Mortgage Loan if the
Seller defaults on its obligation to do so, and no assurance can be given that
sellers will carry out their respective repurchase obligations with respect to
Mortgage Loans. However, to the extent that a breach of the representations and
warranties of a seller may also constitute a breach of a representation made by
the Company, the Company may have a purchase obligation as described above under
"The Trust Fund--The Mortgage Pools."
YIELD CONSIDERATIONS
The Pass-Through Rates and the weighted average Pass-Through Rate or other
applicable rate of the Mortgage Loans and Agency Securities relating to each
Series of Certificates will be set forth in the related Prospectus Supplement.
The weighted average Pass-Through Rate with respect to Mortgage Pools containing
Adjustable Rate Loans and with respect to pools of variable and adjustable rate
Agency Securities may change with any changes in the Adjustable Mortgage Rates
borne by the Adjustable Rate Loans and variable or adjustable pass-through rates
borne by the variable and adjustable rate Mortgage Securities or with
prepayments of the Mortgage Loans or mortgage loans underlying the Mortgage
Securities. The Pass-Through Rate or other applicable rate with respect to all
other Mortgage Loans and Agency Securities may be fixed based upon the lowest
Mortgage Rate for any Mortgage Loan and the lowest pass-through rate for any
Agency Security, respectively, or may change as Mortgage Loans bearing differing
Mortgage Rates and Agency Securities bearing differing pass-through rates,
respectively, prepay, as specified in the related Prospectus Supplement, or may
be otherwise determined based on the parameters set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
monthly accrual of interest on a Mortgage Loan and a mortgage loan underlying an
Agency Security is calculated as one-twelfth of the product of the applicable
Mortgage Rate at the time of such calculation and the principal balance
outstanding on the scheduled payment date for such mortgage loan in the
preceding month. Unless otherwise specified in the related Prospectus
Supplement, the Pass-Through Rate or other applicable rate with respect to each
Mortgage Loan and Agency Security will be calculated similarly on a loan-by-loan
or security-by-security basis, after subtracting the Excess Interest, if any,
and the Servicing Fee and related expenses (including fees with respect to
credit enhancement) applicable to each Mortgage Loan or Agency Security from the
applicable Mortgage Rate or pass-through rate or such Excess Interest, Servicing
Fee, related expenses or other fees may be deducted from the distributions on
the Distribution Dates.
Unless otherwise specified in the related Prospectus Supplement, when a
Mortgage Loan is prepaid between regular payment dates, the Mortgagor may be
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. In addition, unless otherwise specified in the related
Prospectus Supplement, prepayments are not passed through until the month
following receipt. The effect of these provisions is to reduce the aggregate
amount of interest which would be otherwise passed through to
Certificateholders. To mitigate this reduction in yield, an Agreement, as
specified in the related
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Prospectus Supplement, may provide that with respect to any principal prepayment
received in advance of the scheduled payment date of the related Mortgage Loan,
the Servicer or other party specified will pay to the Certificateholders or the
Senior Certificateholders of a Series, such amount, if any, as may be necessary
to assure that the distributions made to such Certificateholders on the
following Distribution Date include an amount equal to a full month's interest
with respect to the prepaid Mortgage Loan at the relevant Pass-Through Rate. The
Servicer's obligations, if any, to pay such amounts may be limited in amount, as
described in the related Prospectus Supplement, and may be limited to
corresponding amounts received from any Sub-servicers. See "Description of the
Certificates--Advances in Connection with Prepaid Mortgage Loans."
If a Class of Certificates of a Series is divided into two or more
Sub-classes, the Prospectus Supplement for such Series will indicate that a
lower rate of principal prepayments than anticipated would negatively affect the
total return to investors of any Class or such Sub-class of Certificates that is
offered at a discount to its principal amount, and a higher rate of principal
prepayments than anticipated would negatively affect the total return to
investors of any such Class or Sub-class of Certificates that is offered at a
premium to its principal amount or without any principal amount.
If a Series of Certificates contains Classes or Sub-classes of Certificates
assigned a Stated Balance and specified interest rate, and entitled to receive
distributions of principal or interest or both, in a specified order other than
as a specified percentage of each distribution of principal or interest or both,
the Prospectus Supplement will set forth information, measured relative to a
prepayment standard or model specified in such Prospectus Supplement, with
respect to the projected weighted average life of each such Class or Sub-class
and the percentage of the original Stated Balance of each such Class or
Sub-class that would be outstanding on specified Distribution Dates for such
Series based on the assumptions stated in such Prospectus Supplement, including
assumptions that prepayments on the Mortgage Loans or on the mortgage loans
underlying the Agency Securities in the related Trust Fund are made at rates
corresponding to the various percentages of such prepayment standard or model.
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MATURITY AND PREPAYMENT CONSIDERATIONS
MATURITY
Unless otherwise described in an applicable Prospectus Supplement, all of
the Mortgage Loans and mortgage loans underlying the Agency Securities will have
maturities at origination of not more than 30 years.
PREPAYMENT CONSIDERATIONS
Mortgage Loans and mortgage loans underlying the Agency Securities generally
may be prepaid in full or in part without penalty. FHA Mortgage Loans and VA
Mortgage Loans may be prepaid at any time without penalty. The Company
anticipates that a significant number of the Mortgage Loans and mortgage loans
underlying the Agency Securities will be paid in full prior to maturity. A
number of factors, including homeowner mobility, national and local economic
conditions, age of the mortgages, interest and annual percentage rates and the
availability of mortgage funds may affect the prepayment experience of a
particular pool of Mortgage Loans and mortgage loans underlying the Agency
Securities.
The Servicer with respect to a Mortgage Pool, to the extent it has knowledge
of any conveyance or prospective conveyance by any Mortgagor of any property
securing a Mortgage Loan, will exercise the right to accelerate the maturity of
such Mortgage Loan under any "due-on-sale" clause applicable to such loan to the
extent, under the circumstances, and in the manner the Servicer enforces such
clauses with respect to other loans held in its own portfolio or in the manner
specified in the Prospectus Supplement. The Servicer, however, will not exercise
any such right if prohibited by law from doing so or if the exercise of such
rights would impair or threaten to impair any recovery under any applicable
insurance policy; If the Servicer determines not to enforce such "due-on-sale"
clause, the Servicer will enter into an assumption and modification agreement
from or with the person to whom such property has been conveyed or is proposed
to be conveyed, pursuant to which such person becomes liable under the Mortgage
Loan and, to the extent permitted by applicable state law and deemed appropriate
in the Servicer's reasonable judgment, the Mortgagor remains liable thereon. FHA
Mortgage Loans and VA Mortgage Loans are not permitted to contain "due-on-sale"
clauses, and so are freely assumable. The rate of prepayments of FHA Mortgage
Loans and VA Mortgage Loans therefore may be lower than Conventional Mortgage
Loans bearing interest at comparable rates. See "Description of the
Certificates--Enforcement of Due-on-Sale Clause; Realization Upon Defaulted
Mortgage Loans."
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of varying
maturities that will remain outstanding on each anniversary of the original date
of such mortgage loans (assuming they all have the same origination date) ("FHA
Experience").
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the interest rates at the time of origination, the Mortgage
Loans and mortgage loans underlying the Agency Securities are likely to be
subject to higher prepayment rates than if prevailing interest rates remain at
or above the interest rates at the time the Mortgage Loans and mortgage loans
underlying the Agency Securities were originated. However, there can be no
assurance that any Mortgage Pool or pool of mortgage loans underlying the Agency
Securities will conform to past prepayment experience or any published
prepayment forecast.
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It is customary in the mortgage industry in quoting yields (a) on a pool of
30-year fixed-rate, level payment mortgages, to compute the yield as if the pool
were a single loan that is amortized according to a 30-year schedule and is then
prepaid in full at the end of the 12th year and (b) on a pool of 15-year fixed-
rate, level payment mortgages, to compute the yield as if the pool were a single
loan that is amortized according to a 15-year schedule and then is prepaid in
full at the end of the seventh year.
Prepayments on mortgage loans are also commonly measured relative to a
prepayment standard or model. If so specified in the Prospectus Supplement
relating to a Series of Certificates, the model used in a Prospectus Supplement
will be the Prepayment Model (the "Prepayment Model"). The Prepayment Model
represents an assumed rate of prepayment relative to the then outstanding
principal balance of a pool of mortgages. A prepayment assumption of 100% of
Prepayment Model assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgages in the first month of the life
of the mortgages and an additional 0.2% per annum in each month thereafter until
the thirtieth month, and in each month thereafter during the life of the
mortgages, 100% of Prepayment Model assumes a constant prepayment rate of 6% per
annum each month.
Information regarding FHA Experience, other published information, the
Prepayment Model or any other rate of assumed prepayment, as applicable, will be
set forth in the Prospectus Supplement with respect to a Series of Certificates.
See "Description of the Certificates--Optional Termination" for a
description of the Company's or the Servicer's option to repurchase the Mortgage
Assets comprising part of a Trust Fund when the aggregate outstanding principal
balance of such Mortgage Assets is less than a specified percentage of the
initial aggregate outstanding principal balance of such Mortgage Assets as of
the related Cut-off Date. See also "The Trust Fund--The Mortgage Pools" for a
description of the obligations of the Company, the Servicer or another party, as
specified in the related Prospectus Supplement, to repurchase a Mortgage Loan in
case of a breach of a representation or warranty relative to such Mortgage Loan.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Agreement") among the Company, as Seller, the Servicer
named in the related Prospectus Supplement with respect to a Series of
Certificates evidencing interests in Mortgage Loans, the REMIC Servicer, if any,
named in the related Prospectus Supplement with respect to a Series of
Certificates evidencing interests in Agency Securities and the Trustee named in
the related Prospectus Supplement, a copy of the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
Prospectus Supplement for each Series will describe any provisions of the
particular Agreement relating to such Series which differ materially from the
form of the Agreement filed as an exhibit to the Registration Statement.
Each Series of Certificates will have been rated in the rating category by
the rating agency or agencies specified in the related Prospectus Supplement.
The following summaries describe certain provisions common to each Series of
Certificates. The 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 relating to the Series of Certificates. When particular provisions or
terms used in the Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference.
GENERAL
The Certificates of each Series will be issued in fully registered form only
and will represent the interests specified in the related Prospectus Supplement
in a separate Trust Fund created pursuant to the related Agreement. The Trust
Fund will be held by the Trustee for the benefit of the Certificateholders. Each
Trust Fund, to the extent specified in the related Prospectus Supplement, will
consist of (i) the
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Mortgage Loans, Agency Securities or participation or pass-through interests in
Mortgage Loans which are subject to the Agreement from time to time, (ii) the
amounts held in the Certificate Account from time to time, (iii) with respect to
a Series of Certificates evidencing interests in Mortgage Loans, (a) property
which secures a Mortgage Loan and which is acquired by foreclosure or deed in
lieu of foreclosure, (b) the Mortgage Pool Insurance Policy, if any, (c) the
Special Hazard Insurance Policy, if any, (d) the Mortgagor Bankruptcy Insurance,
if any, (e) any Primary Mortgage Insurance Policies, FHA insurance and VA
guarantees, (f) the Buy-Down Fund and GPM Fund, if any, and (g) if specified in
the related Prospectus Supplement, the Reserve Fund, if any, (iv) any letter of
credit, guarantee surety bond, insurance policy or other credit enhancement
securing payment of all or part of a Series of Certificates ("Alternate Credit
Enhancement") and (v) such other property as may be specified in the related
Prospectus Supplement. The Certificates will be freely transferable and
exchangeable at the corporate trust office of the Trustee at the address set
forth in the related Prospectus Supplement. No service charge will be made for
any registration of exchange or transfer of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge.
Ownership of each Mortgage Pool or pool of Agency Securities may be
evidenced by one or more Classes of Certificates, each representing the interest
in the Mortgage Pool or pool of Agency Securities specified in the related
Prospectus Supplement. One or more Classes of Certificates evidencing interests
in Mortgage Loans may be Subordinated Certificates, evidencing the right of the
holders thereof to receive any or a portion of distributions of principal or
interest, or both, on the Mortgage Loans subordinate to the rights of the
holders of other Classes of Certificates ("Senior Certificates") as provided in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Subordinated Certificates will not be offered hereby.
If a Series of Certificates contains more than one Class of Subordinated
Certificates, losses will be allocated among such Classes in the manner
described in the Prospectus Supplement.
A Series of Certificates may consist of Variable Rate Certificates, which
may evidence interests in Mortgage Loans bearing interest at differing Mortgage
Rates or rates which change periodically or in Agency Securities having
differing pass-through rates or having pass-through rates which change
periodically, all as set forth in the related Prospectus Supplement. A Series of
Certificates may consist of Classes of Certificates evidencing the right to
receive distributions of principal or interest or both in the order specified in
the related Prospectus Supplement. A Class of Certificates of a Series may be
divided into two or more Sub-classes. The related Prospectus Supplement will
specify whether a Class has been so divided and the terms of each Sub-class. The
holders of each Sub-class of a Class of Certificates will be entitled to the
percentages of principal or interest payments or both on the related Mortgage
Loans or Agency Securities as are specified in the related Prospectus
Supplement. The related Prospectus Supplement will specify the minimum
denomination or initial principal amount of Mortgage Loans evidenced by a single
Certificate of each Class of Certificates of a Series (a "Single Certificate").
Distributions of principal and interest on the Certificates will be made on
the payment dates set forth in the related Prospectus Supplement (each, a
"Distribution Date") to the persons in whose names the Certificates are
registered at the close of business on the related record date specified in the
related Prospectus Supplement (the "Record Date"). Distributions will be made by
check mailed to the address of the person entitled thereto as it appears on the
Certificate Register, or, to the extent described in the related Agreement, by
wire transfer, 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.
CERTIFICATES EVIDENCING INTERESTS IN MORTGAGE LOANS
ASSIGNMENT OF MORTGAGE LOANS. With respect to any Series of Certificates,
the Company will cause the Mortgage Loans constituting the Mortgage Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Mortgage Loans after the Cut-off Date specified in the related
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Prospectus Supplement. The Trustee 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, with respect to each
Mortgage Loan: the original principal amount and the adjusted principal balance
as of the close of business on the Cut-off Date; the Mortgage Rate; the current
scheduled monthly level payment of principal and interest; the maturity of the
Mortgage Note; if the Mortgage Loan is an Adjustable Rate Loan, the initial
Adjustable Mortgage Rate, the maximum permitted Adjustable Mortgage Rate, if
any, the then-current Adjustable Mortgage Rate, and the original and current
index, if any; and if the Mortgage Loan is a Buy-Down Loan or a GPM Loan, the
terms thereof.
In addition, the Company will, as to each Mortgage Loan, deliver or cause to
be delivered to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the Mortgage Note endorsed without recourse in blank
or to the order of the Trustee or Custodian, the original Mortgage with evidence
of recording indicated thereon (except for any Mortgage not returned from the
public recording office, in which case a copy of such Mortgage will be
delivered, together with a certificate of the seller of the Mortgage Loan that
the original of such Mortgage was delivered to such recording office) and an
assignment of the Mortgage in recordable form (but not recorded).
