<PAGE>
As filed with the Securities and Exchange Commission on May 12, 1999
Registration No. 333-76801
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------
AMENDMENT NO. 1
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
CHASE MORTGAGE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 343 Thornall Street 52-1495132
(State or other jurisdiction of Edison, New Jersey 08837 (I.R.S. Employer
incorporation or organization) (732) 205-0600 Identification Number)
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
</TABLE>
------------
PAUL E. MULLINGS
Chase Mortgage Finance Corporation
343 Thornall Street
Edison, New Jersey 08837
(732) 205-0600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
Copy to:
STEVEN J. MOLITOR, ESQ.
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
------------
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box./ /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed
Title of Each Class of Securities to be Amount to be Offering Price Per Maximum Aggregate Amount of
Registered Registered Certificate* Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates... $10,000,000,000.00 100% $10,000,000,000.00 $2,780,000.00**
====================================================================================================================================
</TABLE>
* Estimated for the purpose of calculating the registration fee.
** Of which $278.00 was previously paid.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 of the General Rules and Regulations under the
Securities Act of 1933, this Registration Statement also serves as Amendment No.
4 to Registration Statement No. 333-56081. The Prospectus and Prospectus
Supplement contained in this Registration Statement also relate to Registration
Statement No. 333-56081.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities Exchange Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MAY 12, 1999
PROSPECTUS SUPPLEMENT [LOGO]
(To Prospectus dated [DATE])
$[__________] (Approximate)
Chase Mortgage Finance Trust, Series [_____]
Issuer
Chase Mortgage Finance Corporation
Seller
[Chase Manhattan Mortgage Corporation]
Servicer
Multi-Class Mortgage Pass-Through Certificates, Series [_________]
Investing in these certificates involves risks. You should not purchase these
certificates unless you fully understand their risks and structure. See "Risk
Factors" beginning on page S-8 of this prospectus supplement and page 4 of the
accompanying prospectus.
Neither these certificates nor the underlying mortgage loans are obligations of
Chase Mortgage Finance Corporation, Chase Manhattan Mortgage Corporation, or any
of their affiliates. These certificates are not insured or guaranteed by any
governmental agency.
Chase Mortgage Finance Trust, Series [_________] will issue [sixteen] classes of
certificates, of which [twelve] classes are offered by this prospectus
supplement and the accompanying prospectus. The table on page S-3 identifies the
various classes and specifies certain characteristics of each class, including
each class's initial principal balance (or notional balance), interest rate and
rating.
The trust fund will consist primarily of a pool of fixed rate one- to
four-family first lien mortgage loans with original terms to stated maturity of
approximately [15] [30] years.
The underwriter, [UNDERWRITER], will purchase the offered certificates from
Chase Mortgage Finance Corporation and will offer them to the public at
negotiated prices determined at the time of sale. Chase Mortgage Finance
Corporation will receive proceeds of approximately $___________, plus accrued
interest, less expenses of approximately $_______. The underwriter expects to
deliver the offered certificates to investors on or about [DATE].
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered certificates or passed
upon the adequacy or accuracy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
[UNDERWRITER]
The date of this Prospectus Supplement is [DATE]
<PAGE>
Important Notice about the Information in this
Prospectus Supplement and the Accompanying Prospectus
Information about the offered certificates is contained in (a) the
accompanying prospectus, which provides general information, some of which may
not apply to the offered certificates, and (b) this prospectus supplement, which
describes the specific terms of the offered certificates.
This prospectus supplement and the accompanying prospectus include
cross references to sections in these materials where you can find further
related discussions. The tables of contents in this prospectus supplement and
the prospectus identify the pages where those sections are located. In addition,
an index of defined terms can be found beginning on page S-__ of this prospectus
supplement and on page iii of the prospectus.
In this prospectus supplement, the terms "Seller," "we," "us" and "our"
refer to Chase Mortgage Finance Corporation.
TABLE OF CONTENTS
THE SERIES [_________] CERTIFICATES......................................S-4
SUMMARY INFORMATION......................................................S-5
RISK FACTORS.............................................................S-9
THE MORTGAGE POOL.......................................................S-13
General..............................................................S-13
Representations and Warranties.......................................S-13
Mortgage Loans.......................................................S-14
PREPAYMENT AND YIELD
CONSIDERATIONS..........................................................S-24
Yield Considerations with Respect to the
Class A-P Certificates...............................................S-33
CHASE MANHATTAN MORTGAGE
CORPORATION.............................................................S-34
THE POOLING AND SERVICING
AGREEMENT...............................................................S-37
Assignment of Mortgage Loans.........................................S-37
Servicing............................................................S-38
Servicing Compensation and Payment of
Expenses.............................................................S-38
Adjustment to Servicing Fee in Connection
with Prepaid Mortgage Loans..........................................S-38
Payments on Mortgage Loans; Collection
Account; Certificate Account.........................................S-39
Advances.............................................................S-39
Trustee..............................................................S-40
Optional Termination.................................................S-40
Special Servicing Agreements.........................................S-40
DESCRIPTION OF THE CERTIFICATES.........................................S-41
General..............................................................S-41
Book-Entry Registration..............................................S-42
Definitive Certificates..............................................S-43
Restrictions on Transfer of the Class A-R,
Class M and Offered Class B Certificates.............................S-44
Distributions to Certificateholders..................................S-45
Interest.............................................................S-48
[Determination of LIBOR..............................................S-49
Principal (Including Prepayments)....................................S-50
Additional Rights of the Class A-R
Certificateholder....................................................S-55
Subordinated Certificates and Shifting
Interests............................................................S-55
FEDERAL INCOME TAX
CONSIDERATIONS..........................................................S-58
Class A-R Certificate................................................S-58
ERISA CONSIDERATIONS....................................................S-59
LEGAL INVESTMENT MATTERS................................................S-61
USE OF PROCEEDS.........................................................S-62
UNDERWRITING............................................................S-62
LEGAL MATTERS...........................................................S-63
RATINGS.................................................................S-63
INDEX OF DEFINED TERMS..................................................S-64
S-2
<PAGE>
THE SERIES [_________] CERTIFICATES
<TABLE>
<CAPTION>
Original Expected
Certificate Ratings(3)
Principal Certificate ---------------
Balance(1) Rate Principal Type(2) Interest Type(2) [Agency [Agency]
----------- ----------- ---------------------- ---------------- ---------------
<S> <C> <C>
Offered Certificates
Class A-1.................. $________ ____% Senior, Sequential Pay Fixed Rate AAA AAA
Class A-2.................. $________ ____% Senior, Sequential Pay Fixed Rate AAA AAA
Class A-3.................. $________ ____% Senior, Sequential Pay Fixed Rate AAA AAA
Class A-4.................. $________ ____% Senior, Sequential Pay Fixed Rate AAA AAA
Class A-5.................. $________ (4) Senior, Sequential Pay Floating Rate Class AAA AAA
Class A-6.................. $________ (4) Senior, Sequential Pay Inverse Floating Rate Class AAA AAA
Class A-7.................. $________ ____% Senior, Lock-out Class Fixed Rate AAA AAA
Class A-P.................. $________ (5) Senior Principal-Only Class AAA AAA
Class A-R.................. $________ ____% Senior, Sequential Pay Fixed Rate AAA AAA
Class M.................... $________ ____% Mezzanine Fixed Rate AA N/A
Class B-1.................. $________ ____% Subordinated Fixed Rate A N/A
Class B-2.................. $________ ____% Subordinated Fixed Rate BBB N/A
Non-Offered Certificates(6)
Class A-X.................. (7) (7) Senior, Notional Amount Interest Only N/A N/A
Class B-3.................. $________ ____% Subordinated Fixed Rate N/A N/A
Class B-4.................. $________ ____% Subordinated Fixed Rate N/A N/A
Class B-5.................. $________ ____% Subordinated Fixed Rate N/A N/A
</TABLE>
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(1) These amounts are approximate. We may adjust the original certificate
principal balances upward or downward by up to 5%.
(2) See "Description of the Certificates--Categories of Classes of Certificates"
in the prospectus for a description of the principal types and interest
types.
(3) See "Ratings."
(4) The certificate rate on the Class A-5 and Class A-6 Certificates are
adjustable based on LIBOR as described herein under "Description of the
Certificates--Distributions to Certificateholders--Interest."
(5) The Class A-P Certificates are principal-only Certificates and are not
entitled to payments of interest.
(6) The information presented for the non-offered certificates is provided
solely to assist your understanding of the offered certificates.
(7) The Class A-X Certificates are interest-only certificates, have no principal
balance, and will bear interest on their notional amount (initially,
approximately $__________).
S-3
<PAGE>
SUMMARY INFORMATION
This section briefly summarizes certain major characteristics of the
certificates and the mortgage loans. It does not contain all of the information
that you need to consider in making your investment decision. To fully
understand the terms of the certificates, you should read both this prospectus
supplement and the accompanying prospectus in their entirety.
The Trust Fund
The name of the trust fund is Chase Mortgage Finance Trust, Series [______]. We
are forming a trust to own a pool of fixed rate one- to four-family first lien
mortgage loans. The certificates represent beneficial ownership interests in the
underlying trust fund assets. All payments to you will come only from the
amounts received in connection with those assets. The certificates will have the
original certificate principal balance, certificate rate and other features set
forth in the table on page S-3. The trust fund will issue the certificates under
a Pooling and Servicing Agreement dated as of [DATE] among Chase Mortgage
Finance Corporation, as depositor, [Chase Manhattan Mortgage Corporation], as
servicer and [TRUSTEE], as trustee. See "The Pooling and Servicing Agreement"
and "Description of the Certificates."
Principal Parties
Issuer: Chase Mortgage Finance Trust, Series [------].
Seller: Chase Mortgage Finance Corporation, a Delaware corporation whose
address is 343 Thornall Street, Edison, New Jersey 08837 and whose telephone
number is (732) 205-0600.
Servicer: [Chase Manhattan Mortgage Corporation, a New Jersey corporation
whose address is 343 Thornall Street, Edison, New Jersey 08837 and whose
telephone number is (732) 205- 0600]. See "Chase Manhattan Mortgage Corporation"
and "The Pooling and Servicing Agreement--Servicing."
Trustee: [TRUSTEE], a _______ association whose corporate trust office is
[ADDRESS] and whose telephone number is [NUMBER]. See "The Pooling and Servicing
Agreement--The Trustee."
Cut-off Date
The cut-off date will be [DATE].
Closing Date
The closing date will be on or about [DATE].
Forms of Certificates; Denominations
Your certificates will be issued either in book-entry form or in fully
registered, certificated form. The table under "Description of the
Certificates--General" in this prospectus supplement sets forth the original
certificate form, the minimum denomination and the incremental denomination of
the offered certificates.
Description of the Certificates
The certificates will have an approximate aggregate initial principal balance of
$___________, subject to a permitted variance of plus or minus five percent.
The certificates will consist of:
o [Ten] classes of Class A Certificates, which initially will have an
approximate aggregate initial principal balance of $_________ and
evidence an approximate undivided beneficial interest of _____% of the
trust fund assets;
o The Class M Certificates, which initially will have an approximate
initial principal balance of $_________ and evidence an approximate
undivided beneficial interest of ____% of the trust fund assets; and
S-4
<PAGE>
o Five classes of Class B Certificates, which initially will have an
approximate aggregate initial principal balance of $_________ and
evidence an approximate undivided beneficial interest of ____% of the
trust fund assets.
Only the Class A (excluding Class A-X), Class M, Class B-1 and Class B-2
Certificates are being offered by this prospectus supplement and the
accompanying prospectus. We will sell or otherwise transfer the Class A-X, Class
B-3, Class B-4 and Class B-5 Certificates to a limited number of institutional
investors (which may include one or more of our affiliates) in a privately
placed offering.
The Mortgage Pool
The mortgage pool will consist of fixed rate one- to four-family first lien
residential mortgage loans with original terms to stated maturity of
approximately [15] [30] years.
We expect the mortgage loans to have the following approximate characteristics
as of [DATE]:
Number of Mortgage Loans ______
Aggregate Unpaid Principal Balance ______
Range of Unpaid Principal Balances $_____ - $______
Average Unpaid Principal Balance $______
Range of Mortgage Rates _____% - _____%
Weighted Average Mortgage Rate _____%
Range of Remaining Terms to Stated ___ months-___ months
Maturity
Weighted Average Remaining Term to ___ months
Stated Maturity
Range of Remaining Terms to Expected ___ months-___ months
Maturity(1)
Weighted Average Remaining Term to ___ months
Expected Maturity(1)
Weighted Average Loan Age(2) __ month[s]
Range of Original Loan-to-Value Ratios _____% - _____%
Weighted Average Original Loan-to- _____%
Value Ratio
Weighted Average FICO Score(3) ___
- ----------
(1) Based on payments actually received (or scheduled to be received) on each
mortgage loan as of the cut-off date.
(2) Based on the number of months from and including the first monthly payment
to and including the cut-off date.
(3) FICO scores are described on page S-__.
Before we issue the certificates, we may remove some mortgage loans from the
mortgage pool. We also may substitute other loans for some mortgage loans. This
may result in changes in the mortgage pool characteristics shown above and could
affect the weighted average lives and yields of the certificates. See "The
Mortgage Pool."
Distributions on the Certificates
The first distribution date will be [DATE]. Thereafter, distributions will be
made on the 25th day of each month, or on the next business day if the 25th day
is not a business day. In general, amounts available for distribution each month
will be distributed by the Servicer in the following order of priority:
First, the holders of the Class A Certificates will receive, on a pro rata
basis, the interest payments to which they are entitled on that distribution
date;
Second, the holders of the Class A Certificates will receive the payments
of principal to which they are entitled on that distribution date (however, not
every class of Class A Certificates will receive a principal distribution on
each distribution date; instead, principal payments will be allocated among the
various classes of Class A Certificates as described under "Description of the
Certificates--Distributions to Certificateholders--Principal (Including
Prepayments)";
Third, the holders of the Class M Certificates will receive the payments
of interest and then principal to which they are entitled on that distribution
date; and
Fourth, the holders of the Class B Certificates will receive, in numerical
order (that is, first to the Class B-1 Certificates, then to the Class B-2
Certificates, etc.) the payments of interest and then principal to which they
are entitled on that distribution date.
Credit Enhancement
Credit enhancement reduces the harm caused to holders of the certificates as a
result of shortfalls in payments received and losses realized on the mortgage
loans. The credit enhancement for the
S-5
<PAGE>
offered certificates will consist of subordination utilizing a shifting interest
structure.
Subordination. The rights of the holders of each class of Class B
Certificates to receive distributions will be subordinated to the rights of the
holders of the Class A and Class M Certificates and the holders of the classes
of Class B Certificates, if any, with lower numerical designations to receive
distributions. The rights of the holders of the Class M Certificates to receive
distributions will be subordinated to the rights of the holders of the Class A
Certificates to receive distributions.
In general, the protection afforded the holders of more senior classes of
certificates by means of this subordination will be effected in two ways:
Priority of Distributions. By the preferential right of the holders of
such classes to receive, prior to any distribution being made on any
distribution date to the holders of the more junior classes of
certificates, the amount of interest and principal due on the more senior
classes of certificates and, if necessary, by the right of such more
senior holders to receive future distributions on the mortgage loans that
would otherwise have been allocated to the holders of the more junior
classes of certificates; and
Allocation of Losses. By the allocation to the more junior classes of
certificates (in inverse order of seniority), until their respective
certificate principal balances have been reduced to zero, of losses
resulting from the liquidation of defaulted mortgage loans or the
bankruptcy of mortgagors prior to the allocation of such losses to the
more senior classes of certificates (other than the certain excess losses
arising from special hazards, mortgagor fraud or mortgagor bankruptcy).
The chart below summarizes the relative seniority of the various classes of
certificates and indicates the initial level of credit enhancement provided to
the various classes of offered certificates:
Initial Credit
Credit Enhancement
Class Enhancement Percentage
A Class M and Class B ____%
M Class B ____%
B-1 Class B-2, Class B-3, ____%
Class B-4 and Class
B-5
B-2 Class B-3, Class B-4 ____%
and Class B-5
Shifting of Interests. In order to increase the period during which the Class
M and Class B Certificates remain available as credit enhancement to the Class A
Certificates, the Class A Certificates in the aggregate will receive 100% of
principal prepayments and certain unscheduled recoveries with respect to the
mortgage loans until the fifth anniversary of the first distribution date.
During the four years following that anniversary, the Class A Certificates in
the aggregate will receive a disproportionately large, but decreasing, share of
principal prepayments and such other unscheduled recoveries. This will result in
an accelerated amortization of principal to the Class A Certificates and, in the
absence of realized losses on the mortgage loans, an increase in the percentage
interest in the principal balance of the mortgage loans evidenced by the Class M
and Class B Certificates, thereby increasing the likelihood that holders of the
Class A Certificates will be paid the full amount of principal to which they are
entitled.
Optional Termination
Subject to certain restrictions, [Chase Manhattan Mortgage Corporation] will
have the option (but not the obligation) to purchase all of the mortgage loans
in the mortgage pool after the aggregate unpaid principal balance of such
mortgage loans is reduced to less than 10% of the aggregate unpaid principal
balance of such mortgage loans as of the cut-off date. See "The Pooling and
Servicing Agreement-- Optional Termination."
S-6
<PAGE>
Legal Investment
As of the closing date, the Class A and Class M Certificates will constitute
"mortgage related securities" under the Secondary Mortgage Market Enhancement
Act of 1984, as amended. The Class B-1 and Class B-2 Certificates will not
constitute "mortgage related securities." You should consult your own counsel as
to whether and to what extent the offered certificates constitute legal
investments for you. See "Legal Investment Matters" in this prospectus
supplement and "Legal Investment Matters" in the accompanying prospectus.
Federal Income Tax Consequences
For federal income tax purposes, the trust fund will elect to be treated as a
Real Estate Mortgage Investment Conduit. The certificates (other than the Class
A-R Certificates) will represent ownership of regular interests in the trust
fund and will generally be treated as debt instruments of the trust fund for
federal income tax purposes. You will be required to include in income all
interest and original issue discount, if any, on your certificates in accordance
with the accrual method of accounting regardless of your usual method of
accounting. The Class A-R Certificates will represent ownership of the residual
interest in the trust fund. See "Federal Income Tax Considerations" in this
prospectus supplement and in the accompanying prospectus.
ERISA Considerations
In general, subject to important considerations described under "ERISA
Considerations" in this prospectus supplement and the accompanying prospectus,
the Class A Certificates (other than the Class A-R Certificates) will be
eligible for purchase by retirement or other employee benefit plans subject to
the Employee Retirement Income Security Act of 1986, as amended. You should
consult with your own counsel with respect to the legal consequences of an ERISA
plan's acquisition and ownership of the certificates. See "ERISA Considerations"
in this prospect supplement and in the accompanying prospectus.
Ratings
The offered certificates are required to receive the ratings from [RATING
AGENCY] and [RATING AGENCY] indicated under the heading "Expected Ratings" in
the chart shown on page S-3 of this prospectus supplement. The ratings on the
offered certificates address the likelihood of the receipt by holders of offered
certificates of all distributions on the underlying mortgage loans to which they
are entitled. They do not address the likely actual rate of prepayments. Such
rate of prepayments, if different than you originally anticipated, could
adversely affect your yield. See "Ratings."
S-7
<PAGE>
RISK FACTORS
Forward-Looking Statements
In this prospectus supplement and the accompanying prospectus, we use
certain forward-looking statements. Such forward-looking statements are found in
the material, including each of the tables, set forth under "Risk Factors" and
"Prepayment and Yield Considerations." Forward-looking statements are also found
elsewhere in this prospectus supplement and prospectus and include words like
"expects," "intends," "anticipates," "estimates" and other similar words. Such
statements are inherently subject to a variety of risks and uncertainties.
Actual results differ materially from those we anticipate due to changes in,
among other things:
o economic conditions and industry competition;
o political, social and economic conditions;
o the law and government regulatory initiatives; and
o interest rate fluctuations.
We will not update or revise any forward-looking statements to reflect
changes in our expectations or changes in the conditions or circumstances on
which such statements were originally based.
Prepayments May Adversely Affect Yield
The rate of distributions in reduction of the principal balance of any
class of offered certificates, the aggregate amount of distributions of
principal and interest on any class of offered certificates and the yield to
maturity of any class of offered certificates will be directly related to the
rate of payments of principal on the mortgage loans and to the amount and timing
of mortgagor defaults resulting in realized losses. The rate of principal
payments on the mortgage loans will in turn be affected by, among other things:
o the amortization schedules of the mortgage loans;
o the rate of principal prepayments (including partial
prepayments and prepayments resulting from refinancing)
thereon by mortgagors;
o liquidations of defaulted mortgage loans;
o repurchases of mortgage loans by us as a result of
defective documentation or breaches of representations
and warranties; and
o optional purchase by [Chase Manhattan Mortgage
Corporation] of all of the mortgage loans in connection
with the termination of the trust fund.
See "Prepayment and Yield Considerations" and "The Pooling and Servicing
Agreement--Optional Termination" herein and "The Pooling and Servicing
Agreement--Assignment of Mortgage Loans; Warranties," "--Repurchase or
Substitution" and "--Termination; Purchase of Mortgage Loans" in the prospectus.
Mortgagors are permitted to prepay the mortgage loans, in whole or in part, at
any time without penalty.
S-8
<PAGE>
The rate of payments (including prepayments, liquidations and defaults)
on pools of mortgage loans is influenced by a variety of economic, geographic,
social and other factors.
o If prevailing rates for similar mortgage loans fall below
the mortgage interest rates on the mortgage loans, the
rate of prepayment generally would be expected to
increase.
o Conversely, if interest rates on similar mortgage loans
rise above the mortgage interest rates on the mortgage
loans, the rate of prepayment generally would be expected
to decrease.
If you purchase any offered certificates at a discount, you should
consider the risk that a slower than anticipated rate of principal payments
(including prepayments, liquidations and defaults) on the mortgage loans in the
related mortgage group will result in an actual yield that is lower than your
expected yield. If you purchase any offered certificates at a premium, you
should consider the risk that a faster than anticipated rate of principal
payments (including prepayments, liquidations and defaults) on the mortgage
loans will result in an actual yield that is lower than your expected yield and,
under certain circumstances, you might not recoup your initial investment.
Subordination of Subordinated Certificates Increases Risk of Loss to Such
Classes
The rights of the holders of the Class M Certificates to receive
distributions with respect to the mortgage loans will be subordinated to such
rights of the holders of the Class A Certificates and the rights of the holders
of a Class of Class B Certificates to receive distributions with respect to the
mortgage loans will be subordinated to such rights of the holders of the Class A
Certificates, the Class M Certificates and the Classes of Class B Certificates
with lower numerical designations, all to the extent described herein under
"Description of the Certificates--Subordination Certificates and Shifting
Interests."
Geographic Concentration of the Mortgaged Properties May Increase Risk of Loss
We expect approximately ____%, ___% and ___% of the mortgage loans (by
aggregate principal balance as of the cut-off date) to be secured by mortgaged
properties located in the states of __________, ________ and _______,
respectively. Consequently, losses and prepayments on the mortgage loans and
resultant payments on the offered certificates may, both generally and
particularly, be affected significantly by changes in the housing markets and
regional economies of, and the occurrence of natural disasters (such as
earthquakes, fires, floods or hurricanes) in, the states of __________, ________
and
- -------.
Certificates May Not Be Appropriate for Individual Investors
The offered certificates may not be an appropriate investment for
individual investors who do not have sufficient resources or expertise to
evaluate the particular characteristics of the applicable class of offered
certificates. This may be the case because, among other things:
S-9
<PAGE>
o The yield to maturity of offered certificates purchased
at a price other than par will be sensitive to the
uncertain rate and timing of principal prepayments on the
mortgage loans;
o The rate of principal distributions on, and the weighted
average life of, the offered certificates will be
sensitive to the uncertain rate and timing of principal
prepayments on the mortgage loans and the priority of
principal distributions among the classes of
certificates, and as such the offered certificates may be
inappropriate investments for you if you require a
distribution of a particular amount of principal on a
specific date or an otherwise predictable stream of
distributions;
o You may not be able to reinvest amounts distributed in
respect of principal on an offered certificate (which, in
general, are expected to be greater during periods of
relatively low interest rates) at a rate at least as high
as the certificate rate on the offered certificates; or
o It is possible that a secondary market for the offered
certificates will not develop or that your investment may
not be liquid. Lack of liquidity could result in a
substantial decrease in the market value of your
certificates.
You should also carefully consider the further risks and other special
considerations discussed above and under the heading "Prepayment and Yield
Considerations" in this prospectus supplement and in the accompanying prospectus
under the heading "Risk Factors."
Risks Associated with Year 2000 Compliance
We are 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.
We have been advised by [Chase Manhattan Mortgage Corporation] and
[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 we nor any of
our affiliates have made any independent investigation of the computer systems
of [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
[Chase Manhattan Mortgage Corporation] or [TRUSTEE] 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.
With respect to the year 2000 problem, The Depository Trust Company has
informed members of the financial community that it has developed and is
implementing a program so that its systems, as they relate to the timely payment
of distributions, including principal and interest payments to
certificateholders, book-entry deliveries, and settlement of trades within The
Depository Trust Company,
S-10
<PAGE>
continue to function appropriately on and after January 1, 2000. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, The Depository Trust Company's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, The Depository Trust Company's ability to perform properly its
services is also dependent upon other parties, including but not limited to, its
participating organizations, through which you will hold your certificates, as
well as the computer systems of third party service providers. The Depository
Trust Company has informed the financial community that it is contacting and
will continue to contact third party vendors from whom The Depository Trust
Company acquires services to:
o impress upon them the importance of such services being
year 2000 compliant; and
o determine the extent of their efforts for year 2000
remediation, and, as appropriate, testing, of their
services.
In addition, The Depository Trust Company has stated that it is in the
process of developing such contingency plans as it deems appropriate.
If problems associated with the year 2000 problem were to occur with
respect to The Depository Trust Company and the services described above,
payments to you could be delayed or otherwise adversely affected.
See "Risk Factors" in the accompanying prospectus for a description of
certain other risks and special considerations applicable to the offered
certificates.
S-11
<PAGE>
THE MORTGAGE POOL
General
The mortgage pool with respect to the Certificates (the "Mortgage
Pool") will consist of approximately _____ conventional mortgage loans (the
"Mortgage Loans") evidenced by fixed interest rate promissory notes (each, a
"Mortgage Note") having an aggregate principal balance on [DATE], (the "Cut-off
Date") of approximately $___________. References herein to percentages of
Mortgage Loans refer in each case to the percentage of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date, based on the outstanding
principal balances of the Mortgage Loans as of the Cut-off Date, after giving
effect to Monthly Payments (defined herein) due on or prior to the Cut-off Date,
whether or not received. References to percentages of Mortgaged Properties
(defined herein) refer, in each case, to the percentages of aggregate principal
balances of the related Mortgage Loans (determined as described in the preceding
sentence). The Mortgage Notes are secured by mortgages or deeds of trust or
other similar security instruments creating first liens on one- to four-family
residential properties (the "Mortgaged Properties"). The Mortgaged Properties
consist of individual dwelling units, individual cooperative apartment dwelling
units, individual condominium units, two- to four-family dwelling units,
attached planned unit developments and detached planned unit developments. The
Trust Fund includes, in addition to the Mortgage Pool, (i) the amounts held from
time to time in one or more accounts (collectively, the "Accounts") maintained
in the name of the Trustee pursuant to the Pooling and Servicing Agreement (the
"Agreement") to be dated as of [DATE] by and among Chase Mortgage Finance
Corporation (the "Seller"), [Chase Manhattan Mortgage Corporation ("Chase
Manhattan Mortgage")], as servicer (in such capacity, the "Servicer") and
[TRUSTEE], as trustee (the "Trustee"), (ii) any property which initially secured
a Mortgage Loan and which is acquired by foreclosure or deed-in-lieu of
foreclosure, (iii) all insurance policies and the proceeds thereof described
below and (iv) certain rights to require repurchase of the Mortgage Loans by the
Seller for breach of representation or warranty.
The Seller will cause the Mortgage Loans to be assigned to the Trustee.
The Servicer will service the Mortgage Loans either by itself or through other
mortgage servicing institutions (the "Subservicers"), pursuant to the Agreement.
With respect to those Mortgage Loans serviced by the Servicer through a
Subservicer, the Servicer will remain liable for its servicing obligations under
the Agreement as if the Servicer alone were servicing such Mortgage Loans.
Representations and Warranties
The Seller will make certain representations and warranties for the
benefit of the Trustee with respect to the Mortgage Loans as described in the
Prospectus under "The Mortgage Pools" and "The Pooling and Servicing
Agreement--Assignment of Mortgage Loans; Warranties" and "--Repurchase or
Substitution" and will be obligated to repurchase any Mortgage Loan as to which
there is a material breach of any such representation or warranty. Such
repurchase will constitute the sole remedy available to Certificateholders for a
breach of such representations or warranties. The Trustee will enforce the
repurchase obligations of the Seller. In lieu of such repurchase obligation, the
Seller may, within two years after the date of initial delivery of the
Certificates, substitute for the affected Mortgage Loans substitute mortgage
loans, as described under "The Pooling and Servicing Agreement--Assignment of
Mortgage Loans; Warranties" and "--Repurchase or Substitution" in the
Prospectus.
S-12
<PAGE>
Mortgage Loans
Statistical data with respect to the Mortgage Loans are set forth
below. The Mortgage Loans were originated between [DATE] and [DATE]. All of the
Mortgage Loans had original terms to stated maturity of [360] [180] months or
less.
The weighted average number of months from and including the first
Monthly Payment on the Mortgage Loans to and including the Cut-off Date was
approximately __ month[s].
Monthly payments of principal and interest on the Mortgage Loans
("Monthly Payments") will be due on the first day of each month (each, a "Due
Date").
All of the Mortgage Loans having original loan-to-value ratios of
greater than ___% are insured under Primary Mortgage Insurance Policies (as
defined in the Prospectus). Not more than approximately ___% of the Mortgage
Loans are insured by any one Primary Mortgage Insurance Policy insurer. At the
time of origination of the Mortgage Loans, each of the Primary Mortgage
Insurance Policy insurers was approved by the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
See "Servicing of the Mortgage Loans--Private Mortgage Insurance" in the
Prospectus.
Approximately _____% of the Mortgage Loans have FICO Scores. The
weighted average FICO Score for the Mortgage Loans that were scored is [___] and
the range of such FICO Scores is [___] to [____]. "FICO Scores" are statistical
credit scores obtained by many mortgage lenders in connection with the loan
application to help assess a borrower's credit-worthiness. FICO Scores are
generated by models developed by a third party and are made available to lenders
through three national credit bureaus. The models were derived by analyzing data
on consumers in order to establish patterns which are believed to be indicative
of the borrower's probability of default. The FICO Score is based on a
borrower's historical credit data, including, among other things, payment
history, delinquencies on accounts, levels of outstanding indebtedness, length
of credit history, types of credit, and bankruptcy experience. FICO Scores range
from approximately 250 to approximately 900, with higher scores indicating an
individual with a more favorable credit history compared to an individual with a
lower score. However, a FICO Score purports only to be a measurement of the
relative degree of risk a borrower represents to a lender, i.e., that a borrower
with a higher score is statistically expected to be less likely to default in
payment than a borrower with a lower score. In addition, it should be noted that
FICO Scores were developed to indicate a level of default probability over a
two-year period which does not correspond to the life of a mortgage loan.
Furthermore, FICO Scores were not developed specifically for use in connection
with mortgage loans, but for consumer loans in general. Therefore, a FICO Score
does not take into consideration the effect of mortgage loan characteristics on
the probability of repayment by the borrower. Neither the Seller nor Chase
Manhattan Mortgage makes any representations or warranties as to the actual
performance of any Mortgage Loan or that a particular FICO Score should be
relied upon as a basis for an expectation that the borrower will repay the
Mortgage Loan according to its terms.
Additional data with respect to the Mortgage Loans are set forth in the
following tables (totals may not sum due to rounding):
S-13
<PAGE>
Mortgage Rates(1)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Rate Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... %
=========== ============= ===========
</TABLE>
- -----------
(1) The Mortgage Rates borne by the Mortgage Loans as of the Cut-off Date
ranged from ____% per annum to _____% per annum, and the weighted
average Mortgage Rate on the Mortgage Loans as of the Cut-off Date was
approximately _____% per annum.
Geographical Distribution of Mortgaged Properties
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
State Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
State Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... %
=========== ============= ===========
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
Original Principal Balance(2)
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Original Principal Balance Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... %
=========== ============= ===========
</TABLE>
- -----------
(2) The average outstanding principal balance of the Mortgage Loans as of
the Cut-off Date was approximately $_______. The original principal
balances of the Mortgage Loans ranged from $______ to $_________.
S-16
<PAGE>
Mortgage Loan Age (3)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Mortgage Loan Age Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... %
=========== ============= ===========
</TABLE>
- -----------
(3) The weighted average age of the Mortgage Loans was approximately
___month[s] as of the Cut-off Date.
S-17
<PAGE>
Original Loan-to-Value Ratio(4)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Original Loan-to-Value Ratio Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... $ %
=========== ============= ===========
</TABLE>
- -----------
(4) The weighted average original loan-to-value ratio of the Mortgage Loans
was approximately ______% as of the Cut-off Date.
S-18
<PAGE>
Loan Purpose
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Loan Purpose Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
Purchase....................................
Cash-out Refinance..........................
Rate/Term Refinance.........................
----------- ------------- -----------
Totals....................... $ %
=========== ============= ===========
</TABLE>
Remaining Terms to Stated Maturity(5)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
%
$
----------- ------------- -----------
Totals....................... %
=========== ============= ===========
</TABLE>
- -----------
(5) The weighted average remaining term to stated maturity of the Mortgage
Loans as of the Cut-off Date was approximately ___ months.
S-19
<PAGE>
Remaining Terms to Expected Maturity(6)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Months Remaining Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... $ %
=========== ============= ===========
</TABLE>
- -----------
(6) Based on payments actually received (or scheduled to be received) on
each Mortgage Loan as of the Cut-off Date. The weighted average
remaining term to expected maturity of the Mortgage Loans as of the
Cut-off Date was approximately ___ months.
Types of Mortgaged Properties
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Property Type Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
Single-family Detached......................
Cooperative Unit(7).........................
Attached Planned Unit Development...........
Detached Planned Unit Development...........
Condominium.................................
Two- to Four-Family Dwelling Unit...........
-----
----------- ------------- -----------
Totals....................... %
=========== ============= ===========
</TABLE>
- -----------
(7) Mortgage Loans secured by "Cooperative Units" were made to finance or
refinance the purchase of stock allocated to units in residential
cooperative housing corporations (each, a "Co-op Loan").
S-20
<PAGE>
Occupancy(8)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Occupancy Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... $ %
=========== ============= ===========
</TABLE>
- -----------
(8) Based on representations by the Mortgagors at the time of origination
of the related Mortgage Loans.
Loan Documentation
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
Loan Documentation Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... $ %
=========== ============= ===========
</TABLE>
S-21
<PAGE>
FICO Scores (9)
<TABLE>
<CAPTION>
Percentage of
Aggregate Mortgage Pool by
Principal Balance Aggregate Principal
Number of as of the Balance as of the
FICO Score Mortgage Loans Cut-off Date Cut-off Date
<S> <C> <C> <C>
----------- ------------- -----------
Totals....................... $ %
=========== ============= ===========
</TABLE>
- -----------
(9) The FICO Scores of the Mortgage Loans as of the Cut-off Date ranged from
___ to ___ and the weighted average FICO Score of the Mortgage Loans as of
the Cut-off Date was _________.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent more than 30 days or will have had more than one delinquency in
excess of 30 days as to any Monthly Payment during the preceding twelve months.
No zip code area contains greater than approximately ___% of the
Mortgaged Properties.
A Standard Hazard Insurance Policy is required to be maintained by the
Mortgagor with respect to each Mortgage Loan in an amount equal to the maximum
insurable value of the improvements securing such Mortgage Loan or the principal
balance of such Mortgage Loan, whichever is less. See "Servicing of the Mortgage
Loans--Hazard Insurance" in the Prospectus. No Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy or Mortgagor Bankruptcy Insurance will be
maintained with respect to the Mortgage Pool, nor will any Mortgage Loan be
insured by the FHA or guaranteed by the VA.
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as presently
constituted. Prior to the issuance of the Certificates, Mortgage Loans may be
removed from the Mortgage Pool if the Seller deems such removal necessary or
appropriate. Other mortgage loans may be included in the Mortgage Pool prior to
the issuance of the Certificates unless including such mortgage loans would
materially alter the characteristics of the Mortgage Pool as described herein.
The information set forth herein is representative of the characteristics of the
Mortgage Pool as it will be constituted at the time the Certificates are issued.
If any of the characteristics as of the Cut-Off Date of the Mortgage Loans on
the date of initial issuance of the Certificates vary materially from those
described herein, revised information regarding such Mortgage Loans will be
included in a Current Report on Form 8-K of the Seller that will be available to
purchasers of the Certificates at, and filed with the Securities and Exchange
Commission within 15 days of, the initial delivery of the Certificates. In any
event, no more than 5% of the Mortgage Loans described herein will be removed
from or added to the Mortgage Pool
S-22
<PAGE>
prior to the issuance of the Certificates unless a revised prospectus supplement
is delivered to prospective investors in the Offered Certificates.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Offered Certificates, the
aggregate amount of each interest payment on the Offered Certificates (other
than the [Class A-P] Certificates) and the yield to maturity of such
Certificates are related to the rate and timing of payments of principal on the
underlying Mortgage Loans. The principal payments on such Mortgage Loans may be
in the form of scheduled principal payments or prepayments (for this purpose,
the term "prepayment" includes prepayments in full, curtailments and
liquidations due to default, casualty, condemnation and the like, as well as
repurchases by a mortgage loan seller). Any such prepayments will result in
distributions to holders of Certificates ("Certificateholders") of principal
amounts which would otherwise be distributed over the remaining terms of the
Mortgage Loans. In addition, because, for at least nine years after the issuance
of the Certificates, the Offered Class A Certificateholders [(other than the
[Class A-7] and [Class A-P] Certificateholders)] will be entitled to receive a
percentage of certain amounts, including principal prepayments, which is greater
than their proportionate interest in the Trust Fund, the rate of principal
prepayments on the Mortgage Loans will have a greater effect on the rate of
principal payments and the amount of interest payments on, and the yield to
maturity of, such Certificates than if such Certificateholders were entitled
only to their proportionate interest in such amounts. In general, the prepayment
rate may be influenced by a number of factors, including general economic
conditions and homeowner mobility.
Mortgagors are permitted to prepay the Mortgage Loans, in whole or in
part, at any time without penalty. The rate of payment of principal may also be
affected by any repurchase of the Mortgage Loans as to which there has been a
material breach of a representation or warranty or defect in documentation, or
by a purchase by the Servicer of certain Mortgage Loans modified at the request
of a Mortgagor (including Mortgagors with respect to which the Servicer has
solicited such a request), or by the exercise by the Servicer of its right to
purchase a defaulted Mortgage Loan. See "The Mortgage Pool--General" and "The
Pooling and Servicing Agreement--Optional Termination." In such event, the
repurchase price will be passed through to the Certificateholders as a
prepayment of principal in the month following the month of such repurchase.
The rate of prepayments with respect to mortgage loans on one- to
four-family residences has fluctuated significantly in recent years. The Seller
believes that in a fluctuating interest rate environment a predominant factor
affecting the prepayment rate on a large pool of mortgage loans is the
difference between the interest rates on the mortgage loans (giving
consideration to the cost of any refinancing) and prevailing mortgage rates. In
general, if mortgage interest rates were to fall below the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to increase.
Conversely, in general, if mortgage interest rates were to rise above the
interest rates on the Mortgage Loans, the rate of prepayment would be expected
to decrease. Other factors affecting prepayment of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. Additionally, in
general, mortgage loans having relatively high principal balances and/or
relatively low loan-to-value ratios may be more likely to prepay than mortgage
loans having relatively low principal balances and/or relatively high
loan-to-value ratios. Therefore, if a mortgage pool consists of mortgage loans
which generally have relatively high principal balances and relatively low
loan-to-value ratios, the rate of prepayments with respect to such mortgage
S-23
<PAGE>
pool could be higher than would otherwise be the case. In addition, prepayments
generally will also result from home sales by mortgagors and from foreclosures
due to defaults on mortgage loans. There is no historical prepayment data
available for the Mortgage Pool, and comparable data is not available because
the Mortgage Loans do not constitute a representative sample of mortgage loans
generally. In addition, historical data available with respect to mortgage loans
underlying mortgage pass-through certificates issued by GNMA, FNMA or FHLMC may
not be comparable to prepayments expected to be experienced by the Mortgage
Pool, because the Mortgage Loans have characteristics which differ from mortgage
loans underlying pass-through certificates issued by GNMA, FNMA and FHLMC.
The timing of changes in the rate of prepayments on the Mortgage Loans
may significantly affect the total distributions received, the date of receipt
of such distributions and the actual yield to maturity to an investor in the
Offered Certificates, even if the average rate of principal payments is
consistent with an investor's expectations. Because the rate of distribution of
principal of the Certificates will be directly related to the actual
amortization (including prepayments) of the Mortgage Loans, which may include
Mortgage Loans that have remaining terms to maturity shorter or longer than
those assumed and interest rates higher or lower than those assumed, the
distributions of the Offered Certificates are likely to differ from those
reflected in the following tables, even if all the Mortgage Loans prepay at the
indicated percentages of the Prepayment Model (defined below). In addition, it
is not likely that the Mortgage Loans will prepay at a constant rate until
maturity or that all of the Mortgage Loans will prepay at the same rate. In
general, the earlier a payment of principal on the Mortgage Loans, the greater
the effect on an investor's yield to maturity. As a result, if principal
payments occur at a rate higher (or lower) than the rate anticipated by an
investor in the Offered Certificates during the period immediately following the
issuance of the Certificates, the effect on such investor's yield will not be
equally offset by a subsequent like reduction (or increase) in the rate of
principal payments. If an Offered Certificate is offered at a discount from its
original principal amount and if the purchaser of such Offered Certificate
calculates its yield to maturity based on a faster assumed rate of payment of
principal than that actually received on such Certificate, its actual yield to
maturity will be lower than that so calculated. Conversely, if an Offered
Certificate is offered at a premium to its original principal amount, and if the
purchaser of such Offered Certificate calculates its yield to maturity based on
a slower assumed rate of payment of principal than that actually received on
such Certificate, its actual yield to maturity will be lower than that so
calculated and, under certain circumstances, such a purchaser may fail to recoup
its initial investment. No assurances can be given as to the rate of payments on
the Mortgage Loans.
[The yield to investors in the Class A-6 Certificates will be highly
sensitive to LIBOR and increases in LIBOR will have a negative effect on the
yield to investors in the Class A-6 Certificates. Investors in the Class A-6
Certificates should consider the risk that a high rate of LIBOR will have a
negative effect on the yield to such investors.]
[Investors in the Class A-7 Certificates should be aware that because
the Class A-7 Certificates are not expected to receive distributions of payments
of principal prior to the Distribution Date occurring in [MONTH/YEAR] (unless
the principal balances of the Non-PO Class A Certificates (other than the Class
A-7 Certificates) have been reduced to zero), the weighted average life of the
Class A-7 Certificates will be longer than would otherwise be the case, and the
effect on the market value of the Class A-7 Certificates of changes in market
interest rates or market yields for similar securities will be greater than for
other Classes of Class A Certificates entitled to such distributions.]
S-24
<PAGE>
If the aggregate principal balance of the Non-Offered Class B
Certificates is reduced to zero, the yield to maturity on the Class B-2
Certificates will be extremely sensitive to losses on the Mortgage Loans (and
the timing thereof), because the entire amount of any such losses (other than
Excess Losses) which occur after the aggregate principal balance of the
Non-Offered Class B Certificates has been reduced to zero will be allocable to
the Class B-2 Certificates, as described herein. If the aggregate principal
balance of the Class B-2 Certificates and the Non-Offered Class B Certificates
is reduced to zero, the yield to maturity on the Class B-1 Certificates will be
extremely sensitive to losses on the Mortgage Loans and the timing thereof
because the entire amount of any such losses (other than Excess Losses) which
occur after the aggregate principal balance of the Class B-2 Certificates and
the Non-Offered Class B Certificates has been reduced to zero will be allocable
to the Class B-1 Certificates, as described herein. If the aggregate principal
balance of the Class B Certificates is reduced to zero, the yield to maturity on
the Class M Certificates will be extremely sensitive to losses on the Mortgage
Loans and the timing thereof because the entire amount of any such losses (other
than Excess Losses) which occur after the aggregate principal balance of the
Class B Certificates has been reduced to zero will be allocable to the Class M
Certificates, as described herein. In addition, as described herein, for at
least nine years after the issuance of the Certificates or such lesser time as
the Class A Certificates are outstanding, each Class of Subordinated
Certificates (defined herein), will be entitled to receive a percentage of
certain amounts, including principal prepayments, which is generally less than
their proportionate interest in the trust fund. See "Description of the
Certificates--Subordinated Certificates and Shifting Interests."
No assurance can be given as to the rate or timing of principal
payments or prepayments on the Mortgage Loans. In addition, it is unlikely that
prepayments on the Mortgage Loans will occur at a constant rate even if the
average prepayment experience equals the indicated levels of the Prepayment
Model.
In the event of acceleration of Mortgage Loans as a result of
enforcement of "due-on-sale" provisions in connection with transfers of the
related Mortgaged Properties, the level of prepayments on the respective
Mortgage Loans will be increased, thereby shortening the weighted average lives
of the Offered Certificates. See "Yield, Maturity and Weighted Average Life
Considerations" in the Prospectus.
The yield to holders of the Offered Certificates will depend upon,
among other things, the price at which such Offered Certificates are purchased
and the amount of and rate at which principal, including both scheduled and
unscheduled payments thereof, is paid to the respective Certificateholders.
The yield to Certificateholders (other than the [Class A-P]
Certificateholders) will be reduced by lags between the time interest income
accrues to Certificateholders and the time the related interest income is
received by Certificateholders. In addition, the yield to Certificateholders
(other than the [Class A-P] Certificateholders) may be reduced as a result of
Prepayment Interest Shortfalls (defined herein) to the extent described herein.
See "The Pooling and Servicing Agreement--Adjustment to Servicing Fee in
Connection with Prepaid Mortgage Loans."
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement (the
"Prepayment Model") represents an assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of mortgage loans. A
prepayment assumption of 100% of the Prepayment Model assumes prepayment rates
of 0.2% per annum of the then outstanding principal balance of such mortgage
loans in the first month of
S-25
<PAGE>
the life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, 100% of the
Prepayment Model assumes a constant prepayment rate of 6.0% per annum. The
tables set forth below are based on the assumption that the Mortgage Loans
prepay at the indicated percentages of the Prepayment Model. Neither the
Prepayment Model nor any other prepayment model purports to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Pool.
The tables set forth below have been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Trust Fund and the respective expected initial principal balances of the Offered
Certificates. For purposes of preparation of the tables, it has been assumed
that the Mortgage Loans included in the Mortgage Pool on the Closing Date have
the actual characteristics of the Mortgage Loans described herein and that [(i)
scheduled payments on all Mortgage Loans are received on the first day of each
month beginning in [MONTH/YEAR], (ii) any principal prepayments on the Mortgage
Loans are received on the last day of each month beginning in [MONTH/YEAR] and
include 30 days of interest thereon, (iii) there are no defaults or
delinquencies on the Mortgage Loans, (iv) optional termination of the Trust Fund
does not occur, (v) there are no partial prepayments on the Mortgage Loans and
prepayments are computed after giving effect to scheduled payments received on
the following day, (vi) the Mortgage Loans prepay at the indicated constant
percentages of the Prepayment Model, (vii) the date of issuance for the
Certificates is [DATE], (viii) cash distributions are received by the
Certificateholders on the 25th day of each month when due and (ix) the scheduled
monthly payments for the Mortgage Loans are computed based upon the amount of
principal and interest contractually due each month under the Mortgage Note.]
The assumptions set forth in this paragraph are referred to herein as the
"Modeling Assumptions."
Any discrepancy between the characteristics of the Mortgage Loans
actually included in the Trust Fund and the characteristics of the Mortgage
Loans expected to be so included may affect the percentages of the original
principal balance outstanding set forth in the tables and the weighted average
lives of the Offered Certificates. In addition, to the extent that the Mortgage
Loans that actually are included in the Trust Fund have characteristics that
differ from those assumed in preparing the following tables, the outstanding
principal balance of any Offered Certificate will likely be reduced to zero
earlier or later than indicated by the tables.
Variations in actual prepayment experience and the principal balances
of Mortgage Loans that prepay may increase or decrease the percentages of the
original principal balances outstanding and the weighted average lives shown in
the following tables. Such variations may occur even if the average prepayment
experience of all such Mortgage Loans equals the indicated levels of the
Prepayment Model. There is no assurance that the Mortgage Loans will prepay at
any constant level of the Prepayment Model.
Based on the foregoing assumptions, the following tables indicate the
weighted average life of each Class of Offered Certificates and set forth the
percentages of the original principal balance of each Class of Offered
Certificates that would be outstanding after each of the dates shown at various
percentages of the Prepayment Model.
No assurance can be given as to the rate or timing of principal
payments or prepayments on any of the Mortgage Loans.
S-26
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-1 Class A-2
Distribution Date _% ___% ___% ___% ___% _% ___% ___% ___% ___%
- ----------------- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Life in
years(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-27
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-3 Class A-4
Distribution Date _% ___% ___% ___% ___% _% ___% ___% ___% ___%
- ----------------- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Life
in years(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-28
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-5 Class A-6
Distribution Date _% ___% ___% ___% ___% _% ___% ___% ___% ___%
- ----------------- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Life in
years(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-29
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-7 Class A-P
Distribution Date _% ___% ___% ___% ___% _% ___% ___% ___% ___%
- ----------------- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Life
in years(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-30
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class A-R Class M, Class B-1 and Class B-2
Distribution Date _% ___% ___% ___% ___% _% ___% ___% ___% ___%
- ----------------- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Life
in years(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-31
<PAGE>
Yield Considerations with Respect to the Class A-P Certificates
The yield to maturity of the Class A-P Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments,
liquidations, repurchases and defaults) on the Discount Mortgage Loans (defined
herein), which may fluctuate significantly from time to time. A slower rate of
principal payments on the Discount Mortgage Loans than that anticipated by
investors will have a material negative effect on the yield to maturity of the
Class A-P Certificates. An investor should fully consider the associated risks,
including the risk that a relatively slow rate of principal payments (including
prepayments, liquidations, repurchases and defaults) on the Discount Mortgage
Loans will have a material negative effect on the yield to an investor in the
Class A-P Certificates. The Discount Mortgage Loans will have lower Net Mortgage
Rates than the other Mortgage Loans. In general, mortgage loans with lower
mortgage interest rates may tend to prepay at a slower rate of payment in
respect of principal than mortgage loans with relatively higher mortgage
interest rates in response to changes in market interest rates. As a result, the
Discount Mortgage Loans may prepay at a slower rate of payment in respect of
principal than the other Mortgage Loans, resulting in a lower yield on the Class
A-P Certificates than would be the case if the Discount Mortgage Loans prepaid
at the same rate as the other Mortgage Loans. As of the Cut-off Date, there were
approximately __ Discount Mortgage Loans, with an aggregate outstanding
principal balance of approximately $__________.
The following table illustrates the significant effect that principal
prepayments on the Discount Mortgage Loans have upon the yield to maturity of
the Class A-P Certificates. The actual prices to be paid for the Class A-P
Certificates have not been determined and will be dependent on the
characteristics of the Mortgage Pool. The table shows the hypothetical pre-tax
yields to maturity of the Class A-P Certificates, stated on a corporate bond
equivalent basis, under five different prepayment assumptions based on the
Prepayment Model described above. The table is based on the Modeling Assumptions
and assumes further that the purchase price of the Class A-P Certificates is
_____%.
Pre-Tax Yield
Prepayment Model
% % % % %
----% ----% ----% ----% ----%
Any change in the composition of the Mortgage Pool from that assumed
could substantially alter the information set forth in the table above. No
assurances can be given as to the rate or timing of principal payments or
prepayments on the Discount Mortgage Loans.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class A-P Certificates, would cause the
discounted present value of such assumed streams of cash flows to equal the
assumed offering price of _____% for the Class A-P Certificates. In all cases
monthly rates are then converted to the corporate bond equivalent yields shown
above. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that intermediate cash flows
are reinvested at the discount rate or internal rate of return. Thus, these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Class A-P Certificates. Consequently, these yields do not purport to reflect the
return on any investment in the Class A-P Certificates when such reinvestment
rates are considered.
S-32
<PAGE>
It is unlikely that the characteristics of the Discount Mortgage Loans
will correspond exactly to those assumed in preparing the table above. The
pre-tax yield of the Class A-P Certificates may therefore differ even if all the
Discount Mortgage Loans prepay monthly at the assumed prepayment rate. In
addition, it is highly unlikely that any Discount Mortgage Loan will prepay at a
constant rate until maturity or that all the Discount Mortgage Loans will prepay
at the same rate. The timing of changes in the rate of prepayments on the
Discount Mortgage Loans may affect significantly the total distributions
received, the date of receipt of such distributions and the actual yield
received by a holder of a Class A-P Certificate even if the average rate of
principal prepayments on the Discount Mortgage Loans is consistent with an
investor's expectations.
The Seller makes no representation that any of the Mortgage Loans will
prepay in the manner or at any of the rates assumed in the tables set forth
above. Each investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the Offered
Certificates. Since the rate of principal payments (including prepayments) and
repurchases on the Mortgage Loans will significantly affect the yield to
maturity on the Offered Certificates, prospective investors are urged to consult
their investment advisors as to both the anticipated rate of future principal
payments (including prepayments) on the Mortgage Loans and the suitability of
the Offered Certificates to their investment objectives.
The Seller intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Securities and Exchange Commission in a Report on Form
8-K. See "Incorporation of Certain Documents By Reference" in the Prospectus.
Such tables and materials were prepared by the Underwriter at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such investors. Such tables and assumptions may be
based on assumptions that differ from the Modeling Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for
investors other than those specifically requesting them.
CHASE MANHATTAN MORTGAGE CORPORATION
Chase Manhattan Mortgage is a New Jersey corporation, formed in 1920.
It is a wholly owned indirect subsidiary of Chase Manhattan Bank USA, National
Association. Chase Manhattan Mortgage is engaged in the mortgage origination and
servicing businesses. Chase Manhattan Mortgage is 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.
Loan Delinquency, Foreclosure and Loss Experience. The recent loan
delinquency and loan foreclosure experience of Chase Manhattan Mortgage as
servicer of first mortgage loans secured by one-to four-family residential
properties which were originated by or for Chase Manhattan Mortgage (exclusive
of any such mortgage loans as to which master servicing or subservicing
arrangements exist) (expressed as percentages of the total portfolio of such
loans as of such date) was as follows:
S-33
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------------
1998 1997
-------------------------------- ------------------------------
By By By By
Number of Principal Number Principal
Period of Delinquency Loans Balance of Loans Balance
- ---------------------------------------------------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
30 to 59 days....................................... 3.31% 2.74% 3.97% 3.28%
60 to 89 days....................................... 0.80 0.65 0.85 0.69
90 days or more..................................... 0.61 0.50 0.56 0.48
Total.......................................... 4.72% 3.89% 5.38% 4.45%
Foreclosure......................................... 1.51% 1.24% 1.67% 1.37%
</TABLE>
The following table presents, for the portfolio of mortgage loans
originated by or for Chase Manhattan Mortgage which are owned by The Chase
Manhattan Bank or its affiliates, the net gains (losses) as a percentage of the
average principal amount of such portfolio on the disposition of properties
acquired in foreclosure or by deed-in-lieu of foreclosure during the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997
-------------------- -------------------
(Dollars in Millions)
<S> <C> <C>
Average portfolio principal amount.............. $23,648 $23,315
Year Ended December 31,
--------------------------------------------
1998 1997
-------------------- -------------------
Net gains (losses) (1).......................... (0.14%) (0.15%)
</TABLE>
- ---------------
(1) Losses are defined as unrealized losses on properties acquired in
foreclosure by or deed-in-lieu of foreclosure and proceeds from sale
less outstanding book balance (after recognition of such unrealized
losses) less certain capitalized costs related to disposition of the
related property (exclusive of accrued interest). If accrued interest
were included in the calculation of losses, the level of losses could
substantially increase.
There can be no assurance that the delinquency, foreclosure and loss
experience on the Mortgage Loans will correspond to the delinquency, foreclosure
and loss experience set forth in the foregoing tables. In general, during
periods in which the residential real estate market is experiencing an overall
decline in property values such that the principal balances of the Mortgage
Loans and any secondary financing on the related Mortgaged Properties become
equal to or greater than the value of the related Mortgaged Properties, rates of
delinquencies, foreclosure and losses could be significantly higher than might
otherwise be the case. In addition, adverse economic conditions (which may
affect real property values) may affect the timely payment by Mortgagors of
Monthly Payments, and accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to the Mortgage Pool.
S-34
<PAGE>
Underwriting Policies. The following is a description of the
underwriting policies customarily employed by Chase Manhattan Mortgage with
respect to residential mortgage loans which it originated during the period of
origination of the Mortgage Loans. Chase Manhattan Mortgage has represented to
the Seller that the Mortgage Loans were originated generally in accordance with
such policies.
Chase Manhattan Mortgage's real estate lending process for one-to
four-family residential mortgage loans follows procedures established to comply
with applicable federal and state laws and regulations. Chase Manhattan
Mortgage's underwriting standards are designed to evaluate a borrower's credit
standing and repayment ability and the value and adequacy of the mortgaged
property as collateral.
The Mortgage Loans were originated in a manner generally consistent,
except as to loan amounts, with FNMA or FHLMC published underwriting guidelines.
Chase Manhattan Mortgage believes that each Mortgage Loan originated in such a
manner generally meets the credit, appraisal and underwriting standards
described in such published underwriting guidelines, except for the original
principal balances of such Mortgage Loans. Initially, a prospective borrower is
required to fill out an application designed to provide pertinent information
about the borrower's assets, liabilities, income and credit, the property to be
financed and the type of loan desired. Chase Manhattan Mortgage obtains a credit
report which summarizes the prospective borrower's credit history with
merchants, lenders and other creditors reporting such information as well as
matters of public record. In addition, Chase Manhattan Mortgage verifies
employment, income and assets. Self-employed prospective borrowers are generally
required to submit their federal income tax returns for the last two years
and/in certain cases a separate statement of income and expenses independently
verified by a third party.
Pursuant to Chase Manhattan Mortgage's Limited Documentation Program,
written verification of the borrower's income is not required. The borrower must
satisfy a 25% down-payment requirement from their own assets. These assets are
verified through bank statements and may be supplemented by third-party
verification. A residential mortgage credit report, or "in file" report, is
obtained and reviewed to determine the borrower's repayment history. The maximum
loan-to-value ratio of any mortgage loan originated under this program is
approximately 80% (67% for "cash out" refinancings).
Once the necessary information is received, a determination is made as
to whether the prospective borrower has sufficient monthly income available to
meet the borrower's monthly obligations on the proposed loan and other expenses
related to the residence (such as property taxes and insurance) as well as to
meet other financial obligations and monthly living expenses. For loans with a
loan-to-value ratio of 80% or less, Chase Manhattan Mortgage's lending
guidelines require that all current fixed obligations of the borrower (including
mortgage payments based on Chase Manhattan Mortgage's mortgage rates at the time
of the application and other expenses related to the residence) generally may
not exceed 40% of the borrower's gross income in the case of a borrower with
income of under $75,000, 42% of the borrower's gross income in the case of a
borrower with income of between $75,000 and $150,000 and 44% of the borrower's
gross income in the case of a borrower with income in excess of $150,000. For
loans with a loan-to-value ratio between 80.01% and 90%, Chase Manhattan
Mortgage's lending guidelines require that the mortgage payments (based on Chase
Manhattan Mortgage's mortgage rates at the time of application) plus applicable
real property taxes, any condominium common charges and hazard insurance,
generally may not exceed 33% of the borrower's gross income and that all monthly
payments, including those mentioned above and other fixed obligations, such as
car payments, generally may not exceed 38% of the borrower's gross income. For
loans with a loan-to-value ratio between 90.01% and 95%, Chase Manhattan
Mortgage's lending guidelines require that the mortgage payments (based on Chase
Manhattan Mortgage's mortgage rates at the time of application) plus applicable
real property taxes, any condominium common charges and hazard insurance,
generally may not exceed 28% of the borrower's gross income and that all monthly
S-35
<PAGE>
payments, including those mentioned above and other fixed obligations, such as
car payments, generally may not exceed 36% of the borrower's gross income. Other
credit considerations may cause Chase Manhattan Mortgage to depart from these
guidelines in certain cases. Where there are two individuals signing the
mortgage note, the income and debts of both are included in the computation.
Chase Manhattan Mortgage requires an appraisal to be made of each
property to be financed. The appraisal is conducted by an independent fee
appraiser who visits the property and estimates its market value. The
independent appraisers do not receive any compensation dependent upon either the
amount of the loan or its consummation. In normal practice, the lower of
purchase price or appraised value determines the maximum amount which will be
lent on the property.
From time to time, exceptions and/or variances to Chase Manhattan
Mortgage's underwriting policies may be made. Such exceptions and/or variances
may be made only if specifically approved on a loan-by-loan basis by certain
credit personnel of Chase Manhattan Mortgage who have the authority to make such
exceptions and/or variances. Exceptions and/or variances may be made only after
careful consideration of certain mitigating factors such as borrower capacity,
liquidity, employment and residential stability and local economic conditions.
Chase Manhattan Mortgage obtains a search of the liens of record to
which the property being financed is subject at the time of origination. Title
insurance is required in the case of all mortgage loans.
Servicing Activities. As of [DATE], Chase Manhattan Mortgage serviced
approximately $___ billion of one- to four-family residential mortgage loans.
THE POOLING AND SERVICING AGREEMENT
The Certificates will be issued pursuant to the Agreement. The
following summaries, together with the summaries set forth under "The Pooling
and Servicing Agreement" in the accompanying Prospectus, describe the material
provisions of the Agreement. The summaries below do not purport to be complete
and are subject to, and qualified in their entirety by reference to, the
provisions of the Agreement. Where particular provisions or terms used in the
Agreement are referred to, such provisions or terms are as specified in the
Agreement. See "The Pooling and Servicing Agreement" in the Prospectus.
Assignment of Mortgage Loans
The Seller will cause the Mortgage Loans to be assigned to the Trustee,
together with the rights to all principal and interest due on or with respect to
the Mortgage Loans after the Cut-off Date other than interest accrued on the
Mortgage Loans prior to the Cut-off Date. The [Chase Manhattan Bank], as
authenticating agent, will, concurrently with such assignment, authenticate and
deliver the Certificates. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Agreement (the "Mortgage Loan Schedule"). The
Mortgage Loan Schedule will specify, among other things, with respect to each
Mortgage Loan, the original principal balance and the unpaid principal balance
as of the close of business on the Cut-off Date; the Monthly Payment; the months
remaining to stated maturity of the Mortgage Note; and the Mortgage Rate.
In addition, the Seller will, as to each Mortgage Loan, deliver or
cause to be delivered to the Trustee the Mortgage Note (together with all
amendments and modifications thereto) endorsed without recourse to the Trustee
or its designee, the original or a certified copy of the mortgage (together with
all amendments and modifications thereto) with evidence of recording indicated
thereon and an original or
S-36
<PAGE>
certified copy of an assignment of the mortgage in recordable form. The Seller
will cause the assignments to be recorded in the appropriate public records.
Servicing
The Mortgage Loans will be serviced by the Servicer generally in
accordance with procedures described in the accompanying Prospectus under the
headings "Servicing of the Mortgage Loans" and "Description of the
Certificates."
When any Mortgaged Property is conveyed by the Mortgagor, the Servicer
generally will enforce any "due-on-sale" clause contained in the Mortgage Loan,
to the extent permitted under applicable law and governmental regulations.