The Trustee, or, if so specified in the related Prospectus Supplement, the
Custodian, will review and hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise provided in the related Prospectus
Supplement, if any such document is found to be defective in any material
respect and the seller, as the case may be, does not cure such defect within 60
days, or within such other period specified in the related Prospectus
Supplement, the seller or other specified party will, not later than 90 days or
within such other period specified in the related Prospectus Supplement, after
notice from the Company or the Servicer of the defect, repurchase the related
Mortgage Loan or any property acquired in respect thereof from the Trustee at a
price equal to the remaining unpaid principal balance of such Mortgage Loan (or,
in the case of a foreclosed Mortgage Loan, the unpaid principal of such Mortgage
Loan immediately prior to foreclosure), plus accrued but unpaid interest to the
date of the next scheduled payment on such Mortgage Loan at the related
Pass-Through Rate, less any unreimbursed Advances made by the seller or other
specified party respecting such Mortgage Loan. Unless otherwise provided in the
related Prospectus Supplement, the repurchase obligation constitutes the sole
remedy available to the Certificateholders or the Trustee for a material defect
in a Mortgage Loan document.
If so specified in the related Prospectus Supplement, the Company will, at
the time of delivery of the Certificates, cause assignments to the Trustee of
the Mortgage Loans constituting a Mortgage Pool to be recorded in the
appropriate public office for real property records, except in states where, in
the opinion of counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interest in the Mortgage Loan against the claim of any
subsequent transferee or any successor to or creditor of the Company, the seller
or the originator of such Mortgage Loan. Unless otherwise specified in the
related Prospectus Supplement, the Company will cause such assignments to be so
recorded within the time after delivery of the Certificates as is specified in
the related Prospectus Supplement, in which event, the Agreement may, as
specified in the related Prospectus Supplement, require the Servicer to
repurchase from the Trustee any Mortgage Loan required to be recorded but not
recorded within such time, at the price described above with respect to
repurchase by reason of defective documentation. Unless otherwise provided in
the related Prospectus Supplement, the repurchase obligation would constitute
the sole remedy available to the Certificateholders or the Trustee for the
failure of a Mortgage Loan to be recorded.
SERVICING. Pursuant to the Agreement, the Servicer will service and
administer the Mortgage Loans assigned to the Trustee as more fully set forth
below. The Servicer may be an affiliate of the Company.
The Servicer and each Sub-servicer, if any, subject to general supervision
by the Servicer, will be required to perform diligently all services and duties
specified in each Agreement, in the same manner as
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prudent mortgage lending institutions of mortgages of the same type as the
Mortgage Loans in those jurisdictions where the related Mortgaged Properties are
located. The Servicer will be responsible for monitoring the performance of each
Sub-servicer, if any, and will have the right to remove a Sub-servicer at any
time if it considers such removal to be in the best interest of the related
Certificateholders. The duties to be performed by the Servicer, directly or
through a Sub-servicer, will include collection and remittance of principal and
interest payments, administration of mortgage escrow accounts, collection of
insurance claims and, if necessary, foreclosure. If a Sub-servicer is terminated
by the Servicer, the servicing function of the Sub-servicer will be either
transferred to a substitute Sub-servicer or performed by the Servicer. The
Servicer will be entitled to retain the portion of the Servicing Fee paid to the
Sub-servicer under a terminated Servicing Agreement if the Servicer elects to
perform such servicing functions itself.
The Servicer will be paid a Servicing Fee for the performance of its
services and duties under each Agreement as specified in the related Prospectus
Supplement. Each Sub-servicer, if any, will be entitled to receive a portion of
the Servicing Fee. In addition, the Servicer or Sub-servicer may be entitled to
retain late charges, assumption fees and similar charges to the extent collected
from Mortgagors. The Company expects that such fees and charges will not be
significant in amount.
PAYMENTS ON MORTGAGE LOANS. A Certificate Account will be an account,
which, unless otherwise specified in the related Prospectus Supplement, will be
non-interest bearing, established by the Servicer as to each Series of
Certificates in the name of the Trustee (i) with a depository institution, the
long-term unsecured debt obligations of which at the time of any deposit therein
are rated within the two highest rating categories or such other rating category
as will not adversely affect the ratings assigned to the Certificates by each
rating agency rating the Certificates of such Series, (ii) in an account or
accounts the deposits in which are fully insured by the Federal Deposit
Insurance Corporation (the "FDIC"), (iii) in an account or accounts the deposits
in which are insured by the FDIC (to the limits established by the FDIC), the
uninsured deposits in which are otherwise secured such that, as evidenced by an
opinion of counsel, the Certificateholders have a claim with respect to the
funds in the Certificate Account or a perfected first priority security interest
against any collateral securing such funds that is superior to the claims of any
other depositors or general creditors of the depository institution with which
the Certificate Account is maintained or (iv) otherwise acceptable to each
rating agency rating the Certificates without reduction or withdrawal of the
rating assigned to the Certificates. The collateral eligible to secure amounts
in the Certificate Account is limited to United States government securities and
other high-quality investments ("Eligible Investments"). If so specified in the
related Prospectus Supplement, a Certificate Account may be maintained as an
interest bearing account, or the funds held therein may be invested pending each
succeeding Distribution Date in Eligible Investments. If so provided in the
related Prospectus Supplement, the Servicer or its designee will be entitled to
receive any such interest or other income earned on funds in the Certificate
Account as additional compensation. Unless otherwise specified in the related
Prospectus Supplement, the Servicer will deposit in the Certificate Account on a
daily basis the following payments and collections received or made by it
subsequent to the Cut-off Date (including scheduled payments of principal and
interest due after the Cut-off Date but received by the Servicer on or before
the Cut-off Date):
(i) all Mortgagor payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all Mortgagor payments on account of interest on the Mortgage
Loans, adjusted to the Pass-Through Rate, together with moneys transferred
from the Buy-Down Account or GPM Account, if any;
(iii) all amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans or property acquired in respect
thereof by foreclosure or otherwise ("Liquidation Proceeds") (to the extent
specified in the related Prospectus Supplement, exclusive of the portion
thereof attributable to the Excess Interest, if any, in respect of the
related Mortgage Loans);
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(iv) all proceeds received under any title, hazard or other insurance
policy covering any Mortgage Loan, other than proceeds to be applied to the
restoration or repair of the Mortgaged Property or released to the
Mortgagor;
(v) all condemnation awards or settlements which are not released to the
Mortgagor in accordance with normal servicing procedures;
(vi) any Advances made as described under "Advances" and certain other
amounts required under the Agreement to be deposited in the Certificate
Account;
(vii) all proceeds of any Mortgage Loan or property acquired in respect
thereof repurchased by the Servicer, the Company or otherwise as described
above or under "Termination" below; and
(viii) all amounts, if any, required to be transferred to the
Certificate Account from a Reserve Fund pursuant to the Agreement.
In those cases where a Sub-servicer is servicing a Mortgage Loan, the
Sub-servicer will establish and maintain an account ("Sub-servicing Account")
that will comply with the standards set forth above, and which is otherwise
acceptable to the Servicer. The Sub-servicer is required to deposit into the
Sub-servicing Account on a daily basis all amounts enumerated in the preceding
paragraph in respect of the Mortgage Loans received by the Sub-servicer, less
its servicing compensation. On the date specified in the related Prospectus
Supplement, the Sub-servicer shall remit to the Servicer all funds held in the
Sub-servicing Account with respect to each Mortgage Loan. The Sub-servicer may,
to the extent described in the related Prospectus Supplement, be required to
advance any monthly installment of principal and interest that was not received,
less its servicing fee, by the date specified in the related Prospectus
Supplement.
Except as otherwise provided in the related Prospectus Supplement with
respect to each Buy-Down Loan, the Servicer will deposit the amounts in a
custodial account (which may be interest-bearing) complying with the
requirements set forth above for the Certificate Account (the "Buy-Down
Account"). The amount of such deposit, together with investment earnings thereon
at the rate specified in the related Prospectus Supplement, will provide funds
sufficient to support the payments on such Buy-Down Loan on a level debt service
basis. The Servicer will not be obligated to add to the Buy-Down Account should
investment earnings prove insufficient to maintain the scheduled level of
payments on the Buy-Down Loans, in which event, distributions to the
Certificateholders may be affected.
With respect to each GPM Loan, the Servicer will, if and to the extent
provided in the related Prospectus Supplement, deposit in a custodial account
(which may be interest-bearing) complying with the requirements set forth above
for the Certificate Account an amount which, together with investment earnings
thereon at the rate set forth in the related Prospectus Supplement, will provide
funds sufficient to support the payments thereon on a level debt service basis
(the "GPM Account"). The Servicer will not be obligated to supplement the GPM
Account should investment earnings thereon prove insufficient to maintain the
scheduled level of payments, in which event, distributions to the
Certificateholders may be affected.
DISTRIBUTIONS ON CERTIFICATES. Except as otherwise provided in the related
Prospectus Supplement, on each Distribution Date, the Servicer will withdraw
from the applicable Certificate Account and distribute to the Certificateholders
of each Class (other than a Series having a Class of Subordinated Certificates,
as described below), either the specified interest of such Class in the Mortgage
Pool times the aggregate of all amounts on deposit in the Certificate Account as
of the 16th day of the month of the Distribution Date or such other date as may
be specified in the related Prospectus Supplement (the "Determination Date"),
or, in the case of a Series of Certificates comprised of Classes which have been
assigned a Stated Balance and Interest Rate, payments of interest and payments
in reduction of the Stated Balance from all amounts on deposit in the
Certificate Account on the Determination Date, in the priority and calculated in
the manner set forth in the related Prospectus Supplement, except, in each case:
(i) all payments on the Mortgage Loans that were due on or before the Cut-off
Date; (ii) all Principal Prepayments, Liquidation Proceeds
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and Insurance Proceeds received after the period specified in the related
Prospectus Supplement (the "Principal Prepayment Period"); (iii) all scheduled
payments of principal and interest due on a date or dates subsequent to the
Determination Date; (iv) amounts representing reimbursement for Advances, such
reimbursement being limited, if so specified in the related Prospectus
Supplement, to amounts received on particular Mortgage Loans as Late Collections
of principal or interest as to which the Servicer has made an unreimbursed
Advance; (v) amounts representing reimbursement for any unpaid Servicing Fee and
expenses from Liquidation Proceeds, condemnation proceeds and proceeds of
insurance policies with respect to the related Mortgage Loans; (vi) all income
from Eligible Investments held in the Certificate Account for the benefit of the
Servicer; and (vii) any Advances deposited in the Certificate Account prior to
the applicable Distribution Date.
The amounts on deposit in the Certificate Account on a Determination Date,
less the amounts specified in (i) through (vii) above, with respect to a Series
of Certificates having a Class of Subordinated Certificates, are referred to
herein as the "Available Distribution Amount."
Unless otherwise specified in the related Prospectus Supplement, with
respect to a Series of Certificates having a Class of Subordinated Certificates,
on each Distribution Date, the Servicer will withdraw from the applicable
Certificate Account and distribute to the holders of Senior Certificates, in the
aggregate, the lesser of (i) the applicable Senior Distribution Amount plus the
applicable Outstanding Senior Shortfall (each defined below), or (ii) the
percentage interest of the Classes of Senior Certificates times the Available
Distribution Amount plus (a) the percentage interest of the Classes of
Subordinated Certificates times the Available Distribution Amount, not to exceed
the Available Subordination Amount, as defined in the related Prospectus
Supplement, (b) Advances, if any, made by the Servicer, and (c) transfers from
the Reserve Fund, if any. If so specified in the related Prospectus Supplement,
Senior Certificateholders may alternatively be entitled to receive all or some
portion of the amounts otherwise distributable to Subordinated
Certificateholders under circumstances and for the period of time specified in
such Prospectus Supplement, which will have the effect of accelerating the
amortization of the Senior Certificates and thereby increasing over time the
interest evidenced by the Subordinated Certificates in the related Trust Fund.
The distribution made to the Certificateholders of each Class or Sub-class of
Senior Certificates shall be calculated as described in the related Prospectus
Supplement and may vary as to the allocation of principal or interest or both.
Unless otherwise specified in the related Prospectus Supplement, the Senior
Distribution Amount is an amount equal to the percentage interest of the Classes
of Senior Certificates of:
(i) all regularly scheduled payments of principal of and interest on the
Mortgage Loans due during the related Due Period, whether or not received,
with the interest portions thereof adjusted to the Pass-Through Rate;
(ii) all Principal Prepayments made by the Mortgagor during the related
Principal Prepayment Period (together with interest thereon at the
Pass-Through Rate to the date of prepayment, unless, as specified in the
related Prospectus Supplement, the Servicer is obligated to adjust its
Servicing Fee to the extent necessary to distribute a full month's interest,
as described below);
(iii) with respect to each Mortgage Loan not described in (iv) below,
all insurance proceeds, all condemnation awards and any other cash proceeds
from a source other than the Mortgagor, to the extent required to be
deposited in the Certificate Account, which were received during the related
Principal Prepayment Period, net of related unreimbursed Advances and net of
any portion thereof which, as to any Mortgage Loan, constitutes Late
Collections;
(iv) with respect to each Mortgage Loan as to which a receipt of such
Liquidation Proceeds or Insurance Proceeds has been received during the
related Principal Prepayment Period or other event of termination of the
Mortgage Loan as a result of payments of insurance or condemnation proceeds
has occurred during the related Principal Prepayment Period, an amount equal
to the principal
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amount of the Mortgage Loan outstanding immediately prior to the date of
receipt of such Liquidation Proceeds or Insurance Proceeds or such other
event of termination, reduced by the principal portion of any unpaid
payments due on or before such date to the extent previously advanced
against or otherwise received by the Certificateholder, plus interest
thereon from the most recent Due Date to the date of receipt at the
Pass-Through Rate;
(v) all amounts required to be distributed on the Distribution Date from
any account maintained with respect to a Mortgaged Property acquired by
foreclosure or deed in lieu of foreclosure;
(vi) with respect to each Mortgaged Property acquired by foreclosure or
deed in lieu of foreclosure, as to which a disposition occurred during the
related Principal Prepayment Period, an amount generally equal to the
excess, if any, of (a) the principal amount of the Mortgage Loan outstanding
on the date of acquisition of the Mortgaged Property reduced by the
principal portion of any unpaid payments due on or before such date, plus
(b) interest thereon at the Pass-Through Rate from the last Due Date prior
to the date of such acquisition through the date of the disposition, over
(c) all amounts previously distributed to the Certificateholders in
connection with such Mortgaged Property; and
(vii) with respect to each Mortgage Loan repurchased by the Servicer,
Company or a seller for which the repurchase price was not distributed
previously, an amount equal to the principal amount of the Mortgage Loan
outstanding on the date of such repurchase reduced by the principal portion
of any unpaid payments due on or before such date (but only to the extent
advanced against or otherwise received by the Certificateholders), plus
interest thereon from the most recent Due Date to the date of repurchase at
the Pass-Through Rate.
The Outstanding Senior Shortfall for any Sub-class of Senior Certificates means
as of any date, to the extent not previously paid, the aggregate of the amounts
by which the Senior Distribution Amount for such Sub-class for any Distribution
Date exceeded the amount actually paid on such Distribution Date plus interest
at the Pass-Through Rate.
Unless otherwise specified in the related Prospectus Supplement, on each
Distribution Date, the Servicer shall distribute to the Classes of Subordinated
Certificateholders, in the order set forth in the related Prospectus Supplement,
the balance of the Available Distribution Amount, if any, after the payment to
the Senior Certificateholders and the making of the required deposit to the
Reserve Fund, if any, as described above.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or Sub-classes of which have been assigned
a Stated Balance, distributions in reduction of the Stated Balance of such
Certificates will be made on each Distribution Date to the Certificateholders of
the Class or Sub-class then entitled to receive such distributions until the
aggregate amount of such distributions have reduced the Stated Balance of the
Certificates of such Class or Sub-class to zero. Allocation of distributions in
reduction of Stated Balance will be made to each Class or Sub-class of such
Certificates in the order specified in the related Prospectus Supplement, which,
if so specified in such Prospectus Supplement, may be concurrently. Unless
otherwise specified in the related Prospectus Supplement, distributions in
reduction of the Stated Balance of each Certificate of a Class or Sub-class then
entitled to receive such distributions will be made pro rata among the
Certificates of such Class or Sub-class.
Unless otherwise specified in the related Prospectus Supplement, the maximum
amount which will be distributed in reduction of the Stated Balance to holders
of Certificates of a Class or sub-class then entitled thereto on any
Distribution Date will equal, to the extent funds are available, the sum of (i)
the amount of interest, if any, that has accrued but is not yet payable on the
Compound Interest Certificates of such Series, if any, from the prior
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of first Distribution Date) (the "Accrual Remittance
Amount"); (ii) the Certificate
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Remittance Amount; and (iii) the applicable percentage of the Excess Cash Flow,
if any, specified in such Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificate Remittance Amount with respect to a Distribution Date will equal the
amount, if any, by which the then outstanding Stated Balance of the Certificates
of the related Classes or Sub-classes of such Series (before taking into account
the amount of interest accrued on any Class or Sub-class of Compound Interest
Certificates of such Series to be added to the Stated Balance thereof on such
Distribution Date) exceeds the Asset Value, as defined in the related Prospectus
Supplement, of the Mortgage Loans as of the end of the applicable Due Period
specified in the related Prospectus Supplement. For purposes of determining the
Certificate Remittance Amount with respect to a Distribution Date, the Asset
Value of the Mortgage Loans will be reduced to take into account the interest
evidenced by such Classes or Sub-classes of Certificates in the principal
distributions on or with respect to such Mortgage Loans received by the Trustee
during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or Sub-classes of which have been assigned
a Stated Balance, Excess Cash Flow represents the excess of (i) the interest
evidenced by such Classes or Sub-classes of Certificates in the distributions
received on the Mortgage Loans underlying such Series in the Due Period
preceding a Distribution Date for such Series (and, in the case of the first Due
Period, the amount deposited in the Certificate Account on the closing date for
the sale of such Certificates), together with any available income from the
reinvestment thereof, and, to the extent specified in such Prospectus
Supplement, the amount of cash withdrawn from any Reserve, GPM or Buy-Down Fund
for such Series in the Due Period preceding such Distribution Date, over (ii)
the sum of all interest accrued, whether or not then payable, on the
Certificates of such Classes or Sub-classes since the preceding Distribution
Date (or since the date specified in the related Prospectus Supplement in the
case of the first Distribution Date), the Certificate Remittance Amount for the
then current Distribution Date and, if applicable, any payments made on any
Certificates of such Class or Sub-class pursuant to any special distributions in
reduction of Stated Balance during such Due Period.
Unless otherwise provided in the related Prospectus Supplement, within the
time specified in the Agreement and described in the related Prospectus
Supplement, the Servicer will furnish a statement to the Trustee setting forth
the amount to be distributed on the related Distribution Date on account of
principal and interest, stated separately, and a statement setting forth certain
information with respect to the Mortgage Loans.
Unless otherwise provided in the related Prospectus Supplement, if there are
not sufficient funds in the Certificate Account to make the full distribution to
Certificateholders described above on any Distribution Date, the Servicer will
distribute the funds available for distribution to the Certificateholders of
each Class in accordance with the respective interests therein, except that
Subordinated Certificateholders, if any, will not, subject to the limitations
described in the related Prospectus Supplement, receive any distributions (other
than their share of distributions in respect of any Mortgage Loan or any
property acquired in respect thereof repurchased by the Servicer by reason of
defective documentation or the Servicer's breach of warranty) until Senior
Certificateholders receive the Senior Distribution Amount plus the Outstanding
Senior Shortfall. The difference between the amount which the Certificateholders
would have received if there had been sufficient eligible funds in the
Certificate Account and the amount actually distributed will be added to the
amount which the Certificateholders are entitled to receive on the next
Distribution Date.
SPECIAL DISTRIBUTIONS. To the extent specified in the Prospectus Supplement
relating to a Series of Certificates, one or more Classes or Sub-classes of
which have been assigned a Stated Balance and having less frequent than monthly
Distribution Dates, such Classes or Sub-classes may receive Special
Distributions in reduction of Stated Balance ("Special Distributions") in any
month, other than a month in which a
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Distribution Date occurs, if, as a result of principal prepayments on the
Mortgage Loans in the related Mortgage Pool or low reinvestment yields, the
Trustee determines, based on assumptions specified in the related Agreement,
that the amount of cash anticipated to be on deposit in the Certificate Account
on the next Distribution Date for such Series and available to be distributed to
the holders of the Certificates of such Classes or Sub-classes may be less than
the sum of (i) the interest scheduled to be distributed to holders of the
Certificates of such Classes or Sub-classes and (ii) the amount to be
distributed in reduction of Stated Balance of such Certificates on such
Distribution Date. Any such Special Distributions will be made in the same
priority and manner as distributions in reduction of Stated Balance would be
made on the next Distribution Date.
SUBORDINATED CERTIFICATES; RESERVE FUND. The rights of the Subordinated
Certificateholders to receive any or a specified portion of distributions with
respect to the Mortgage Loans will be subordinated to the rights of Senior
Certificateholders to the extent of the amount specified in the related
Prospectus Supplement. If a Series of Certificates contains more than one Class
of Subordinated Certificates, distributions and losses will be allocated among
such Classes in the manner specified in the related Prospectus Supplement. The
rights of the Subordinated Certificateholders, to the extent not subordinated,
may be on a parity with those of Senior Certificateholders. The Available
Subordination Amount for each Class of Subordinated Certificates of a Series
will be dependent upon certain Mortgage Pool characteristics and other factors
and will be set forth in the related Prospectus Supplement. Alternatively, if so
specified in the related Prospectus Supplement, Senior Certificateholders may be
entitled to receive all or some portion of the amounts otherwise allocable to
Subordinated Certificateholders under circumstances and for the period of time
specified in the Prospectus Supplement, which will have the effect of
accelerating the amortization of the Senior Certificates and thereby increasing
over time the interest evidenced by the Subordinated Certificates in the related
Trust Fund. This Subordination is intended to enhance the likelihood of regular
receipt by Senior Certificateholders of the full amount of scheduled monthly
payments of principal and interest due to them and to protect the Senior
Certificateholders against losses. See "Description of the
Certificates--Distributions on Certificates."
The protection afforded to the Senior Certificateholders by the preferential
right of the Senior Certificateholders to receive current distributions from the
Mortgage Pool up to the Available Subordination Amount may be enhanced to the
extent specified in the related Prospectus Supplement by the establishment of a
fund to make payments on the Certificates to the extent funds are not otherwise
available (the "Reserve Fund"), which is funded by retention of a portion of
such amounts otherwise payable to the Subordinated Certificateholders. The
Reserve Fund may also be funded, to the extent specified in the related
Prospectus Supplement, by one or more of an initial cash deposit or the
provision of a letter of credit, guarantee, insurance policy or other form of
credit enhancement or any combination thereof and of the foregoing retained
amounts. Unless otherwise specified in the related Prospectus Supplement, the
Reserve Fund will be part of the Trust Fund. The Reserve Fund may be invested in
Eligible Investments for the benefit of the Subordinated Certificateholders.
ADVANCES. To the extent provided in the related Prospectus Supplement, the
Servicer may be obligated to make periodic Advances of cash from its own funds,
funds advanced by Sub-servicers or from excess funds in the Certificate Account
not then required to be distributed to Certificateholders, for distribution to
the Certificateholders in an amount equal to the difference between the amount
due to them and the amount in the Certificate Account eligible for distribution
to them pursuant to the Agreement, but only to the extent such difference is due
to delinquent payments of principal and interest for the preceding Due Period
and only to the extent the Servicer determines such advances are recoverable
from future payments and collections on the Mortgage Loans or otherwise. The
Servicer's obligation to make Advances, if any, may, as specified in the related
Prospectus Supplement, be limited in amount or may be limited to advances
received from Sub-servicers. If so specified in the related Prospectus
Supplement, the Servicer will not be obligated to make Advances until all or a
specified portion of the Reserve Fund is depleted. Advances are intended to
maintain a regular flow of scheduled interest and
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principal payments to the Certificateholders, not to guarantee or insure against
losses. Accordingly, any funds so advanced are recoverable by the Servicer out
of amounts received on particular Mortgage Loans which represent late recoveries
of principal or interest respecting which any such Advance was made and may be
recoverable, if so specified in the related Prospectus Supplement, from the
Mortgage Pool generally.
ADVANCES IN CONNECTION WITH PREPAID MORTGAGE LOANS. With respect to each
Mortgage Pool, when a Mortgagor makes a Principal Prepayment between scheduled
payment dates, the Mortgagor may be required to pay interest on the principal
balance only to the date of prepayment. If and to the extent provided in the
related Prospectus Supplement, in order that one or more Classes of the
Certificateholders of a Series will not be affected adversely by any resulting
shortfall in interest, the amount of the Servicing Fee may be reduced, or the
Servicer may be obligated otherwise to advance moneys from its own funds or any
reserve maintained for such purpose, to the extent necessary to include an
amount equal to a full month's interest payment at the Pass-Through Rate with
respect to such prepaid Mortgage Loan. Any such Principal Prepayment, together
with a full month's interest thereon at the Pass-Through Rate, will be paid to
such Certificateholders on the applicable Distribution Date. Partial Principal
Prepayments may be treated as having been received on the next Due Date and, if
so, no reduction in interest payable to such Certificateholders will occur
unless such partial Principal Prepayment on the Distribution Date was received
by the Servicer after the 20th day of a month and the Servicer elects to
distribute such partial Principal Prepayment in the second month following
receipt. In such event, each Agreement may, to the extent described in the
related Prospectus Supplement, provide that an advance will be made as described
above to the extent necessary to assure that distribution to such
Certificateholders on the Distribution Date includes interest through the end of
the month preceding the month of distribution. See "Yield Considerations."
EXAMPLE OF DISTRIBUTIONS. The following is an example of the flow of funds
as it would relate to a hypothetical series of Certificates with a Cut-off Date
occurring in January (all days are assumed to be Business Days):
<TABLE>
<S> <C> <C>
January 1................................. (1) Cut-off Date.
January 2-31.............................. (2) Sub-servicers, if any, or Servicer
receive(s) any Principal Prepayments and
interest thereon.
January 30................................ (3) Record Date.
February 15............................... (4) Sub-servicers, if any, remit to the
Servicer scheduled payments of principal
and interest due on February 1 and
received by them.
February 16............................... (5) Determination Date. Distribution amount
determined.
February 25............................... (6) Distribution Date.
Succeeding months follow the pattern of (2) through (6). The flow of funds with respect to any
Series of Certificates may differ from the above example, as specified in the related Prospectus
Supplement.
</TABLE>
- ------------------------
(1) The initial principal balance of the Mortgage Pool will be the aggregate
principal balance of the Mortgage Loans at the close of business on January
1, after deducting principal payments due on or before such date, which,
together with corresponding interest payments, are not part of the Mortgage
Pool and will not be passed through to Certificateholders.
(2) Principal Prepayments may be received at any time during this period and
will be deposited in the Certificate Account as described in (4) below for
distribution to Certificateholders. When a Mortgage Loan is prepaid in full,
interest on the amount prepaid is collected from the Mortgagor only to the
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date of payment; provided that, if so specified in the related Prospectus
Supplement, the Servicer may be required to advance an amount necessary to
provide for a full month's interest. See "Advances in Connection with
Prepaid Mortgage Loans," above.
(3) Distributions on February 25 will be made to Certificateholders of record at
the close of business on the last Business Day of the month immediately
preceding the month of distribution.
(4) Payments due on February 1 from Mortgagors will be deposited by the
Sub-servicers in Sub-servicing Accounts, or, if no Sub-servicers, by the
Servicer in the Certificate Account, as received and will include the
scheduled principal payments plus interest on the January balances (with the
exception of interest from the date of prepayment of any Mortgage Loan
prepaid in full during January). Funds required to be remitted from the
Sub-servicing Accounts to the Certificate Account will be so remitted prior
to February 16 (except that Principal Prepayments in full received by
Sub-servicers during the month of January will have been remitted to the
Certificate Account within five business days of receipt).
(5) On February 16, the Servicer will determine the amounts of principal and
interest which will be passed through on February 25, which will include
those payments due February 1 which have been received from Sub-servicers
prior to February 16, as well as all Principal Prepayments received on
Mortgage Loans in January (with interest adjusted to the applicable
Pass-Through Rate). In addition, the Servicer may advance funds to cover any
delinquencies, in which event the distribution to Certificateholders on
February 25 will include the full amounts of principal and interest
(adjusted to the applicable Pass-Through Rate and decreased by the effect of
Principal Prepayments in full during January) due on February 1. The
Servicer will also calculate any changes in the relative interests evidenced
by the Senior Certificates and the Subordinated Certificates in the Trust
Fund.
(6) On February 25, the amounts determined on February 16 will be distributed to
Certificateholders. If a payment due February 1 is received from a
Sub-servicer or, if none, by the Servicer, after February 15 and an advance
of the Servicer's funds has been made, the Servicer will reimburse itself,
to the extent permitted by the Agreement, by withdrawing the amount of such
payment from the Certificate Account. If no advance has been made, such late
payment will be passed through to Certificateholders at the time of the next
distribution following receipt of such late payment.
------------------------
COLLECTION PROCEDURES. The Servicer, directly or through Sub-servicers,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans and, consistent with the Agreement and any Mortgage Pool
Insurance Policy, any Primary Insurance Policy, FHA insurance, VA guaranty and
Mortgagor Bankruptcy Bond, will follow such collection procedures as it follows
with respect to mortgage loans serviced by it that are comparable to the
Mortgage Loans.
Unless otherwise specified in the related Prospectus Supplement, under the
Agreement the Servicer, either directly or through Sub-servicers, to the extent
permitted by law, will establish and maintain an escrow account (the "Escrow
Account") in which mortgagors will be required to deposit amounts sufficient to
pay taxes, assessments, mortgage and hazard insurance premiums and other
comparable items. Withdrawals from the Escrow Account maintained for mortgagors
may be made to effect timely payment of taxes, assessments, mortgage and hazard
insurance, to refund to mortgagors amounts determined to be overages, to pay
interest to mortgagors on balances in the Escrow Account to the extent required
by law, to repair or otherwise protect the mortgaged property and to clear and
terminate such account. The Servicer will be responsible for the administration
of the Escrow Account and will be obligated to make advances to such account
when a deficiency exists therein.
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES. Standard
Hazard Insurance. Except as otherwise specified in the related Prospectus
Supplement, the Servicer and each Sub-servicer, as applicable, will cause to be
maintained for the Mortgage Loans comprising the Mortgage Pool for each
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Series of Certificates, and on property acquired upon foreclosure, or deed in
lieu of foreclosure, or use its best reasonable efforts to cause each
Sub-servicer of a Mortgage Loan to maintain, a Standard Hazard Insurance Policy
as described under "Description of Insurance--Hazard Insurance on the Mortgage
Loans--Standard Hazard Insurance Policies."