Acceleration of Mortgage Loans as a result of enforcement of such "due-on-sale"
provisions in connection with transfers of the related Mortgaged Properties will
affect the level of prepayments on the Mortgage Loans, thereby affecting the
weighted average lives and yields to maturity of the Offered Certificates. See
"Prepayment and Yield Considerations" herein and "Yield, Maturity and Weighted
Average Life Considerations" in the Prospectus. The terms of the Mortgage Loans
or applicable law, however, may provide that the Servicer is prohibited from
exercising the "due-on-sale" clause if information is submitted so as to
evaluate the intended buyer as if a new loan were being made to the buyer and it
can reasonably be determined that the security under the related Mortgage Note
will not be impaired by the assumption of the Mortgage Loan and that the risk of
a breach of any covenant in the Mortgage Note is acceptable. Upon any such
assumption, a fee equal to a specified percentage of the outstanding principal
balance of the Mortgage Loan is typically required, which sum will be retained
by the Servicer as additional servicing compensation.
Servicing Compensation and Payment of Expenses
The Servicer will be paid a monthly fee (the "Servicing Fee")
(including sub-servicing compensation) with respect to each Mortgage Loan in an
amount equal to ____% (the "Servicing Fee Rate") per annum of the unpaid
principal balance of each Mortgage Loan.
The Servicer is obligated to pay certain ongoing expenses associated
with the Mortgage Pool and incurred by the Servicer in connection with its
responsibilities under the Agreement. See "The Pooling and Servicing
Agreement--Servicing and Other Compensation and Payment of Expenses" in the
Prospectus for information regarding other possible compensation to the Servicer
and for information regarding expenses payable by the Servicer.
Adjustment to Servicing Fee in Connection with Prepaid Mortgage Loans
When a Mortgagor makes a full or partial principal prepayment of a
Mortgage Loan between Due Dates, the Mortgagor generally is required to pay
interest on the principal balance thereof only to the date of prepayment. In
order to minimize any resulting shortfall in interest (such shortfall, a
"Prepayment Interest Shortfall"), the aggregate amount of the Servicing Fee will
be reduced to the extent necessary to include an amount in payments to the
holders of the Offered Certificates equal to a full month's interest payment at
the applicable Net Mortgage Rate (defined herein) with respect to such prepaid
Mortgage Loan; provided, however, that such reductions in the Servicing Fee will
be made only up to the product of (i) one-twelfth of 0.125% and (ii) the
aggregate scheduled principal balance of the Mortgage Loans with respect to the
related Distribution Date. Any Prepayment Interest Shortfalls (adjusted to the
applicable Net Mortgage Rate) in excess of such amount (such excess, the
"Non-Supported Interest Shortfall") will be allocated on such Distribution Date
pro rata among the outstanding Classes of Certificates (including the Class A-X
Certificates) based upon the amount of
S-37
<PAGE>
interest which each such Class would otherwise be paid on such Distribution Date
and will consequently reduce the yield on the applicable Classes of
Certificates. Any principal prepayment, together with a full month's interest
thereon at the applicable Net Mortgage Rate (to the extent described in this
paragraph), will be paid on the Distribution Date in the month following the
month in which the last day of the related Principal Prepayment Period (defined
herein) occurred. See "Yield, Maturity and Weighted Average Life Considerations"
in the Prospectus.
Payments on Mortgage Loans; Collection Account; Certificate Account
The Agreement provides that the Servicer for the benefit of the
Certificateholders shall establish and maintain a Collection Account (the
"Collection Account"), into which the Servicer is generally required to deposit
or cause to be deposited on a daily basis the payments and collections described
in "The Pooling and Servicing Agreement--Payments on Mortgage Loans; Certificate
Account" in the Prospectus, except that the Servicer may deduct its Servicing
Fee and any expenses of liquidating defaulted Mortgage Loans or property
acquired in respect thereof. The Agreement permits the Servicer to direct any
depository institution maintaining the Collection Account to invest the funds in
the Collection Account in one or more investments acceptable to [RATING AGENCY]
and [RATING AGENCY] (as provided in the Agreement) that mature, unless payable
on demand, no later than the Business Day preceding the 25th day of each month,
or, if such day is not a business day, the preceding business day (the "Servicer
Remittance Date"). The Servicer will be entitled to all income and gain realized
from any such investment, and such income and gain will be subject to withdrawal
by the Servicer from time to time. The Servicer will be required to deposit the
amount of any losses incurred in respect of any such investments out of its own
funds as such losses are realized.
The Trustee will be obligated to establish an account (the "Certificate
Account"), into which the Servicer will deposit or cause to be deposited on the
Servicer Remittance Date the Available Distribution Amount (including any
Advances with respect to such Servicer Remittance Date) for the related
Distribution Date, together with certain other amounts specified in the
Agreement. Subject to the restrictions set forth in the Agreement, the Trustee
is permitted to direct the investment of funds in the Certificate Account. Any
such investments are required to mature, unless payable on demand, no later than
the related Distribution Date. The Trustee will be entitled to all income and
gain realized from any such investment, and such income and gain will be subject
to withdrawal by the Trustee from time to time. The Trustee will be required to
deposit the amount of any losses incurred in respect of any such investments out
of its own funds as such losses are realized.
Advances
In the event that any Mortgagor fails to make any payment of principal
or interest required under the terms of a Mortgage Loan, the Servicer will
advance the entire amount of such payment, net of the applicable Servicing Fee,
less the amount of any such payment that the Servicer reasonably believes will
not be recoverable out of liquidation proceeds or otherwise. The amount of any
scheduled payment required to be advanced by the Servicer will not be affected
by any agreement between the Servicer and a Mortgagor providing for the
postponement or modification of the due date or amount of such scheduled
payment. The Servicer will be entitled to reimbursement for any such advance
from related late payments on the Mortgage Loan as to which such advance was
made. Furthermore, in the event that any Mortgage Loan as to which an advance
has been made is foreclosed while in the Trust Fund, the Servicer will be
entitled to reimbursement for such advance from related liquidation proceeds or
insurance proceeds prior to payment to Certificateholders of the related
Mortgage Pool of the Scheduled Principal Balance of such Mortgage Loan.
S-38
<PAGE>
If the Servicer makes a good faith judgment that all or any portion of
any advance made by it with respect to any Mortgage Loan may not ultimately be
recoverable from related liquidation proceeds (a "Non-recoverable Advance"), the
Servicer will so notify the Trustee and the Servicer will be entitled to
reimbursement for such Non-recoverable Advance from recoveries on all other
unrelated Mortgage Loans included in the related Mortgage Pool. The Servicer's
judgment that it has made a Non-recoverable Advance with respect to any Mortgage
Loan will be based upon its assessment of the value of the related Mortgaged
Property and such other facts and circumstances as it may deem appropriate in
evaluating the likelihood of receiving liquidation proceeds, net of expenses,
equal to or greater than the aggregate amount of unreimbursed advances made with
respect to such Mortgage Loan.
Trustee
The Trustee for the Certificates offered hereby will be [TRUSTEE], a
__________. The Corporate Trust Office of the Trustee is located at [ADDRESS]
(the "Corporate Trust Office"). The Servicer will pay to the Trustee a fee in
consideration for its services as trustee under the Agreement. [The Trustee will
appoint The Chase Manhattan Bank ("Chase") as certificate registrar and
authenticating agent. Chase's office for such purposes is 450 West 33rd Street,
New York, New York 10001.]
Optional Termination
The Servicer may, on any Distribution Date, repurchase from the Trust
Fund all Mortgage Loans remaining outstanding at such time as the aggregate
unpaid principal balance of such Mortgage Loans is less than 10% of the
aggregate unpaid scheduled principal balance of the Mortgage Pool on the Cut-off
Date. The repurchase price will equal the greater of (A) the sum of (i) the
unpaid principal amount of such Mortgage Loans (other than any such Mortgage
Loans as to which the related Mortgaged Properties have been acquired and whose
fair market values are included in clause (ii) below), plus accrued interest
thereon at the Remittance Rate to the next Due Date and (ii) the fair market
value of any such acquired properties (as determined by an appraisal to be
conducted by an appraiser selected by the Trustee), in each case less any
unreimbursed Advances made with respect to such Mortgage Loans and (B) the
outstanding principal balance of the Offered Certificates plus accrued interest
thereon at the Remittance Rate. Upon any such repurchase, the Offered
Certificateholders will receive the outstanding principal balance of the Offered
Certificates plus accrued interest thereon at their respective Certificate
Rates. Such amounts will be distributed to Certificateholders on the
Distribution Date in the month following the month of repurchase.
Special Servicing Agreements
The Agreement may permit the Servicer to enter into a special servicing
agreement with an unaffiliated holder of a Class of Class B Certificates or of a
class of securities representing interests in the Class B Certificates and/or
other subordinated mortgage pass-through certificates. Pursuant to such
agreement, such holder may instruct the Servicer to commence or delay
foreclosure proceedings with respect to delinquent Mortgage Loans. Such
commencement or delay at such holder's direction will be taken by the Servicer
only after such holder deposits a specified amount of cash with the Servicer.
Such cash will be available for distribution to Certificateholders if
liquidation proceeds are less than the outstanding principal balance of the
related Mortgage Loan.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. A copy of
the Agreement will be attached as an exhibit to the Current Report on Form 8-K
of the Seller that will be available to purchasers of the Certificates at, and
will be filed with the Securities and Exchange Commission within 15 days of, the
initial delivery of the Certificates. Reference is made to the Prospectus for
additional information regarding the terms and conditions of the Agreement. The
approximate initial principal amount of the Offered Certificates will be
$___________, subject to a permitted variance of plus or minus 5%. Any
difference between the aggregate principal balance of the Certificates as of the
date of issuance of the Certificates and the approximate aggregate initial
principal balance thereof as of the date of this Prospectus Supplement will be
allocated among the various Classes of Certificates so as to retain materially
the characteristics thereof described herein.
The following summaries do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, the provisions of the
Agreement. When particular provisions or terms used in the Agreement are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
General
Initially, the Class A Certificates will evidence in the aggregate a
beneficial interest of approximately _____% in the aggregate principal balance
of the Mortgage Loans in the Trust Fund (the "Class A Percentage"), the Class M
Certificates will evidence a beneficial interest of approximately ____% in the
aggregate principal balance of the Mortgage Loans in the Trust Fund (the "Class
M Percentage"), the Class B-1 Certificates will evidence a beneficial interest
of approximately ____% in the aggregate principal balance of the Mortgage Loans
in the Trust Fund (the "Class B-1 Percentage"), the Class B-2 Certificates will
evidence in the aggregate a beneficial interest of approximately ____% in the
aggregate principal balance of the Mortgage Loans in the Trust Fund (the "Class
B-2 Percentage") and the Non-Offered Class B Certificates will evidence in the
aggregate the remaining beneficial interest (the "Non-Offered Class B
Percentage") in the aggregate principal balance of the Mortgage Loans in the
Trust Fund. Initially, the Non-Offered Class B Percentage will be approximately
____%. The Class A Percentage, the Class M Percentage, the Class B-1 Percentage
and the Class B-2 Percentage will vary from time to time to the extent that the
respective Class A, Class M, Class B-1 or Class B-2 Certificateholders do not
receive amounts due to them on any Distribution Date, losses are realized on the
Mortgage Loans, or principal prepayments are made or certain other unscheduled
amounts of principal are received in respect of the Mortgage Loans. See
"Description of the Certificates-- Subordinated Certificates and Shifting
Interests." The Class A-X Certificates and the Non-Offered Class B Certificates
will be sold or otherwise transferred to a limited number of institutional
investors (which may include one or more affiliates of the Seller) and are not
offered hereby.
The following table sets forth the original certificate form, the
minimum denomination and the incremental denomination of the Offered
Certificates.
S-40
<PAGE>
<TABLE>
<CAPTION>
Original Minimum Incremental
Class Certificate Form Denomination Denomination
----- ---------------- ------------ ------------
<S> <C> <C> <C>
Classes [A-1, A-2, A-3, A-4, A-5, Book-Entry $______ $1,000
A-6, A-7 and A-P]
Class A-R Definitive $100 N/A
Classes M, B-1 and B-2 Definitive $_______ $1,000
</TABLE>
The [Class A-R, Class M, Class B-1 and Class B-2 Certificates], as well
as other Definitive Certificates (defined herein), if any, will be transferable
and exchangeable at the Corporate Trust Office. No service charge will be made
for any registration or transfer of Offered Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge in connection with such transfer. The Offered Certificates, other than
the Class A-R, Class M, Class B-1 and Class B-2 Certificates (such Classes of
Certificates, the "Book-Entry Certificates") will be represented initially by
one or more physical certificates registered in the name of Cede & Co. ("Cede")
as the nominee of The Depository Trust Company ("DTC"). No person acquiring an
interest in the Book-Entry Certificates (a "Certificate Owner") will be entitled
to receive a certificate representing such person's interest in the Trust Fund,
except as set forth below under "Description of the Certificates-Definitive
Certificates." Unless and until Definitive Certificates are issued under the
limited circumstances described herein, all references to actions by the
Book-Entry Certificateholders shall refer to actions taken by DTC upon
instructions from its Participants (as defined below) and all references herein
to distributions, notices, reports and statements to the Book-Entry
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Book-Entry Certificates, as the
case may be, for distribution to Certificate Owners in accordance with DTC
procedures. See "Description of the Certificates Book-Entry Registration."
The "Final Scheduled Distribution Date" of each Class of Offered
Certificates is [DATE], which is the Distribution Date occurring in the month
that is one month following the latest stated maturity date of any Mortgage
Loan.
The rate of principal payments of the Certificates will depend on the
rate of principal payments of the Mortgage Loans (including prepayments,
defaults, delinquencies and liquidations) which, in turn, will depend on the
characteristics of the Mortgage Loans, the level of prevailing interest rates
and other economic factors, and no assurance can be given as to the actual
payment experience. The principal balance or notional amount, as applicable, of
each Class of Certificates may be reduced to zero earlier or later than its
Final Scheduled Distribution Date.
Book-Entry Registration
DTC is a limited purpose trust company organized under the laws of the
State of New York and is a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934. DTC was created to hold securities for its participating
organizations (each, a "Participant") and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (including
[UNDERWRITER]), banks, trust companies and clearing corporations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
S-41
<PAGE>
Certificate Owners that are not Participants or Indirect Participants
and that desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Book-Entry Certificates may do so only through Participants
and Indirect Participants. In addition, Certificate Owners will receive all
distributions of principal and interest on the Book-Entry Certificates through a
Participant or an Indirect Participant. Under a book-entry format, Certificate
Owners may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC will
forward such payments to its Participants, which thereafter will forward them to
Certificate Owners directly or through an Indirect Participant. It is
anticipated that the only "Certificateholder" of a Book-Entry Certificate will
be Cede, as nominee of DTC. Certificate Owners will not be recognized by the
Trustee as Certificateholders, as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of Book-Entry
Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC will be required to make book-entry
transfers of Book-Entry Certificates among Participants and to receive and
transmit distributions of principal of, and interest on, Book-Entry
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Book-Entry Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificate Owners. Accordingly, although Certificate
Owners will not possess physical certificates, the Rules provide a mechanism by
which Participants and Certificate Owners will receive payments and will be able
to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, the ability of
a Certificate Owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the DTC system, or to otherwise act with respect to
such Certificates, may be limited due to the absence of physical certificates
for such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Participants to whose accounts with DTC the Book-Entry Certificates are
credited. Additionally, DTC has advised the Seller that it will take such action
where the consent of specified percentages of the Offered Certificates is
required under the Agreement only at the direction of and on behalf of
Participants whose interests represent such specified percentages. DTC may take
conflicting actions on behalf of other Participants.
Neither the Seller, the Servicer nor the Trustee will have any
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the Book-Entry Certificates held by Cede,
as nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Definitive Certificates
The [Class A-R, Class M, Class B-1 and Class B-2] Certificates will be
issued in fully registered, certificated form ("Definitive Certificates"). The
Book-Entry Certificates will only be issued in fully registered, certificated
form to Certificate Owners or their nominees, rather than to DTC or its nominee,
if (i) the Seller advises the Servicer in writing that DTC is no longer willing
or able to discharge properly its responsibilities as depository with respect to
the Book-Entry Certificates and the Seller is unable to locate a qualified
successor within 30 days or (ii) the Seller, at its option, elects to terminate
the book-entry system through DTC.
S-42
<PAGE>
Upon the occurrence of either event described in the immediately
preceding paragraph, the Trustee is required to notify DTC which in turn will
notify all Certificate Owners through Participants of the availability of
Definitive Certificates in exchange for Book-Entry Certificates. Upon surrender
by Cede, as nominee of DTC, of the definitive certificates representing the
Book-Entry Certificates and receipt of instructions for re-registration, the
Trustee or its agent will reissue the Book-Entry Certificates as Definitive
Certificates to Certificate Owners.
Restrictions on Transfer of the Class A-R, Class M and Offered Class B
Certificates
The Class A-R Certificate will be subject to the following restrictions
on transfer, and the Class A-R Certificate will contain a legend describing such
restrictions.
The REMIC provisions of the Internal Revenue Code of 1986, as amended
(the "Code") impose certain taxes on (i) transferors of residual interests to,
or agents that acquire residual interests on behalf of, Disqualified
Organizations (as defined in the Prospectus) and (ii) certain Pass-Through
Entities (as defined in the Prospectus) that have Disqualified Organizations as
beneficial owners. No tax will be imposed on a Pass-Through Entity (other than
an "electing large partnership" as defined in the Code) with respect to the
Class A-R Certificate to the extent it has received an affidavit from the owner
thereof that such owner is not a Disqualified Organization or a nominee for a
Disqualified Organization. The Agreement will provide that no legal or
beneficial interest in the Class A-R Certificate may be transferred to or
registered in the name of any person unless (i) the proposed purchaser provides
to the Trustee an affidavit to the effect that, among other items, such
transferee is not a Disqualified Organization and is not purchasing the Class
A-R Certificate as an agent for a Disqualified Organization (i.e., as a broker,
nominee, or other middleman thereof) and (ii) the transferor states in writing
to the Trustee that it has no actual knowledge that such affidavit or letter is
false. Further, such affidavit or letter requires the transferee to affirm that
it (i) historically has paid its debts as they have come due and intends to do
so in the future, (ii) understands that it may incur tax liabilities with
respect to the Class A-R Certificate in excess of cash flows generated thereby,
(iii) intends to pay taxes associated with holding the Class A-R Certificate as
such taxes become due and (iv) will not transfer the Class A-R Certificate to
any person or entity that does not provide a similar affidavit or letter.
In addition, the Class A-R Certificate may not be purchased by or
transferred to any person that is not a "U.S. Person," unless (i) such person
holds such Class A-R Certificate in connection with the conduct of a trade or
business within the United States and furnishes the transferor and the Trustee
with an effective Internal Revenue Service Form 4224 or (ii) the transferee
delivers to both the transferor and the Trustee an opinion of a nationally
recognized tax counsel to the effect that such transfer of the Class A-R
Certificate will not be disregarded for federal income tax purposes. The term
"U.S. Person" means a citizen or resident of the United States, a corporation,
or partnership (unless, in the case of a partnership, Treasury regulations are
adopted that provide otherwise) created or organized in or under the laws of the
United States, any State thereof or the District of Columbia, including an
entity treated as a corporation or partnership for federal income tax purposes,
an estate whose income is subject to United States federal income tax regardless
of its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust, and one or
more such U.S. Persons have the authority to control all substantial decisions
of such trust (or, to the extent provided in applicable Treasury regulations,
certain trusts in existence on August 20, 1996 which are eligible to elect to be
treated as U.S. Persons).
The Agreement will provide that any attempted or purported transfer in
violation of these transfer restrictions will be null and void and will vest no
rights in any purported transferee. Any transferor or agent to whom the Trustee
provides information as to any applicable tax imposed on such
S-43
<PAGE>
transferor or agent may be required to bear the cost of computing or providing
such information. See "Federal Income Tax Consequences--REMIC Certificates;
- --Income from Residual Certificates; --Taxation of Certain Foreign Investors;
- --Transfers of Residual Certificates; --Servicing Compensation and Other REMIC
Pool Expense" in the Prospectus.
The Class A-R Certificate may not be purchased by or transferred to a
Plan or a person acting on behalf of or investing the assets of a Plan. See
"ERISA Considerations" herein and in the Prospectus.
Because the Class M and Offered Class B Certificates are subordinated
to the Class A Certificates, the Class M Certificates and the Offered Class B
Certificates may not be transferred unless the transferee has delivered (i) a
representation letter to the Trustee stating either (a) that the transferee is
not a Plan and is not acting on behalf of a Plan or using the assets of Plan to
effect such purchase or (b) subject to the conditions described herein, that the
source of funds used to purchase the Class M or Offered Class B Certificates in
an "insurance company general account" or (ii) an opinion of counsel and such
other documentation as described herein under "ERISA Considerations." See "ERISA
Considerations" herein and in the Prospectus.
Distributions to Certificateholders
Distributions of principal and interest on the Certificates will be
made on the 25th day of each month or, if such day is not a business day, the
next succeeding business day (each, a "Distribution Date"), beginning [DATE], to
the persons in whose names the Certificates are registered at the close of
business on the last business day of the month preceding the month in which
payment is made (each, a "Record Date"). Distributions will be made to each
Class as described below and on a pro rata basis among the Certificates of each
Class. Distributions of principal and interest on the Book-Entry Certificates
will initially be made by the Trustee directly to Cede by wire transfer.
Distributions with respect to the Class A-R, Class M, Class B-1 and Class B-2
Certificates and, upon the issuance of Definitive Certificates to persons other
than Cede, distributions of principal and interest on such Definitive
Certificates will be made by the Trustee directly to holders in whose names such
Certificates were registered at the close of business on the related Record
Date. Such distributions will be made by check mailed to the address of the
person entitled thereto as it appears on the certificate register, or, upon
written request to the Trustee delivered at least ten business days prior to the
first Distribution Date for which distribution by wire transfer is to be made,
by a holder of an Offered Certificate having an original aggregate principal
balance of at least $5,000,000 (or by a holder which holds all of the
Certificates of a Class), by wire transfer to such Certificateholder, except
that the final distribution in retirement of Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee specified in the final distribution notice to Certificateholders.
Principal received or advanced as part of a regularly scheduled Monthly
Payment on each Mortgage Loan will be passed through monthly on the Distribution
Date occurring in the month in which the related Due Date occurs. The Non-PO
Class A Certificateholders will be entitled to an amount equal to the Non-PO
Class A Percentage (defined herein) of the applicable Non-PO Percentage (defined
herein) of scheduled principal amounts due or advanced with respect to each
Mortgage Loan. Principal prepayments and certain other unscheduled amounts of
principal received during the period from the first day of any month to the last
day of such month (each, a "Principal Prepayment Period") will be passed through
on the Distribution Date occurring in the month following the month of receipt.
The Non-PO Class A Certificateholders will be entitled to an amount equal to the
Non-PO Class A Prepayment Percentage (defined herein) of the applicable Non-PO
Percentage of such unscheduled amounts of principal.
S-44
<PAGE>
The aggregate amount available for distribution to Certificateholders
on each Distribution Date will be the Available Distribution Amount. The
"Available Distribution Amount" means, generally, as of any Distribution Date,
an amount equal to the amount on deposit in the Collection Account as of the
close of business on the related Servicer Remittance Date (including amounts to
be advanced by the Servicer in respect of delinquent Monthly Payments), except:
(a) amounts received as late payments or other recoveries of principal or
interest (including liquidation proceeds and insurance proceeds) and applied to
the reimbursement of unreimbursed Advances and amounts representing
reimbursement for Advances determined to be non-recoverable and amounts
representing reimbursement for certain losses and expenses incurred by the
Servicer, as described in the Agreement; (b) the Servicing Fee, as adjusted as
provided in the Agreement with respect to principal prepayments; (c) all amounts
representing Monthly Payments due after the related Due Date; and (d) all
principal prepayments, liquidation proceeds, insurance proceeds, condemnation
proceeds and repurchase proceeds received after the related Principal Prepayment
Period.
On each Distribution Date, the Available Distribution Amount will be
allocated among the Classes of Certificates and distributed to the holders of
record thereof as of the related Record Date as follows:
[first, to each Class of Non-PO Class A Certificates, the sum of (i)
the Interest Accrual Amount with respect to such Class and (ii) any Interest
Shortfall with respect to such Class;
second, concurrently (i) to the Non-PO Class A Certificates, up to the
Non-PO Class A Optimal Principal Amount (allocated among such Classes as
described below under "--Principal (Including Prepayments)--Allocation of the
Non-PO Class A Optimal Principal Amount"), and (ii) to Class A-P Certificates,
the applicable PO Percentage (defined herein) of all principal received on or in
respect of each Discount Mortgage Loan;
third, to the Class A-P Certificates, the Class A-P Shortfall Amount
(defined herein); provided, however, that any amounts distributed pursuant to
this paragraph third will not cause a further reduction in the principal balance
of Class A-P;
fourth, to the Class M Certificates, the sum of (i) the Interest
Accrual Amount with respect to such Class and (ii) any Interest Shortfall with
respect to such Class;
fifth, to the Class M Certificates, in an amount up to the portion of
the Subordinated Optimal Principal Amount allocable to the Class M Certificates
as described below under "--Principal (Including Prepayment)--Allocation of the
Subordinated Optimal Principal Amount";
sixth, to the Class B-1 Certificates the sum of (i) the Interest
Accrual Amount with respect such Class and (ii) any Interest Shortfall with
respect to such Class;
seventh, to the Class B-1 Certificates, in an amount up to the portion
of the Subordinated Optimal Principal Amount allocable to the Class B-1
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
eighth, to the Class B-2 Certificates, the sum of (i) the Interest
Accrual Amount with respect to such Class and (ii) any Interest Shortfall with
respect to such Class;
S-45
<PAGE>
ninth, to the Class B-2 Certificates, in an amount up to the portion of
the Subordinated Optimal Principal Amount allocable to the Class B-2
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
tenth, to the Class B-3 Certificates, the sum of (i) the Interest
Accrual Amount with respect to such Class and (ii) any Interest Shortfall with
respect to such Class;
eleventh, to the Class B-3 Certificates, in an amount up to the portion
of the Subordinated Optimal Principal Amount allocable to the Class B-3
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
twelfth, to the Class B-4 Certificates, the sum of (i) the Interest
Accrual Amount with respect to such Class and (ii) any Interest Shortfall with
respect to such Class;
thirteenth, to the Class B-4 Certificates, in an amount up to the
portion of the Subordinated Optimal Principal Amount allocable to the Class B-4
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount";
fourteenth, to the Class B-5 Certificates, the sum of (i) the Interest
Accrual Amount with respect to such Class and (ii) any Interest Shortfall with
respect to such Class;
fifteenth, to the Class B-5 Certificates, in an amount up to the po ion
of the Subordinated Optimal Distribution Amount allocable to the Class B-5
Certificates as described below under "--Principal (Including
Prepayments)--Allocation of the Subordinated Optimal Principal Amount"; and
sixteenth, to the Class A-R Certificates, the remaining portion, if any
(which is expected to be zero), of the Available Distribution Amount for such
Distribution Date.]
"Class A Certificates" means [the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class A-7, Class A-P, Class A-R and Class A-X
Certificates, referred to collectively.]
The Class A Certificates (exclusive of the Class A-X Certificates),
Class M Certificates, Class B-1 Certificates and Class B-2 Certificates are
sometimes collectively referred to herein as the "Offered Certificates."
The Class A Certificates (exclusive of the Class A-P Certificates) are
sometimes collectively referred to herein as the "Non-PO Class A Certificates."
"Class B Certificates" means the Class B-1, Class B-2, Class B-3, Class
B-4 and Class B-5 Certificates, referred to collectively.
"Non-Offered Class B Certificates" means the Class B-3, Class B-4 and
Class B-5 Certificates, referred to collectively.
"Subordinated Certificates" means the Class M and Class B Certificates,
referred to collectively.
The "Credit Support Depletion Date" is the first Distribution Date on
which the aggregate outstanding principal balance of the Subordinated
Certificates has been or will be reduced to zero.
S-46
<PAGE>
With respect to each Mortgage Loan, the "PO Percentage" will equal a
fraction, expressed as a percentage (but not less than 0%), the numerator of
which will equal the excess, if any, of ____% per annum (the "Remittance Rate")
over the applicable Net Mortgage Rate (defined herein) and the denominator of
which will equal the Remittance Rate. The PO Percentage will be 0% with respect
to Mortgage Loans for which the Net Mortgage Rate is greater than or equal to
the Remittance Rate. As of the Cut-off Date, the weighted average Net Mortgage
Rate of the Discount Mortgage Loans (defined below) was approximately _____%.
With respect to each Mortgage Loan, the "Non-PO Percentage" will equal
a fraction, expressed as a percentage (but not greater than 100%), the numerator
of which will equal the applicable Net Mortgage Rate and the denominator of
which will equal the Remittance Rate. The Non-PO Percentage will be 100% with
respect to Mortgage Loans for which the Net Mortgage Rate is greater than or
equal to the Remittance Rate.
The "Discount Mortgage Loans" are those Mortgage Loans having Net
Mortgage Rates less than the Remittance Rate.
The "Non-Discount Mortgage Loans" are those Mortgage Loans having Net
Mortgage Rates greater than the Remittance Rate.
The Class A-P Certificates will not be entitled to receive interest and
will be entitled to receive principal with respect to the Discount Mortgage
Loans only. The Class A-X Certificates will not be entitled to receive principal
and will be entitled to receive interest with respect to the Non-Discount
Mortgage Loans only.
With respect to each Mortgage Loan, the "Net Mortgage Rate" equals the
applicable Mortgage Rate less the Servicing Fee Rate.
Interest
On each Distribution Date, interest will be payable to each Class
(other than the [Class A-P] Certificates) in an amount equal to the sum of (i)
the Interest Accrual Amount with respect to such Class and (ii) any Interest
Shortfall with respect to such Class.
As of any Distribution Date, the "Interest Accrual Amount" with respect
to any Class of Certificates (other than the [Class A-P] Certificates) means
generally one month's interest at the Certificate Rate on the outstanding
principal balance thereof (or, in the case of the [Class A-X] Certificates, on
the [Class A-X] Notional Amount), minus any Non-Supported Interest Shortfalls
allocated to such Class on such Distribution Date (as described herein under
"The Pooling and Servicing Agreement--Adjustment to Servicing Fee in Connection
with Prepaid Mortgage Loans").
As of any Distribution Date, the "Interest Shortfall" with respect to
any Class of Certificates (other than the [Class A-P] Certificates) means
generally any portion of the Interest Accrual Amount with respect to any
previous Distribution Amount which remains unpaid (before giving effect to
distributions made on such Distribution Date).
For any Class of Certificates (other than the [Class A-P, Class A-X and
Non-Offered Class B Certificates]), the "Certificate Rate" is the per annum rate
of interest specified or described for such Class on the table on page S-3
hereof. The "Certificate Rate" for each Class of Non-Offered Class B
S-47
<PAGE>
Certificates is equal to ____%. The "Certificate Rate" for the Class A-X
Certificates will equal, with respect to each Distribution Date, [the weighted
average, expressed as a percentage, of the Stripped Interest Rate on each
Non-Discount Mortgage Loan as of the Due Date in the month preceding the month
in which such Distribution Date occurs, weighted as the basis of the respective
principal balances of the Non-Discount Mortgage Loans].
The "Class A-X Notional Amount" with respect to any Distribution Date
will equal [the aggregate Scheduled Principal Balance of the Non-Discount
Mortgage Loans].
The "Stripped Interest Rate" means for each Mortgage Loan, the excess,
if any, of the Net Mortgage Rate for such Mortgage Loan over the Remittance
Rate.
The "Scheduled Principal Balance" of a Mortgage Loan as of any
Distribution Date is the unpaid principal balance of such Mortgage Loan as
specified in the amortization schedule at the time relating thereto (before any
adjustment to such schedule by reason of bankruptcy or similar proceeding or any
moratorium or similar waiver or grace period) as of the first day of the month
preceding the month of such Distribution Date, after giving effect to any
previously applied prepayments, the payment of principal due on such first day
of the month and any reduction of the principal balance of such Mortgage Loan by
a bankruptcy court, irrespective of any delinquency in payment by the related
Mortgagor.