OTHER INSURANCE. The Servicer will, if and to the extent required by the
related Agreement and as described in the related Prospectus Supplement, be
required to maintain and keep a Special Hazard Insurance Policy, a Mortgage Pool
Insurance Policy, a Primary Mortgage Loan Insurance Policy or Mortgagor
Bankruptcy Insurance or a combination thereof. See "Description of Insurance."
In addition, to the extent specified in the related Prospectus Supplement, all
or a portion of the Mortgage Loans comprising a Mortgage Pool may be insured by
the FHA or guaranteed by the VA. The Servicer and any Sub-servicers will take
such steps as are reasonably necessary to keep such insurance and guarantees in
full force and effect. See "Description of Insurance--FHA Insurance and VA
Guarantees."
ALTERNATE CREDIT ENHANCEMENT. To the extent provided in the related
Prospectus Supplement, the Company, the Servicer or other party, from time to
time, may be required to obtain or cause to be obtained an insurance policy,
guarantee, letter of credit or surety bond (or make deposits in lieu thereof) to
enhance the credit rating of the related Series of Certificates. The type and
amount, which may be limited, of such alternate credit enhancement will be
described in the related Prospectus Supplement.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE
LOANS. The Agreement will provide that, when any Mortgaged Property securing a
Conventional Mortgage Loan is about to be conveyed by the Mortgagor, unless
otherwise specified in the related Prospectus Supplement, the Servicer will, to
the extent it has knowledge of such prospective conveyance and prior to the time
of the consummation of such conveyance, exercise its rights to accelerate the
maturity of such Mortgage Loan under the applicable "due-on-sale" clause, if
any, unless it is not exercisable under applicable law or if such exercise would
result in loss of coverage under any Primary Insurance Policy. In such case, and
in the case of FHA Mortgage Loans and VA Mortgage Loans, the Servicer is
authorized to take or enter into an assumption agreement from or with the person
to whom such Mortgaged Property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Mortgage Note and, unless determined
to be materially adverse to the interests of Certificateholders and the
Mortgagor with the prior approval of the Pool Insurer, to enter into a
substitution of liability agreement with such person, pursuant to which the
original Mortgagor is released from liability and such person is substituted as
Mortgagor and becomes liable under the Mortgage Note. Where authorized by the
Mortgage, the Mortgage Rate may, upon assumption, be increased to the
then-prevailing market rate, but shall not be decreased.
Under the Agreement, the Servicer will foreclose upon or otherwise
comparably convert the ownership of properties securing such of the related
Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion, the Servicer will follow
such practices and procedures as it shall deem necessary or advisable and as
shall be normal and usual in its general mortgage servicing activities. However,
the Servicer will not be required to expend its own funds in connection with any
foreclosure or towards the restoration of any property unless it determines (i)
that such restoration or foreclosure will increase the proceeds of liquidation
of the related Mortgage Loan to the Certificateholders after reimbursement to
itself for such expenses and (ii) that such expenses will be recoverable to it
either through Liquidation Proceeds or through Insurance Proceeds. If a REMIC
election is made with respect to a Series of Certificates, the Servicer shall be
required to dispose of any Mortgaged Property acquired in foreclosure within one
year of acquisition, or such longer period as indicated in an opinion of counsel
would not cause the Trust Fund to fail to be treated as a REMIC.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES. Except as otherwise
provided in the related Prospectus Supplement, the Servicer will be entitled to
a servicing fee in an amount equal to the difference between the Mortgage Rate
and the related Pass-Through Rate (less any sub-servicing compensation,
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Excess Interest or fee for credit enhancement, if any). As compensation for its
servicing duties, a Sub-servicer will be entitled to the servicing fee (which
will be a part of the "Servicing Fee," as that term is used herein) described in
the related Prospectus Supplement. The Servicing Fee may be fixed or variable,
as specified in the related Prospectus Supplement. In addition, as described in
the related Prospectus Supplement, the Servicer or a Sub-servicer may be
entitled to servicing compensation in the form of assumption fees, late payment
charges or otherwise, which shall be retained by the Servicer or a Sub-servicer
to the extent not required to be deposited in the Certificate Account.
Unless otherwise provided in the related Prospectus Supplement, the Servicer
will pay from its servicing compensation certain expenses incurred in connection
with the servicing of the Mortgage Loans, including, without limitation, payment
of the fees and expenses of the Trustee, payment of insurance policy premiums
and payment of expenses incurred in enforcing the obligations of Sub-servicers.
Certain of these expenses may be reimbursable pursuant to the terms of the
Agreement from Liquidation Proceeds and Insurance Proceeds, and, in the case of
enforcement of the obligations of Sub-servicers, from any recoveries in excess
of amounts due with respect to the related Mortgage Loans or from specific
recoveries of costs.
Unless otherwise provided in the related Prospectus Supplement, the Servicer
will be entitled to reimbursement for certain expenses incurred by it in
connection with the liquidation of defaulted Mortgage Loans. The related Trust
Fund will suffer no loss by reason of such expenses to the extent claims are
paid under the related Insurance Policies. If claims are either not made or paid
under such Insurance Policies or if coverage thereunder has ceased, the related
Trust Fund will suffer a loss to the extent that the proceeds of the liquidation
proceedings, after reimbursement of the Servicer's expenses, are less than the
principal balance of the related Mortgage Loan. In addition, the Servicer will
be entitled to reimbursement of expenditures incurred by it in connection with
the restoration of Mortgaged Property, such right of reimbursement being prior
to the rights of the Certificateholders to receive any related Insurance
Proceeds or Liquidation Proceeds.
EVIDENCE AS TO COMPLIANCE. Unless otherwise provided in the related
Prospectus Supplement, the Servicer will, with respect to each Series of
Certificates relating to Mortgage Loans, deliver to the Trustee each year an
Officer's Certificate stating that (i) a review of the activities of the
Servicer and the Sub-servicers during the preceding calendar year and of
performance under the Agreement has been made under the supervision of such
officer, and (ii) the Servicer has fulfilled all its obligations under the
Agreement throughout such year, and, to the best of such officer's knowledge,
based on such review, each Sub-servicer has fulfilled its obligations throughout
such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof. Such Officer's Certificate shall be accompanied by a
statement of a firm of independent public accountants to the effect that, on the
basis of an examination of certain documents and records relating to servicing
of the Mortgage Loans, conducted in accordance with generally accepted
accounting principles in the mortgage banking industry, the Servicer's duties
and duties of the Sub-servicers have been conducted in compliance with the
provisions of the Agreement, except for (i) such exceptions as such firm
believes to be immaterial and (ii) such other exceptions as are set forth in
such statement. Copies of the annual Officer's Certificate and accountants'
statement may be obtained without charge upon written request to the Servicer.
CERTAIN MATTERS REGARDING THE SERVICER. The Servicer under each Agreement
will be specified in the related Prospectus Supplement. The Servicer may be an
affiliate of the Company, and may have other business relationships with the
Company and its affiliates.
The Servicer may not resign from its obligations and duties under an
Agreement except with the consent of all Certificateholders or upon a
determination that its duties thereunder are no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Servicer's obligations and duties under such
Agreement.
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Each Agreement will also provide that neither the Servicer, nor any
director, officer, employee or agent of the Servicer, will be under any
liability to the Trust Fund or the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any liability which would
otherwise be imposed by reason of the failure to perform its obligations in
strict compliance with the standards of care set forth in the Agreement. The
Servicer may, in its discretion, undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Servicer will be entitled to be reimbursed therefor out of the
Certificate Account.
CERTIFICATES EVIDENCING INTERESTS IN AGENCY SECURITIES
GENERAL. The Company will cause the Agency Securities to be registered in
the name of the Trustee or its nominee, and the Trustee concurrently will
authenticate and deliver the Certificates. Each Mortgage Security will be
identified in a schedule appearing as an exhibit to the Agreement (the "Agency
Securities Schedule"), which will specify as to each Agency Security the
original principal amount and outstanding principal balance as of the Cut-off
Date; the annual pass-through rate and the maturity date.
Unless otherwise specified in the related Prospectus Supplement or in the
Agreement, the Company will represent and warrant to the Trustee, among other
things, the information contained in the Agency Securities Schedule and that
immediately prior to the transfer of the Agency Securities to the Trustee, the
Company had good title to, and was the sole owner of, each Agency Security and
there had been no other sale or assignment thereof.
PAYMENTS ON THE AGENCY SECURITIES. A Certificate Account meeting the
requirements set forth under "Description of the Certificates--Certificates
Evidencing Interests in Mortgage Loans--Payments on Mortgage Loans" will be
established in the name of the Trustee. The Trustee will deposit in the
Certificate Account as received all payments on the Agency Securities received
in respect of periods after the Cut-off Date.
DISTRIBUTIONS ON CERTIFICATES. Except as otherwise provided in the related
Prospectus Supplement, on each Distribution Date, the Trustee will withdraw from
the applicable Certificate Account and distribute to the Certificateholders of
each Class either the specified interest of such Class in the distributions on
the pool of Agency Securities times the aggregate of all amounts representing
principal or interest or both, on deposit in the Certificate Account as of the
Distribution Date or any other date set forth in the related Prospectus
Supplement (the "Determination Date"), less the Servicing Fee and certain other
amounts specified in the related agreement, or, in the case of a Series of
Certificates comprised of Classes which have been assigned a Stated Balance and
Interest Rate, payments of interest and payments in reduction of the Stated
Balance in the priority and amounts and calculated in the manner set forth in
the related Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or Sub-classes of which have been assigned
a Stated Balance, distributions in reduction of the Stated Balance of such
Certificates will be made on each Distribution Date for such Series to the
Certificates of the holders of the Class or Sub-class then entitled to receive
such Certificate distributions until the aggregate amount of such distributions
have reduced the Stated Balance of such Certificate to zero. Allocation of
distributions in reduction of Stated Balance will be made to each Class or
Sub-class of such Certificates in the order specified in the related Prospectus
Supplement, which, if so specified in such Prospectus Supplement, may be
concurrently. Unless otherwise specified in the related Prospectus Supplement,
distributions in reduction of the Stated Balance of each Certificate of a Class
or Sub-class
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then entitled to receive such distributions will be made pro rata among the
Certificates of such Class or Sub-class.
Unless otherwise specified in the related Prospectus Supplement, the maximum
amount which will be distributed in reduction of Stated Balance to holders of
Certificates of a Class or Sub-class then entitled thereto on any Distribution
Date will equal, to the extent funds are available, the sum of (i) the amount of
the interest, if any, that has accrued but is not yet payable on the Compound
Interest Certificates of such Series from the prior Distribution Date (or since
the date specified in the related Prospectus Supplement in the case of the first
Distribution Date) (the "Accrual Remittance Amount"); (ii) the Certificate
Remittance Amount; and (iii) to the extent specified in the related Prospectus
Supplement, the applicable percentage of the Excess Cash Flow specified in such
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificate Remittance Amount with respect to a Distribution Date will equal the
amount, if any, by which the then outstanding Stated Balance of the Certificates
of the related Classes or Sub-classes of such Series (before taking into account
the amount of interest accrued on any Class or Sub-class of Compound Interest
Certificates of such Series to be added to the Stated Balance thereof on such
Distribution Date) exceeds the Asset Value, as defined in the related Prospectus
Supplement of the Agency Securities relating to such Securities as of the end of
the related Due Period specified in the related Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or Sub-classes of which have been assigned
a Stated Balance, Excess Cash Flow represents the excess of (i) the interest
evidenced by such Classes or Sub-classes of Certificates in the distributions
received on the Agency Securities relating to such Series in the Due Period
preceding a Distribution Date for such Series (and, in the case of the first Due
Period, the amount deposited in the Certificate Account on the closing date for
the sale of such Certificates), together with income from the reinvestment
thereof, over (ii) the sum of all interest accrued, whether or not then payable,
on the Certificates of such Classes or Sub-classes since the preceding
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of the first Distribution Date), the Certificate
Remittance amount for the then current Distribution Date and, if applicable, any
payments made on any Certificates of such Class or Sub-class pursuant to any
special distributions in reduction of Stated Balance during such Due Period.
The Stated Balance of a Certificate of a Series at any time represents the
maximum specified dollar amount (exclusive of interest at the related Interest
Rate) to which the holder thereof is entitled from the cash flow on the Agency
Securities for such Series, and will decline to the extent distributions in
reduction of Stated Balance are received by such holder. The Original Stated
Balance of each Class or Sub-class within a Series that has been assigned a
Stated Balance will be specified in the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS. To the extent specified in the Prospectus Supplement
relating to a Series of Certificates, one or more Classes or Sub-classes of
which have been assigned a Stated Balance and having other than monthly
Distribution Dates, such Classes or Sub-classes may receive Special
Distributions in reduction of Stated Balance ("Special Distributions") in any
month, other than a month in which a Distribution Date occurs, if, as a result
of principal prepayments on the mortgage loans underlying the Agency Securities
or low reinvestment yields, the Trustee determines, based on assumptions
specified in the related Agreement, that the amount of cash anticipated to be on
deposit in the Certificate Account on the next Distribution Date for such Series
and available to be distributed to the holders of the Certificates of such
Classes or Sub-classes may be less than the sum of (i) the interest scheduled to
be distributed to the holders of the Certificates of such Classes or Sub-classes
and (ii) the amount to be distributed in reduction of Principal Balance of such
Certificates on such Distribution Date. Any such Special Distributions will be
made in the same priority and manner as distributions in reduction of Principal
Balance would be made on the next Distribution Date.
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MISCELLANEOUS
SUBSTITUTION OF MORTGAGE LOANS AND AGENCY SECURITIES. Unless otherwise
specified in the related Prospectus Supplement, if the Company is required to
repurchase a Mortgage Loan or Agency Security, the Company, rather than
repurchase the Mortgage Loan or Agency Security as described above, may remove
such Mortgage Loan or Agency Security from the Trust Fund and substitute in its
place another Mortgage Loan or Agency Security, subject to the limitations
described in such Prospectus Supplement. The repurchase or substitution
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for any such breach.
REPORTS TO CERTIFICATEHOLDERS. The Servicer or the Trustee, as applicable,
will forward to each Certificateholder on each Distribution Date, or as soon
thereafter as is practicable, as specified in the related Prospectus Supplement,
a statement setting forth, among other things:
(i) the amount of such distribution allocable to principal on the
Mortgage Loans or Agency Securities;
(ii) the amount of such distribution allocable to interest on the
Mortgage Loans or Agency Securities;
(iii) if the distribution to the Certificateholders is less than the
full amount that would be distributable to such Certificateholders if there
were sufficient eligible funds in the Certificate Account, the percentage
difference between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Certificate Account and the amounts actually distributed;
(iv) the aggregate amount of Advances, if any, by the Servicer included
in the amounts actually distributed to the Certificateholders;
(v) if the Certificateholder is a Senior Certificateholder, the amount
of such distribution otherwise distributable to the Subordinated
Certificateholders included in amounts actually distributed to the Senior
Certificateholders and the amount of withdrawal from any Reserve Fund, if
any, included in amounts actually distributed to such Class or Sub-class of
Certificateholders;
(vi) in the case of Certificates evidencing interests in Mortgage Loans,
the approximate weighted average Pass-Through Rate of the Mortgage Loans
during the Due Period immediately preceding such Distribution Date.
In addition, to the extent applicable, such report shall include:
(i) in the case of Certificates evidencing interests in Mortgage Loans,
the amount of servicing advances, if any, paid by the Servicer and any
Sub-servicer during such period;
(ii) in the case of Certificates evidencing interests in Mortgage Loans,
the number and aggregate principal balances of Mortgage Loans delinquent (a)
one month and (b) two or more months, as of the close of business on the
last business day of the calendar month next preceding the Distribution
Date;
(iii) in the case of Certificates evidencing interests in Mortgage
Loans, the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure as of the close of business on the
last business day of the calendar month next preceding the Distribution
Date;
(iv) in the case of Certificates evidencing interests in Mortgage Loans,
the amount of coverage under any Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy and Mortgagor Bankruptcy Insurance as of the close
of business on the applicable Distribution Date;
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(v) in the case of Certificates subject to Alternate Credit Enhancement
described in a Prospectus Supplement, the amount of coverage of such credit
enhancement as of the close of business on the applicable Distribution Date;
(vi) the Available Subordination Amount, if any, determined as of the
related Determination Date;
(vii) the balance of the Reserve Fund, if any, on such Distribution
Date, after giving effect to distributions made on such date;
(viii) in the case of Certificates which are assigned a Stated Balance,
the Stated Balance of each such Class of Certificates and a Single
Certificate of the holder's Class after giving effect to the distribution in
reduction of Stated Balance made on such Distribution Date and, unless
otherwise specified in the related Prospectus Supplement, after giving
effect to all Special Distributions since the preceding Distribution Date or
since the Closing Date in the case of the first Distribution Date;
(ix) in the case of Certificates which are assigned a Stated Balance,
the amount of the interest distribution being made with respect to a Single
Certificate; and
(x) with respect to a Compound Interest Certificate (but only if the
holder thereof shall not have received on such Distribution Date a
distribution of interest equal to the entire amount of interest accrued on
such Certificate during the related Due Period with respect to such
Distribution Date),
(a) the interest accrued on such Class of Compound Interest
Certificates and on a Single Certificate of such Class during the Due
Period (or specified interest accrual period) with respect to such
Distribution Date and added to the Stated Balance of such Compound
Interest Certificates; and
(b) the Stated Balance of such Class of Compound Interest
Certificates and of a Single Certificate of such Class after giving
effect to the addition thereto of all interest accrued thereon during the
Due Period (or specified interest accrual period) with respect to such
Distribution Date.
Except as otherwise provided in the related Prospectus Supplement, in
addition, not more than 45 days after the end of each calendar year, the
Servicer or the Trustee will furnish a report to each Certificateholder of
record at any time during such calendar year (a) such information as is required
by the Code and (b) with respect to Mortgage Loans, a listing of the principal
balances of the Mortgage Loans outstanding at the end of such calendar year.
Information in the monthly and annual reports provided to the Certificateholders
will not have been examined and reported upon by an independent public
accountant except as otherwise provided in the related Prospectus Supplement.
However, with respect to Mortgage Loans, the Servicer will provide to the
Trustee annually a report by independent public accountants with respect to the
servicing of the Mortgage Loans. See "Evidence as to Compliance" below.
EVENTS OF DEFAULT WITH RESPECT TO MORTGAGE LOANS. Unless otherwise
specified in the related Prospectus Supplement, Events of Default under each
Agreement relating to Mortgage Loans will consist of (i) any failure by the
Servicer to distribute to the Certificateholders any required payment which
continues unremedied for 5 days (or such other period specified in the related
Prospectus Supplement) after the giving of written notice; (ii) any failure by
the Servicer or the REMIC Servicer, duly to observe or perform in any material
respect any other of its covenants or agreements in the Agreement or any breach
of any representation and warranty made by the Servicer (other than a breach of
its insurability representation) that materially and adversely affects the
interests of Certificateholders, which, in either case, continues unremedied for
60 days (or such other period specified in the related Prospectus Supplement)
after the giving of written notice of such failure or breach; and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer. Notice as used herein
shall mean notice to the Servicer by the Trustee or the Company, or to the
Company, the Servicer, if
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any, and the Trustee by the holders of Certificates representing interests
aggregating not less than 25% of the Trust Fund.
RIGHTS UPON EVENT OF DEFAULT WITH RESPECT TO MORTGAGE LOANS. So long as an
Event of Default remains unremedied, the Trustee may, and at the written
direction of the Certificateholders of each Series evidencing interests
aggregating not less than a stated percentage of the Trust Fund, shall,
terminate all of the rights and obligations of the Servicer or REMIC Servicer,
as the case may be, under the related Agreement, whereupon (subject to
applicable law regarding the Trustee's ability to make advances) the Trustee or
a successor Servicer or REMIC Servicer under the Agreement will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Agreement
and will be entitled to similar compensation arrangements. Unless otherwise
provided in the related Prospectus Supplement, in the event that the Trustee
would be obligated to succeed the Servicer or REMIC Servicer but is unwilling or
unable so to act, it may appoint, or petition to a court of competent
jurisdiction for the appointment of a Servicer or a REMIC servicer. Pending such
appointment, the Trustee is obligated to act in such capacity. Unless otherwise
provided in the related Prospectus Supplement, 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 or REMIC Servicer under the
Agreement.
AMENDMENT. Unless otherwise specified in the related Prospectus Supplement,
the Agreement may be amended by the Company, the Servicer, if any, the REMIC
Servicer, if any, and the Trustee without the consent of the Certificateholders,
(i) to cure any ambiguity, (ii) to correct or supplement any provision therein
that may be inconsistent with any other provision therein, (iii) to make any
other provision with respect to matters or questions arising under such
Agreement that are not inconsistent with the provisions thereof or to comply
with any requirements imposed by the Code, or (iv) if a REMIC election has been
made with respect to a Series of Certificates, to maintain the REMIC status of
the Trust Fund and to avoid the imposition of certain taxes on the REMIC,
provided that such action will not adversely affect in any material respect the
interests of the Certificateholders of the related Series. Unless otherwise
specified in the related Prospectus Supplement, the Agreement may also be
amended by the Company, the Servicer, if any, the REMIC Servicer, if any, and
the Trustee with the consent of the Certificateholders evidencing interests
aggregating not less than 66% of each Class of Certificates affected thereby 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 the Certificateholders; provided, however, that no such amendment that
reduces in any manner the amount of, or delays the timing of, any payment
received on or with respect to Mortgage Loans or Agency Securities which are
required to be distributed on any Certificate may be effective without the
consent of the holders of each such Certificate.
TERMINATION. The obligations created by each Agreement will terminate upon
the date calculated as specified in the Agreement, generally (i) the later of
the final payment or other liquidation of the last Mortgage Loan or Agency
Security subject thereto and the disposition of all property acquired upon
foreclosure of any Mortgage Loan and (ii) the payment to the Certificateholders
of all amounts held by the Servicer or the Trustee and required to be paid to it
pursuant to the Agreement. In addition, unless otherwise specified in the
related Prospectus Supplement, the Company may at its option with respect to any
Series of Certificates, repurchase all Certificates, Agency Securities or
Mortgage Loans remaining outstanding at such time as the aggregate unpaid
principal balance of such Mortgage Loans or Agency Securities is less than the
percentage of the aggregate unpaid principal balance of the Mortgage Loans or
Mortgage Securities on the Cut-off Date specified with respect to such Series in
the related Prospectus Supplement. In the case of a Trust Fund for which an
election to be treated as a REMIC is made, a termination may be effected by the
making of such optional repurchases only if the Trustee has received an opinion
of counsel that the termination of the Trust Fund will constitute a "qualified
liquidation" within the meaning of section 860F (a) (4) of the Code and the
repurchases of the Agency Securities will not constitute "prohibited
transactions" within the meaning of section 860F(a) (2) of the Code. In no event
shall the trust created by an Agreement for a Series of Certificates continue
beyond the expiration of 21
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years from the death of the survivor of the persons named in the Agreement.
Unless otherwise provided in the related Prospectus Supplement, the repurchase
price will equal the principal amount of such Mortgage Loans or Agency
Securities plus accrued interest from the first day of the month of repurchase
to the first day of the next succeeding month at the Pass-Through Rates borne by
such Mortgage Loans or Agency Securities or at the weighted average of such
Pass-Through Rates.
THE TRUSTEE. The Prospectus Supplement for a Series of Certificates will
specify the Trustee under the related Agreement. The Trustee may have normal
banking relationships with the Company or its affiliates, the Servicer or its
affiliates and an originator or seller or its affiliates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. The Trustee may also be removed
at any time, with respect to any Class of Certificates, by the holders of
Certificates evidencing interests aggregating over 50% of the interests of such
Class in the related Trust Fund as specified in the Agreement. Any resignation
or removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
DESCRIPTION OF INSURANCE
As specified in the related Prospectus Supplement, the Certificates, the
Mortgage Loans comprising the Mortgage Pool, or all or any part of the Trust
Fund with respect to a Series of Certificates may be subject to the insurance
policies or Alternate Credit Enhancement described below. Any material changes
from such description in the insurance policies or Alternate Credit Enhancement
with respect to a Series will be described in the related Prospectus Supplement.
MORTGAGE INSURANCE ON THE MORTGAGE LOANS
Mortgage Loans relating to a Series of Certificates will, to the extent
described in the related Prospectus Supplement, be covered by primary mortgage
insurance policies ("Primary Mortgage Insurance Policies"), FHA insurance, VA
guarantees or one or more mortgage pool insurance policies (the "Mortgage Pool
Insurance Policy") or any combination thereof (together, the "Mortgage Insurance
Policies").
Unless otherwise provided in the related Prospectus Supplement, all
Conventional Mortgage Loans with initial Mortgage Loan-to-Value Ratios of
greater than 80% will be covered by Primary Mortgage Insurance Policies
providing coverage on at least the amount of each such Mortgage Loan in excess
of 75% of the original Appraised Value (defined below) of the Mortgaged Property
and remaining in force until the principal balance of such Mortgage Loan is
reduced to 80% of such original Appraised Value (defined below). Certain other
Mortgage Loans may also be covered by Primary Mortgage Insurance Policies.
Certain Primary Mortgage Insurance Policies may, to the extent required by the
related Prospectus Supplement, and subject to their provisions and certain
conditions and exclusions described below, provide full coverage against any
loss sustained by reason of nonpayments by the mortgagors (a "Full Coverage
Insurance Policy").
The initial Mortgage Loan-to-Value Ratio of any Mortgage Loan represents the
ratio of the principal amount of the Mortgage Loan outstanding at the
origination of such loan divided by the lesser of the sales price (in the case
of a purchase money mortgage) or the value of the Mortgaged Property, as shown
in the appraisal prepared in connection with origination of the Mortgage Loan
(the "Appraised Value").
The FHA Mortgage Loans will be insured by the FHA as authorized under the
Housing Act and the United States Housing Act of 1937, as amended. Such Mortgage
Loans will be insured under various FHA programs including the standard FHA
203-b program to finance the acquisition of one- to four-family housing units
and the FHA 245 graduated payment mortgage program. FHA Mortgage Loans generally
require a minimum down payment of approximately 5% of the original principal
amount of the Mortgage
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Loan. No FHA Mortgage Loan relating to a Series may have an interest rate or
original principal amount exceeding the applicable FHA limits at the time of
origination of such Mortgage Loan.
The VA Mortgage Loans will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended. The Servicemen's Readjustment
Act of 1944, as amended, permits a veteran (or in certain instances the spouse
of a veteran) to obtain a mortgage loan guarantee by the VA covering mortgage
financing of the purchase of a one- to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guarantee of mortgage loans of
up to 30 years' duration. However, no such VA Mortgage Loan will have an
original principal amount greater than five times the partial VA guarantee for
such Mortgage Loan.
The Mortgage Pool Insurance Policy or Policies for a Series will be designed
to provide coverage for all Conventional Mortgage Loans which are not covered by
Full Coverage Insurance Policies. However, neither the Primary Mortgage
Insurance Policies nor the Mortgage Pool Insurance Policies will insure against
certain losses sustained in the event of a personal bankruptcy of the mortgagor
under a Mortgage Loan. See "Certain Legal Aspects of Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders." Such
losses may be covered to the extent provided by the Mortgagor Bankruptcy
Insurance, if any, described below for such Series.
The Mortgage Insurance Policies will not provide coverage against hazard
losses. Each Mortgage Loan will be covered by a Standard Hazard Insurance
Policy, as described below, and, to the extent required by the related
Prospectus Supplement, the Mortgage Loans evidenced by Certificates of a Series
may be subject to a Special Hazard Insurance Policy, which will not cover all
risks and which will be limited in amount. See "Description of Insurance--Hazard
Insurance on the Mortgage Loans" below. Certain hazard risks will, as a result,
not be insured and thus may affect payments to holders of Certificates of such
Series.
To the extent that the Primary Mortgage Insurance Policies, the FHA
insurance or the VA guarantees do not cover all losses on a defaulted or
foreclosed Mortgage Loan, and to the extent such losses are not covered by the
Mortgage Pool Insurance Policy for the related Series of Certificates, if any,
such losses would affect payments to holders of Certificates of such Series.
The Primary Mortgage Insurance Policies with respect to the Mortgage Pool
will be issued by the insurance company or companies specified in the related
Prospectus Supplement (the "Mortgage Insurer") and any Mortgage Pool Insurance
Policy with respect to a Series will be issued by the insurance company or
companies specified in the related Prospectus Supplement (the "Pool Insurer").
The following descriptions of such policies and the coverage thereunder are
provided for general informational purposes only. They are general descriptions
of typical types of such policies only and do not purport to be complete. There
can be no assurance that the actual policies and coverage with respect to a
specific Series will comply with these descriptions.
PRIMARY MORTGAGE INSURANCE. Each Primary Mortgage Insurance Policy covering
Mortgage Loans evidenced by a Series of Certificates will be issued by the
related Mortgage Insurer pursuant to the Mortgage Insurer's applicable master
policy. The Company and the Trustee as assignee of the lender under such
Mortgage Loans will be the insureds or assignees of record (the "Insured"), as
their interests may appear, under each such Primary Mortgage Insurance Policy.
Each Agreement with respect to such Series will require the Servicer and any
Sub-servicer to cause a Primary Mortgage Insurance Policy to be maintained in
full force and effect with respect to each Mortgage Loan covered by an Agreement
requiring such insurance and to act on behalf of the Insured with respect to all
actions required to be taken by the Insured under each such Primary Mortgage
Insurance Policy.