[Interest will accrue on the Class A-5 and Class A-6 Certificates at
their respective Certificate Rates during the calendar month preceding the month
of the related Distribution Date (each such period, an "Interest Accrual
Period"). Such Certificate Rates will be calculated as follows:
(i) the Certificate Rate on the Class A-5 Certificates with respect to
the first Distribution Date will be ______%, and as to any Distribution Date
thereafter, the Certificate Rate on the Class A-5 Certificates will equal the
lesser of (A) ____% plus LIBOR (as determined below) ("LIBOR") and (B) ____%.
(ii) the Certificate Rate on the Class A-6 Certificates with respect to
the first Distribution Date will be ________%, and as to any Distribution Date
thereafter, the Certificate Rate on the Class A-6 Certificates will equal the
lesser of (A) _____% minus the product of (x) ____ and (y) LIBOR, but not less
than 0.00% and (B) _____%.]
[Determination of LIBOR
LIBOR for any Interest Accrual Period (other than the first Interest
Accrual Period) after the initial Interest Accrual Period will be determined as
described below.
On each Distribution Date, LIBOR shall be established by the Servicer
and as to any Interest Accrual Period (other than the first Interest Accrual
Period), LIBOR will equal the rate for United States dollar deposits for one
month which appears on the Dow Jones Telerate Screen Page 3750 as of 11:00 A.M.,
London time, on the second LIBOR Business Day (defined below) prior to the first
day of such Interest Accrual Period (each such day, a "Rate Adjustment Date").
"Telerate Screen Page 3750" means the display designated as page 3750 on the
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks). If
such rate does not appear on such page (or such other page as may replace that
page on that service, or if such service is no longer offered, such other
service for displaying LIBOR or comparable rates as may be selected by the
Servicer), the rate will be the Reference Bank Rate. The "Reference Bank Rate"
will
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be determined on the basis of the rates at which deposits in the U.S. Dollars
are offered by the reference banks (which shall be three major banks that are
engaged in transactions in the London interbank market, selected by the
Servicer) as of 11:00 A.M., London time, on the day that is two LIBOR Business
Days prior to the first date of the related Interest Accrual Period to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the aggregate outstanding principal balance of the Class
A-8 and Class A-11 Certificates. The Servicer will request the principal London
office of each of the reference banks to provide a quotation of its rate. If at
least two such quotations are provided, the rate will be the arithmetic mean of
the quotations. If on such date fewer than two quotations are provided as
requested, the rate will be the arithmetic mean of the rates quoted by one or
more major banks in New York City, selected by the Servicer, as of 11:00 A.M.,
New York City time, on such date for loans in the U.S. Dollars to leading
European banks for a period of one month in amounts approximately equal to the
aggregate outstanding principal balance of the Class A-8 and Class A-11
Certificates. If no such quotations can be obtained, the rate will be LIBOR for
the prior Distribution Date, or in the case of the first Rate Adjustment Date,
4.95%. "LIBOR Business Day" means any day other than (i) a Saturday or a Sunday
or (ii) a day on which banking institutions in the city of London, England are
required or authorized by law to be closed.
The establishment of LIBOR by the Servicer and its subsequent
calculation of the Certificate Rates applicable to the Class A-8 and Class A-11
Certificates for the relevant Interest Accrual Period, in the absence of
manifest error, will be final and binding.]
Principal (Including Prepayments)
[Distribution to the Class A-P Certificates
On each Distribution Date, the Class A-P Certificates will receive a
portion of the Available Distribution Amount attributable to principal received
on or with respect to any Discount Mortgage Loan equal to the amount of such
principal so attributable multiplied by the PO Percentage with respect to such
Discount Mortgage Loan. In addition, on each Distribution Date prior to and
including the Credit Support Depletion Date, the Class A-P Certificates also
will be allocated principal, to the extent of amounts available to pay the
Subordinated Optimal Principal Amount (without regard to clause (2) of the
definition of such term) on such Distribution Date, in an amount (the "Class A-P
Shortfall Amount") generally equal to (i) the applicable PO Percentage of the
principal portion of any Realized Loss with respect to a Discount Mortgage Loan
other than an Excess Loss and (ii) the sum of amounts, if any, by which the
amounts specified in clause (i) with respect to each prior Distribution Date
exceeded the amount actually distributed in respect thereof on such prior
Distribution Date and not subsequently distributed to the Class A-P
Certificates; provided, however, that such payments in respect of the Class A-P
Shortfall Amount will not cause a further reduction in the principal balance of
the Class A-P Certificates. The aggregate of the amounts payable to the Class
A-P Certificates described in this paragraph are referred to herein as the
"Class A-P Certificates Distribution Amount."
Allocation of the Non-PO Class A Optimal Principal Amount
Except after the Credit Support Depletion Date, distributions in
respect of principal will be made on each Distribution Date to the Non-PO Class
A Certificates as described below. On each Distribution Date, the Non-PO Class A
Optimal Principal Amount (defined herein) will be distributed to the Non-PO
Class A Certificateholders as follows:
[DESCRIBE PRINCIPAL PAYMENT METHODOLOGY]
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On any Distribution Date after the Credit Support Depletion Date,
distributions among the Classes of Non-PO Class A Certificates then outstanding
will be made pro rata in accordance with their respective outstanding principal
balances and not in accordance with the priorities set forth above.]
[The "Lockout Principal Distribution Amount" for any Distribution Date
will equal the sum of (i) the Adjusted Lockout Percentage (defined below) of the
applicable Non-PO Percentage of the principal portion of all Monthly Payments,
whether or not received, which were due on the related Due Date on outstanding
Mortgage Loans as of such Due Date, (ii) the Lockout Prepayment Percentage
(defined below) of the applicable Non-PO Percentage of (A) the principal portion
of principal prepayments, (B) the sum of the principal portion of all insurance
proceeds, condemnation awards and any other cash proceeds from a source other
than the Mortgagor, to the extent required to be deposited in the Collection
Account, which were received during the related Principal Prepayment Period, net
of related unreimbursed servicing advances and net of any portion hereof which,
as to any Mortgage Loan, constitutes a late collection with respect to which an
Advance has previously been made and (C) the principal portion of the purchase
price thereof (net of amounts with respect to which a distribution has
previously been made to the Non-PO Class A Certificateholders), in each case
received during the related Principal Prepayment Period and (iii) with respect
to any Distribution Date on or after the Distribution Date in [MONTH/YEAR], the
Lockout Liquidation Amount (defined below).]
[The "Adjusted Lockout Percentage" will equal (i) for any Distribution
Date prior to the Distribution Date in [MONTH/YEAR], 0% and (ii) for any
Distribution Date on or after the Distribution Date in [MONTH/YEAR], the Lockout
Percentage.]
[The "Lockout Percentage" for any Distribution Date will equal (A) the
outstanding principal balance of the Class A-7 Certificates divided by (B) the
Non-PO Allocated Amount, in each case immediately prior to the Distribution
Date, but in no event will the Lockout Percentage exceed 100%. The Lockout
Percentage as of the Cut-Off Date will be approximately _________%.]
[The "Lockout Liquidation Amount" is, with respect to any Distribution
Date on or after the Distribution Date in [MONTH/YEAR], the aggregate, for each
Mortgage Loan which became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, of the lesser of (i) the Lockout
Percentage of the applicable Non-PO Percentage of the outstanding principal
balance of such Mortgage Loan and (ii) the Lockout Prepayment Percentage
(defined below) on such Distribution Date of the Liquidation Principal with
respect to such Mortgage Loan.]
["Liquidation Principal" is, with respect to each Mortgage Loan which
has become a Liquidated Mortgage Loan during the related Principal Prepayment
Period, an amount equal to the applicable Non-PO Percentage of the net
liquidation proceeds, if any, with respect to such Liquidated Mortgage Loan (net
of any unreimbursed Advances).]
[The "Lockout Prepayment Percentage" will equal the product of (a) the
Lockout Percentage and (b) the Step Down Percentage.]
[The "Step Down Percentage" for any Distribution Date will be the
percentage indicated below:
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<PAGE>
Step Down
Distribution Date Occurring in Percentage
- ------------------------------ ----------
[MONTH/YEAR] through [MONTH/YEAR].......................... 0%
[MONTH/YEAR] through [MONTH/YEAR].......................... 30%
[MONTH/YEAR] through [MONTH/YEAR].......................... 40%
[MONTH/YEAR] through [MONTH/YEAR].......................... 60%
[MONTH/YEAR] through [MONTH/YEAR].......................... 80%
[MONTH/YEAR] and thereafter................................ 100%]
Principal distributions made on each Class of Certificates will be paid
pro rata among the Certificates of such Class in accordance with their
respective outstanding principal balances.
The "Non-PO Class A Optimal Principal Amount" means generally as of any
Distribution Date, an amount, not in excess of the Non-PO Class A Principal
Balance equal to the sum of: (a) an amount equal to the Non-PO Class A
Percentage of the applicable Non-PO Percentage of the principal portion of all
Monthly Payments whether or not received, which were due on the related Due Date
on outstanding Mortgage Loans as of such Due Date; (b) an amount equal to the
Non-PO Class A Prepayment Percentage of the applicable Non-PO Percentage of all
principal prepayments received during the related Principal Prepayment Period;
(c) with respect to each Mortgage Loan not described in (d) below, an amount
equal to the Non-PO Class A Percentage of the applicable Non-PO Percentage of
the sum of the principal portion of all insurance proceeds, condemnation awards
and any other cash proceeds from a source other than the Mortgagor, to the
extent required to be deposited in the Collection Account, which were received
during the related Principal Prepayment Period, net of related unreimbursed
servicing advances and net of any portion thereof which, as to any Mortgage
Loan, constitutes a late collection with respect to which an Advance has
previously been made; (d) with respect to each Mortgage Loan which has become a
Liquidated Mortgage Loan (defined below) during the related Principal Prepayment
Period, an amount equal to the lesser of (i) the Non-PO Class A Percentage of
the applicable Non-PO Percentage of an amount equal to the principal balance of
such Mortgage Loan (net of Advances with respect to principal) as of the Due
Date immediately preceding the date on which it became a Liquidated Mortgage
Loan and (ii) the Non-PO Class A Prepayment Percentage of the applicable Non-PO
Percentage of the net liquidation proceeds, if any, with respect to such
Liquidated Mortgage Loan (net of any unreimbursed Advances); (e) with respect to
each Mortgage Loan repurchased during the related Principal Prepayment Period,
an amount equal to the Non-PO Class A Prepayment Percentage of the applicable
Non-PO Percentage of the principal portion of the purchase price thereof (net of
amounts with respect to which a distribution has previously been made to the
Non-PO Class A Certificateholders); and (f) while none of the Subordinated
Certificates remains outstanding, the excess of the outstanding principal
balance of the Non-PO Class A Certificates (calculated after giving effect to
reductions thereof on such Distribution Date with respect to amounts described
in (a)-(e) above) over the Non-PO Allocated Amount (defined below).
A "Liquidated Mortgage Loan" is a Mortgage Loan as to which the
Servicer has determined that all amounts which it expects to recover from or on
account of such Mortgage Loan, whether from insurance proceeds, liquidation
proceeds or otherwise, have been recovered.
As of any Distribution Date, the "Non-PO Class A Percentage" will equal
a fraction, expressed as a percentage, the numerator of which is the Non-PO
Class A Principal Balance and the denominator of which is the Non-PO Allocated
Amount immediately prior to the Due Date in the month of such Distribution Date.
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<PAGE>
The "Non-PO Allocated Amount" will be calculated as of any date by (i)
multiplying the outstanding principal balance of each Mortgage Loan as of such
date (giving effect to any Advances but prior to giving effect to any principal
prepayments received with respect to such Mortgage Loan that have not been
passed through to the Certificateholders) by the Non-PO Percentage with respect
to such Mortgage Loan and (ii) summing the results.
The "Non-PO Class A Principal Balance" means, generally, as of any
Distribution Date, (a) the Non-PO Class A Principal Balance for the preceding
Distribution Date less (b) amounts distributed to the Non-PO Class A
Certificateholders on such preceding Distribution Date allocable to principal
(including Advances) and any losses allocated to the Non-PO Class A
Certificates; provided that the Non-PO Class A Principal Balance on the first
Distribution Date will be the initial Non-PO Class A Principal Balance, which is
expected to be approximately $_________.
The "Non-PO Class A Prepayment Percentage" means, generally, as of any
Distribution Date up to and including the Distribution Date in [MONTH/YEAR],
100%; as of any Distribution Date in the first year thereafter, the Non-PO Class
A Percentage plus ___% of the Subordinated Percentage for such Distribution
Date; as of any Distribution Date in the second year thereafter, the Non-PO
Class A Percentage plus __% of the Subordinated Percentage for such Distribution
Date; as of any Distribution Date in the third year thereafter, the Non-PO Class
A Percentage plus __% of the Subordinated Percentage for such Distribution Date;
as of any Distribution Date in the fourth year thereafter, the Non-PO Class A
Percentage plus __% of the Subordinated Percentage for such Distribution Date;
and as of any Distribution Date after the fourth year thereafter, the Non-PO
Class A Percentage; provided that, if the Non-PO Class A Percentage as of any
such Distribution Date is greater than the initial Non-PO Class A Percentage,
the Non-PO Class A Prepayment Percentage shall be 100%; and provided further,
however, that no reduction of the Non-PO Class A Prepayment Percentage below the
level in effect for the most recent period shall occur with respect to any
Distribution Date unless, as of the last day of the month preceding such
Distribution Date, (i) the aggregate outstanding principal balance of Mortgage
Loans delinquent 60 days or more (including for this purpose any Mortgage Loans
in foreclosure and Mortgage Loans with respect to which the related Mortgaged
Property has been acquired by the Trust Fund) does not exceed __% of the
aggregate principal balance of the Subordinated Certificates as of such date and
(ii) cumulative Realized Losses do not exceed (a) __% of the aggregate principal
balance of the Subordinated Certificates as of the date of issuance of the
Certificates (the "Original Subordinated Principal Balance") if such
Distribution Date occurs in the year beginning with and including the fifth
anniversary of the first Distribution Date, (b) __% of the Original Subordinated
Principal Balance if such Distribution Date occurs in the year beginning with
and including the sixth anniversary of the first Distribution Date, (c) __% of
the Original Subordinated Principal Balance if such Distribution Date occurs in
the year beginning with and including the seventh anniversary of the first
Distribution Date, (d) __% of the Original Subordinated Principal Balance if
such Distribution Date occurs in the year beginning with and including the
eighth anniversary of the first Distribution Date, and (e) __% of the Original
Subordinated Principal Balance if such Distribution Date occurs in the year
beginning with and including the ninth anniversary of the first Distribution
Date and thereafter.
As of any Distribution Date, the "Subordinated Percentage" means the
difference between 100% and the Non-PO Class A Percentage, and the "Subordinated
Prepayment Percentage" means the difference between 100% and the Non-PO Class A
Prepayment Percentage.
Allocation of the Subordinated Optimal Principal Amount
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<PAGE>
On each Distribution Date, distributions in respect of principal will
be made to each Class of Subordinated Certificates up to an amount equal to the
portion of the Subordinated Optimal Principal Amount (defined below) allocable
to such Class, calculated as described below.
The "Subordinated Optimal Principal Amount" means generally as of any
Distribution Date, an amount, not in excess of the aggregate outstanding
principal balance of the Subordinated Certificates, equal to (1) the sum of: (a)
an amount equal to the Subordinated Percentage of the applicable Non-PO
Percentage of the principal portion of all Monthly Payments whether or not
received, which were due on the related Due Date on outstanding Mortgage Loans
as of such Due Date; (b) an amount equal to the Subordinated Prepayment
Percentage of the applicable Non-PO Percentage of all principal prepayments
received during the related Principal Prepayment Period; (c) with respect to
each Mortgage Loan not described in (d) below, an amount equal to the
Subordinated Percentage of the applicable Non-PO Percentage of the sum of the
principal portion of all insurance proceeds, condemnation awards and any other
cash proceeds from a source other than the Mortgagor, to the extent required to
be deposited in the Collection Account, which were received during the related
Principal Prepayment Period, net of related unreimbursed servicing advances and
net of any portion thereof which, as to any Mortgage Loan, constitutes a late
collection with respect to which an Advance has previously been made; (d) with
respect to each Mortgage Loan which has become a Liquidated Mortgage Loan during
the related Principal Prepayment Period, an amount equal to the portion (if any)
of the net liquidation proceeds with respect to such Liquidated Mortgage Loan
(net of any unreimbursed Advances) that was not included in the Class A-P
Distribution Amount or the Non-PO Class A Optimal Principal Amount with respect
to such Distribution Date; and (e) with respect to each Mortgage Loan
repurchased during the related Principal Prepayment Period, an amount equal to
the Subordinated Prepayment Percentage of the applicable Non-PO Percentage of
the principal portion of the purchase price thereof (net of amounts with respect
to which a distribution has previously been made to the Subordinated
Certificateholders), minus (2) the Class A-P Shortfall Amount with respect to
such Distribution Date.
On each Distribution Date, the Subordinated Optimal Principal Amount
will be allocated among the outstanding Classes of Subordinated Certificates
entitled to receive distributions in respect thereof on such Distribution Date,
as described in the second succeeding sentence. Each such Class will be
allocated its pro rata portion of the Subordinated Optimal Principal Amount
based upon the outstanding principal balances of all Classes of Subordinated
Certificates entitled to distributions in respect of the Subordinated Optimal
Principal Amount on such Distribution Date. On each Distribution Date, the
Subordinated Optimal Principal Amount will be allocated among the following
Classes of Certificates: (i) any Class of Subordinated Certificates which has
current Credit Support (defined herein) (before giving effect to any
distribution of principal thereon on such Distribution Date) greater than or
equal to the original Credit Support for such Class; (ii) the Class of
Subordinated Certificates having the lowest numerical class designation of any
outstanding Class of Subordinated Certificates which does not meet the criteria
in (i) above; and (iii) the Class B-5 Certificates if all other outstanding
Classes of Subordinated Certificates meet the criteria in (i) above or if no
other Class of Subordinated Certificates is outstanding; provided, however, that
no Class of Subordinated Certificates will receive any distribution in respect
of the Subordinated Optimal Principal Amount on any Distribution Date if on such
Distribution Date any Class of Subordinated Certificates having a lower
numerical class designation than such Class fails to meet the criteria in (i)
above. For the purposes of (ii) above, the Class M Certificates will be deemed
to have a lower numerical class designation than each Class of Class B
Certificates.
Each Class of Subordinated Certificates (other than the Class B-5
Certificates) will have the benefit of a level of credit support, expressed as a
percentage of the aggregate outstanding principal balance of the Certificates
("Credit Support"). Credit Support for such Classes of Certificates will equal
in each case the percentage obtained by dividing the aggregate outstanding
principal balance of all
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<PAGE>
Classes of Subordinated Certificates having higher numerical class designations
than such Class by the aggregate outstanding principal balance of all
outstanding Classes of Certificates (exclusive of the outstanding principal
balance of Class A-P Certificates) (for this purpose, the Class M Certificates
shall be deemed to have a lower numerical class designation than each Class of
Class B Certificates). Generally, the level of Credit Support for any Class will
decrease to the extent Realized Losses are allocated to any Class of
Subordinated Certificates having a higher numerical class designation and will
increase to the extent that any Class or Classes of Certificates not
subordinated to such Class receives a disproportionate portion of payments
(including prepayments) of principal on the Mortgage Loans.
Additional Rights of the Class A-R Certificateholder
The Class A-R Certificate will remain outstanding for so long as the
Trust Fund shall exist, whether or not such Certificate is receiving current
distributions of principal or interest. In addition to distributions of
principal and interest distributable as described under "Distributions on the
Certificateholders," the holder of the Class A-R Certificate will be entitled to
receive (i) the amounts, if any, of the Available Distribution Amount remaining
in the Certificate Account on any Distribution Date after distributions of
principal and interest on the Certificates on such date and (ii) the proceeds of
the assets of the Trust Fund, if any, remaining in the Trust Fund on the final
Distribution Date for the Certificates, after distributions in respect of any
accrued and unpaid interest on such Certificates, and after distributions in
respect of principal have reduced the Certificate Principal Balances of the
Certificates to zero. It is not anticipated that there will be any material
assets remaining in the Trust Fund at any such time or that any material
distributions will be made with respect to the Class A-R Certificate at any
time. See "Federal Income Tax Consequences--Residual Certificates" in the
Prospectus.
Subordinated Certificates and Shifting Interests
The rights of the Class M Certificateholders to receive distributions
with respect to the Mortgage Loans will be subordinated to the rights of the
Class A Certificateholders and the rights of the holders of each Class of Class
B Certificates to receive distributions with respect to the Mortgage Loans will
be subordinated to the rights of the holders of the Class A Certificates, the
Class M Certificates, and each Class of Class B Certificates having a lower
numerical class designation than such Class of Class B Certificates, each to the
extent described below. The subordination provided by the Class M and Class B
Certificates is intended to enhance the likelihood of regular receipt by the
Class A Certificateholders of the full amount of monthly distributions due them
and to protect the Class A Certificateholders against losses. The subordination
provided by each Class of Class B Certificates is intended to enhance the
likelihood of regular receipt by the holders of the Class A Certificates, the
Class M Certificates, and each Class of Class B Certificates having a lower
numerical class designation than such Class of Class B Certificates of the full
amount of monthly distributions due them and to protect such Certificateholders
against losses.
On each Distribution Date payments to the Class A Certificateholders
will be made prior to payments to the Class M and Class B Certificateholders,
payments to the Class M Certificateholders will be made prior to payments to the
Class B Certificateholders, payments to the Class B-1 Certificateholders will be
made prior to payments to the Class B-2 Certificateholders and the Non-Offered
Class B Certificateholders and payments to the Class B-2 Certificateholders will
be made prior to payments to the Non-Offered Class B Certificateholders. If on
any Distribution Date on which the aggregate outstanding principal balance of
the Class M and Class B Certificates is greater than zero the Non-PO Class A
Certificateholders are paid less than the Non-PO Class A Optimal Principal
Amount for such date, the interest of the Non-PO Class A Certificateholders in
the Trust Fund will vary so as to preserve the entitlement of the Non-PO Class A
Certificateholders to unpaid principal of the Mortgage
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<PAGE>
Loans and interest thereon. This may have the effect of increasing the
proportionate interest of the Non-PO Class A Certificateholders in the Trust
Fund.
The Non-PO Class A Certificateholders will be entitled to receive the
Non-PO Class A Prepayment Percentage of the applicable Non-PO Percentage of the
amount of principal prepayments and certain other unscheduled amounts of
principal received on the Mortgage Loans as described above. This will have the
effect of initially accelerating principal payments to the Non-PO Class A
Certificateholders and reducing their proportionate interest in the Trust Fund
and correspondingly increasing (in the absence of offsetting Realized Losses)
the Credit Support of each Class of Subordinated Certificates having Credit
Support. See "Description of the Certificates--Distributions to
Certificateholders; and Principal (Including Prepayments) herein." Increasing
the interest of the Class M and Class B Certificates in the Trust Fund relative
to that of the Class A Certificates is intended to preserve the availability of
the benefits of the subordination provided by the Class M and Class B
Certificates.
All Realized Losses on the Mortgage Loans (other than Excess Losses
(defined below)) generally will be allocated first, to the Non-Offered Class B
Certificates until the principal balance of the Non-Offered Class B Certificates
has been reduced to zero; second, to the Class B-2 Certificates until the
principal balance of the Class B-2 Certificates has been reduced to zero; third,
to the Class B-1 Certificates until the principal balance of the Class B-1
Certificates has been reduced to zero; fourth, to the Class M Certificates until
the principal balance of the Class M Certificates has been reduced to zero; and
fifth, to the Non-PO Class A Certificates pro rata based upon their respective
outstanding principal balances until the principal balance of the Non-PO Class A
Certificates has been reduced to zero; provided, however, that if a Realized
Loss occurs with respect to a Discount Mortgage Loan (A) the amount of such
Realized Loss equal to the product of (i) the amount of such Realized Loss and
(ii) the PO Percentage with respect to such Discount Mortgage Loan will be
allocated to the Class A-P Certificates and (B) the remainder of such Realized
Loss will be allocated as described above.
A "Realized Loss" is generally the amount, if any, with respect to any
defaulted Mortgage Loan which has been liquidated in accordance with the
Agreement, by which the unpaid principal balance and accrued interest thereon at
a rate equal to the Net Mortgage Rate exceeds the amount actually recovered by
the Servicer with respect thereto (net of reimbursement of certain expenses) at
the time such defaulted Mortgage Loan was liquidated.
Excess Fraud Losses, Excess Bankruptcy Losses and Excess Special Hazard
Losses (collectively, "Excess Losses") will be allocated to all Classes pro rata
based upon their respective outstanding principal balances; provided, however,
that the applicable PO Percentage of any Excess Losses on the Discount Mortgage
Loans will be allocated to the Class A-P Certificates.
The aggregate amount of Realized Losses that may be allocated in
connection with Special Hazard Losses (defined below) on the Mortgage Loans (the
"Special Hazard Amount") to the Subordinated Certificates will initially be
equal to approximately $_________. As of each anniversary of the Cut-off Date,
the Special Hazard Amount generally will be reduced, but not increased, to an
amount equal to the lesser of (i) the Special Hazard Amount as of the previous
anniversary of the Cut-off Date less the sum of all amounts allocated to the
Certificates in respect of Special Hazard Losses on the Mortgage Loans since
such previous anniversary or (ii) the Adjustment Amount. The "Adjustment Amount"
with respect to each anniversary of the Cut-off Date will be equal to the
greatest of (i) ____% multiplied by the aggregate outstanding principal balance
of the Mortgage Loans, (ii) the aggregate outstanding principal balance of the
Mortgage Loans secured by Mortgaged Properties located in the [California]
postal zip code area in which the highest percentage of the Mortgage Loans are
located and
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(iii) twice the outstanding principal balance of the Mortgage Loan having the
largest outstanding principal balance, in each case as of such anniversary of
the Cut-off Date.
A "Special Hazard Loss" is a loss incurred in respect of any defaulted
Mortgage Loan as a result of direct physical loss or damage to the Mortgaged
Property, which is not insured against under the standard hazard insurance
policy or blanket policy insuring against hazard losses which the Servicer is
required to cause to be maintained on each Mortgage Loan. See "Servicing of the
Mortgage Loans-Hazard Insurance" in the Prospectus.
"Excess Special Hazard Losses" are Special Hazard Losses in excess of
the Special Hazard Amount.
The aggregate amount of Realized Losses incurred on defaulted Mortgage
Loans as to which there was fraud in the origination of such Mortgage Loan
("Fraud Losses") which may be allocated to the Subordinated Certificates (the
"Fraud Loss Amount") will initially be equal to approximately $_________. As of
any date of determination after the Cut-off Date, the Fraud Loss Amount
generally will be equal to (X) prior to the first anniversary of the Cut-off
Date an amount equal to ____% of the aggregate principal balance of all of the
Mortgage Loans as of the Cut-off Date minus the aggregate amounts allocated to
the Certificates with respect to Fraud Losses on the Mortgage Loans up to such
date of determination and (Y) from the first to the fifth anniversary of the
Cut-off Date, an amount equal to (1) ____% of the aggregate principal balance of
all of the Mortgage Loans as of the most recent anniversary of the Cut-off Date
minus (2) the aggregate amounts allocated to the Certificates with respect to
Fraud Losses on the Mortgage Loans since the most recent anniversary of the
Cut-off Date up to such date of determination. On and after the fifth
anniversary of the Cut-off Date, the Fraud Loss Amount will be zero.
"Excess Fraud Losses" are Fraud Losses in excess of the Fraud Loss
Amount.
The aggregate amount of Realized Losses which may be allocated in
connection with Bankruptcy Losses on the Mortgage Loans (the "Bankruptcy
Amount") to the Subordinate Certificates will initially be equal to
approximately $______. As of any date of determination, the Bankruptcy Amount
will equal approximately $______ less the sum of any amounts allocated to the
Certificates for such losses up to such date of determination.
A "Bankruptcy Loss" is a Deficient Valuation or a Debt Service
Reduction. With respect to any Mortgage Loan, a "Deficient Valuation" is a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan,
which valuation results from a proceeding initiated under the United States
Bankruptcy Code. A "Debt Service Reduction" is any reduction in the amount which
a mortgagor is obligated to pay on a monthly basis with respect to a Mortgage
Loan as a result of any proceeding initiated under the United States Bankruptcy
Code, other than a reduction attributable to a Deficient Valuation.
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"Excess Bankruptcy Losses" are Bankruptcy Losses in excess of the
Bankruptcy Amount.
Amounts actually paid at any time to the Class M and Class B
Certificateholders in accordance with the terms of the Agreement will not be
subsequently recoverable from the Class M and Class B Certificateholders.
FEDERAL INCOME TAX CONSIDERATIONS
The Seller intends to cause an election to be made to treat the assets
of the Trust Fund as a real estate mortgage investment conduit (a "REMIC") for
federal income tax purposes. The Offered Certificates (other than the Class A-R
Certificate) will constitute "regular interests" in the REMIC. The Class A-R
Certificate will represent the "residual interest" in the REMIC.
All Certificateholders will be required to use the accrual method of
accounting with respect to interest income on the Certificates, regardless of
their normal method of accounting. Holders of Offered Certificates that have
original issue discount will be required to include amounts in income with
respect to such Certificates in advance of the receipt of cash attributable to
such income. It is anticipated that the Class ______________ Certificates will
be issued with original issue discount for federal income tax purposes. It is
also anticipated that the Class ____________________ Certificates will be issued
at a premium, and that the Class ___________ Certificates will be issued with de
minimis original issue discount for federal income tax purposes. The prepayment
assumption that will be used in computing the amount and rate of accrual of
original issue discount includible periodically will be ___% of the Prepayment
Model set forth herein. See "Prepayment and Yield Considerations." No
representation is made that payments on the Offered Certificates will occur at
that rate or any other rate.
The Offered Certificates will be treated as (i) assets described in
section 7701(a)(19)(C) of the Code and (ii) "real estate assets" within the
meaning of section 856(c)(5)(B) of the Code, in each case to the extent
described herein and in the Prospectus. Interest on the Offered Certificates
will be treated as "interest on obligations secured by mortgages on real
property" within the meaning of section 856(c)(3)(B) of the Code to the same
extent that the Offered Certificates are treated as "real estate assets" within
the meaning of section 856(c)(5)(B) of the Code.
Class A-R Certificate
The holder of the Class A-R Certificate must include the taxable income
or loss of the REMIC in determining its federal taxable income. The Class A-R
Certificate will remain outstanding for federal income tax purposes until there
are no Certificates of any other Class outstanding. Prospective investors are
cautioned that the Class A-R Certificateholder's REMIC taxable income and the
tax liability thereon may exceed, and may substantially exceed, cash
distributions to such holder during certain periods, in which event, the holder
thereof must have sufficient alternative sources of funds to pay such tax
liability. Furthermore, it is anticipated that all or a substantial portion of
the taxable income of the REMIC includible by the holder of the Class A-R
Certificate will be treated as "excess inclusion" income, resulting in (i) the
inability of such holder to use net operating losses to offset such income from
the REMIC, (ii) the treatment of such income as "unrelated business taxable
income" to certain holders who are otherwise tax-exempt, and (iii) the treatment
of such income as subject to 30% withholding tax to certain non-U.S. investors,
with no exemption or treaty reduction.
The Class A-R Certificate will be considered a "noneconomic residual
interest," with the result that transfers thereof would be disregarded for
federal income tax purposes if any significant purpose of the transferor was to
impede the assessment or collection of tax. Accordingly, the transferee
affidavit
S-57
<PAGE>
used for transfer of the Class A-R Certificate will require the transferee to
affirm that it (i) historically has paid its debts as they have come due and
intends to do so in the future, (ii) understands that it may incur tax
liabilities with respect to the Class A-R Certificate in excess of cash flows
generated thereby, (iii) intends to pay taxes associated with holding the Class
A-R Certificate as such taxes become due and (iv) will not transfer the Class
A-R Certificate to any person or entity that does not provide a similar
affidavit. The transferor must certify in writing to the Trustee that, as of the
date of the transfer, it had no knowledge or reason to know that the
affirmations made by the transferee pursuant to the preceding sentence were
false. Additionally, the Class A-R Certificate generally may not be transferred
to certain persons who are not U.S. Persons (as defined herein). See
"Description of the Certificates --Restrictions on Transfer of the Class A-R,
Class M and Offered Class B Certificates" herein and "Federal Income Tax
Consequences --REMIC Certificates;--Income from Residual Certificates; Taxation
of Certain Foreign Investors;--Transfers of Residual Certificates" in the
Prospectus.