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Unless otherwise specified in the related Prospectus Supplement, the amount
of a claim for benefits under a Primary Mortgage Insurance Policy covering a
Mortgage Loan evidenced by a Series of Certificates (herein referred to as the
"Loss") will consist of the insured portion of the unpaid principal amount of
the covered Mortgage Loan (as described herein), accrued and unpaid interest
thereon and certain advances made by the Insured as described below, less (i)
all rents or other payments collected or received by the Insured (other than the
proceeds of hazard insurance) that are derived from or in any way related to the
Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount
required to restore the Mortgaged Property and which have not been applied to
the payment of the Mortgage Loan, (iii) amounts expended but not approved by the
Mortgage Insurer, (iv) claim payments previously made by the Mortgage Insurer,
and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan evidenced by a Series of
Certificates, the Insured will be required to (i) advance or discharge (a) all
hazard insurance premiums and (b) as necessary and approved in advance by the
Mortgage Insurer, (1) real estate property taxes, (2) all expenses required to
maintain such Mortgaged Property in at least as good a condition as existed at
the effective date of such Primary Mortgage Insurance Policy, ordinary wear and
tear excepted, (3) foreclosure costs, including court costs and reasonable
attorneys' fees and (4) any other amounts expended approved by the Mortgage
Insurer; (ii) in the event of any physical loss or damage to the Mortgaged
Property, have restored and repaired the Mortgaged Property to at least as good
a condition as existed at the effective date of such Primary Mortgage Insurance
Policy, ordinary wear and tear excepted; and (iii) tender to the Mortgage
Insurer good and merchantable title to and possession of the Mortgaged Property.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering a
Mortgage Loan evidenced by a Series of Certificates generally will provide that:
(a) no change may be made in the terms of such Mortgage Loan without the consent
of the Mortgage Insurer; (b) written notice must be given to the Mortgage
Insurer within 10 days after the Insured becomes aware that a mortgagor is
delinquent in the payment of a sum equal to the aggregate of three monthly
payments due under such Mortgage Loan or that any proceedings affecting the
mortgagor's interest in the Mortgaged Property securing such Mortgage Loan have
been commenced, and thereafter the Insured must report monthly to the Mortgage
Insurer the status of any such Mortgage Loan until such Mortgage Loan is brought
current, such proceedings are terminated or a claim is filed; (c) the Mortgage
Insurer will have the right to purchase such Mortgage Loan, at any time after
the 10 days' notice described in (b) above and prior to the commencement of
foreclosure proceedings, at a price equal to the unpaid principal amount of the
Mortgage Loan plus accrued and unpaid interest thereon and amounts expended by
the Insured (and not reimbursed) for the real estate taxes and fire and extended
coverage insurance on the Mortgaged Property for a period not exceeding 12
months; (d) the Insured must commence proceedings at certain times specified in
the policy and diligently proceed to obtain good and merchantable title to and
possession of the Mortgaged Property; (e) the Insured must notify the Mortgage
Insurer of the institution of such proceedings, provide it with copies of
documents relating thereto, notify the Mortgage Insurer of the price amounts
specified in (c) above at least 15 days prior to the sale of the Mortgaged
Property by foreclosure, and bid such amount unless the Mortgage Insurer
specifies a lower or higher amount; and (f) the Insured may accept a conveyance
of the Mortgaged Property in lieu of foreclosure with written approval of the
Mortgage Insurer.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Insurer will be required to pay to the Insured the insured percentage
of the loss. Any rents or other payments collected or received by the Insured
which are derived from or are in any way related to the Mortgaged Property will
be deducted from any claim payment.
The Servicer will not cancel or refuse to renew any such Primary Mortgage
Insurance Policy in effect at the date of the initial issuance of the
Certificates that is required to be kept in force under the
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Agreement unless the replacement Primary Mortgage Insurance Policy for such
cancelled or nonrenewed policy is maintained with a qualified insurer.
FHA INSURANCE AND VA GUARANTEES. The FHA is responsible for administering
various federal programs, including mortgage insurance, authorized under the
Housing Act, as amended, and the United States Housing Act of 1937, as amended.
The insurance premiums for FHA Mortgage Loans are collected by HUD approved
lenders or by the Servicer or any Sub-servicers and are paid to the FHA. The
regulations governing FHA single-family mortgage insurance programs provide that
insurance benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted Mortgage Loan to HUD. With respect to a defaulted FHA Mortgage
Loan. the Servicer or any Sub-servicer is limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Servicer or any
Sub-servicer or HUD, that default was caused by circumstances beyond the
mortgagor's control, the Servicer or any Sub-servicer is expected to make an
effort to avoid foreclosure by entering, if feasible, into one of a number of
available forms of forbearance plans with the mortgagor. Such plans may involve
the reduction or suspension of regular mortgage payments for a specified period,
with such payments to be made up on or before the maturity date of the mortgage,
or the recasting of payments due under the mortgage up to or beyond the maturity
date. In addition, when a default caused by such circumstances is accompanied by
certain other criteria, HUD may provide relief by making payments to the
Servicer or any Sub-servicer in partial or full satisfaction of amounts due
under the Mortgage Loan (which payments are to be repaid by the mortgagor to
HUD) or by accepting assignment of the loan from the Servicer or any
Sub-servicer. With certain exceptions, at least three full monthly installments
must be due and unpaid under the Mortgage Loan, and HUD must have rejected any
request for relief from the mortgagor before the Servicer or any Sub-servicer
may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer or any Sub-servicer of each FHA Mortgage
Loan will be obligated to purchase any such debenture issued in satisfaction of
a defaulted FHA Mortgage Loan serviced by it for an amount equal to the
principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Servicer or Sub-servicer for certain costs and expenses and to
deduct certain amounts received or retained by the Servicer or Sub-servicer
after default. When entitlement to insurance benefits results from foreclosure
(or other acquisition of possession ) and conveyance to HUD, the Servicer or
Sub-servicer is compensated for no more than two-thirds of its foreclosure
costs, and is compensated for interest accrued and unpaid prior to such date but
in general only to the extent it was allowed pursuant to a forbearance plan
approved by HUD. When entitlement to insurance benefits results from assignment
of the Mortgage Loan to HUD, the insurance payment includes full compensation
for interest accrued and unpaid to the assignment date. The insurance payment
itself, upon foreclosure of an FHA Mortgage Loan, bears interest from a date 30
days after the mortgagor's first uncorrected failure to perform any obligation
or make any payment due under the Mortgage Loan and, upon assignment, from the
date of assignment, to the date of payment of the claim, in each case at the
same interest rate as the applicable HUD debenture interest rate as described
above.
The maximum guaranty that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 1803(a), as amended. As of
January 1, 1990, the maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $46,000. The liability on the
guaranty is reduced or increased pro rata with any reduction or increase in the
amount of indebtedness, but in no event will the amount payable on
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the guaranty exceed the amount of the original guaranty. The VA may, at its
option and without regard to the guaranty, make full payment to a mortgage
holder of unsatisfied indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA Mortgage Loan, the Servicer or Sub-servicer
is, absent exceptional circumstances, authorized to announce its intention to
foreclose only when the default has continued for three months. Generally, a
claim for the guarantee is submitted after liquidation of the Mortgaged
Property.
The amount payable under the guarantee will be the percentage of the VA
Mortgage Loan originally guaranteed applied to indebtedness outstanding as of
the applicable date of computation specified in the VA regulations. Payments
under the guarantee will be equal to the unpaid principal amount of the loan,
interest accrued on the unpaid balance of the loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
mortgaged property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
MORTGAGE POOL INSURANCE POLICY. If required by the related Prospectus
Supplement, if any Mortgage Loan comprising a part of the Mortgage Pool for a
Series is not covered by a Full Coverage Insurance Policy, the Company will
obtain a Mortgage Pool Insurance Policy to cover any loss (subject to the
limitations described below) by reason of default by the mortgagors of the
Mortgage Loans to the extent not covered by any Primary Mortgage Insurance
Policy. The amount of the Mortgage Pool Insurance Policy (or Policies) for a
Series, if any, will be specified in the related Prospectus Supplement. The
Servicer will agree to pay the premiums for such Mortgage Pool Insurance Policy
on a timely basis. If the Mortgage Pool insurer ceases to be a qualified insurer
because it is not approved as an insurer by FHLMC or FNMA or because its
claims-paying ability is no longer rated in the category required by the related
Prospectus Supplement, the Servicer will agree to review, not less often than
monthly, the financial condition of the Mortgage Pool insurer to determine
whether recoveries under the Mortgage Pool Insurance Policy are jeopardized. If
the Servicer so determines, it will exercise its best reasonable efforts to
obtain from another qualified insurer a replacement insurance policy under the
above-stated limitations.
A Mortgage Pool Insurance Policy for a Series, however, will not be a
blanket policy against loss, because claims thereunder may only be made for
particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below.
The Servicer will be required to maintain the Mortgage Pool Insurance
Policies for such Series and to present or cause the Sub-servicers, if any, to
present claims to the Pool Insurer on behalf of the Trustee and the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, the responsibilities of the Servicer, the amount of claim for
benefits, the conditions precedent to the filing or payment of a claim, the
policy provisions and the payment of claims under a Mortgage Pool Insurance
Policy generally will be similar to those described above for Primary Mortgage
Insurance Policies, subject to the aggregate limit on the amount of coverage.
Except as otherwise described in the related Prospectus Supplement, it also will
be a condition precedent to the payment of any claim under the Mortgage Pool
Insurance Policy that the Insured maintain a Primary Mortgage Insurance Policy
that is acceptable to the Pool Insurer on all Mortgage Loans in the related
Mortgage Pool that have Loan-to-Value Ratios at the time of origination in
excess of 80%. Assuming satisfaction of these conditions, the Pool insurer will
pay to the Insured the amount of the "loss" which will generally be (a) the
amount of the unpaid principal balance of the Mortgage Loan immediately prior to
the sale of the Mortgaged Property, (b) the amount of the accumulated unpaid
interest on such Mortgage Loan to the date of claim settlement at the
contractual rate of interest and (c) certain advances made by the Insured, less
certain payments. An "approved sale" is (1) a sale of the Mortgaged Property
acquired by the Insured because of a default by the borrower to which the Pool
Insurer has given prior approval, (2) a foreclosure or trustee's sale of the
Mortgaged Property at a price exceeding the maximum amount specified by the Pool
Insurer, (3) the acquisition of the Mortgaged
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Property under the Primary Mortgage Insurance Policy by the Mortgage Insurer or
(4) the acquisition of the Mortgaged Property by the Pool insurer. The Insured
must as a condition precedent to the payment of any "loss," provide the Pool
Insurer with good and merchantable title to the Mortgaged Property. If any
property securing a defaulted Mortgage Loan is damaged and the proceeds, if any,
from the related Standard Hazard Insurance Policy or the applicable Special
Hazard Insurance Policy are insufficient to restore the damaged property to a
condition sufficient to permit recovery under the Mortgage Pool Insurance
Policy, the Servicer will not be required to expend its own funds to restore the
damaged Mortgaged Property unless it determines (A) that such restoration will
increase the proceeds on liquidation of the Mortgage Loan after reimbursement of
the Servicer for its expenses and (B) that such expenses will be recoverable by
it through Liquidation Proceeds or Insurance Proceeds.
The original amount of coverage under the Mortgage Pool Insurance Policy
securing a Series will be reduced over the life of the Certificates of such
Series by the aggregate dollar amount of claims paid, less the aggregate of net
amounts realized by the Pool Insurer upon disposition of all foreclosed
Mortgaged Properties covered thereby. The amount of claims paid includes 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 Mortgage Loans--Foreclosure." Accordingly, if aggregate net claims paid under
a Mortgage Pool Insurance Policy reach the original policy limit, coverage under
the Mortgage Pool Insurance Policy will lapse and any further losses will be
borne by the Trust Fund, and thus may affect adversely payments to holders of
Certificates of such Series. In addition, unless the Servicer can determine that
an Advance in respect of a delinquent Mortgage Loan would be recoverable to it
from the proceeds of the liquidation of such Mortgage Loan or otherwise, neither
the Sub-servicer nor the Servicer may be obligated to make an Advance respecting
any such delinquency since the Advance would not be ultimately recoverable to it
from either the Mortgage Pool Insurance Policy or from any other related source.
See "Description of the Certificates--Advances."
HAZARD INSURANCE ON THE MORTGAGE LOANS
The following descriptions are provided for informational purposes only.
They are general and do not purport to be complete. There can be no assurance
that the actual policies and coverage with respect to a specific Series will
comply with these descriptions.
STANDARD HAZARD INSURANCE POLICIES. Except as otherwise specified in the
related Prospectus Supplement, the Servicer and each Sub-servicer, as
applicable, will cause to be maintained for the Mortgage Loans comprising the
Mortgage Pool for each Series of Certificates, and on property acquired upon
foreclosure, or deed in lieu of foreclosure, or use its best reasonable efforts
to cause each Sub-servicer of a Mortgage Loan to maintain, a Standard Hazard
Insurance Policy in an amount at least equal to 80% of the maximum insurable
value of the Mortgaged Property or the principal balance of such Mortgage Loan,
whichever is greater. The Servicer also shall maintain on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, a Standard
Hazard Insurance Policy in an amount that is at least equal to the maximum
insurable value of the Mortgaged Property. Any amounts collected by the
Servicer, or the Sub-servicer, as the case may be, under any such policies
(other than amounts to be applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with normal servicing
procedures) shall be deposited in the Certificate Account. Any cost incurred in
maintaining any such insurance shall not, for the purpose of calculating monthly
distributions to Certificateholders, be added to the amount owing under the
Mortgage Loan, notwithstanding that the terms of the Mortgage Loan so permit.
Such cost shall be recoverable by the Servicer only by withdrawal of funds from
the Certificate Account as described in the Agreement, No earthquake or other
additional insurance is to be required of any Mortgagor or maintained on
property acquired in respect of a Mortgage Loan, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. When the Mortgaged Property is located at the
time of origination of the Mortgage Loan in a federally designated special flood
hazard area, the Servicer will cause to be maintained, or to use
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its best reasonable efforts to cause the related Sub-servicer to obtain, flood
insurance, limited, under certain circumstances, to availability under the
National Flood Insurance Act of 1968, as amended. In the event that the Servicer
obtains and maintains a blanket policy insuring against hazard losses on all of
the related Mortgage Loans, it will be deemed conclusively to have satisfied its
obligations to cause to be maintained a Standard Hazard Insurance Policy for
each Mortgage Loan. This blanket policy may contain a deductible clause, in
which case the Servicer will, in the event that there has been a loss that would
have been covered by such policy absent such deductible, deposit in the
Certificate Account the amount not otherwise payable under the blanket policy
because of the application of such deductible clause.
The coverage of each Standard Hazard Insurance Policy will be in an amount
not less than the amount required in order for a Mortgagor not to be deemed a
co-insurer with respect to a hazard loss on the Mortgaged Property. All amounts
collected by the Servicer (or any Sub-servicer) under any Standard Hazard
Insurance Policy (less amounts to be applied to the restoration or repair of the
Mortgaged Property and other amounts necessary to reimburse the Servicer for
previously incurred advances or approved expenses, which may be retained by the
Servicer) will be deposited to the applicable Escrow Account maintained with
respect to such Mortgage Loan.
The Standard Hazard Insurance Policies will provide for coverage at least
equal to the applicable state standard form of fire insurance policy with
extended coverage. In general, the standard form of fire and extended coverage
policy will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Because the Standard Hazard Insurance Policies
relating to the Mortgage Loans relating to any Series of Certificates will be
underwritten by different insurers and will cover Mortgaged Properties located
in various states, such policies will not contain identical terms and
conditions. The basic terms, however, generally will be determined by state law
and generally will be similar. Most such policies typically will not cover any
physical damage resulting from war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes, landslides,
and mudflows), nuclear reaction, 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. When a Mortgaged Property is located in a flood area identified
by the Federal Emergency Management Agency pursuant to the National Flood
Insurance Act of 1968, as amended, the Agreement will require that the Servicer
cause to be maintained flood insurance with respect to such Mortgaged Property.
The Standard Hazard Insurance Policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "co-insurance" clause which, in
effect, will require the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged Property in order
to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause will provide that the insurer's
liability in the event of partial loss will not exceed the greater of (i) the
actual cash value (the replacement cost less physical depreciation) of the
dwellings, structures and other improvements damaged or destroyed or (ii) such
proportion of the loss, without deduction for depreciation, as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such dwellings, structures and other improvements.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and floods) or insufficient hazard insurance
proceeds may, to the extent such losses are not covered by the Special Hazard
Insurance Policy for a Series, affect payments to holders of Certificates of
such Series.