An individual, trust or estate that holds the Class A-R Certificate
(whether such Certificate is held directly or indirectly through certain
pass-through entities) also may have additional gross income with respect to,
but may be subject to limitations on the deductibility of, Servicing Fees on the
Mortgage Loans and other administrative expenses of the Trust Fund in computing
such holder's regular tax liability, and may not be able to deduct such fees or
expenses to any extent in computing such holder's alternative minimum tax
liability. In addition, some portion of a purchaser's basis, if any, in the
Class A-R Certificate may not be recovered until termination of the Trust Fund.
Furthermore, the federal income tax consequences of any consideration paid to a
transferee on a transfer of the Class A-R Certificate are unclear. The preamble
to the REMIC Regulations indicates that the Internal Revenue Service anticipates
providing guidance with respect to the federal tax treatment of such
consideration. Any transferee receiving consideration with respect to the Class
A-R Certificate should consult its tax advisors.
Due to the special tax treatment of residual interests, the effective
after-tax return of the Class A-R Certificate may be significantly lower than
would be the case if the Class A-R Certificate were taxed as a debt instrument,
or may be negative.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or section 4975 of
the Code, including an individual retirement account (each, a "Plan"), or any
other person investing "plan assets" of any Plan, should carefully review with
its legal advisors whether the purchase or holding of Class A Certificates could
give rise to a transaction prohibited or not otherwise permissible under ERISA
or the Code. See "ERISA Considerations" in the Prospectus.
The Class A-R Certificate may not be purchased by or transferred to a
Plan or any other person investing "plan assets" of any Plan. Accordingly, the
following discussion does not purport to discuss any considerations under ERISA
with respect to the purchase, acquisition or resale of the Class A-R Certificate
and for purposes of the following discussion all references to the Offered
Certificates are deemed to exclude the Class A-R Certificate.
The U.S. Department of Labor ("DOL") has issued Prohibited Transaction
Class Exemption 83-1 ("PTCE 83-1") exempting certain transactions involving
mortgage pool investment entities
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<PAGE>
holding mortgages on certain residential property from the prohibited
transaction provisions of ERISA and the Code. See "ERISA Considerations" in the
Prospectus for a discussion of PTCE 83-1 and the prohibited transaction
provisions of ERISA and the Code.
Prohibited Transaction Exemption _____, __ Fed. Reg. _____ [DATE]
granted by the DOL [UNDERWRITER] (the "Exemption"), exempts the purchase and
holding of the Class A Certificates by or with "plan assets" of a Plan from
certain of the prohibited transaction provisions of section 406(a) of ERISA (and
the excise taxes imposed by section 4975(c)(1)(A) of the Code) provided that
certain conditions are met. Among the conditions are the following: (i) the
Underwriter is the sole underwriter, or the manager or co-manager of the
underwriting syndicate for such Class A Certificates, (ii) the Class A
Certificates are rated in one of the three highest generic rating categories by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or
Fitch IBCA, Inc., (iii) the Class A Certificates are collateralized by, among
other things, obligations that bear interest or are purchased at a discount and
which are secured by single-family residential, multifamily residential or
commercial real property (including obligations secured by leasehold interests
on commercial real property), or fractional undivided interests in such
obligations, (iv) the Class A Certificates are not subordinated to other
Certificates of the Trust Fund, (v) the Plan is an "accredited investor" (as
defined under Rule 501(a)(1) of Regulation D under the Securities Act of 1933,
as amended (the "Act")), (vi) the acquisition of the Class A Certificates by a
Plan is on terms that are at least as favorable to the Plan as they would be in
an arm's length transaction with an unrelated third party, and (vii) the
compensation to the Underwriter represents reasonable compensation, the proceeds
to the Seller represent no more than the fair market value of the obligations
securing such Class A Certificates and the sum of all payments made to and
retained by the Servicer represents not more than reasonable compensation for
the Servicer's services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith. The Underwriter expects that the
Class A Certificates will satisfy the conditions of the Exemption set forth
above in clauses (i), (iii), (iv) and (vii). Whether the remaining conditions of
the Exemption will be satisfied with respect to the Class A Certificates will
depend on the circumstances at the time "plan assets" of a Plan are used to
acquire such Certificates. In that connection, the Class A Certificates will, on
the date of their original issue, satisfy the condition set forth in clause
(ii). In addition, if certain additional conditions specified in the Exemption
are met, the Exemption would provide an exemption from the prohibited
transaction provisions of ERISA section 406(b) (and the excise taxes imposed by
section 4975(c)(1)(E) of the Code) relating to possible self-dealing
transactions by fiduciaries who have discretionary authority, or render
investment advice, with respect to assets of Plans used to purchase Class A
Certificates where the fiduciary (or its affiliate) is an obligor on the
obligations or receivables held in the Trust Fund. The Exemption would not apply
to certain otherwise prohibited transactions with respect to Plans sponsored by
the following entities (or any affiliate of any such entity): (a) the Seller,
(b) [UNDERWRITER], (c) the Trustee, (d) the Servicer or (e) any obligor with
respect to obligations or receivables included in the Seller constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the Seller.
Before purchasing a Class A Certificate, a fiduciary of a Plan or any
other person investing "plan assets" of any Plan, should itself confirm that (a)
the Class A Certificates constitute "certificates" for the purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption would be satisfied. In addition to making its own determination as to
the availability of the exemptive relief provided in the Exemption, the
fiduciary or other Plan investor should consider its general fiduciary
obligations under ERISA in determining whether to purchase a Certificate on
behalf or with "plan assets" of a Plan.
S-59
<PAGE>
Neither the Exemption nor PTCE 83-1 will apply to the Class M, the
Class B-1 or the Class B-2 Certificates; therefore, the purchase or holding of a
Class M, a Class B-1 or a Class B-2 Certificate by or with "plan assets" of a
Plan may result in prohibited transactions or the imposition of excise taxes or
civil penalties. Accordingly, transfer of the Class M, Class B-1 or Class B-2
Certificates will not be made unless the transferee (i) executes a
representation letter in form and substance satisfactory to the Trustee and the
Seller stating that (a) it is not, and is not acting on behalf of, any such Plan
or using the "plan assets" of any such Plan to effect such purchase or (b) if it
is an insurance company, that the source of funds used to purchase the Class M,
Class B-1 or Class B-2 Certificates is an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60"), 60 Fed. Reg. 35925 (July 12, 1995) and the terms
and conditions of Section III of PTCE 95-60 applicable to the acquisition and
holding of such certificates will be met or (ii) provides an opinion of counsel
in form and substance satisfactory to the Trustee and the Seller that the
purchase or holding of the Class M, Class B-1 or Class B-2 Certificates by or on
behalf of such Plan will not result in the assets of the Trust Fund being deemed
to be "plan assets" and subject to the prohibited transaction provisions of
ERISA and the Code and will not subject the Seller, the Servicer or the Trustee
to any obligation in addition to those undertaken in the Agreement. The Class M,
Class B-1 and Class B-2 Certificates will contain a legend describing such
restrictions on transfer and the Agreement will provide that any attempted or
purported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1, the
Exemption or other exemptions, and the potential consequences to their specific
circumstances prior to making an investment in the Class A Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
The sale of Certificates to a Plan is in no respect a representation by
the Seller or the Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or by any particular
Plan, or that this investment is appropriate for Plans generally or for any
particular Plan.
LEGAL INVESTMENT MATTERS
[The Class A and Class M Certificates offered hereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"), for so long as they are rated in
one of the two highest rating categories by at least one nationally recognized
statistical rating organization and, as such, will be legal investments for
certain entities to the extent provided in SMMEA. However, institutions subject
to the jurisdiction of the Office of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration or federal or state banking, insurance or other regulatory
authorities should review applicable rules, supervisory policies and guidelines,
since certain restrictions may apply to investments in such classes. It should
also be noted that certain states have enacted legislation limiting to varying
extents the ability of certain entities (in particular insurance companies) to
invest in mortgage related securities. Investors should consult with their own
legal advisors in determining whether, and to what extent the Class A and Class
M Certificates constitute legal investments for such investors. See "Legal
Investment Matters" in the Prospectus.
S-60
<PAGE>
The Class B-1 and Class B-2 Certificates will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of the Class
B-1 and Class B-2 Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase Class
B-1 and Class B-2 Certificates, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Class B-1 and Class B-2 Certificates will constitute legal
investments for them.
Except as to the status of the Class A and Class M Certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the Offered Certificates for legal investment or financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase the Offered Certificates under applicable legal
investment restrictions. The uncertainties described above (and any unfavorable
future determinations concerning legal investment or financial institution
regulatory characteristics of the Offered Certificates) may adversely affect the
liquidity of the Offered Certificates.]
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Offered Certificates will be applied by the Seller to the purchase price of
the Mortgage Loans.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
[DATE] and the terms agreement, dated [DATE] (together, the "Underwriting
Agreement") between the Seller and [UNDERWRITER], as underwriter (the
"Underwriter"), the Offered Certificates are being purchased from the Seller by
the Underwriter.
The Underwriting Agreement provides that the Underwriter's obligations
thereunder are subject to certain conditions precedent. The Underwriter is
committed to purchase all of the Offered Certificates if any such Certificates
are purchased.
The Underwriter has advised the Seller that it proposes to offer the
Offered Certificates purchased by the Underwriter, from time to time in one or
more negotiated transactions, or otherwise, at varying prices to be determined,
in each case, at the time of sale. The Underwriter may effect such transactions
by selling the Offered Certificates purchased by the Underwriter to or through
dealers, and such dealers may receive from such Underwriter, for whom they act
as agents, compensation in the form of underwriting discounts, concessions or
commissions. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Offered Certificates may be deemed to be
underwriters, and any discounts, concessions or commissions received by them,
and any profit on the resale of the Offered Certificates by them, may be deemed
to be underwriting discounts and commissions under the Act.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Act.
S-61
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Seller by Morgan,
Lewis & Bockius LLP, New York, New York and for the Underwriter by
_________________. The material federal income tax consequences of the
Certificates will be passed upon for the Seller by Morgan, Lewis & Bockius LLP.
RATINGS
It is a condition to the issuance of the Offered Certificates that the
Class A Certificates be rated ["AAA" by each of [RATING AGENCY] and [RATING
AGENCY], and that the Class M, Class B-1 and Class B-2 Certificates be rated at
least "AA", "A" and "BBB", respectively, by [RATING AGENCY].
The ratings of [RATING AGENCY] on mortgage pass-through certificates
address [the likelihood of the receipt by Certificateholders of all
distributions to which such Certificateholders are entitled. [RATING AGENCY]
rating opinions address the structural and legal issues and tax-related aspects
associated with the Certificates, including the nature of the underlying
mortgage loans. [RATING AGENCY] ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may differ
from those originally anticipated nor do they address the possibility that, as a
result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.]
The ratings by [RATING AGENCY] assigned to the Offered Certificates [do
not constitute a recommendation to purchase or sell such Certificates. Rather,
they are an indication of the likelihood of the payment of principal and
interest as set forth in the transaction documentation. The ratings do not
address the effect on the Offered Certificates' yield attributable to
prepayments or recoveries on the underlying Mortgage Loans. Further the ratings
on the [Class A-X] Certificates do not address whether investors will recoup
their initial investment. Additionally, the rating on the Class A-R Certificates
addresses only the return of the Class A-R Certificate's principal balance and
interest thereon at the stated rate. The ratings on the Class A-P certificates
do not assess the likelihood of return to investors except to the extent of the
principal balance thereof.]
The ratings of the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
The Seller has not requested a rating of the Offered Certificates by
any rating agency other than [RATING AGENCY] and [RATING AGENCY] and the Seller
has not provided information relating to the Certificates offered hereby or the
Mortgage Loans to any rating agency other than [RATING AGENCY] and [RATING
AGENCY]. However, there can be no assurance as to whether any other rating
agency will rate the Offered Certificates or, if another rating agency rates
such Certificates, what rating would be assigned to such Certificates by such
rating agency. Any such unsolicited rating assigned by another rating agency to
the Offered Certificates may be lower than the rating assigned to such
Certificates by either, or both, of [RATING AGENCY] and [RATING AGENCY].
S-62
<PAGE>
INDEX OF DEFINED TERMS
Accounts .................................................S-13
Act .................................................S-60
Adjusted Lockout Percentage........................................S-51
Agreement .................................................S-13
Available Distribution Amount......................................S-46
Bankruptcy Amount .................................................S-57
Bankruptcy Loss .................................................S-57
Book-Entry Certificates............................................S-42
Cede .................................................S-42
Certificate Account................................................S-39
Certificate Owner .................................................S-42
Certificate Rate .................................................S-48
Certificateholders.................................................S-24
Chase .................................................S-40
Chase Manhattan Mortgage...........................................S-13
Class A Certificates...............................................S-47
Class A Percentage.................................................S-41
Class A-X Notional Amount..........................................S-49
Class B Certificates...............................................S-47
Class B-1 Percentage...............................................S-41
Class B-2 Percentage...............................................S-41
Class M Percentage.................................................S-41
Code .................................................S-44
Collection Account.................................................S-39
Corporate Trust Office.............................................S-40
Credit Support .................................................S-54
Credit Support Depletion Date......................................S-47
Cut-off Date .................................................S-13
DCR .................................................S-60
Definitive Certificates............................................S-43
Discount Mortgage Loans............................................S-48
Distribution Date .................................................S-45
DOL .................................................S-59
DTC .................................................S-42
Due Date .................................................S-14
ERISA .................................................S-59
Excess Bankruptcy Losses...........................................S-58
Excess Fraud Losses................................................S-57
Excess Losses .................................................S-56
Excess Special Hazard Losses.......................................S-57
Exemption .................................................S-60
FHLMC .................................................S-14
FICO Scores .................................................S-14
Final Scheduled Distribution Date..................................S-42
FNMA .................................................S-14
Fraud Loss Amount .................................................S-57
Fraud Losses .................................................S-57
Indirect Participants..............................................S-42
<PAGE>
Interest Accrual Amount............................................S-48
Interest Accrual Period............................................S-49
Interest Shortfall.................................................S-48
LIBOR .................................................S-49
LIBOR Business Day.................................................S-50
Liquidated Mortgage Loan...........................................S-52
Liquidation Principal..............................................S-51
Lockout Liquidation Amount.........................................S-51
Lockout Percentage.................................................S-51
Lockout Prepayment Percentage......................................S-51
Lockout Principal Distribution Amount..............................S-51
Monthly Payments .................................................S-14
Moody's .................................................S-60
Mortgage Loan Schedule.............................................S-37
Mortgage Loans .................................................S-13
Mortgage Note .................................................S-13
Mortgage Pool .................................................S-13
Mortgaged Properties...............................................S-13
Net Mortgage Rate .................................................S-48
Non-Discount Mortgage Loans........................................S-48
Non-Offered Class B Certificates...................................S-47
Non-Offered Class B Percentage.....................................S-41
Non-PO Allocated Amount............................................S-52
Non-PO Class A Certificates........................................S-47
Non-PO Class A Optimal Principal
Amount .................................................S-52
Non-PO Class A Prepayment Percentage...............................S-53
Non-PO Class A Principal Balance...................................S-53
Non-PO Percentage .................................................S-48
Non-recoverable Advance............................................S-40
Non-Supported Interest Shortfall...................................S-38
Offered Certificates...............................................S-47
Participant .................................................S-42
PO Percentage .................................................S-48
Prepayment Interest Shortfall......................................S-38
Prepayment Model .................................................S-26
Principal Prepayment Period........................................S-45
PTCE 83-1 .................................................S-59
PTCE 95-60 .................................................S-61
Rate Adjustment Date...............................................S-49
Realized Loss .................................................S-56
Record Date .................................................S-45
Reference Bank Rate................................................S-49
REMIC .................................................S-58
Remittance Rate .................................................S-48
Rules .................................................S-43
Scheduled Principal Balance........................................S-49
Seller .................................................S-13
S-63
<PAGE>
Servicer .................................................S-13
Servicer Remittance Date...........................................S-39
Servicing Fee .................................................S-38
Servicing Fee Rate.................................................S-38
SMMEA .................................................S-61
Special Hazard Amount..............................................S-56
Special Hazard Loss................................................S-57
Step Down Percentage...............................................S-51
Stripped Interest Rate.............................................S-49
Subordinated Certificates..........................................S-47
Subordinated Optimal Principal Amount..............................S-54
Subordinated Percentage............................................S-53
Subordinated Prepayment Percentage.................................S-53
Subservicers .................................................S-13
Telerate Screen Page 3750..........................................S-49
Trustee .................................................S-13
U.S. Person .................................................S-44
Underwriter .................................................S-62
Underwriting Agreement.............................................S-62
S-64
<PAGE>
$___________ (Approximate)
Chase Mortgage Finance Trust, Series [_________]
Issuer
Chase Mortgage Finance Corporation
Seller
[Chase Manhattan Mortgage Corporation]
Servicer
[LOGO]
Multi-Class Mortgage Pass-Through Certificates, Series [_________]
-----------------------------
PROSPECTUS SUPPLEMENT
-----------------------------
[UNDERWRITER]
You should rely on the information contained or incorporated by reference in
this prospectus supplement and the attached prospectus. We have not authorized
anyone to provide you with different information.
We are not offering these certificates in any state where the offer is not
permitted.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of these certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling these certificates
will deliver a prospectus supplement and prospectus until [DATE].
[DATE]
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities Exchange Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MAY 12, 1999
PROSPECTUS
Chase Mortgage Finance Corporation
Seller
Mortgage Pass-Through Certificates
(Issuable in Series by Separate Trusts)
------------------
You should carefully consider the risk factors beginning on page 4 of this
prospectus.
Neither the certificates of any series nor the related underlying mortgage loans
will be insured or guaranteed by any governmental agency or instrumentality.
The certificates of each series will represent interests in the related trust
only and will not represent interests in or obligations of Chase Mortgage
Finance Corporation or
any of its affiliates.
This prospectus may be used to offer and sell any series of certificates only if
accompanied by the prospectus supplement for that series.
Each Trust--
o will issue a series of mortgage pass-through certificates, which will
consist of one or more classes of certificates; and
o will own a pool of fixed or adjustable interest rate, conventional mortgage
loans which are secured by a first lien on a one- to four-family residential
property as well as other assets described in this prospectus and the
accompanying prospectus supplement.
Each Pool of Mortgage Loans--
o will be sold to the related trust by Chase Mortgage Finance Corporation;
o will be serviced by Chase Manhattan Mortgage Corporation or any other entity
that is identified in the prospectus supplement as the servicer,
individually or together with other servicers.
Each Series of Certificates--
o will represent interests in the related trust;
o may provide credit support for certain classes by "subordinating" certain
classes to other classes of certificates; any subordinated classes will be
entitled to payment subject to the payment of more senior classes and may
bear losses before more senior classes;
o may be entitled to one or more of the other types of credit enhancement
described in this prospectus; and
o will be paid only from the assets of the related trust.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered certificates or passed
upon the adequacy or accuracy of this prospectus or the accompanying prospectus
supplement. Any representation to the contrary is a criminal offense.
The date of this Prospectus is [DATE]
i
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
Information is provided to you about the certificates in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to a particular series
of certificates, including your series, and (b) the accompanying prospectus
supplement, which will describe the specific terms of your series of
certificates, including, among other things:
o the principal balances and/or interest rates of each class and/or
subclass of certificates;
o the timing and priority of payments of interest and principal for
each class of certificates;
o statistical and other information about the mortgage loans and other
assets of the trust;
o information about credit enhancement, if any, for each class or
subclass of certificates; and
o the ratings for each class or subclass of offered certificates.
If the terms of a particular series of certificates vary between this
prospectus and the prospectus supplement, you should rely on the information in
the prospectus supplement.
You should rely only on the information provided in this prospectus and
the accompanying prospectus supplement, including the information incorporated
by reference. No one has been authorized to provide you with different
information. The certificates are not being offered in any state where the offer
is not permitted. The seller does not claim the accuracy of the information in
this prospectus or the accompanying prospectus supplement as of any date other
than the dates stated on their respective covers.
In this prospectus, the terms "seller," "we," "us" and "our" refer to
Chase Mortgage Finance Corporation.
This prospectus and the accompanying prospectus supplement include
cross-references to sections in these materials where you can find further
related discussions. The tables of contents in this prospectus and the
accompanying prospectus supplement identify the pages where those sections are
located. In addition, an index of defined terms can be found beginning on page
73 of this prospectus and at the end of the accompanying prospectus supplement.
The seller's principal executive office is located at 343 Thornall
Street, Edison, New Jersey 08837, and the seller's telephone number is (732)
205-0600.
ii
<PAGE>
TABLE OF CONTENTS
SUMMARY INFORMATION...................................................1
The Trust Fund.....................................................1
Principal Parties..................................................1
The Mortgage Loans.................................................1
Distributions on the Certificates..................................1
Credit Enhancement.................................................2
ERISA Considerations...............................................3
Tax Status.........................................................3
Legal Investment...................................................3
RISK FACTORS..........................................................4
Limited Liquidity for Certificates.................................4
Limited Assets for Payment of Certificates.........................4
Credit Enhancement is Limited in Amount
and Coverage.................................................4
Certificateholders Bear the Risk of Losses
on the Mortgage Pool.........................................5
Rate of Prepayment on Mortgage Loans May
Adversely Affect Average Lives and Yields
on Certificates..............................................5
DESCRIPTION OF THE CERTIFICATES.......................................7
General............................................................7
Classes of Certificates............................................8
Distributions of Principal and Interest............................9
THE MORTGAGE POOLS...................................................14
CREDIT ENHANCEMENT...................................................17
General...........................................................17
Limited Guarantee of the Guarantor................................17
Subordination.....................................................17
Cross-Support.....................................................18
Pool Insurance....................................................19
Special Hazard Insurance..........................................20
Bankruptcy Bond...................................................21
Repurchase Bond...................................................22
Guaranteed Investment Contracts...................................22
Reserve Accounts..................................................22
Other Insurance and Guarantees....................................23
YIELD, MATURITY AND WEIGHTED AVERAGE
LIFE CONSIDERATIONS...............................................23
CHASE MORTGAGE FINANCE CORPORATION...................................25
UNDERWRITING POLICIES................................................25
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SERVICING OF THE MORTGAGE LOANS......................................26
Collection and Other Servicing Procedures.........................27
Private Mortgage Insurance........................................28
Hazard Insurance..................................................28
Advances..........................................................30
Servicing and Other Compensation and
Payment of Expenses.........................................30
Resignation, Succession and Indemnification
of the Servicer.............................................31
THE POOLING AND SERVICING AGREEMENT..................................31
Assignment of Mortgage Loans; Warranties..........................32
Payments on Mortgage Loans; Collection
Account.....................................................33
Repurchase or Substitution........................................34
Certain Modifications and Refinancings............................35
Evidence as to Compliance.........................................36
The Trustee.......................................................36
Reports to Certificateholders.....................................37
Events of Default.................................................37
Rights Upon Event of Default......................................38
Amendment.........................................................39
Termination; Purchase of Mortgage Loans...........................39
MATERIAL LEGAL ASPECTS OF THE
MORTGAGE LOANS....................................................40
General...........................................................40
Foreclosure.......................................................40
Right of Redemption...............................................42
Anti-Deficiency Legislation and Other
Limitations on Lenders......................................42
Consumer Protection Laws..........................................43
Enforceability of Due-on-Sale Clauses.............................44
Applicability of Usury Laws.......................................45
Soldiers' and Sailors' Civil Relief Act...........................45
Late Charges, Default Interest and Limitations
on Prepayment...............................................45
Environmental Considerations......................................46
Forfeiture in Drug and RICO Proceedings...........................47
LEGAL INVESTMENT MATTERS.............................................47
ERISA CONSIDERATIONS.................................................49
FEDERAL INCOME TAX CONSEQUENCES......................................51
General...........................................................51
REMIC Elections...................................................51
REMIC Certificates................................................52
Tax Opinion.......................................................52
Status of Certificates............................................52
Income from Regular Certificates..................................53
Income from Residual Certificates.................................57
Sale or Exchange of Certificates..................................59
Taxation of Certain Foreign Investors.............................60
Transfers of Residual Certificates................................61
Servicing Compensation and Other REMIC
Pool Expenses...............................................63
Reporting and Administrative Matters..............................64
Non-REMIC Certificates............................................64
Trust Fund as Grantor Trust.......................................64
Status of the Certificates........................................65
Possible Application of Stripped Bond Rules.......................65
Taxation of Certificates if Stripped Bond Rules
Do Not Apply................................................66
Taxation of Certificates if Stripped Bond Rules
Apply.......................................................67
Sales of Certificates.............................................67
Foreign Investors.................................................68
Backup Withholding................................................68
PLAN OF DISTRIBUTION.................................................69
USE OF PROCEEDS......................................................70
LEGAL MATTERS........................................................70
REPORTS TO CERTIFICATEHOLDERS........................................70
WHERE YOU CAN FIND MORE
INFORMATION.......................................................70
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE......................................................71
iii
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SUMMARY INFORMATION
This section briefly summarizes certain information from this prospectus. It
does not contain all of the information that you need to consider in making your
investment decision. To fully understand the terms of a series of certificates,
you should read both this prospectus and the accompanying prospectus supplement
in their entirety.
The Trust Fund
For each series of certificates, we will form a trust to own a pool of fixed
rate one- to four-family first lien mortgage loans. The certificates will
represent beneficial ownership interests in the underlying trust fund assets.
All payments to you will come only from the amounts received in connection with
those assets. The trust fund will issue the certificates under a pooling and
servicing agreement among the seller, the servicer and the trustee and/or such
other entity or entities specified in the prospectus supplement. See "The
Pooling and Servicing Agreement" and "Description of the Certificates."
Principal Parties
Issuer: With respect to each series of certificates, the issuer will be the
trust created for that series.
Seller: Chase Mortgage Finance Corporation, a Delaware corporation.
Servicer: Chase Manhattan Mortgage Corporation, a New Jersey corporation,
or such other entity or entities specified in the prospectus supplement, will
service, and may act as master servicer with respect to, the mortgage loans
included in the trust fund.
The Mortgage Loans
Each trust will own the related mortgage loans and certain other related
property, as specified in the applicable prospectus supplement.
The mortgage loans in each trust fund:
o will be conventional, fixed or adjustable interest rate mortgage loans
secured by first liens on one- to four- family residential properties;
o will have been acquired by the seller from Chase Manhattan Mortgage
Corporation and/or such other entity or entities specified in the
prospectus supplement; and
o will have been originated by Chase Manhattan Mortgage Corporation or an
affiliate or will have been acquired by Chase Manhattan Mortgage
Corporation directly or indirectly from other mortgage loan originators.
You should refer to the applicable prospectus supplement for the precise
characteristics or expected characteristics of the mortgage loans and a
description of the other property, if any, included in a particular trust fund.
Distributions on the Certificates
Distributions on the certificates entitled thereto will be made on the 25th day
(or, if the 25th day is not a business day, the business day immediately
following the 25th day) of each month or such other date specified in the
prospectus supplement solely out of the payments received in respect of the
assets of the related trust fund. The amount allocable to payments of principal
and interest on any distribution date will be determined as specified in the
prospectus supplement. All distributions will be made pro rata to
certificateholders of the class entitled thereto or by such other method as may
be specified in the prospectus supplement. See "Description of the
Certificates."
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The aggregate original principal balance of the certificates will equal the
aggregate distributions allocable to principal that such certificates will be
entitled to receive. If specified in the prospectus supplement, the certificates
of a series will have an aggregate original principal balance equal to the
aggregate unpaid principal balance of the related mortgage loans as of the first
day of the month of creation of the trust fund and will bear interest in the
aggregate at a rate equal to the interest rate borne by the underlying mortgage
loans, net of servicing fees payable to the servicer and any primary or
sub-services of the mortgage loans and any other amounts (including fees payable
to the servicer as master servicer, if applicable) specified in the prospectus
supplement. See "Description of the Certificates--Distributions of Principal and
Interest."
The rate at which interest will be passed through to holders of
certificates entitled thereto may be a fixed rate or a rate that is subject to
change from time to time, in each case as specified in the prospectus
supplement. Any such rate may be calculated on a loan-by-loan, weighted average
or other basis, in each case as described in the prospectus supplement. See
"Description of the Certificates--Distributions of Principal and Interest."
Credit Enhancement
Subordination: A series of certificates may include one or more classes of
senior certificates and one or more classes of subordinated certificates. The
rights of the holders of subordinated certificates of a series to receive
distributions will be subordinated to such rights of the holders of the senior
certificates of the same series to the extent and in the manner specified in the
applicable prospectus supplement.
Subordination is intended to enhance the likelihood of the timely receipt by the
senior certificateholders of their proportionate share of principal and interest
payments on the related mortgage loans and to protect them from losses. This
protection will be effected by:
o the preferential right of the senior certificateholders to receive, prior
to any distribution being made to the related subordinated certificates on
each distribution date, current distributions on the related mortgage loans
of principal and interest due them on each distribution date out of the
funds available for distributions on such date;
o the right of such holders to receive future distributions on the mortgage
loans that would otherwise have been payable to the holders of subordinated
certificates; and/or
o the prior allocation to the subordinated certificates of all or a portion
of losses realized on the underlying mortgage loans.
Other Types of Credit Enhancement: If we so specify in the applicable prospectus
supplement, the certificates of any series, or any one or more classes of a
series, may be entitled to the benefits of other types of credit enhancement,
including but not limited to:
o limited guarantee
o mortgage pool insurance
o special hazard insurance
o mortgagor bankruptcy bond
o repurchase bond
o guaranteed investment contracts
o reserve fund
o cross-support
o other insurance, guarantees and similar instruments or agreements
We will describe any credit enhancement in the applicable prospectus supplement.
2
<PAGE>
ERISA Considerations
If you are a fiduciary of any employee benefit plan subject to the fiduciary
responsibility provisions of the Employee Retirement Income Security Act of
1974, as amended, you should carefully review with your own legal advisors
whether the purchase or holding of certificates could give rise to a transaction
prohibited or otherwise impermissible under ERISA or the Internal Revenue Code
of 1986, as amended. See "ERISA Considerations."
Tax Status
The treatment of the certificates for federal income tax purposes will depend
on:
o whether a REMIC election is made with respect to a series of certificates;
and
o if a REMIC election is made, whether the certificates are regular interests
or residual interests.
See "Federal Income Tax Consequences."
Legal Investment
The applicable prospectus supplement will specify whether the class or classes
of certificates offered will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended.
If your investment authority is subject to legal restrictions you should consult
your own legal advisors to determine whether and to what extent such
certificates constitute legal investments for you. See "Legal Investment
Matters" in this prospectus and in the applicable prospectus supplement.
3
<PAGE>
RISK FACTORS
You should consider, among other things, the following factors in connection
with the purchase of certificates.
Limited Liquidity for Certificates
The liquidity for your certificates may be limited. You should consider
that:
o a secondary market for the certificates of any series may not develop, or
if it does, it may not provide you with liquidity of investment, or it may
not continue for the life of the certificates of any series; and
o the certificates will not be listed on any securities exchange.
Limited Assets for Payment of Certificates
Except for any related insurance policies and any reserve fund or credit
enhancement described in the applicable prospectus supplement:
o mortgage loans included in the related trust fund will be the sole source
of payments on the certificates of a series;
o neither the certificates of any series nor the underlying mortgage loans
will represent an interest in or obligation of Chase Mortgage Finance
Corporation, Chase Manhattan Mortgage Corporation, or any of their
affiliates; and
o neither the certificates of any series nor the underlying mortgage loans
will be guaranteed or insured by any governmental agency or
instrumentality.