SPECIAL HAZARD INSURANCE POLICY. The Servicer will, if and to the extent
required by the related Agreement and as described in the related Prospectus
Supplement, be required to maintain and keep a Special Hazard Insurance Policy,
in the amount set forth in the related Prospectus Supplement, in full
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force and effect. The Servicer will agree to pay the premium for any Special
Hazard Insurance Policy on a timely basis. If the Special Hazard Insurance
Policy is cancelled or terminated for any reason (other than the exhaustion of
total policy coverage), the Servicer will exercise its best reasonable efforts
to obtain from another insurer a replacement policy comparable to the Special
Hazard Insurance Policy with a total coverage which is equal to the then
existing coverage of the Special Hazard Insurance Policy; provided that if the
cost of any such replacement policy is greater than the cost of the terminated
Special Hazard Insurance Policy, the amount of coverage under the replacement
Policy may be reduced to a level such that the applicable premium will not
exceed the cost of the Special Hazard Insurance Policy that was replaced. The
Servicer will agree to present, on behalf of itself, the Trustee and the
Certificateholders, claims to the Special Hazard Insurer under the Special
Hazard Insurance Policy and, in this regard, to take such reasonable action as
will be necessary to permit recovery under the Special Hazard Insurance Policy
respecting the Mortgage Loans. Any amounts collected by the Servicer under the
Special Hazard Insurance Policy that are in the nature of Insurance Proceeds
will be deposited in the Collection Account. Any other amounts collected by the
Servicer under the Special Hazard Insurance Policy shall be applied by it
towards the restoration of the related Mortgaged Property to a condition
requisite to the presentation of claims on the related Mortgage Loan to the
Mortgage Pool Insurer under the Mortgage Pool Insurance Policy.
To the extent provided in the related Prospectus Supplement, a "Special
Hazard Insurance Policy" will be obtained from the insurer or insurers specified
in the related Prospectus Supplement (the "Special Hazard Insurer"). The Special
Hazard Insurer will, subject to the limitations described below, insure against
(i) loss by reason of damage to Mortgaged Properties underlying defaulted
Mortgage Loans caused by certain hazards (including vandalism and earthquakes
and, except where the mortgagor is required to obtain flood insurance, floods
and mudflows) not insured against under the Standard Hazard Insurance Policies
covering such Mortgage Loans and (ii) loss from partial damage to the Mortgaged
Properties securing such defaulted Mortgage Loans caused by reason of the
application of the coinsurance clause contained in the applicable Standard
Hazard Insurance Policies. The Special Hazard Insurance Policy for a Series,
however, will not cover losses occasioned by war, certain governmental actions,
nuclear reaction and certain other perils. The amount of coverage, if any, under
the Special Hazard Insurance Policy with respect to a Series will be specified
in the related Prospectus Supplement.
Subject to the foregoing limitations, the Special Hazard Insurance Policy
with respect to a Series will provide that, when there has been damage to
Mortgaged Property securing a defaulted Mortgage Loan and such damage is not
covered by the Standard Hazard Insurance Policy maintained by the mortgagor or
the Servicer, the Special Hazard Insurer will pay the lesser of (a) the cost of
repair of such property or (b) upon transfer of such property to it, the unpaid
principal amount of such Mortgage Loan at the time of the acquisition of such
property, plus accrued interest to the date of claim settlement (excluding late
charges and penalty interest) and certain expenses incurred in respect of such
property. No claim may be validly presented under a Special Hazard Insurance
Policy unless the Standard Hazard Insurance Policy on the Mortgaged Property
securing the Mortgage Loan has been kept in force and other reimbursable
protection, preservation and foreclosure expenses have been paid (all of which
must be approved in advance as necessary by the Special Hazard Insurer). If the
sum of the unpaid principal amount plus accrued interest and certain expenses is
paid by the Special Hazard Insurer, the amount of further coverage under the
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the Mortgaged Property. Any amount paid as the cost of
repair of the Mortgaged Property may reduce coverage by such amount.
The Agreement with respect to a Series will, to the extent described in the
related Prospectus Supplement, require the Servicer to maintain the Special
Hazard Insurance Policy for such Series in full force and effect, subject to
certain conditions. See "Servicing of the Mortgage Loans--Maintenance of
Insurance Policies." The Servicer also must present claims, on behalf of the
Certificateholders and the
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Trustee, for all losses not otherwise covered by the applicable Standard Hazard
Insurance Policies and take all reasonable steps necessary to permit recoveries
on such claims. See "Servicing of the Mortgage Loans."
To the extent provided in the Prospectus Supplement, in lieu of Special
Hazard Insurance, partially or entirely, a deposit of cash, a certificate of
deposit, a letter of credit or any other instrument acceptable to each rating
agency rating the Series may be provided in an amount and for a term acceptable
to each such rating agency. Such a deposit will be credited to a Special Hazard
or similar fund and the Trustee or Servicer will be permitted to draw on the
fund to recover losses that would otherwise be covered by a Special Hazard
Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, a Special
Hazard Insurance Policy may insure against losses on Mortgage Loans evidenced by
multiple Series of Certificates, provided, however, that the extension of
coverage to any other Series does not result in the downgrading of the credit
rating of any outstanding Series.
MORTGAGOR BANKRUPTCY INSURANCE
The Servicer will, if and to the extent provided in the related Prospectus
Supplement, exercise its best reasonable efforts to maintain and keep Mortgagor
Bankruptcy Insurance in full force and effect throughout the term of the related
Agreement, unless coverage thereunder has been exhausted through payment of
claims. The related Agreement may, to the extent described in the Prospectus
Supplement, require the Servicer to pay from its servicing compensation the
premiums for the Mortgagor Bankruptcy Insurance on a timely basis. At the
request of the Company, coverage under the Mortgagor Bankruptcy Insurance will
be cancelled or reduced by the Servicer to the extent permitted by the rating
agency rating the related Series, provided that such cancellation or reduction
does not adversely affect the then current rating of the related series of
Certificates.
In the event of a personal bankruptcy of a mortgagor, the bankruptcy court
may establish the value of the Mortgaged Property at an amount less than the
then outstanding principal balance of the Mortgage Loan secured by such
Mortgaged Property. The amount of the secured debt could be reduced to such
value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property by the bankruptcy court.
In addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding. See "Certain Legal Aspects of Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders." Losses
resulting from a bankruptcy proceeding affecting Mortgage Loans of a Series
will, to the extent specified in the related Prospectus Supplement, be covered
by mortgagor bankruptcy insurance for such Series (or any other instrument that
will not result in a down-grading of the rating of the Series by any rating
agency rating the Series) (the "Mortgagor Bankruptcy Insurance"). The amount and
term of any Mortgagor Bankruptcy Insurance for a Series must be acceptable to
each rating agency rating the Series. Subject to the terms of the Mortgagor
Bankruptcy Insurance, the insurer may have the right to purchase any Mortgage
Loan with respect to which a payment or drawing has been made or may be made for
an amount equal to the outstanding principal amount of such Mortgage Loan plus
accrued and unpaid interest thereon. The Company may, partially or entirely in
lieu of Mortgagor Bankruptcy Insurance, as specified in the related Prospectus
Supplement, deposit or cause to be deposited cash, a certificate of deposit, a
letter of credit or any other instrument acceptable to each rating agency rating
the Series. Such a deposit will be credited to a Mortgagor Bankruptcy or similar
fund and the Trustee or Servicer will be able to draw on the fund to recover
losses that would be insured against by Mortgage Bankruptcy Insurance. The
amount of the Mortgagor Bankruptcy Insurance for a Series or deposit in lieu
thereof may be reduced as long as any such reduction will not result in a
reduction of the then applicable rating of the Series by any rating agency
rating the Series.
A form of the Mortgagor Bankruptcy Insurance has been filed as an exhibit
to, or incorporated by reference into, the Registration Statement of which this
Prospectus forms a part. The foregoing description
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does not purport to be complete and is qualified in its entirety by reference to
such forms and to the description of any material variances therefrom contained
in the related Prospectus Supplement.
PRESENTATION OF CLAIMS
The Servicer, on behalf of itself, the Trustee and the Certificateholders,
will present claims to each Pool Insurer, to each Special Hazard Insurance
Insurer, to the issuer of the Mortgagor Bankruptcy Insurance, to each Primary
Insurer, to the FHA and to the VA, and take such reasonable steps as are
necessary to permit recovery under such Insurance Policies respecting defaulted
Mortgage Loans or Mortgage Loans that are the subject of a bankruptcy
proceeding. As set forth above, all collections by the Servicer under any
Mortgage Pool Insurance Policy, any Primary Insurance Policy, any FHA insurance
or any VA guarantee or any Mortgagor Bankruptcy Insurance and, where the related
property has not been restored, any Special Hazard Insurance Policy, are to be
deposited in the Certificate Account for the related Series and are subject to
withdrawal as described above. In those cases in which a Mortgage Loan is
serviced by a Sub-servicer, the Sub-servicer, on behalf of itself, the Trustee
and the Certificateholders will present claims to the applicable insurer, and
all collections shall be deposited in the Sub-servicing Account for deposit into
the Certificate Account.
If any property securing a defaulted Mortgage Loan is damaged and proceeds,
if any, from the related Standard Hazard Insurance Policy or the applicable
Special Hazard Insurance Policy are insufficient to restore the damaged property
to a condition sufficient to permit recovery under the Mortgage Pool Insurance
Policy or any Primary Insurance Policy, any FHA insurance or any VA guarantee,
as the case may be, the Servicer is not required to expend its own funds to
restore the damaged property unless it determines (i) that such restoration will
increase the proceeds to the Certificateholders on liquidation of the Mortgage
Loan after reimbursement of the expenses incurred by the Servicer and (ii) that
such expenses will be recoverable by it through proceeds of the sale of the
property or proceeds of the related Mortgage Pool Insurance Policy or any
related Primary Insurance Policy, any FHA insurance, or any VA guarantee, as the
case may be.
If recovery under the Mortgage Pool Insurance Policy or any related Primary
Insurance Policy, any FHA insurance, or any VA guarantee, as the case may be, is
not available because the Servicer has been unable to make the above
determinations or otherwise, the Servicer nevertheless is obligated to follow
such normal practices and procedures as it deems necessary or advisable to
realize upon the defaulted Mortgage Loan. If the proceeds of any liquidation of
the Mortgaged Property are less than the principal balance of the defaulted
Mortgage Loan plus interest accrued thereon at the Pass-Through Rate, the
related Trust Fund will realize a loss in the amount of such difference plus the
aggregate of expenses incurred by the Servicer in connection with such
proceedings and which are reimbursable under the Agreement. In the event that
any such proceedings result in a total recovery which is, after reimbursement to
the Servicer of its expenses, in excess of the principal balance of the related
Mortgage Loan, together with accrued and unpaid interest thereon at the
Pass-Through Rate, the Servicer will be entitled to withdraw amounts
representing its normal servicing compensation on such Mortgage Loan from the
Certificate Account. Any amounts remaining in the Certificate Account after such
foreclosure, repossession or liquidation, as the case may be, and attributable
to such Mortgage Loan will be retained by the Servicer or distributed in such
manner as may be specified in the related Prospectus Supplement.
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ALTERNATIVE CREDIT ENHANCEMENT
The Company or the Servicer, from time to time, may obtain or cause to be
obtained further insurance policies, guarantees, letters of credit, or surety
bonds (or make deposits in lieu thereof) to enhance the credit rating of the
Certificates. To the extent any such other enhancements are obtained for a
Series of Certificates, or deposits are made in lieu thereof, a description
thereof will be set forth in the related Prospectus Supplement.
CERTAIN LEGAL ASPECTS OF 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
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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 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.
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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.
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.
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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 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 Company 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 Company 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.
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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 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 Company 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
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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 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
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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 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 Company 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 Company
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.
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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, 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
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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.
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 Company, 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 Company, 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.
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),
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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 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)
distributions of principal (or other amount
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included in the stated redemption price at maturity) are scheduled to be made on
such outstanding Certificate. 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 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
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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 held by such Owner during or after
the taxable year for which the election is made 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
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.
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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.
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.
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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 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
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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
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
one year or more or less than one year. Such gain or loss will be ordinary
income or loss
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(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 state thereof or the District of Columbia (unless, in the case of a
partnership, Treasury regulations provide otherwise), 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.
Notwithstanding the preceding sentence, to the extent provided in Treasury
regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date, that elect to continue to be treated
as United States persons will also be a U.S. Person.
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 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
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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 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.
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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.
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
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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.
NON-REMIC CERTIFICATES
The discussion in this Section applies only to a series of Certificates for
which no REMIC election is made.
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TRUST FUND AS GRANTOR TRUST.
Upon issuance of each series of Certificates, Morgan, Lewis & Bockius LLP,
counsel to the Company, will deliver its opinion, dated as of the date of such
issuance, to the effect that, under then current law, assuming compliance by the
Company, 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 ).
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
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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 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,
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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 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).
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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.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules referred to above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
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PLAN OF SALE
The Company may sell the Certificates offered hereby to or through one or
more underwriters or agents. The Prospectus Supplement with respect to each
Series of Certificates will set forth the terms of the offering of such Series
of Certificates and each Class within such Series, including the name or names
of the underwriters or agents, the proceeds to and their intended use by the
Company, and either the initial public offering price, the discounts and
commissions to the underwriters or agents and any discounts or concessions
allowed or reallowed to certain dealers, or the method by which the price at
which the underwriters or agents will sell the Certificates will be determined.
Certificates may be offered to the public either through underwriting syndicates
represented by managing underwriters, or directly by one or more firms or others
as designated in the related Prospectus Supplement.
The Underwriting Agreement, as specified in the related Prospectus
Supplement, may provide that underwriters named therein will be obligated to
purchase all of the Series of Certificates described in the Prospectus
Supplement with respect to such Series if any such Certificates are purchased.
Alternatively, the Prospectus Supplement may specify that the Certificates will
be distributed by one or more agents that will receive a selling commission with
respect to each Series of Certificates as specified in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, a Series of
Certificates may be offered in whole or in part in exchange for the Mortgage
Loans or Agency Securities that would comprise the Mortgage Pool or pool of
Agency Securities with respect to such Certificates. In such event, the
Prospectus Supplement will specify the amount of compensation to be paid to the
underwriter or underwriters and expenses, if any, in connection with the
distribution. The Certificates may be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
The obligations of any underwriters will be subject to certain conditions
precedent, and such underwriters will be severally obligated to purchase all the
Certificates of a Series described in the related Prospectus Supplement, if any
are purchased.
LEGAL INVESTMENT
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 Marketing
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 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 loans secured by, among other things, a single parcel
of real estate upon which is located a dwelling or mixed residential and
commercial structure, such as certain multifamily loans, originated by certain
types of obligations 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
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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, federal credit
unions should review the National Credit Union Administration ("NCUA") Letter to
Credit Unions No. 96, as modified by Letter to Credit Unions No. 108, which
includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities. The NCUA has adopted rules, codified
as 12 C.F.R. Sections 703.5(f)-(k) which prohibit federal credit unions from
investing in certain mortgage related securities (including securities such as
certain Series or Classes of Certificates), except under limited circumstances.