Credit Enhancement is Limited in Amount and Coverage
With respect to each series of certificates, credit enhancement may be
provided in limited amounts to cover certain types of losses on the underlying
mortgage loans. Credit enhancement will be provided in one or more of the forms
referred to in this prospectus, including, but not limited to: subordination of
other classes of certificates of the same series; a limited guarantee; a
mortgage pool insurance policy; a special hazard insurance policy; mortgagor
bankruptcy bond; a repurchase bond; guaranteed investment contracts; a reserve
fund; cross-support; other insurance, guarantees, or similar instruments or
agreements entered into with the entities, in the amounts, for the purposes and
subject to the conditions specified in the prospectus supplement for that
series.
Regardless of the form of credit enhancement provided:
o the amount of coverage will be limited in amount and in most cases will be
subject to periodic reduction in accordance with a schedule or formula; and
4
<PAGE>
o may provide only very limited coverage as to certain types of losses, and
may provide no coverage as to certain other types of losses.
In the event losses exceed the amount of coverage provided by any credit
enhancement, or if losses of a type not covered by any credit enhancement occur,
such losses will be borne by the holders of the related certificates (or by
certain classes).
Certificateholders Bear the Risk of Losses on the Mortgage Pool
An investment in certificates evidencing interests in mortgage loans may be
affected, among other things, by a decline in real estate values or changes in
mortgage market rates. If the residential real estate market in the locale of
properties securing the mortgage loans should experience an overall decline in
property values such that the outstanding balances of the mortgage loans, and
any secondary financing on the mortgaged properties in a particular mortgage
pool, become equal to or greater than the value of mortgaged properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry. A decline in
national or regional economic conditions could also cause an increase in rates
of delinquencies, foreclosures and losses. To the extent that such losses are
not covered by any subordination feature, applicable insurance policies or other
credit enhancement, holders of the certificates of a series evidencing interests
in such mortgage pool will bear all risk of loss resulting from default by
mortgagors and will have to look primarily to the value of the mortgaged
properties for recovery of the outstanding principal and unpaid interest of the
defaulted mortgage loans. See "The Mortgage Pools."
Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives and
Yields on Certificates
The yield and average lives of the certificates of each series will depend
in part on the rate of principal payment on the mortgage loans (including
prepayments, liquidation due to defaults and mortgage loan repurchases).
Prepayments on the mortgage loans may be influenced by a variety of economic,
geographic, social and other factors, including the difference between the
interest rates on the mortgage loans and prevailing mortgage rates (giving
consideration to the cost of refinancing). In general, if mortgage interest
rates fall below the interest rates on the mortgage loans, the rate of
prepayment would be expected to increase (and the yields at which an investor in
the certificates may be able to reinvest amounts received as payments on such
investor's certificates may be lower than the yield on such certificates).
Conversely, if mortgage rates rise above the interest rates on the mortgage
loans, the rate of prepayment would be expected to decrease (and the amount of
payments available to a certificateholder for reinvestment may be relatively
low). Other factors affecting prepayment of mortgage loans include changes in
housing needs, job transfers, unemployment and servicing decisions.
The effect of prepayment rates upon the yield of the certificates will
depend upon whether a particular certificate is purchased at a premium or at a
discount. In particular:
o the yield on classes of certificates entitling the holders thereof
primarily or exclusively to payments of interest or primarily or
exclusively to payments of principal will be extremely sensitive to the
rate or prepayments on the related mortgage loans; and
5
<PAGE>
o the yield on certain classes of certificates may be relatively more
sensitive to the rate of prepayment of specified mortgage loans than other
classes of certificates.
In addition, the yield to investors in classes of certificates will be adversely
affected to the extent that losses on the mortgage loans in the related trust
fund are allocated to such classes and may be adversely affected to the extent
of unadvanced delinquencies on the mortgage loans in the related trust fund. The
classes of certificates identified in the applicable prospectus supplement as
subordinated certificates are more likely to be affected by delinquencies and
losses than other classes of certificates.
6
<PAGE>
DESCRIPTION OF THE CERTIFICATES
Each series of Certificates (each, a "Series") issued pursuant to a
separate pooling and servicing agreement (each, an "Agreement") entered into
among Chase Mortgage Finance Corporation (the "Seller"), Chase Manhattan
Mortgage Corporation or any other entity identified in the Agreement as the
Servicer (the "Servicer") and a commercial bank or trust company named in the
Prospectus Supplement, as trustee (the "Trustee") for the benefit of holders of
Certificates of that Series. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the trust fund relating to that Series (the "Trust Fund"). The
Agreement will be substantially in the form filed as an exhibit to the
Registration Statement of which this Prospectus is a part, or in such similar
form as will reflect the terms of a series of Certificates described in the
Prospectus Supplement. The following summaries describe the material provisions
which may appear in each Agreement. The Prospectus Supplement for a series of
Certificates will describe any provision of the Agreement relating to such
series that materially differs from the description thereof contained in this
Prospectus. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Agreement for each series of Certificates and the applicable Prospectus
Supplement. The Seller will provide any holder of certificates
("Certificateholder"), without charge, on written request a copy of the
Agreement for any series. Requests should be addressed to Chase Mortgage Finance
Corporation, 343 Thornall Street, Edison, New Jersey 08837, Attention:
President. The Agreement relating to a series of Certificates will be filed with
the Securities and Exchange Commission in a report on Form 8-K within 15 days
after the date of issuance of such series of Certificates (the "Delivery Date").
The Certificates of a series will be entitled to payment only from the
assets included in the Trust Fund related to such series and will not be
entitled to payments in respect of the assets included in any other trust fund
established by the Seller. The Certificates will not represent obligations of
the Seller, the Servicer or any of their affiliates and will not be insured or
guaranteed by any governmental agency or any other person. The Seller's only
obligations with respect to the Certificates will consist of its obligations
pursuant to certain representations and warranties made by it. The Servicer's
only obligations with respect to the Certificates will consist of its
contractual servicing and/or master servicing obligations, including any
obligation to make advances under certain limited circumstances specified herein
of delinquent installments of principal and interest (adjusted to the applicable
Remittance Rate (defined herein)), and its obligations pursuant to certain
representations and warranties made by it.
The mortgage loans held by each Trust Fund (the "Mortgage Loans") will
not be insured or guaranteed by any governmental entity or, except as specified
in the Prospectus Supplement, by any other person. To the extent that delinquent
payments on or losses in respect of defaulted Mortgage Loans are not advanced by
the Servicer or any other entity or paid from any applicable credit enhancement
arrangement, such delinquencies may result in delays in the distribution of
payments to the holders of one or more classes of Certificates, and such losses
will be borne by the holders of one or more classes of Certificates.
General
The Certificates of each series will be issued in fully-registered form
only. The minimum original certificate principal balance or notional principal
balance that may be represented by a Certificate (the "denomination") will be
specified in the Prospectus Supplement. The original certificate
7
<PAGE>
principal balance of each Certificate will equal the aggregate distributions
allocable to principal to which such Certificate is entitled. Distributions
allocable to interest on each Certificate that is not entitled to distributions
allocable to principal will be calculated based on the notional principal
balance of such Certificate. The notional principal balance of a Certificate
will not evidence an interest in or entitlement to distributions allocable to
principal but will be used solely for convenience in expressing the calculation
of interest and for certain other purposes.
The Certificates of a series will be transferable and exchangeable on a
certificate register to be maintained at the corporate trust office of the
Trustee for the related series or such other office or agency maintained for
such purposes by the Trustee in New York City (or at the office of the
certificate registrar specified in the related Prospectus Supplement). No
service charge will be made for any registration of transfer or exchange of
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required.
Classes of Certificates
Each series of Certificates will be issued in a single class or in two
or more classes. The Certificates of each class will evidence the beneficial
ownership of (i) any distributions in respect of the assets of the Trust Fund
that are allocable to principal, in the aggregate amount of the original
certificate principal balance, if any, of such class of Certificates as
specified in the Prospectus Supplement and (ii) any distributions in respect of
the assets of the Trust Fund that are allocable to interest on the certificate
principal balance or notional principal balance of such Certificates from time
to time at the Certificate Rate, if any, applicable to such class of
Certificates as specified in the Prospectus Supplement. If specified in the
Prospectus Supplement, one or more classes of a series of Certificates may
evidence beneficial ownership interests in separate groups of assets included in
the related Trust Fund.
If specified in the Prospectus Supplement, the Certificates will have
an aggregate original certificate principal balance equal to the aggregate
unpaid principal balance of the Mortgage Loans as of the close of business on
the first day of the month of creation of the Trust Fund (the "Cut-Off Date")
after deducting payments of principal due on or before, and prepayments of
principal received on or before, the Cut-Off Date and in the aggregate will bear
interest equal to the weighted average of the Remittance Rates. The "Remittance
Rate" will equal the rate of interest payable on each Mortgage Loan minus the
Servicer's servicing fee, the servicing fee of any third party servicer of the
Mortgage Loans and such other amounts (including fees payable to the Servicer as
master servicer, if applicable) as are specified in the Prospectus Supplement.
The Certificates may have an original certificate principal balance as
determined in the manner specified in the Prospectus Supplement.
Each class of Certificates that is entitled to distributions allocable
to interest will bear interest at a fixed rate or a rate that is subject to
change from time to time (a) in accordance with a schedule, (b) in reference to
an index, or (c) otherwise (each, a "Certificate Rate"), in each case as
specified in the Prospectus Supplement. One or more classes of Certificates may
provide for interest that accrues, but is not currently payable ("Accrual
Certificates"). With respect to any class of Accrual Certificates, if specified
in the Prospectus Supplement, any interest that has accrued but is not paid on a
given Distribution Date (as defined below under "Distributions of Principal and
Interest") will be added to the aggregate certificate principal balance of such
class of Certificates on that Distribution Date.
8
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A series of Certificates may include one or more classes entitled only
to distributions (i) allocable to interest, (ii) allocable to principal (and
allocable as between scheduled payments of principal and Principal Prepayments,
as defined below) or (iii) allocable to both principal (and allocable as between
scheduled payments of principal and Principal Prepayments) and interest. A
series of Certificates may consist of one or more classes as to which
distributions will be allocated (i) on the basis of collections from designated
portions of the assets of the Trust Fund, (ii) in accordance with a schedule or
formula, (iii) in relation to the occurrence of events, or (iv) otherwise, in
each case as specified in the Prospectus Supplement. The timing and amounts of
such distributions may vary among classes, over time or otherwise, in each case
as specified in the Prospectus Supplement.
The taking of action with respect to certain matters under the
Agreement, including certain amendments thereto, will require the consent of the
holders of the Certificates. The voting rights allocated to each class of
Certificates will be specified in the Prospectus Supplement. Votes may be
allocated in different proportions among classes of Certificates depending on
whether the Certificates of a class have a notional principal balance or a
certificate principal balance.
Distributions of Principal and Interest
General.
Distributions of principal and interest at the applicable Certificate
Rate (if any) on the Certificates will be made to the extent of funds available
from the related Trust Fund on the 25th day (or if such 25th day is not a
business day, on the business day next following such 25th day) of each calendar
month (each, a "Distribution Date"), commencing in the month following the
issuance of the related series, or on such other date as is specified in the
Prospectus Supplement. Distributions will be made to the persons in whose names
the Certificates are registered at the close of business on the dates specified
in the Prospectus Supplement (each, a "Record Date"). Distributions will be made
by check or money order mailed to the person entitled thereto at the address
appearing in the Certificate Register or, if specified in the Prospectus
Supplement, in the case of Certificates that are of a certain minimum
denomination as specified in the Prospectus Supplement, upon written request by
the Certificateholder, by wire transfer or by such other means as are agreed
upon with the person entitled thereto; provided, however, that the final
distribution in retirement of the Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee specified in the notice to Certificateholders of such final
distribution.
Distributions allocable to principal and interest on the Certificates
will be made by the entity specified in the Prospectus Supplement as the paying
agent (the "Paying Agent") out of, and only to the extent of, funds in a
separate account established and maintained under the Agreement for the benefit
of holders of the Certificates of the related series (the "Collection Account"),
including any funds transferred from any Reserve Account. As between
Certificates of different classes and as between distributions of principal
(and, if applicable, between distributions of Principal Prepayments and
scheduled payments of principal) and interest, distributions made on any
Distribution Date will be applied as specified in the Prospectus Supplement.
Distributions to any class of Certificates will be made pro rata to all
Certificateholders of that class or by the other method described in the
Prospectus Supplement. If so specified in the Prospectus Supplement, the amounts
deposited into the Collection Account as described below under "The Pooling and
Servicing Agreement--Payments on Mortgage Loans; Collection Account" will be
invested in the eligible investments specified in the Agreement and
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<PAGE>
all income or other gain from such investments will be deposited in the
Collection Account and will be for the benefit of the Servicer or other entity
specified in the Prospectus Supplement and subject to withdrawal from time to
time.
Distributions of Interest. Interest will accrue on the aggregate
certificate principal balance (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate notional principal balance)
of each class of Certificates entitled to interest from the date, at the
Certificate Rate and for the periods (each, an "Interest Accrual Period")
specified in the Prospectus Supplement. To the extent funds are available
therefor, interest accrued during each Interest Accrual Period on each class of
Certificates entitled to interest (other than a class of Accrual Certificates)
will be distributable on the Distribution Dates specified in the Prospectus
Supplement until the aggregate certificate principal balance of the Certificates
of such class has been distributed in full or, in the case of Certificates
entitled only to distributions allocable to interest, until the aggregate
notional principal balance of such Certificates is reduced to zero or for the
period of time designated in the Prospectus Supplement. Distributions of
interest on each class of Accrual Certificates will commence only after the
occurrence of the events specified in the Prospectus Supplement. Prior to such
time, the beneficial ownership interest of such class of Accrual Certificates in
the Trust Fund, as reflected in the aggregate certificate principal balance of
such class of Accrual Certificates, will increase on each Distribution Date by
the amount of interest that accrued on such class of Accrual Certificates during
the preceding Interest Accrual Period but that was not required to be
distributed to such class on such Distribution Date. Any such class of Accrual
Certificates will thereafter accrue interest on its outstanding certificate
principal balance as so adjusted.
Distributions of Principal. The aggregate certificate principal balance
of any class of Certificates entitled to distributions of principal generally
will be the aggregate original certificate principal balance of such class of
Certificates specified in the Prospectus Supplement, reduced by all
distributions reported to the holders of such Certificates as allocable to
principal, and, in the case of Accrual Certificates, as specified in the
Prospectus Supplement, increased on each Distribution Date by all interest
accrued but not then distributable on such Accrual Certificates. The Prospectus
Supplement will specify the method by which the amount of principal to be
distributed on the Certificates on each Distribution Date will be calculated and
the manner in which such amount will be allocated among the classes of
Certificates entitled to distributions of principal.
If so specified in the Prospectus Supplement, one or more classes of
senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments or other recoveries of principal on a Mortgage Loan
which are received in advance of their scheduled due dates and not accompanied
by amounts of interest representing scheduled interest due after the month of
such payments ("Principal Prepayments" or "Prepayments") in the percentages and
under the circumstances or for the periods specified in the Prospectus
Supplement. Any such allocation of Principal Prepayments to such class or
classes of Certificateholders will have the effect of accelerating the
amortization of such Certificates while increasing the interests evidenced by
the remaining Certificates in the Trust Fund.
Categories of Classes of Certificates
The Certificates of any Series may be comprised of one or more Classes.
Such Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Certificates may identify the Classes
10
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which comprise such Series by reference to the following categories or another
specified in the applicable Prospectus Supplement.
<TABLE>
<CAPTION>
Categories of Classes Definition
- --------------------- ----------
<S> <C>
PRINCIPAL TYPES
"Accretion Directed".................................. A Class that receives principal payments from the
accreted interest from specified Accrual Classes. An
Accretion Directed Class also may receive principal
payments from principal paid on the Mortgage
Loans for the related Series.
"Component Certificates"............................. A Class consisting of "Components." The
Components of a Class of Component Certificates
may have different principal and/or interest payment
characteristics but together constitute a single class
and do not represent severable interests. Each
Component of a Class of Component Certificates
may be identified as falling into one or more of the
categories in this chart.
"Lockout Class" (sometimes also
referred to as a "NAS Class")........................ A Class that is designed to receive no principal
payments or a disproportionately small portion of
principal payments from the first Distribution Date
until a Distribution Date specified in the related
Prospectus Supplement.
"Notional Amount Class".............................. A Class having no principal balance and bearing
interest on the related notional amount. The notional
amount is used for purposes of the determination of
interest distributions.
"Planned Amortization Class" (also
sometimes referred to as a "PAC").................... A Class that is designed to receive principal
payments using a pre-determined principal balance
schedule derived by assuming two constant
prepayment rates for the underlying Mortgage
Loans. These two rates are the endpoints for the
"structuring range" for the Planned Amortization
Class. The Planned Amortization Classes in any
Series of Certificates may be subdivided into
different categories (e.g., Planned Amortization
Class I ("PAC I") Planned Amortization Class II
("PAC II") and so forth) derived using different
structuring ranges.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
"Scheduled Amortization Class"....................... A Class that is designed to receive principal
payments using a pre-determined principal balance
schedule but is not designated as a Planned
Amortization Class or Targeted Amortization Class.
The schedule is derived by assuming either two
constant prepayment rates or a single constant
prepayment rate for the underlying Mortgage Loans.
In the former case, the two rates are the endpoints
for the "structuring rate" for the Scheduled
Amortization Class and such range generally is
narrower than that for a Planned Amortization Class.
Typically, the Support Class for the applicable
Series of Certificates generally will represent a
smaller percentage of the Scheduled Amortization
Class than a Support Class generally would
represent in relation to a Planned Amortization Class
or a Targeted Amortization Class.
"Sequential Pay Class"............................... Classes that are entitled to receive principal
payments in a prescribed sequence, that do not have
predetermined principal balance schedules and that,
in most cases, are entitled to receive payments of
principal continuously from the first Distribution
Date on which they receive principal until they are
retired. A single Class is entitled to receive principal
payments before or after other Classes in the same
Series of Certificates may be identified as a
Sequential pay Class.
"Strip Class"........................................ A Class that is entitled to receive a constant
proportion, or "strip," of the principal payments on
the underlying Mortgage Loans.
"Support Class" (also sometimes
referred to as a "Companion Class").................. A Class that is entitled to receive principal payments
on any Distribution Date only if scheduled payments have
been made on specified Planned Amortization Classes,
Targeted Amortization Classes and/or Scheduled
Amortization Classes.
"Targeted Amortization Class" (also
sometimes referred to as a "TAC").................... A Class that is designed to receive principal
payments using a pre-determined principal balance
schedule derived by assuming a single constant
prepayment rate for the underlying Mortgage Loans.
</TABLE>
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INTEREST TYPES
<TABLE>
<CAPTION>
<S> <C>
"Fixed Rate Class"................................... A Class with an interest rate that is fixed throughout
the life of the Class.
"Floating Rate Class"................................ A Class with an interest rate that resets periodically
based upon a designated index and that varies
directly with changes in such index.
"Inverse Floating Rate Class"........................ A Class with an interest rate that resets periodically
based upon a designated index and that varies
inversely with changes in such index and with
changes in the interest rate payable on the related
Floating Rate Class.
"Variable Rate Class"................................ A Class with an interest rate that resets periodically
and is calculated by reference to the rate or rates of
interest applicable to the Mortgage Loans.
"Interest-Only Class"................................ A Class that is entitled to receive some or all of the
interest payments made on the Mortgage Loans and
little or no principal. Interest-Only Classes have
either a nominal principal balance or a notional
amount. A nominal principal balance represents
actual principal that will be paid on the Class. It is
referred to as nominal since it is extremely small
compared to other Classes. A notional amount is the
amount used as a reference to calculate the amount
of interest due on an Interest-Only Class that is not
entitled to any distributions in respect of principal.
"Principal-Only Class"............................... A Class that does not bear interest and is entitled to
receive only distributions in respect of principal.
"Accrual Class"...................................... A Class that accretes the amount of accrued interest
otherwise distributable on such Class, which amount
will be added as principal to the principal balance of
such Class on each applicable Distribution Date.
Such accretion may continue until some specified
event has occurred or until such Accrual Class is
retired.
"Step-up Class"...................................... A Class that bears interest at one or more higher, or
"stepped-up" Certificate Rates for a period of time
specified in the related Prospectus Supplement
before resetting to a lower Certificate Rate that will
remain fixed thereafter.
</TABLE>
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<PAGE>
THE MORTGAGE POOLS
Each mortgage pool (a "Mortgage Pool") will consist of one- to
four-family residential mortgage loans evidenced by promissory notes (each, a
"Note") secured by first mortgages or first deeds of trust or other similar
security instrument (each, a "Mortgage") creating a first lien on properties
(the "Mortgaged Properties"). When each series of Certificates is issued, the
Seller will cause the Mortgage Loans comprising each Mortgage Pool to be
assigned to the Trustee for the benefit of the holders of the Certificates of
that series, and will receive the Certificates in exchange therefor. Certain
Certificates evidencing interests in a Trust Fund may not form part of the
offering made pursuant to this Prospectus and the related Prospectus Supplement.
The Mortgaged Properties in each Mortgage Pool may consist of
single-unit dwellings, two-, three- and four-unit detached, townhouse or
rowhouse dwellings, condominium and planned-unit development ("PUD") units and
such other types of homes or units as are described in the applicable Prospectus
Supplement, and may include vacation and second homes and investment properties
(i.e. one-to-four family properties owned for investment and rented to generate
income). The applicable Prospectus Supplement will contain information
concerning the originators of the Mortgage Loans and the underwriting standards
employed by such originators.
All Mortgage Loans will (i) be secured by Mortgaged Properties located
in one of the states of the United States or the District of Columbia, and (ii)
be of one or more of the following types of Mortgage Loans:
(1) Fully-amortizing Mortgage Loans, each with a 20-to 30-year
("30-Year") term at origination, interest (the "Mortgage Rate") at a fixed rate
and level monthly payments over the term of the Mortgage Loan.
(2) Fully-amortizing Mortgage Loans, each with a 10-to 15-year
("15-Year") term at origination, a fixed Mortgage Rate and level monthly
payments over the term of the Mortgage Loan.
(3) Adjustable-rate Mortgage Loans ("ARMS" or "ARM Loans"), which may
include loans providing for negative amortization.
Mortgage Loans with certain Loan-to-Value Ratios and/or certain
principal balances may be covered wholly or partially by primary mortgage
guaranty insurance policies (each, a "Primary Mortgage Insurance Policy"). The
existence, extent and duration of any such coverage will be described in the
applicable Prospectus Supplement. The "Loan-to- Value Ratio" is the ratio,
expressed as a percentage, of the principal amount of the Mortgage Loan to the
lesser of (i) the sales price for such property at the time the Mortgage Loan is
closed and (ii) the appraised value at origination or, in the case of
refinancings, the value set forth in the appraisal, if any, obtained by the loan
originator in connection with such refinancing. Each Mortgage Loan will also be
covered by a Standard Hazard Insurance Policy, as described under "Servicing of
the Mortgage Loans--Hazard Insurance" below.
In addition, other credit enhancements acceptable to the rating agency
(or agencies) rating the Certificates may be provided for coverage of certain
risks of default or losses. See "Credit Enhancement" herein.
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<PAGE>
If specified in the applicable Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans subject to buy-down plans ("Buy-Down Mortgage Loans")
pursuant to which the monthly payments made by the borrowers under the related
Notes (each, a "Borrower") will be less than the scheduled monthly payments on
the Buy-Down Mortgage Loan, the resulting difference to be drawn from an amount
contributed by the seller of the property securing the mortgage (the "Mortgaged
Property") or another source at the time of origination of the Buy-Down Mortgage
Loan and placed in a trust or custodial account (the "Buy-Down Fund") (such
amount hereinafter referred to as the "Buy-Down Reserve"). The applicable
Prospectus Supplement or Current Report (as defined below) will contain
information, with respect to any Buy-Down Mortgage Loans, concerning limitations
on the interest rate payable by the Borrower initially, on annual increases in
the interest rate, on the length of the buy-down period, and on the Buy-Down
Fund. The repayment of a temporary Buy-Down Mortgage Loan is dependent on the
ability of the Borrower to make larger monthly payments after the Buy-Down
Reserves have been depleted and, for certain Buy-Down Mortgage Loans, while such
funds are being depleted. The inability of the Borrower to make larger monthly
payments may lead to a default on the Buy-Down Mortgage Loan or, if the Borrower
is able to obtain refinancing on favorable terms, a prepayment of such loan. See
"Yield, Maturity and Weighted Average Life Considerations."
The Prospectus Supplement for a series of Certificates may specify that
the related Mortgage Pool contains Mortgage Loans that have been used for
refinancing for the purpose of removing equity from the related Mortgaged
Properties ("Cash-Out Refinance Loans").
The Prospectus Supplement for each series of Certificates will specify
the approximate aggregate principal balance of the Mortgage Loans (within the
percentage or dollar range specified therein). The Prospectus Supplement for
each series of Certificates will contain information regarding the Mortgage
Loans which are expected to be included in the related Mortgage Pool, including
among other things, information, as of the applicable Cut-Off Date and to the
extent then specifically known to the Seller, as to (i) the aggregate principal
balance of the Mortgage Loans, (ii) the aggregate principal balance or
percentage by aggregate principal balance of Mortgage Loans secured by each type
of property, (iii) the original terms to maturity of the Mortgage Loans, (iv)
the smallest and largest in principal balance at origination of the Mortgage
Loans, (v) the earliest origination date and latest maturity date of the
Mortgage Loans, (vi) the aggregate principal balance or percentage by aggregate
principal balance of Mortgage Loans having Loan-to-Value Ratios at origination
exceeding 80%, (vii) the Mortgage Rate or range of Mortgage Rates borne by the
Mortgage Loans and (viii) the average outstanding principal balance of the
Mortgage Loans. If specific information with respect to the Mortgage Loans is
not known at the time the related series of Certificates is initially offered,
more general information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth in a report on
Form 8-K to be filed with the Securities and Exchange Commission within fifteen
days after the initial issuance of such Certificates (the "Current Report"). A
copy of the Agreement with respect to a series of Certificates will be attached
to the related Current Report and will be available for inspection at the
corporate trust office of the Trustee specified in the related Prospectus
Supplement.
The Seller's assignment of the Mortgage Loans to the Trustee will be
without recourse. The Seller or another party identified in the applicable
Prospectus Supplement will make certain representations concerning the Mortgage
Loans, including that no Mortgage Loan in a Mortgage Pool evidenced by
Certificates will be more than one month delinquent as of the date of the
initial issuance of the Certificates. For a description of other representations
that will be made by the party specified in the applicable Prospectus Supplement
concerning the Mortgage Loans, see "The Pooling and Servicing
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<PAGE>
Agreement--Assignment of Mortgage Loans; Warranties." The Seller's obligations
with respect to the Mortgage Loans will be limited to any representations and
warranties made by it in, as well as its contractual obligations under, the
Agreement for each series of Certificates. These obligations consist primarily
of the obligation under certain circumstances to repurchase or replace Mortgage
Loans as to which there has been a material breach of the Seller's
representations and warranties which materially and adversely affects the
interests of the Certificateholders in a Mortgage Loan or to cure such breach,
and of the obligation, under certain circumstances, to ensure the timely payment
of premiums on certain insurance policies and bonds. See "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans; Warranties."
In addition, to the extent specified in the applicable Prospectus
Supplement, in the event of delinquencies in payments of principal and interest
on the Mortgage Loans in any Mortgage Pool, the Servicer (or, if so indicated in
the applicable Prospectus Supplement, another entity) will advance cash in
amounts described herein under "The Pooling and Servicing Agreement-Advances"
and "--Payments on Mortgage Loans; Collection Account." The Servicer is not
required to make any advance which it determines in its good faith judgment not
to be ultimately recoverable under any applicable policy of insurance
("Insurance Proceeds") or out of the proceeds of liquidation of a Mortgage Loan
("Liquidation Proceeds"). Each month, the Trustee (or such other paying agent as
may be specified in the applicable Prospectus Supplement) will be obligated to
remit to Certificateholders of each series all amounts relating to the Mortgage
Loans due to the Certificateholders to the extent such amounts have been
collected or advanced by the Servicer or such other entity and remitted to the
Trustee pursuant to the terms of the Agreement for such series. See "Description
of the Certificates--Distributions of Principal and Interest."
There can be no assurance that real estate values will remain at
present levels in the areas in which the Mortgaged Properties will be located.
If the residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Mortgage Loans, and
any secondary financing on the Mortgaged Properties, in a particular Mortgage
Pool become equal to or greater than the value of the properties subject to the
Mortgage Loans included in such Mortgage Pool, the actual rates of
delinquencies, foreclosures and losses could be significantly higher than those
now generally experienced in the mortgage lending industry. To the extent that
such delinquencies, foreclosures and losses are not covered by applicable credit
enhancements described in the Prospectus Supplement, the losses resulting
therefrom will be borne by holders of the Certificates of the series evidencing
interests in such Mortgage Pool. With respect to any series as to which
Subordinated Certificates (defined herein) shall have been issued, such losses
will first be borne by the holders of Subordinated Certificates as a result and
to the extent of the subordination in right of payment of the Subordinated
Certificates to the senior Certificates and as a result of first allocating such
losses to reduce the certificate principal balance of such Subordinated
Certificates.
Because the principal amounts of Mortgage Loans decline monthly as
principal payments, including prepayments, are received, the fractional
undivided interest in principal evidenced by each Certificate in a series
multiplied by the aggregate principal balance of the Mortgage Loans in the
related Mortgage Pool will decline correspondingly. The principal balance
represented by a Certificate, therefore, ordinarily will decline over time.
16
<PAGE>
CREDIT ENHANCEMENT
General
Credit enhancement may be provided with respect to one or more
classes of a series of Certificates or with respect to the assets in the related
Trust Fund. Credit enhancement may be in the form of a limited financial
guarantee policy, limited guarantee or other similar instrument (a "Limited
Guarantee") issued by an entity named in the Prospectus Supplement (the
"Guarantor"), the subordination of one or more classes of the Certificates of
such series, the establishment of one or more reserve accounts, the use of a
pool insurance policy, bankruptcy bond, special hazard insurance policy,
repurchase bond, guaranteed investment contract or another method of credit
enhancement described in the related Prospectus Supplement, or any combination
of the foregoing. Any credit enhancement will not provide protection against all
risks of loss and will not guarantee repayment of the entire principal balance
of the Certificates and interest thereon. If losses occur which exceed the
amount covered by credit enhancement or which are not covered by the credit
enhancement, Certificateholders will bear their allocable share of the resulting
deficiencies.
Limited Guarantee of the Guarantor
If specified in the Prospectus Supplement, certain obligations of the
Servicer under the related Agreement may be covered by a Limited Guarantee,
limited in scope and amount, issued by the Guarantor. If so specified, the
Guarantor may be obligated to take either or both of the following actions in
the event the Servicer fails to do so: make deposits to the Collection Account
(a "Deposit Guarantee"); or make advances (an "Advance Guarantee"). Any such
Limited Guarantee will be limited in amount and a portion of the coverage of any
such Limited Guarantee may be separately allocated to certain events. The scope,
amount and, if applicable, the allocation of any Limited Guarantee will be
described in the related Prospectus Supplement.
Subordination
If so specified in the Prospectus Supplement, distributions in respect
of scheduled principal, Principal Prepayments, interest or any combination
thereof that otherwise would have been payable to one or more classes of
Certificates of a series (the "Subordinated Certificates") will instead be
payable to holders of one or more other classes of such series (the "Senior
Certificates") under the circumstances and to the extent specified in the
Prospectus Supplement. If specified in the Prospectus Supplement, delays in
receipt of scheduled payments on the Mortgage Loans and losses on defaulted
Mortgage Loans will be borne first by the various classes of Subordinated
Certificates and thereafter by the various classes of Senior Certificates, in
each case under the circumstances and subject to the limitations specified in
the Prospectus Supplement. The aggregate distributions in respect of delinquent
payments on the Mortgage Loans over the lives of the Certificates or at any
time, the aggregate losses in respect of defaulted Mortgage Loans which must be
borne by the Subordinated Certificates by virtue of subordination and the amount
of the distributions otherwise distributable to the subordinated
Certificateholders that will be distributable to senior Certificateholders on
any Distribution Date may be limited as specified in the Prospectus Supplement.
If aggregate distributions in respect of delinquent payments on the Mortgage
Loans or aggregate losses in respect of such Mortgage Loans were to exceed the
total amounts payable and available for distribution to holders of Subordinated
Certificates or, if applicable, were to exceed the specified maximum amount,
holders of Subordinated Certificates could experience losses on the
Certificates.
17
<PAGE>
In addition to or in lieu of the foregoing, if so specified in the
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Certificates on any Distribution Date may instead be
deposited into one or more reserve accounts (a "Reserve Account") established by
the Trustee. If so specified in the Prospectus Supplement, such deposits may be
made on each Distribution Date for specified periods or until the balance in the
Reserve Account has reached a specified amount and, following payments from the
Reserve Account to holders of Senior Certificates or otherwise, thereafter to
the extent necessary to restore the balance in the Reserve Account to required
levels, in each case as specified in the Prospectus Supplement. If so specified
in the Prospectus Supplement, amounts on deposit in the Reserve Account may be
released to the Servicer or the holders of any class of Certificates at the
times and under the circumstances specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, one or more classes of
Certificates may bear the risk of certain losses on defaulted Mortgage Loans not
covered by other forms of credit enhancement prior to other classes of
Certificates. Such subordination might be effected by reducing the certificate
principal balance of the Subordinated Certificates on account of such losses,
thereby decreasing the proportionate share of distributions allocable to such
Certificates, or by another means specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, various classes of Senior
Certificates and Subordinated Certificates may themselves be subordinate in
their right to receive certain distributions to other classes of Senior
Certificates and Subordinated Certificates, respectively, through a
cross-support mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the Prospectus Supplement. As
between classes of Subordinated Certificates, payments to holders of
Subordinated Certificates on account of delinquencies or losses and payments to
any Reserve Account will be allocated as specified in the Prospectus Supplement.
Cross-Support
If specified in the Prospectus Supplement, the beneficial ownership of
separate groups of assets included in a Trust Fund may be evidenced by separate
classes of the related series of Certificates. In such case, credit enhancement
may be provided by a cross-support feature which may require that distributions
be made with respect to Certificates evidencing beneficial ownership of one or
more asset groups prior to distributions to Subordinated Certificates evidencing
a beneficial ownership interest in other asset groups within the same Trust
Fund. The Prospectus Supplement for a series which includes a cross-support
feature will describe the manner and conditions for applying such cross-support
feature.
If specified in the Prospectus Supplement, the coverage provided by one
or more forms of credit enhancement may apply concurrently to two or more
separate Trust Funds. If applicable, the Prospectus Supplement will identify the
Trust Funds to which such credit enhancement relates and the manner of
determining the amount of the coverage provided thereby and of the application
of such coverage to the identified Trust Funds.
18
<PAGE>
Pool Insurance
In order to decrease the likelihood that Certificateholders will
experience losses in respect of the Mortgage Loans, if specified in the
Prospectus Supplement, the Seller will obtain one or more pool insurance
policies. Any such policies may be in lieu of or in addition to any obligations
of the Seller or the Servicer in respect of the Mortgage Loans. Such pool
insurance policy will, subject to the limitations described below and in the
Prospectus Supplement, cover loss by reason of default in payments on the
Mortgage Loans up to the amounts specified in the Prospectus Supplement or the
Detailed Description and for the periods specified in the Prospectus Supplement.
The Servicer will agree to use its best reasonable efforts to maintain in effect
any such pool insurance policy and to present claims thereunder to the pool
insurer on behalf of itself, the Trustee and the Certificateholders. The pool
insurance policy, however, is not a blanket policy against loss, since claims
thereunder may only be made respecting particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions precedent described below. The pool
insurance policy, if any, will not cover losses due to a failure to pay or
denial of a claim under a primary mortgage insurance policy, irrespective of the
reason therefor. The related Prospectus Supplement will describe any provisions
of a pool insurance policy that are materially different from those described
below.
Any pool insurance policy may provide that no claims may be validly
presented thereunder unless (i) any required primary mortgage insurance policy
is in effect for the defaulted Mortgage Loan and a claim thereunder has been
submitted and settled; (ii) hazard insurance on the related Mortgaged Property
has been kept in force and real estate taxes and other protection and
preservation expenses have been paid; (iii) if there has been physical loss or
damage to the Mortgaged Property, it has been restored to its condition
(reasonable wear and tear excepted) at the Cut-Off Date; (iv) the insured has
acquired good and merchantable title to the Mortgaged Property free and clear of
liens, except certain permitted encumbrances; and (v) the Servicer has advanced
foreclosure costs. Upon satisfaction of these conditions, the pool insurer will
have the option either (a) to purchase the Mortgaged Property at a price equal
to the Principal Balance thereof plus accrued and unpaid interest at the
Mortgage Rate to the date of purchase and certain expenses incurred by the
Servicer on behalf of the Trustee and the Certificateholders, or (b) to pay the
amount by which the sum of the Principal Balance of the defaulted Mortgage Loan
plus accrued and unpaid interest at the Mortgage Rate to the date of payment of
the claim and the aforementioned expenses exceeds the proceeds received from an
approved sale of the Mortgaged Property, in either case net of certain amounts
paid or assumed to have been paid under any related primary mortgage insurance
policy. If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
special hazard insurance policy are insufficient to restore the damaged property
to a condition sufficient to permit recovery under the pool insurance policy,
the Servicer will not be required to expend its own funds to restore the damaged
property unless it determines (i) that such restoration will increase the
proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Servicer for its expenses, and (ii) that such expenses will
be recoverable by it through proceeds of the sale of the property or proceeds of
the pool insurance policy or any primary mortgage insurance policy.
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<PAGE>
In general, no pool insurance policy will insure (and many primary
mortgage insurance policies may not insure) against loss sustained by reason of
a default arising from, among other things, (i) fraud or negligence in the
origination or servicing of a Mortgage Loan, including misrepresentation by the
mortgagor or persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. If
so specified in the related Prospectus Supplement, a failure of coverage
attributable to one of the foregoing events might result in a breach of a
representation of the Seller (or another party) and in such event might give
rise to an obligation on the part of the Seller (or such other party) to
purchase or replace the defaulted Mortgage Loan if the breach materially and
adversely affects the interests of Certificateholders and cannot be cured.
As specified in the Prospectus Supplement, the original amount of
coverage under any pool insurance policy will be reduced over the life of the
related series of Certificates by the aggregate dollar amount of claims paid
less the aggregate of the net amounts realized by the pool insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the Servicer as well as accrued interest on
delinquent Mortgage Loans to the date of payment of the claim. See "Material
Legal Aspects of the Mortgage Loans --Foreclosure". Accordingly, if aggregate
net claims paid under any pool insurance policy reach the original policy limit,
coverage under that pool insurance policy will be exhausted and any further
losses will be borne by one or more classes of Certificateholders unless assumed
by some other entity, if and to the extent specified in the Prospectus
Supplement.
Since any mortgage pool insurance policy may require that the property
subject to a defaulted Mortgage Loan be restored to its original condition prior
to claiming against the pool insurer, such policy may not provide coverage
against hazard losses. The hazard policies concerning the Mortgage Loans
typically exclude from coverage physical damage resulting from a number of
causes and, even when the damage is covered, may afford recoveries which are
significantly less than the full replacement cost of such losses. Even if
special hazard insurance is applicable as specified in the Prospectus
Supplement, no coverage in respect of special hazard losses will cover all
risks, and the amount of any such coverage will be limited. See "Special Hazard
Insurance" below. As a result, certain hazard risks will not be insured against
and will therefore be borne by Certificateholders, unless otherwise assumed by
some other entity, as specified in the Prospectus Supplement.
Special Hazard Insurance
In order to decrease the likelihood that Certificateholders will
experience losses in respect of the Mortgage Loans, if specified in the
Prospectus Supplement, the Seller will obtain one or more special hazard
insurance policies with respect to the Mortgage Loans. Such a special hazard
insurance policy will, subject to limitations described below and in the
Prospectus Supplement, protect holders of Certificates from (i) loss by reason
of damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage) not
covered by the standard form of hazard insurance policy for the respective
states in which the Mortgaged Properties are located or under flood insurance
policies, if any, covering the Mortgaged Properties, and (ii) loss from partial
damage caused by reason of the application of the co-insurance clause contained
in hazard insurance policies. See "Servicing of the Mortgage Loans--Hazard
Insurance" below. Any special hazard insurance policy may not cover losses
occasioned by war, civil insurrection, certain governmental actions, errors in
design, faulty workmanship or materials (except under certain circumstances),
nuclear reaction, flood (if the Mortgaged Property is located in a federally
designated flood area), chemical contamination and certain other risks.
Aggregate claims under each special hazard insurance policy may be limited to a
specified percentage of the aggregate principal balance as of the Cut-Off Date
of the Mortgage Loans. Any special hazard insurance policy may also provide that
no claim may be paid unless hazard and, if applicable, flood insurance on the
Mortgaged Property has been kept in force and other protection and preservation
expenses have been paid by the Servicer.
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<PAGE>
Subject to the foregoing limitations, any special hazard insurance
policy may provide that, where there has been damage to property securing a
foreclosed Mortgage Loan (title to which has been acquired by the insured) and
to the extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the Servicer, the
special hazard insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
special hazard insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement and certain
expenses incurred by the Servicer with respect to such property. If the unpaid
principal balance plus accrued interest and certain expenses is paid by the
insurer, the amount of further coverage under the related special hazard
insurance policy will be reduced by such amount less any net proceeds from the
sale of the property. Any amount paid as the cost of repair or replacement of
the property will also reduce coverage by such amount. Restoration of the
property with the proceeds described under clause (i) above will satisfy the
condition under any pool insurance policy that the property be restored before a
claim under such pool insurance policy may be validly presented with respect to
the defaulted Mortgage Loan secured by such property. The payment described
under clause (ii) above will render unnecessary presentation of a claim in
respect of such Mortgage Loan under the related pool insurance policy.
Therefore, so long as a pool insurance policy remains in effect, the payment by
the insurer under a special hazard insurance policy of the cost of repair or
replacement or the unpaid principal balance of the Mortgage Loan plus accrued
interest and certain expenses will not affect the total insurance proceeds paid
to Certificateholders, but will affect the relative amounts of coverage
remaining under the related special hazard insurance policy and pool insurance
policy.
Bankruptcy Bond
In the event of a bankruptcy of a Borrower, the bankruptcy court may
establish the value of the Mortgaged Property securing the related Mortgage Loan
at an amount less than the then outstanding principal balance of such Mortgage
Loan secured by such Mortgaged Property and could reduce the secured debt to
such value. In such case, the holder of such Mortgage Loan would become an
unsecured creditor to the extent of the difference between the outstanding
principal balance of such Mortgage Loan and such reduced secured debt. In
addition, certain other modifications of the terms of a Mortgage Loan can result
from a bankruptcy proceeding, including the reduction in monthly payments
required to be made by the Borrower. See "Material Legal Aspects of the Mortgage
Loans -- Enforceability of Certain Provisions". If so provided in the related
Prospectus Supplement, the Servicer will obtain a bankruptcy bond or similar
insurance contract (the "bankruptcy bond") for proceedings with respect to
Borrowers under the Bankruptcy Code. Any such bankruptcy bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments of
principal of and interest on a Mortgage Loan or a reduction by such court of the
secured principal amount of a Mortgage Loan and will cover certain unpaid
interest on the amount of such a principal reduction from the date of the filing
of a bankruptcy petition.
Any such bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement. Such amount will be reduced by
payments made under such bankruptcy bond in respect of the related Mortgage
Loans, to the extent specified in the related Prospectus Supplement, and will
not be restored.
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In lieu of a bankruptcy bond, the Servicer may obtain a Limited
Guarantee to cover such bankruptcy-related losses.
Repurchase Bond
If so specified in the related Prospectus Supplement, the Servicer will
be obligated to purchase any Mortgage Loan up to an aggregate dollar amount
specified in the related Prospectus Supplement) for which insurance coverage is
denied due to dishonesty, misrepresentation or fraud in connection with the
origination or sale of such Mortgage Loan. Such obligation may be secured by a
surety bond or other instrument or mechanism guaranteeing payment of the amount
to be paid by the Servicer.
Guaranteed Investment Contracts
If so specified in the Prospectus Supplement, on or prior to the
Delivery Date, the Trustee will enter into a guaranteed investment contract (a
"GIC") pursuant to which all amounts deposited in the Collection Account, and if
so specified the Reserve Accounts, will be invested by the Trustee and under
which the issuer of the GIC will pay to the Trustee interest at an agreed rate
per annum with respect to the amounts so invested.
Reserve Accounts
If specified in the Prospectus Supplement, cash, U.S. Treasury
securities, instruments evidencing ownership of principal or interest payments
thereon, letters of credit, demand notes, certificates of deposit, other
instruments or obligations or a combination thereof in the aggregate amount
specified in the Prospectus Supplement will be deposited by the Servicer on the
Delivery Date in one or more Reserve Accounts established by the Trustee. Such
cash and the principal and interest payments on such other instruments will be
used to enhance the likelihood of timely payment of principal of, and interest
on, or, if so specified in the Prospectus Supplement, to provide additional
protection against losses in respect of, the assets in the related Trust Fund,
to pay the expenses of the Trust Fund or for such other purposes specified in
the Prospectus Supplement. Whether or not the Servicer has any obligation to
make such a deposit, certain amounts to which the subordinated
Certificateholders, if any, will otherwise be entitled may instead be deposited
into the Reserve Account from time to time and in the amounts as specified in
the Prospectus Supplement. Any cash in the Reserve Account and the proceeds of
any other instrument upon maturity will be invested in "Eligible Investments,"
which will include obligations of the United States and certain agencies
thereof, certificates of deposit, certain commercial paper, time deposits and
bankers acceptances sold by eligible commercial banks, certain repurchase
agreements of United States government securities with eligible commercial banks
and certain other Eligible Investments described in the Agreement. If a letter
of credit is deposited with the Trustee, such letter of credit will be
irrevocable. Any instrument deposited therein will name the Trustee, in its
capacity as trustee for the holders of the related Certificates, as beneficiary
and will be issued by an entity acceptable to each rating agency that rates the
Certificates. Additional information with respect to such instruments deposited
in the Reserve Accounts will be set forth in the Prospectus Supplement.
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Any amounts so deposited and payments on instruments so deposited will
be available for withdrawal from the Reserve Account for distribution to the
holders of Certificates for the purposes, in the manner and at the times
specified in the Prospectus Supplement.
Other Insurance and Guarantees
If specified in the Prospectus Supplement, the related Trust Fund may
also include insurance, guarantees or letters of credit for the purpose of (i)
maintaining timely payments or providing additional protection against losses on
the assets included in such Trust Fund, (ii) paying administrative expenses or
(iii) establishing a minimum reinvestment rate on the payments made in respect
of such assets or principal payment rate on such assets. Such arrangements may
include agreements under which Certificateholders are entitled to receive
amounts deposited in various accounts held by the Trustee upon the terms
specified in the Prospectus Supplement. Such arrangements may be in lieu of any
obligation of the Servicer to advance delinquent installments in respect of the
Mortgage Loans.
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates
will be affected primarily by the rate and timing of principal payments received
on or in respect of the Mortgage Loans included in the related Trust Fund. Such
principal payments will include scheduled payments as well as Principal
Prepayments (including refinancings) and prepayments resulting from foreclosure,
condemnation and other dispositions of the Mortgaged Properties (including
amounts paid by insurers under applicable insurance policies), from purchase by
the Seller of any Mortgage Loan as to which there has been a material breach of
warranty or defect in documentation (or deposit of certain amounts in respect of
delivery of a substitute Mortgage Loan), purchase by the Servicer of Mortgage
Loans modified by it in lieu of refinancing thereof and from the repurchase by
the Seller of all of the Mortgage Loans in certain circumstances. See "The
Pooling and Servicing Agreement--Termination; Purchase of Mortgage Loans." The
yield to maturity and weighted average lives of the Certificates may also be
affected by the amount and timing of delinquencies and losses on the Mortgage
Loans.
A number of social, economic, tax, geographic, demographic, legal and
other factors may influence prepayments, delinquencies and losses. For a Trust
Fund comprised of Mortgage Loans, these factors may include the age of the
Mortgage Loans, the geographic distribution of the Mortgaged Properties, the
payment terms of the Mortgages, the characteristics of the mortgagors, homeowner
mobility, economic conditions generally and in the geographic area in which the
Mortgaged Properties are located, enforceability of due-on-sale clauses,
servicing decisions, prevailing mortgage market interest rates in relation to
the interest rates on the Mortgage Loans, the availability of mortgage funds,
the use of second or "home equity" mortgage loans by mortgagors, the
availability of refinancing opportunities (including refinancing opportunities
offered by Chase Manhattan Mortgage Corporation ("Chase Manhattan Mortgage") to
existing Borrowers or to its affiliates), the use of the properties as second or
vacation homes, the extent of the mortgagors' net equity in the Mortgaged
Properties and, where investment properties are securing the Mortgage Loans,
tax-related considerations and the availability of other investments. The rate
of principal payment may also be subject to seasonal variations.
The rate of principal prepayments on pools of conventional housing
loans has fluctuated significantly in recent years. Generally, if prevailing
interest rates were to fall significantly below the
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interest rates on the Mortgage Loans, the Mortgage Loans would be expected to
prepay at higher rates than if prevailing rates were to remain at or above the
interest rates on the Mortgage Loans. Conversely, if interest rates were to rise
above the interest rates on the Mortgage Loans, the Mortgage Loans would be
expected to prepay at lower rates than if prevailing rates were to remain at or
below interest rates on the Mortgage Loans. The timing of changes in the rate of
prepayments may significantly affect a Certificateholder's actual yield to
maturity, even if the average rate of principal payments is consistent with a
Certificateholder's expectation. In general, the earlier a prepayment of
principal, the greater the effect on a Certificateholder's yield to maturity. As
a result, the effect on a Certificateholder's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of the related series of
Certificates will not be offset by a subsequent like reduction (or increase) in
the rate of principal payments.
To the extent described in the applicable Prospectus Supplement, the
effective yields to Certificateholders will be lower than the yields produced by
the interest rates on the Certificates because, while interest will accrue on
each Mortgage Loan from the first day of each month, the distribution of such
interest to Certificateholders will be made in the month following the month of
accrual.
When a Mortgage Loan prepays in full, the Borrower will generally be
required to pay interest on the amount of prepayment only to the prepayment
date. When a partial prepayment of principal is made on a Mortgage Loan, the
Borrower generally will not be required to pay interest on the amount of the
partial prepayment during the month in which such prepayment is made. In
addition, a full or partial prepayment will not be required to be passed through
to Certificateholders until the month following receipt.
If and to the extent specified in the applicable Prospectus Supplement,
under the Agreement, if a full or partial voluntary prepayment of a Mortgage
Loan is made and does not include the full amount of interest on such Mortgage
Loan which would have been due but for such prepayment to and including the end
of the month in which the prepayment takes place, the servicer will be obligated
to pay the interest thereon at the Remittance Rate from the date of prepayment
through the end of such month (each such payment, a "Compensating Interest
Payment"), provided that the aggregate of such Compensating Interest Payments by
the Servicer with respect to any Distribution Date will not exceed the aggregate
servicing fee to which the Servicer is entitled in connection with such
Distribution Date. The Servicer will not be entitled to reimbursement for such
Compensating Interest Payments. Consequently, to the extent the Servicer is so
obligated, neither partial nor full Prepayments will reduce the amount of
interest passed through to Certificateholders the following month from the
amount which would have been passed through in the absence of such prepayments.
If the Servicer is not obligated to make Compensating Interest Payments, or if
such payments are insufficient to cover the interest shortfall, partial or full
prepayments will reduce the amount of interest passed through to
Certificateholders, as described in the applicable Prospectus Supplement.
Factors other than those identified herein and in the Prospectus
Supplement could significantly affect principal prepayments at any time and over
the lives of the Certificates. The relative contribution of the various factors
affecting prepayment may also vary from time to time. There can be no assurance
as to the rate of payment of principal of the Mortgage Loans at any time or over
the lives of the Certificates.
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The Prospectus Supplement relating to a series of Certificates will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Certificates.
CHASE MORTGAGE FINANCE CORPORATION
Chase Mortgage Finance Corporation (the "Seller"), was incorporated in
the State of Delaware on December 4, 1986 as a wholly-owned, limited-purpose
finance subsidiary of The Chase Manhattan Corporation. The Seller maintains its
principal office at 343 Thornall Street, Edison, New Jersey 08837. Its telephone
number is (732) 205-0600.
As described herein under "The Mortgage Pools," "Underwriting
Policies," and "The Pooling and Servicing Agreement -- Assignment of Mortgage
Loans; Warranties" the only obligations, if any, of the Seller with respect to a
Series of Certificates may be pursuant to certain limited representations and
warranties and limited undertakings to repurchase or substitute Mortgage Loans
under certain circumstances. The Seller will have no ongoing servicing
obligations or responsibilities with respect to any Mortgage Pool. The Seller
does not have, nor is it expected in the future to have, any significant assets.
As specified in the related Prospectus Supplement, the Servicer with
respect to any Series of Certificates evidencing interests in Mortgage Loans may
be an affiliate of the Seller. The Seller anticipates that it will acquire
Mortgage Loans in the open market or in privately negotiated transactions, which
may be through or from an affiliate.
None of the Seller, The Chase Manhattan Corporation, The Chase
Manhattan Bank, Chase Manhattan Mortgage Corporation, nor any of their
affiliates, will insure or guarantee the Certificates of any Series.
UNDERWRITING POLICIES
Except as otherwise set forth in the related Prospectus Supplement, the
Seller expects that the originator of a Mortgage Loan will have applied, in a
standard procedure which complies with applicable federal and state laws and
regulations, underwriting standards which are intended to evaluate the
mortgagor's credit standing and repayment ability and the value and adequacy of
the Mortgaged Property as collateral. FHA Mortgage Loans and VA Mortgage Loans
will comply with the underwriting policies of FHA and VA, respectively. Except
as described below or in the related Prospectus Supplement, the Seller believes
that these policies were consistent with those utilized by mortgage lenders
generally during the period of origination.
Certain states where the Mortgaged Properties are located may have
"anti-deficiency" laws requiring, in general, that lenders providing credit on
one- to four-family properties look solely to the property for repayment in the
event of foreclosure. The Seller expects that the underwriting standards applied
with respect to the Mortgage Loans (including in states with anti-deficiency
laws) will require that the underwriting officers be satisfied that the value of
the property being financed, as indicated by an appraisal, currently supports
and is anticipated to support in the future the outstanding loan balance, and
provides sufficient value to mitigate the effects of adverse shifts in real
estate values. See "Material Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders."
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The general appreciation of real estate values experienced in the past has been
a factor in limiting the general loss experience on conventional mortgage loans.
There can be no assurance, however, that the past pattern of appreciation in
value of the real property securing these loans will continue.
The adequacy of a Mortgaged Property as security will be determined by
appraisal. With respect to a Mortgage Loan made in connection with the
Borrower's purchase of the Mortgaged Property, the "appraised value" is the
lower of the purchase price or the amount determined by the appraiser. The
appraiser must personally inspect the property and will prepare a report which
customarily includes a market data analysis based on recent sales of comparable
homes and, when deemed applicable, a replacement cost analysis based on the
current cost of constructing a similar home. The Loan-to-Value Ratio of a
Mortgage Loan is equal to the original principal amount of the Mortgage Loan
divided by the appraised value of the related Mortgaged Property.
The Seller expects that each prospective Borrower will be required to
complete an application which will include information with respect to the
applicant's assets, liabilities, income, credit history, employment history and
personal information, and furnish an authorization to apply for a credit report
which summarizes the Borrower's credit history with local merchants and lenders
and any record of bankruptcy. With respect to establishing the applicant's
ability to make timely payments on the loans given his or her income and fixed
obligations other than housing expenses, the Company expects that each
originator will have followed procedures generally acceptable to the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"), except as otherwise described in this Prospectus or a
Prospectus Supplement.
The Seller will obtain representations and warranties from the seller
of the Mortgage Loan (which may or may not be the originator) that the Mortgage
Loan was originated in accordance with the underwriting guidelines described
above or such other policies as the Seller may require from time to time. Any
Mortgage Loan must be repurchased or substituted for by the seller, unless such
Mortgage Loan is otherwise demonstrated to be includible in the Mortgage Pool to
the satisfaction of the Company. See "The Pooling and Servicing Agreement --
Assignment of Mortgage Loans; Warranties."
The foregoing underwriting policies may be varied for particular Series
of Certificates to the extent set forth in the related Prospectus Supplement.
SERVICING OF THE MORTGAGE LOANS
With respect to each series of Certificates, the related Mortgage Loans
will be serviced by Chase Manhattan Mortgage (or such other entity identified in
the Prospectus Supplement), acting alone or, as master servicer, through one or
more direct servicers. If Chase Manhattan Mortgage acts as master servicer with
respect to a series, the related Agreement will provide that Chase Manhattan
Mortgage shall not be released from its obligations to the Trustee and
Certificateholders with respect to the servicing and administration of the
Mortgage Loans, that any servicing agreement entered into between Chase
Manhattan Mortgage and a direct servicer will be deemed to be between Chase
Manhattan Mortgage and the direct servicer alone and that the Trustee and the
Certificateholders will have no claims, obligations, duties or liabilities with
respect to any such agreement.
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Collection and Other Servicing Procedures
Subject to the terms of the Agreement, the Servicer generally will be
obligated to service and administer the Mortgage Loans in accordance with the
specific procedures set forth in the Fannie Mae Seller's Guide and Fannie Mae
Servicing Guide, as amended or supplemented from time to time, and, to the
extent such procedures are unavailable, in accordance with the mortgage
servicing practices of prudent mortgage lending institutions.
The Servicer will be responsible for using its best reasonable efforts
to collect all payments called for under the Mortgage Loans and shall,
consistent with each Agreement, follow such collection procedures as it deems
necessary and advisable with respect to the Mortgage Loans. Consistent with the
above, the Servicer, may, in its discretion, (i) waive any late payment charge
and (ii) if a default on the related Mortgage Loan has occurred or is reasonably
foreseeable, arrange with the mortgagor a schedule for the liquidation of a
delinquency. In the event of any such arrangement the Servicer will be
responsible for distributing funds with respect to such Mortgage Loan during the
scheduled period in accordance with the original amortization schedule thereof
and without regard to the temporary modification thereof.
The Servicer will be obligated to use it best reasonable efforts to
realize upon a defaulted Mortgage Loan in such manner as will maximize the
payments to Certificateholders. In this regard, the Servicer may (directly or
through a local assignee) sell the property at a foreclosure or trustee's sale,
negotiate with the mortgagor for a deed in lieu of foreclosure or, in the event
a deficiency judgment is available against the mortgagor or other person,
foreclose against such property and proceed for the deficiency against the
appropriate person. See "Material Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" for a
description of the limited availability of deficiency judgments. The amount of
the ultimate net recovery (including the proceeds of any pool insurance or other
guarantee), after reimbursement to the Servicer of its expenses incurred in
connection with the liquidation of any such defaulted Mortgage Loan will be
distributed to the related Certificateholders on the next Distribution Date
following the month of receipt. If specified in the Prospectus Supplement, if
such net recovery exceeds the Principal Balance of such Mortgage Loan plus one
month's interest thereon at the Remittance Rate, the excess will be paid to the
Servicer as additional servicing compensation. The Servicer will not be required
to expend its own funds in connection with any foreclosure or towards the
restoration of any Mortgaged Property unless it shall determine (i) that such
restoration or foreclosure will increase the Liquidation Proceeds in respect of
the related Mortgaged Loan to Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds or Insurance Proceeds in respect of the related
Mortgage Loan.
If a Mortgaged Property has been or is about to be conveyed by the
mortgagor, the Servicer will be obligated to accelerate the maturity of the
Mortgage Loan, unless it reasonably believes it is unable to enforce that
Mortgage Loan's "due-on-sale" clause under applicable law or such enforcement
would adversely affect or jeopardize coverage under any related primary mortgage
insurance policy or pool insurance policy. If it reasonably believes it may be
restricted by law, for any reason, from enforcing such a "due-on-sale" clause,
the Servicer, with the consent of the insurer under any insurance policy
implicated thereby, may enter into an assumption and modification agreement with
the person to whom such property has been or is about to be conveyed, pursuant
to which such person becomes liable under the Mortgage Note. Any fee collected
by the Servicer for entering into an assumption agreement will be
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retained by the Servicer as additional servicing compensation. For a description
of circumstances in which the Servicer may be unable to enforce "due-on-sale"
clauses, see "Material Legal Aspects of the Mortgage Loans -- Enforceability of
Certain Provisions". In connection with any such assumption, the Mortgage Rate
borne by the related Mortgage Note may not be decreased.
The Servicer will maintain with one or more depository institutions
one or more accounts into which it will deposit all payments of taxes, insurance
premiums, assessments or comparable items received for the account of the
mortgagors. Withdrawals from such account or accounts may be made only to effect
payment of taxes, insurance premiums, assessments or comparable items, to
reimburse the Servicer out of related collections for any cost incurred in
paying taxes, insurance premiums and assessments or otherwise preserving or
protecting the value of the Mortgages, to refund to mortgagors any amounts
determined to be overages and to pay interest to mortgagors on balances in such
account or accounts to the extent required by law.
Private Mortgage Insurance
Each Agreement will obligate the Servicer to exercise its best
reasonable efforts to maintain and keep in full force and effect a private
mortgage insurance policy on all Mortgage Loans that have a Loan-to-Value Ratio
in excess of 80%.
A private mortgage insurance policy may provide that, as an alternative
to paying a claim thereunder, the mortgage insurer will have the right to
purchase the Mortgage Loan following the receipt of a notice of default, at a
purchase price equal to the sum of the principal balance of the Mortgage Loan,
accrued interest thereon and the amount of certain advances made by the Servicer
with respect to the Mortgage Loan. The mortgage insurer may have such purchase
right after the borrower has failed to make three scheduled monthly payments (or
one payment if it is the first payment due on the Mortgage Loan) or after any
foreclosure or other proceeding affecting the Mortgage Loan or the Mortgaged
Property has been commenced. The proceeds of any such purchase will be
distributed to Certificateholders on the applicable Distribution Date. A
mortgage insurer may be more likely to exercise such purchase option when
prevailing interest rates are low relative to the interest rate borne by the
defaulted Mortgage Loan, in order to reduce the aggregate amount of accrued
interest that the insurer would be obligated to pay upon payment of a claim.
Hazard Insurance
The Servicer will cause to be maintained for each Mortgaged Property a
standard hazard insurance policy. The coverage of such policy is required to be
in an amount at least equal to the maximum insurable value of the improvements
which are a part of such property from time to time or the principal balance
owing on such Mortgage Loan from time to time, whichever is less. All amounts
collected by the Servicer under any hazard policy (except for amounts to be
applied to the restoration or repair of property subject to the related Mortgage
or property acquired by foreclosure or amounts released to the related mortgagor
in accordance with the Servicer's normal servicing procedures) will be deposited
in the Collection Account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
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policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and, therefore, will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flow), nuclear
reactions, pollution, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing list is merely
indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. If the property securing a Mortgage Loan is located in a
federally designated flood area, the Agreement will require that flood insurance
be maintained in an amount representing coverage not less than the least of (i)
the principal balance owing on such Mortgage Loan from time to time, (ii) the
maximum insurable value of the improvements which are a part of such property
from time to time or (iii) the maximum amount of insurance which is available
under the Flood Disaster Protection Act of 1973, as amended. The Seller may also
purchase special hazard insurance against certain of the uninsured risks
described above. See "Credit Support--Special Hazard Insurance."