All depositary institutions considering an investment in the Certificates
(whether or not the class of certificates under consideration for purchase
constitutes a "mortgage related security") should review the Federal Financial
Institutions Examination Council s "Supervisory Policy Statement on Securities
Activities" (to the extent adopted by their respective regulators) (the "Policy
Statement"). The Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Comptroller of the Currency and the Office of Thrift
Supervision, and by the NCUA (with certain modifications), prohibits depository
institutions from investing in certain "high risk mortgage securities"
(including securities such as certain series or classes of the Certificates),
except under limited circumstances, and sets forth certain investment practices
deemed to be unsuitable for regulated institutions. Under the Policy Statement,
it is the responsibility of each depository institution to determine, prior to
purchase (and at stated intervals thereafter), whether a particular mortgage
derivative product is a "high-risk mortgage security", and whether the purchase
(or retention) of such a product would be consistent with the Policy Statement.
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 institutions 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 regulatory characteristics of
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<PAGE>
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.
LEGALITY OF THE CERTIFICATES
The legality of the Certificates will be passed upon for the Company by
Morgan, Lewis & Bockius LLP, New York, New York. The material federal income tax
consequences of the Certificates will be passed upon by Morgan, Lewis & Bockius
LLP.
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<PAGE>
GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus. The Agreement may contain a more complete definition of certain
of the terms defined herein and reference should be made to the Agreement for a
more complete definition of all such terms.
"ACCRUAL REMITTANCE AMOUNT" means, with respect to the Compound Interest
Certificates of a Series of Certificates providing for sequential distributions
in reduction of the Stated Balance of the Classes of such Series, as of any
Distribution Date, the amount of interest, calculated at the Interest Rate,
which has accrued on such Compound Interest Certificates from the prior
Distribution Date.
"ADJUSTABLE RATE CERTIFICATES" means Certificates which evidence the right
to receive distributions of income at a variable Pass-Through Rate.
"ADJUSTABLE RATE LOANS" means adjustable and variable rate Mortgage Loans
which permit or require periodic changes in the interest rates borne by such
Mortgage Loans.
"ADVANCES" means the advances made by a Servicer (including from advances
made by a Sub-servicer) on any Distribution Date pursuant to an Agreement.
"AGENCY SECURITIES" means individual mortgage pass-through securities issued
or guaranteed by FHLMC, FNMA or GNMA which are sold and assigned by the Company
to the Trustee and which are the subject of an Agreement and are included in a
Trust Fund.
"AGREEMENT" means each Pooling and Servicing Agreement by and among the
Company, the Trustee and, with respect to a Series of Certificates evidencing
interests in Mortgage Loans, the Servicer specified in the related Prospectus
Supplement.
"ALTERNATE CREDIT ENHANCEMENT" means the insurance policy, guarantee, letter
of credit or surety bond used to enhance the credit rating of a Series of
Certificates, as set forth in the related Prospectus Supplement.
"ASSET VALUE" means the Asset Value of the Mortgage Loans or Agency
Securities included in a Trust Fund, determined in the manner set forth in the
related Agreement.
"AVAILABLE DISTRIBUTION AMOUNT" means, with respect to each Series of
Certificates, certain amounts on deposit in the Certificate Account on a
Determination Date.
"AVAILABLE SUBORDINATION AMOUNT" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement, as of any Distribution Date, the
excess, if any, of the then applicable Maximum Subordination Amount over the
Cumulative Subordination Payments as of the preceding Distribution Date.
"CERTIFICATES" means the Pass-Through Certificates issued pursuant to an
Agreement. "Certificate Account" means the account maintained by the Servicer or
the Trustee, as specified in the related Prospectus Supplement.
"CERTIFICATE REMITTANCE AMOUNT" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of the
Classes of such Series, as of any Distribution Date, the amount, if any, by
which the then outstanding Stated Balance of the Classes of Certificates of such
Series (before taking into account the amount of interest accrued on any Class
of Compound Interest Certificates to be added to the Stated Balance thereof on
such Distribution Date) exceeds the Asset Value. (as defined in the related
Prospectus Supplement) of the Mortgage Loans or Agency Securities included in
the Trust Fund for such Series as of the end of the related Due Period.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
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"COMPANY" means MorServ, Inc.
"COMPOUND INTEREST CERTIFICATES" means a Class or Sub-class of Certificates
on which interest will accrue, but not be paid, for the period set forth in the
related Prospectus Supplement.
"CO-OP LOANS" means Mortgage Loans secured by stock allocated to dwelling
units in residential cooperative housing corporations.
"CUMULATIVE SUBORDINATION PAYMENTS" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement, as of any Distribution Date, the
cumulative amount equal to (i) the total of all amounts distributed to the
Senior Certificateholders, exclusive of Advances made by the Servicer and the
Initial Deposit to the Reserve Fund, up to and including such Distribution Date
minus (ii) the sum of (a) the Senior Percentage times the Available Distribution
Amount for all Distribution Dates up to and including such Distribution Date
plus (b) the Subordinated Percentage times certain late payments previously
applied to reimburse the Servicer for Advances.
"CUT-OFF-DATE" means the date specified in the related Prospectus Supplement
as the date from which principal and interest payments on the Mortgage Loans or
Agency Securities are included in the Trust Fund.
"DETERMINATION DATE" means, unless otherwise specified in the related
Prospectus Supplement, the later of (i) the sixteenth day of the month in which
the related Distribution Date occurs, or (ii) the seventh Business Day prior to
the related Distribution Date.
"DISTRIBUTION DATE" means the date specified in the related Prospectus
Supplement for payments on the Certificates.
"DUE PERIOD" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Distribution Date, the period beginning on the
second day of the month preceding the month of the Distribution Date and ending
on the first day of the month of the Distribution Date.
"ELIGIBLE INVESTMENTS" means one or more of the investments specified in the
Agreement in which moneys in the Certificate Account and certain other accounts
are permitted to be invested.
"EXCESS INTEREST" or "EXCESS INTEREST RATE" means, with respect to any
Mortgage Loan or Agency Security, the per annum percentage of the principal
balance from time to time outstanding, which may be retained by a seller, the
Company or the Servicer or allocated to a designated Class of Certificates, as
specified in the related Prospectus Supplement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"FHA MORTGAGE LOANS" means Mortgage Loans insured by the FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FINAL SCHEDULED DISTRIBUTION DATE" means, with respect to a Series of
Certificates providing for sequential distributions in reduction of the Stated
Balance of the Classes of each Series, the date, based on the assumptions set
forth in the related Prospectus Supplement, on which the Stated Balance of all
Certificates of each Class shall have been reduced to zero.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"GUARANTEE FEE" means any fee paid for providing credit enhancement for all
or part of the related Trust Fund, Mortgage Pool, or all or any Mortgage Loans
included in the related Mortgage Pool.
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"HUD" means the United States Department of Housing and Urban Development.
"INITIAL DEPOSIT" means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund as an advance of funds on the
date of the initial issuance of the Certificates. which amount may be
recoverable as provided in the Agreement.
"INTEREST RATE" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of the Stated Balance of the Classes
of such Series. the interest payable on the Principal Balance outstanding of
each such Class.
"LATE COLLECTIONS" means, with respect to any Mortgage Loan, amounts
received during any Due Period, whether as late payments of Monthly Payments, or
as Liquidation Proceeds, condemnation awards, proceeds of insurance policies or
otherwise, which represent late payments or collections of Monthly Payments due
but delinquent for a previous Due Period and not previously recovered.
"LOAN-TO-VALUE RATIO" means, except as otherwise specified in the related
Prospectus Supplement, the fraction, expressed as a percentage, the numerator of
which is the outstanding principal balance of the related Mortgage Loan at the
time of origination and the denominator of which is the appraised value of the
related Mortgaged Property at origination, or, in the case of a Mortgage Loan
financing the acquisition of the Mortgaged Property, the sales price of such
Mortgaged Property, if such sales price is less than such appraised value.
"LIQUIDATION PROCEEDS" means cash (including insurance proceeds) received in
connection with the liquidation of defaulted Mortgage Loans.
"MAXIMUM SUBORDINATION AMOUNT" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, the amount specified
in the related Prospectus Supplement, representing the maximum amount of
Cumulative Subordination Payments which may be required to be made over the term
of the related Agreement.
"MONTHLY PAYMENT" means the scheduled monthly payment of principal and
interest on a Mortgage Loan.
"MORTGAGE" means the mortgage, deed of trust or other instrument creating a
first lien on a first priority ownership interest in or estate in fee simple in
real property securing a Mortgage Note.
"MORTGAGE INSURANCE POLICIES" means the Primary Mortgage Insurance Policies,
FHA insurance, VA guarantees, and Mortgage Pool Insurance Policies, if any,
obtained with respect to the Mortgage Loans.
"MORTGAGE INTEREST RATE" or "MORTGAGE RATE" means, with respect to each
Mortgage Loan, the interest rate specified in the related Mortgage Note.
"MORTGAGE LOAN-TO-VALUE RATIO" means the loan-to-value Ratio at the time of
origination of the Mortgage Loan.
"MORTGAGE LOANS" means the individual mortgage loans which are sold and
assigned by the Company to the Trustee and which are the subject of an Agreement
and included in a Trust Fund.
"MORTGAGE NOTE" means the note or other evidence of indebtedness of a
mortgagor secured by a Mortgage.
"MORTGAGE POOL" means, with respect to each Series of Certificates, the pool
of Mortgage Loans transferred by the Company to the Trustee.
"MORTGAGED PROPERTIES" means one-to-four family residential properties
consisting of detached individual dwelling units, individual condominiums,
townhouses, duplexes, row houses, individual units in planned-unit developments
and other attached dwelling units.
"MORTGAGOR" means the obligor on a Mortgage Note.
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"NONRECOVERABLE ADVANCE" means any Advance previously made or proposed to be
made in respect of a Mortgage Loan by the Servicer pursuant to the Agreement,
which, in the good faith judgment of the Servicer, will not or, in the case of a
proposed Advance, would not be ultimately recoverable by the Servicer from
Liquidation Proceeds or otherwise.
"PASS-THROUGH RATE" means, as to a Mortgage Loan or Mortgage Security, the
rate or rates of interest specified thereon less the Servicing Fee and Excess
Interest, if any, specified in the related Prospectus Supplement.
"PAYING AGENT" means, unless otherwise specified in the related Prospectus
Supplement, The Chase Manhattan Bank.
"RECORD DATE" means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
"REMIC" means a "real estate mortgage investment conduit" as defined in the
Code.
"REMIC SERVICER" means, with respect to each Series of Certificates
evidencing interests in Mortgage Securities, the REMIC Servicer, if any,
specified in the related Prospectus Supplement.
"RESERVE FUND" means a fund established and funded by the Company or such
other party specified in the related Prospectus Supplement to make payments on
the Certificates to the extent funds are not otherwise available.
"SENIOR CERTIFICATES" means, with respect to each Series of Certificates,
the Class or Classes which have rights senior to another Class or Classes in
such Series.
"SENIOR DISTRIBUTION AMOUNT" means, with respect to a Series of Certificates
having Subordinated Certificates, as of each Distribution Date and for each
Class of Senior Certificates, the amount due the holders of such Class of Senior
Certificates.
"SENIOR PERCENTAGE" means, with respect to a Series of Certificates having
Subordinated Certificates the percentage specified in the related Prospectus
Supplement.
"SENIOR SHORTFALL" means, with respect to a Series of Certificates having
Subordinated Certificates, as of any date, to the extent not previously paid,
the aggregate of the amounts by which the Senior Distribution Amount for any
Distribution Date exceeds the amount actually paid on such date.
"SERVICER" means, with respect to each Series of Certificates evidencing
interests in Mortgage Loans, the Servicer specified in the related Prospectus
Supplement.
"SERVICING FEE" means the amount of the annual fee paid to the Servicer
(including amounts paid to any Sub-servicer), or the Trustee as specified in the
related Prospectus Supplement.
"SINGLE CERTIFICATE" means, unless otherwise specified in the related
Prospectus Supplement, for each Class of Certificates of any Series, the initial
principal amount of Mortgage Loans or Mortgage Securities evidenced by a single
Certificate of such Class.
"SPECIAL DISTRIBUTIONS" means payments received in reduction of the Stated
Balance.
"SPECIFIED RESERVE FUND BALANCE" means, with respect to each Series of
Certificates having a Reserve Fund, the amount required to be maintained in the
Reserve Fund as specified in the related Prospectus Supplement.
"STATED BALANCE" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of Stated Balance of the Classes of
such Series, the maximum specified dollar amount (exclusive of interest at the
related Interest Rate) to which the holder thereof is entitled from the cash
flow of the Trust Fund.
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"SUBORDINATED CERTIFICATES" means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
"SUBORDINATED PERCENTAGE" means, with respect to a Series of Certificates
having Subordinated Certificates, the percentage specified in the related
Prospectus Supplement.
"SUB-SERVICER" means any party with whom the Servicer has entered into a
Sub-servicing Agreement.
"SUB-SERVICING AGREEMENT" means the written contract between the Servicer
and any Sub-servicer relating to servicing and/or administration of certain
Mortgage Loans as provided in the Agreement.
"TRUST FUND" means, with respect to each Series of Certificates, the corpus
of the trust created by the related Agreement, to the extent described in such
Agreement, consisting of, among other things, Mortgage Loans or Agency
Securities, such assets as shall from time to time be identified as deposited in
the Certificate Account, property which secured a Mortgage Loan, insurance, a
Reserve Fund and Alternate Credit Enhancement, if any.
"TRUSTEE" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"VA" means the Department of Veterans Affairs.
"VA MORTGAGE LOANS" means Mortgage Loans partially guaranteed by the VA.
"VARIABLE RATE CERTIFICATES" means Certificates which evidence the right to
receive distributions of income at a variable Pass-Through Rate.
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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.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary of Terms.............................. S-4
Risk Factors.................................. S-16
The Mortgage Pool............................. S-21
Chase Manhattan Mortgage Corporation.......... S-39
Servicing of the Mortgage Loans............... S-43
Description of the Certificates............... S-48
Yield, Prepayment and Maturity
Considerations.............................. S-65
Federal Income Tax Consequences............... S-76
State Taxes................................... S-77
ERISA Considerations.......................... S-78
Legal Investment Matters...................... S-80
Use of Proceeds............................... S-80
Method of Distribution........................ S-81
Legal Matters................................. S-82
Ratings....................................... S-83
Index of Defined Terms........................ S-84
Annex I....................................... A-1
PROSPECTUS
Prospectus Supplement......................... 2
Available Information......................... 2
Incorporation of Certain Documents by
Reference................................... 3
Reports to Certificateholders................. 3
Summary of Terms.............................. 4
Risk Factors.................................. 15
The Trust Fund................................ 16
Use of Proceeds............................... 24
The Depositor................................. 24
Mortgage Loan Program......................... 24
Yield Considerations.......................... 27
Maturity and Prepayment Considerations........ 29
Description of the Certificates............... 30
Description of Insurance...................... 48
Alternative Credit Enhancement................ 58
Certain Legal Aspects of Mortgage Loans....... 58
ERISA Considerations.......................... 65
Federal Income Tax Consequences............... 67
Plan of Sale.................................. 82
Legal Investment.............................. 82
Legality of the Certificates.................. 84
Glossary...................................... 85
</TABLE>
$350,539,000
(Approximate)
CHASE FUNDING
MORTGAGE LOAN ASSET-BACKED
CERTIFICATES,
SERIES 1998-1
[LOGO]
MORSERV, INC.
Depositor
ADVANTA MORTGAGE CORP. USA
Subservicer
CHASE MANHATTAN MORTGAGE CORPORATION
Master Servicer
----------------------------------
PROSPECTUS SUPPLEMENT
----------------------------------
CHASE SECURITIES INC.
PRUDENTIAL SECURITIES INCORPORATED
(JOINT BOOK LEAD)
AUGUST 18, 1998
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