Most of the properties securing the Mortgage Loans will be covered by
homeowners' insurance policies, which, in addition to the standard form of fire
and extended coverage, provide coverage for certain other risks. These
homeowners' policies typically contain a "coinsurance" clause which in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, then the insurer's
liability in the event of partial loss will not exceed the lesser of (i) the
actual cash value (generally defined as replacement cost at the time and place
of loss, less physical depreciation) of the improvements damaged or destroyed,
or (ii) such proportion of the loss as the amount of insurance carried bears to
the specified percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance the Servicer is required to cause
to be maintained on the improvements securing the Mortgage Loans declines as the
principal balances owing thereon decrease, if the residential properties
securing the Mortgage Loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property.
The Servicer will cause to be maintained on any Mortgaged Property
acquired upon foreclosure, or by deed in lieu of foreclosure, hazard insurance
with extended coverage in an amount which is at least equal to the lesser of (i)
the maximum insurable value from time to time of the improvements which are a
part of such property or (ii) the unpaid principal balance of the related
Mortgage Loan at the time of such foreclosure or deed in lieu of foreclosure,
plus accrued interest and the Servicer's good-faith estimate of the related
liquidation expenses to be incurred in connection therewith.
The Servicer may maintain, in lieu of causing individual hazard
insurance policies to be maintained with respect to each Mortgage Loan, one or
more blanket insurance policies covering hazard losses on the Mortgage Loans.
The Servicer will pay the premium for such policy on the basis described therein
and will pay any deductible amount with respect to claims under such policy
relating to the Mortgage Loans.
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Advances
To the extent specified in the Prospectus Supplement, in the event that
any Borrower fails to make any payment of principal or interest required under
the terms of a Mortgage Loan, the Servicer will be obligated to advance the
entire amount of such payment adjusted in the case of any delinquent interest
payment to the applicable Net Mortgage Rate. This obligation to advance will be
limited to amounts which the Servicer reasonably believes will be recoverable by
it out of liquidation proceeds or otherwise in respect of such Mortgage Loan.
The Servicer will be entitled to reimbursement for any such advance from related
late payments on the Mortgage Loan as to which such advance was made.
Furthermore, the Servicer will be entitled to reimbursement for any such advance
(i) from Liquidation Proceeds or Insurance Proceeds received if such Mortgage
Loan is foreclosed prior to any payment to Certificateholders in respect of the
repossession or foreclosure and (ii) from receipts or recoveries on all other
Mortgage Loans or from any other assets of the Trust Fund, for all or any
portion of such advance which the Servicer determines, in good faith, may not be
ultimately recoverable from such liquidation or insurance proceeds (a
"Nonrecoverable Advance"). Any Nonrecoverable Advance will be reimbursable out
of the assets of the Trust Fund. The amount of any scheduled payment required to
be advanced by the Servicer will not be affected by any agreement between the
Servicer and a Borrower providing for the postponement or modification of the
due date or amount of such scheduled payment. If specified in the Prospectus
Supplement, the Trustee for the related series will make advances of delinquent
payments of principal and interest in the event of a failure by the Servicer to
perform such obligation.
Any such obligation to make advances may be limited to amounts due
holders of certain classes of Certificates of the related series or may be
limited to specified periods or otherwise as specified in the Prospectus
Supplement.
Servicing and Other Compensation and Payment of Expenses
The Servicer's primary compensation for its servicing activities will
come from the payment to it, with respect to each interest payment on a Mortgage
Loan, of all or a portion of the difference between the Mortgage Rate for such
Mortgage Loan and the related Remittance Rate. In addition to its primary
compensation, the Servicer will retain all assumption fees, late payment charges
and other miscellaneous charges, all to the extent collected from Borrowers. In
the event the Servicer is acting as master servicer under an Agreement, it will
receive compensation with respect to the performance of its activities as master
servicer.
The Servicer generally will be responsible for paying all expenses
incurred in connection with the servicing of the Mortgage Loans (subject to
limited reimbursement as described under "The Pooling and Servicing
Agreement---Payments on Mortgage Loans; Collection Account"), including, without
limitation, payment of any premium for any Advance Guarantee, Deposit Guarantee,
bankruptcy bond, repurchase bond or other guarantee or surety, payment of the
fees and the disbursements of the Trustee and the independent accountants,
payment of the compensation of any direct servicers of the Mortgage Loans,
payment of all fees and expenses in connection with the realization upon
defaulted Mortgage Loans and payment of expenses incurred in connection with
distributions and reports to Certificateholders. The Servicer may assign any of
its primary servicing compensation in excess of that amount customarily retained
as servicing compensation for similar assets.
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Resignation, Succession and Indemnification of the Servicer
The Agreement will provide that the Servicer may not resign from its
obligations and duties as servicer or master servicer thereunder, except upon
determination that its performance of such duties is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor has assumed the Servicer's servicing obligations and duties under such
Agreement. The Guarantor's obligations under any Advance Guarantee or Deposit
Guarantee will, upon issuance thereof, be irrevocable, subject to certain
limited rights of assignment as described in the Prospectus Supplement if
applicable.
The Agreement will provide that neither the Seller nor the Servicer
nor, if applicable, the Guarantor, nor any of their respective directors,
officers, employees or agents, shall be under any liability to the Trust Fund or
the Certificateholders of the related series for taking any action, or for
refraining from taking any action, in good faith pursuant to such Agreement, or
for errors in judgment; provided, however, that neither the Servicer nor, if
applicable, the Guarantor, nor any such person, will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder. The Agreement will also provide
that the Seller, the Servicer and, if applicable, the Guarantor and their
respective directors, officers, employees and agents are entitled to
indemnification by the related Trust Fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the Seller nor the Servicer nor, if applicable, the Guarantor is under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to the Servicer's servicing responsibilities under such Agreement or
the Guarantor's payment obligations under any Limited Guarantee, respectively,
and which in its respective opinion may involve it in any expense or liability.
Each of the Seller, the Servicer and, if applicable, the Guarantor may, however,
in its respective discretion undertake any such action which it may deem
necessary or desirable in respect of such Agreement and the rights and duties of
the parties thereto and the interests of the Certificateholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund,
and the Seller, the Servicer and, if applicable, the Guarantor, will be entitled
to be reimbursed therefor from amounts deposited in the Collection Account.
Any corporation into which the Servicer may be merged or consolidated
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer is a party, or any corporation succeeding to the business of
the Servicer, which assumes the obligations of the Servicer, will be the
successor of the Servicer under each Agreement.
THE POOLING AND SERVICING AGREEMENT
This prospectus summarizes the material provisions of the Agreement.
The summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreement applicable to a
particular series of Certificates. Where particular provisions or terms used in
the Agreements are referred to, such provisions or terms are as specified in the
Agreements.
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Assignment of Mortgage Loans; Warranties
At the time of issuance of each series of Certificates, the Seller will
cause the Mortgage Loans in the Trust Fund represented by that series of
Certificates to be assigned to the Trustee, together with all principal and
interest due on or with respect to such Mortgage Loans, other than principal and
interest due on or before the Cut-Off Date and Prepayments of principal received
before the Cut-Off Date. The Trustee, concurrently with such assignment, will
execute and deliver Certificates evidencing such Trust Fund to the Seller in
exchange for the Mortgage Loans. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the Agreement for that series (the "Mortgage
Loan Schedule"). The Mortgage Loan Schedule will include, as to each Mortgage
Loan, information as to the outstanding principal balance as of the close of
business on the Cut-Off Date, as well as information respecting the Mortgage
Rate, the current scheduled monthly payment, the number of months remaining
until the stated maturity date of each Note and the location of the related
Mortgaged Property.
In addition, the Seller will, as to each Mortgage Loan, deliver to the
Trustee (i) the Note, endorsed to the order of the Trustee by the holder/payee
thereof without recourse; (ii) the "buy-down" agreement (if applicable); (iii) a
Mortgage and Mortgage assignment meeting the requirements of the Agreement; (iv)
all Mortgage assignments from the original holder of the Mortgage Loan, through
any subsequent transferees to the transferee to the Trustee; (v) the original
lender's title insurance policy, or other evidence of title, or if a policy has
not been issued, a written commitment or interim binder or preliminary report of
title issued by the title insurance or escrow company ; (vi) as to each Mortgage
Loan, an original certificate of Primary Mortgage Insurance Policy (or copy
certified to be true by the originator) to the extent required under the
applicable requirements for the Mortgage Pool; and (vii) such other documents as
may be described in the applicable Prospectus Supplement. Except as expressly
permitted by the Agreement, all documents so delivered are to be original
executed documents; provided, however, that in instances where the original
recorded document has been retained by the applicable jurisdiction or has not
yet been returned from recordation, the Seller may deliver a photocopy
containing a certification of the appropriate judicial or other governmental
authority of the jurisdiction, and the Servicer shall cause the originals of
each Mortgage and Mortgage assignment which is so unavailable to be delivered to
the Trustee as soon as available.
The Trustee will hold such documents for each series of Certificates in
trust for the benefit of all Certificateholders of such series. The Trustee is
obligated to review such documents for each Mortgage Loan within 270 days after
the conveyance of the Mortgage Loan to it. If any document is found by the
Trustee not to have been executed or received or to be unrelated to the Mortgage
Loan identified in the Agreement, the Trustee will promptly notify the Seller.
The Seller, or another party specified in the applicable Prospectus Supplement,
will be required to cure such defect or to repurchase the Mortgage Loan or to
provide a substitute Mortgage Loan. See "Repurchase or Substitution" below.
In the Agreement for each series, the Seller or another party described
in the Agreement (the "Representing Party") will make certain representations
and warranties with respect to the Mortgage Loans. The representations and
warranties in each Agreement will generally include that (i) the information set
forth in the Mortgage Loan Schedule is true and correct in all material respects
at the date or dates with respect to which such information is furnished; (ii)
each Mortgage constitutes a valid and enforceable first lien on the Mortgaged
Property, including all improvements thereon (subject only to (A) the lien of
current real property taxes and assessments, (B) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage,
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such exceptions appearing of record being acceptable to mortgage lending
institutions generally and specifically referred to in the lender's title
insurance policy delivered to the originator of the Mortgage Loan and not
adversely affecting the value of the Mortgaged Property and (C) other matters to
which like properties are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by such Mortgage);
(iii) each Primary Mortgage Insurance Policy is in full force and effect, and
(except where noted in the Agreement) each Mortgage Loan which has a
Loan-to-Value Ratio greater than 80% is subject to a Primary Mortgage Insurance
Policy; (iv) at the date of initial issuance of the Certificates, no Mortgage
Loan was more than 30 days delinquent in payment, no Mortgage Loan had more than
one delinquency in excess of 30 days during the preceding 12-month period; (v)
at the time each Mortgage Loan was originated and, to the best knowledge of the
Representing Party, at the date of initial issuance of the Certificates, there
are no delinquent taxes, assessments or other outstanding charges affecting the
Mortgaged Property; (vi) each Mortgage Loan was originated in compliance with
and complied at the time of origination in all material respects with applicable
laws, including usury, equal credit opportunity and disclosure laws; (vii) each
Mortgage Loan is covered by a lender's title insurance policy insuring the
priority of the lien of the Mortgage in the original principal amount of such
Mortgage Loan, and each such policy is in full force and effect; and (viii)
immediately prior to the assignment to the Trust Fund the Seller had good title
to, and was the sole owner of, each Mortgage Loan free and clear of any lien,
claim, charge, encumbrance or security interest of any kind.
Upon the discovery or notice of a breach of any of such representations
or warranties which materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the Seller or the applicable party will
cure the breach or repurchase such Mortgage Loan or will provide a substitute
Mortgage Loan in the manner described under "Repurchase or Substitution" below.
This obligation to repurchase or substitute constitutes the sole remedy
available to the Certificateholders or the Trustee for any such breach of
representations and warranties.
The Agreement for a Series of Certificates may provide that the
Servicer may, at its sole option, purchase from the Trust Fund, at the price
specified in the Agreement, any Mortgage Loan as to which the related Borrower
has failed to make full payments as required under the related Note for three
consecutive months.
Payments on Mortgage Loans; Collection Account
It is expected that the Agreement for each series of Certificates will
provide that the Servicer will establish and maintain a trust account or
accounts (the "Collection Account") in the name of the Trustee for the benefit
of the Certificateholders. The amount at any time credited to the Collection
Account will be fully-insured to the maximum coverage possible or shall be
invested in Permitted Investments, all as described in the applicable Prospectus
Supplement. In addition, a Certificate Account may be established for the
purpose of making distributions to Certificateholders if and as described in the
applicable Prospectus Supplement.
The Servicer will deposit in the Collection Account, as described more
fully in the applicable Prospectus Supplement, amounts representing the
following collections and payments (other than in respect of principal of or
interest on the Mortgage Loans due on or before the Cut-Off Date and Prepayments
of principal received before the Cut-Off Date): (i) all installments of
principal and interest on the applicable Mortgage Loans and any principal and/or
interest required to be advanced by the
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Servicer that were due on the immediately preceding Due Date, net of servicing
fees due the Servicer and other amounts, if any, specified in the applicable
Prospectus Supplement; (ii) all amounts received in respect of such Mortgage
Loans representing late payments of principal and interest to the extent such
amounts were not previously advanced by the Servicer with respect to such
Mortgage Loans, net of servicing fees due the Servicer; (iii) all Principal
Prepayments (whether full or partial) on such Mortgage Loans received, together
with interest calculated at the Mortgage Rate (net of servicing fees due the
Servicer) to the end of the calendar month during which such Principal
Prepayment shall have been received by the Servicer, to the extent received from
the mortgagor or advanced by the Servicer, as described under "Servicing of the
Mortgage Loans--Advances" herein; and (iv) any amounts received by the Servicer
as Insurance Proceeds (to the extent not applied to the repair or restoration of
the Mortgaged Property) or Liquidation Proceeds.
Repurchase or Substitution
The Trustee will review the documents delivered to it with respect to
the assets of the applicable Trust Fund within 270 days after execution and
delivery of the related Agreement. If any document required to be delivered by
the Seller is not delivered or is found to be defective in any material respect,
then within 90 days after notice of such defect, the Seller will (a) cure such
defect, (b) remove the affected Mortgage Loan from the Trust Fund and substitute
one or more other mortgage loans therefor or (c) repurchase the Mortgage Loan
from the Trustee for a price equal to 100% of its Principal Balance plus
interest thereon at the applicable Remittance Rate from the date on which
interest was last paid to the first day of the month in which such purchase
price is to be distributed to the related Certificateholders. This repurchase
and substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee on behalf of Certificateholders against the
Seller for a material defect in a document relating to a Mortgage Loan.
The Seller will agree, within 90 days of the earlier of the discovery
by the Seller or receipt by the Seller of notice from the Trustee or the
Servicer of its discovery of any breach of any representation or warranty of the
Seller set forth in the related Agreement with respect to the Mortgage Loans
that materially and adversely affects the interests of the Certificateholders in
a Mortgage Loan (a "Defective Mortgage Loan") or the value of a Mortgage Loan,
to either (a) cure such breach in all material respects, (b) repurchase such
Defective Mortgage Loan at a price equal to 100% of its Principal Balance plus
interest thereon at the applicable Remittance Rate from the date on which
interest was last paid to the first day of the month in which such purchase
price is to be distributed or (c) remove the affected Mortgage Loan from the
Trust Fund and substitute one or more other mortgage loans or contracts
therefor. This repurchase or substitution obligation will constitute the sole
remedy available to Certificateholders or the Trustee on behalf of
Certificateholders for any such breach.
If so specified in the Prospectus Supplement for a series where the
Seller has acquired the related Mortgage Loans, in lieu of agreeing to
repurchase or substitute Mortgage Loans as described above, the Seller may
obtain such an agreement from the entity which sold such mortgage loans, which
agreement will be assigned to the Trustee for the benefit of the holders of the
Certificates of such series. In such event, the Seller will have no obligation
to repurchase or substitute mortgage loans if such entity defaults in its
obligation to do so.
If a mortgage loan is substituted for another Mortgage Loan as
described above, the new mortgage loan will have the following characteristics,
or such other characteristics as may be specified in
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the Prospectus Supplement: (i) a Principal Balance (together with any other new
mortgage loan so substituted), as of the first Distribution Date following the
month of substitution, after deduction of all payments due in the month of
substitution, not in excess of the Principal Balance of the removed Mortgage
Loan as of such Distribution Date (the amount of any difference, plus one
month's interest thereon at the applicable Net Mortgage Rate, to be deposited in
the Collection Account on the business day prior to the applicable Distribution
Date), (ii) a Mortgage Rate not less than, and not more than one percentage
point greater than, that of the removed Mortgage Loan, (iii) a remaining term to
stated maturity not later than, and not more than one year less than, the
remaining term to stated maturity of the removed Mortgage Loan, (iv) a Loan-to
Value Ratio at origination not greater than that of the removed Mortgage Loan,
and (v) in the reasonable determination of the Seller, be of the same type,
quality and character (including location of the Mortgaged Property) as the
removed Mortgage Loan (as if the defect or breach giving rise to the
substitution had not occurred) and be, as of the substitution date, in
compliance with the representations and warranties contained in the Agreement.
If a REMIC election is to be made with respect to all or a portion of a
Trust Fund, any such substitution will occur within two years after the initial
issuance of the related Certificates.
Certain Modifications and Refinancings
The Agreement will permit the Servicer to modify any Mortgage Loan upon
the request of the related Borrower, and will also permit the Servicer to
solicit such requests by offering Borrowers the opportunity to refinance their
Mortgage Loans, provided in either case that the Servicer purchases such
Mortgage Loan from the Trust Fund immediately following such modification. Any
such modification may not be made unless the modification includes a change in
the interest rate on the related Mortgage Loan to approximately a prevailing
market rate. Any such purchase will be for a price equal to 100% of the
Principal Balance of such Mortgage Loan, plus accrued and unpaid interest
thereon to the date of purchase at the applicable Remittance Rate, net of any
unreimbursed advances of principal and interest thereon made by the Servicer.
Such purchases may occur when prevailing interest rates are below the interest
rates on the Mortgage Loans and Borrowers request (and/or the Servicer offers)
modifications as an alternative to refinancings through other mortgage
originators. If a REMIC election is made with respect to all or a portion of the
related Trust Fund, the Servicer will indemnify the REMIC against liability for
any prohibited transactions taxes and any related interest, additions or
penalties imposed on the REMIC as a result of any such modification or purchase.
The Agreement will provide that if the Servicer in its individual
capacity agrees to refinance any Mortgage Loan as described above, such Mortgage
Loan will be assigned to the Servicer by the Trustee upon certification that the
Principal Balance of such Mortgage Loan and accrued and unpaid interest thereon
at the Remittance Rate has been deposited in the Collection Account.
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Evidence as to Compliance
The Agreement will provide that a firm of independent public
accountants will furnish to the Trustee on or before April 15 of each year,
beginning with April 15 in the fiscal year which begins not less than three
months after the date of the initial issue of Certificates, a statement as to
compliance by the Servicer with certain standards relating to the servicing of
the Mortgage Loans.
The Agreement will also provide for delivery to the Trustee on or
before April 15 of each fiscal year, beginning with April 15 in the fiscal year
which begins not less than three months after the date of the initial issue of
the Certificates, a statement signed by an officer of the Servicer to the effect
that, to the best of such officer's knowledge, the Servicer has fulfilled its
obligations under the Agreement throughout the preceding year or, if there has
been a default in the fulfillment of any such obligation, describing each such
default.
The Trustee
Any commercial bank or trust company serving as Trustee may have normal
banking relationships with the Seller and the Servicer. In addition, the Seller
and the Trustee acting jointly will have the power and the responsibility for
appointing co-trustees or separate trustees of all or any part of the Trust Fund
relating to a particular series of Certificates. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Agreement shall be conferred or imposed upon the Trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall exercise and perform
such rights, powers, duties and obligations solely at the direction of the
Trustee.
The Trustee will make no representations as to the validity or
sufficiency of the Agreement, the Certificates (other than the signature and
countersignature of the Trustee on the Certificates) or of any Mortgage Loan or
related document, and will not be accountable for the use or application by the
Seller or Servicer of any funds paid to the Seller or Servicer in respect of the
Certificates or the related assets, or amounts deposited into the Collection
Account. If no Event of Default has occurred, the Trustee will be required to
perform only those duties specifically required of it under the Agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee will be required to examine them to
determine whether they conform to the requirements of the Agreement.
The Trustee may resign at any time, and the Seller may remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, if the Trustee becomes insolvent or in such other instances, if any,
as are set forth in the Agreement. Following any resignation or removal of the
Trustee, the Seller will be obligated to appoint a successor Trustee, any such
successor to be approved by the Guarantor if so specified in the Prospectus
Supplement in the event that the Guarantor has issued any Limited Guarantee with
respect to the Certificates. Any resignation or removal of the Trustee and
appointment of a successor Trustee does not become effective until acceptance of
the appointment by the successor Trustee.
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Reports to Certificateholders
On each Distribution Date, the Servicer or the paying agent will mail
to Certificateholders a statement prepared by it and generally setting forth, to
the extent applicable to any series, among other things:
(i) The aggregate amount of the related distribution allocable to
principal, separately identifying the amount allocable to each
class;
(ii) The amount of such distribution allocable to interest
separately identifying the amount allocable to each class;
(iii) The amount of servicing compensation received by the Servicer
in respect of the Mortgage Loans during the month preceding
the month of the Distribution Date;
(iv) The aggregate certificate principal balance (or notional
principal balance) of each class of Certificates after giving
effect to distributions and allocations, if any, of losses on
the Mortgage Loans on such Distribution Date;
(v) The aggregate certificate principal balance of any class of
Accrual Certificates after giving effect to any increase in
such certificate principal balance that results from the
accrual of interest that is not yet distributable thereon;
(vi) The aggregate amount of any advances made by the Servicer
included in the amounts distributed to Certificateholders on
such Distribution Date;
(vii) If any class of Certificates has priority in the right to
receive Principal Prepayments, the amount of Principal
Prepayments in respect of the Mortgage Loans; and
(viii) The aggregate Principal Balance of Mortgage Loans which were
delinquent as to a total of one, two or three or more
installments of principal and interest or were in foreclosure.
The Servicer will provide Certificateholders which are federally
insured savings and loan associations with certain reports and with access to
information and documentation regarding the Mortgage Loans included in the Trust
Fund sufficient to permit such associations to comply with applicable
regulations of the Office of Thrift Supervision.
Events of Default
Events of Default under the Agreement with respect to a series of
Certificates will consist of: (i) any failure by the Servicer in the performance
of any obligation under the Agreement which causes any payment required to be
made under the terms of the Certificates or the Agreement not to be timely made,
which failure continues unremedied for a period of three business days after the
date upon which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee or the Seller, or
to the Servicer, the Seller and the Trustee by Certificateholders representing
not less than 25% of the Voting Rights of any class of Certificates; (ii) any
failure on the part of the Servicer duly to observe or perform in any material
respect any other of the covenants or agreements on the part
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of the Servicer in the Certificates or in the Agreement which failure continues
unremedied for a period of 60 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to the
Servicer by the Trustee, or to the Servicer and the Trustee by
Certificateholders representing not less than 25% of the Voting Rights of all
classes of Certificates; (iii) the entering against the Servicer of a decree or
order of a court, agency or supervisory authority having jurisdiction in the
premises for the appointment of a conservator, receiver or liquidator in any
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs,
provided that any such decree or order shall have remained in force undischarged
or unstayed for a period of 60 days; (iv) the consent by the Servicer to the
appointment of a conservator, receiver, liquidator or liquidating committee in
any insolvency, readjustment of debt, marshalling of assets and liabilities,
voluntary liquidation or similar proceedings of or relating to the Servicer or
of or relating to all or substantially all of its property; (v) the admission by
the Servicer in writing of its inability to pay its debts generally as they
become due, the filing by the Servicer of a petition to take advantage of any
applicable insolvency or reorganization statute, the making of an assignment for
the benefit of its creditors or the voluntary suspension of the payment of its
obligations; and (vi) notice by the Servicer that it is unable to make an
Advance required to be made pursuant to the Agreement.
Rights Upon Event of Default
As long as an Event of Default under the Agreement remains unremedied
by the Servicer, the Trustee, or holders of Certificates evidencing interests
aggregating more than 50% of such Certificates, may terminate all of the rights
and obligations of the Servicer under the Agreement, whereupon the Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the Agreement and will be entitled to similar compensation arrangements,
provided that if the Trustee had no obligation under the Agreement to make
advances of delinquent principal and interest on the Mortgage Loans upon the
failure of the Servicer to do so, or if the Trustee had such obligation but is
prohibited by law or regulation from making such advances, the Trustee will not
be required to assume such obligation of the Servicer. The Servicer shall be
entitled to payment of certain amounts payable to it under the Agreement,
notwithstanding the termination of its activities as servicer. No such
termination will affect in any manner the Guarantor's obligations under any
Limited Guarantee, except that the obligation of the Servicer to make advances
of delinquent payments of principal and interest (adjusted to the applicable
Remittance Rate) will become the direct obligations of the Guarantor under the
Advance Guarantee until a new servicer is appointed. In the event that the
Trustee is unwilling or unable so to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a housing and home finance
institution with a net worth of at least $15,000,000 and is a FNMA or FHLMC
approved seller/servicer in good standing and, if the Guarantor has issued any
Limited Guarantee with respect to the Certificates, approved by the Guarantor,
to act as successor to the Servicer, as servicer, under such Agreement. In
addition, if the Guarantor has issued any Limited Guarantee with respect to the
related series of Certificates, the Guarantor will have the right to replace any
successor servicer with an institution meeting the requirements described in the
preceding sentence. The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the Servicer under such Agreement.
No holder of Certificates will have any right under the Agreement to
institute any proceeding with respect to the Agreement, unless such holder
previously has given to the Trustee written notice of default and unless the
holders of Certificates of any class evidencing, in the aggregate, 25% or more
of the interests in such class have made written request to the Trustee to
institute such proceeding in its own
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name as Trustee thereunder and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days after receipt of such notice, request and offer of
indemnity has neglected or refused to institute any such proceedings. However,
the Trustee is under no obligation to exercise any of the trusts or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
Amendment
The Agreement may be amended by the Seller, the Servicer and the
Trustee, and if the Guarantor has issued any Limited Guarantee with respect to
the Certificates, with the consent of the Guarantor, but without
Certificateholder consent, to cure any ambiguity, to correct or supplement any
provision therein which may be inconsistent with any other provision therein, to
take any action necessary to maintain REMIC status of any Trust Fund as to which
a REMIC election has been made, to avoid or minimize the risk of the imposition
of any tax on the Trust Fund pursuant to the Internal Revenue Code of 1986, as
amended (the "Code") or to make any other provisions with respect to matters or
questions arising under the Agreement which are not materially inconsistent with
the provisions of the Agreement; provided that such action will not, as
evidenced by an opinion of counsel satisfactory to the Trustee, adversely affect
in any material respect the interests of any Certificateholders of that series.
The Agreement may also be amended by the Seller, the Servicer and the Trustee
with the consent of holders of Certificates evidencing interests aggregating not
less than 66-2/3% of all interests of each class affected by such amendment, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Agreement or of modifying in any manner the rights
of Certificateholders of that series; provided, however, that no such amendment
may (i) reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed in respect of
any Certificate without the consent of the holder of such Certificate, or (ii)
reduce the aforesaid percentage of Certificates, the holders of which are
required to consent to any such amendment, without the consent of the holders of
all Certificates of such affected class then outstanding.
Termination; Purchase of Mortgage Loans
The obligations of the parties to the Agreement for each series will
terminate upon (i) the purchase of all the Mortgage Loans, as described in the
applicable Prospectus Supplement or (ii) the later of (a) the distribution to
Certificateholders of that series of final payment with respect to the last
outstanding Mortgage Loan, or (b) the disposition of all property acquired upon
foreclosure or deed-in-lieu of foreclosure with respect to the last outstanding
Mortgage Loan and the remittance to the Certificateholders of all funds due
under the Agreement. In no event, however, will the trust created by an
Agreement continue beyond the expiration of 21 years from the death of the
survivor of the descendants living on the date of the Agreement of a specific
person named in such Agreement. With respect to each series, the Trustee will
give or cause to be given written notice of termination of the Agreement to each
Certificateholder, and the final distribution under the Agreement will be made
only upon surrender and cancellation of the related Certificates at an office or
agency specified in the notice of termination.
As described in the applicable Prospectus Supplement, the Agreement for
each series may permit, but not require, the Seller, the Servicer or another
party to purchase from the Trust Fund for such
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series all remaining Mortgage Loans and all property acquired in respect of the
Mortgage Loans, at a price described in the Prospectus Supplement, subject to
the condition that the aggregate outstanding principal balance of the Mortgage
Loans for such series at the time of purchase shall be less than a percentage of
the aggregate principal balance at the Cut-Off Date specified in the Prospectus
Supplement. The exercise of such right will result in the early retirement of
the Certificates of that series.
MATERIAL LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of the material legal
aspects of mortgage loans.
General
The Mortgages will be either deeds of trust or mortgages. A mortgage
creates a lien upon the real property encumbered by the mortgage. It is not
prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of filing with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is the borrower and homeowner or the land trustee or the trustee of an inter
vivos revocable trust (as described below), and the mortgagee, who is the
lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a
note or bond and the mortgage. In the case of a land trust, there are three
parties because title to the property is held by a land trustee under a land
trust agreement of which the borrower/homeowner is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. In the case of an inter vivos revocable
trust, there are three parties because title to the property is held by the
trustee under the trust instrument of which the home occupant is the primary
beneficiary; at origination of a mortgage loan, the primary beneficiary and the
trustee execute a mortgage note and the trustee executes a mortgage or deed of
trust, with the primary beneficiary agreeing to be bound by its terms. Although
a deed of trust is similar to a mortgage, a deed of trust normally has three
parties, the borrower/homeowner called the trustor (similar to a mortgagor), a
lender (similar to a mortgagee) called the beneficiary, and a third-party
grantee called the trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust and generally with a
power of sale, to the trustee to secure payment of the obligation. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by the law of the state in which the real property is located, as
well as by federal law, the express provisions of the deed of trust or mortgage
and, in some cases, the directions of the beneficiary.
Foreclosure
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust that
authorizes the trustee to sell the property to a third party upon any default by
the borrower under the terms of the note or deed of trust. In some states, the
trustee must record a notice of default and send a copy to the borrower-trustor
and any person who has recorded a request for a copy of a notice of default and
notice of sale. In addition, the trustee must provide notice in some states to
any other individual having an interest in the real property, including any
junior lien holders. The borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. If the deed of trust is not reinstated, a notice of sale
must be posted in a public place and, in most states, published for a specific
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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
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likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that the lenders reinstate loans or recast payment schedules in order
to accommodate borrowers who are suffering from temporary financial disability.
In other cases, courts have limited the right of a lender to foreclose if the
default under the mortgage instrument is not monetary, such as the borrower's
failure to adequately maintain the property or the borrower's execution of a
second mortgage or deed of trust affecting the property.
Some courts have been faced with the issue of whether or not federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that borrowers under deeds of trust or mortgages receive notices
in addition to the statutorily prescribed minimum. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust, or under a mortgage having a power
of sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
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.
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Bankruptcy Laws
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, the
filing of a petition acts as a stay against the enforcement of remedies in
connection with the collection of a debt. Moreover, a court with federal
bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or
Chapter 13 plan of reorganization to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearages within a reasonable
time period and reinstating the original mortgage loan payment schedule even
though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the residence
had yet occurred) prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified
if the borrower has filed a petition under Chapter 11 or Chapter 13. These
courts have suggested that such modifications may include reducing the amount of
each monthly payment, changing the rate of interest, altering the repayment
schedule and reducing the lender's security interest to the value of the
residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan. If the borrower has 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.
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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.
The Seller or another Representing Party will represent in the Agreement
that all applicable laws, including the Truth in Lending Act, were complied with
in connection with origination of the Mortgage Loans. In the event that such
representation is breached in respect of any Mortgage Loan in a manner that
materially and adversely affects Certificateholders, the Seller or such
Representing Party will be obligated to repurchase the affected Mortgage Loan at
a price equal to the unpaid principal balance thereof plus accrued interest as
provided in the Agreement or to substitute a new mortgage loan in place of the
affected Mortgage Loan.
Enforceability of Due-on-Sale Clauses
Unless the Prospectus Supplement indicates otherwise, all of the Mortgage
Loans will contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of a loan if the borrower sells, transfers, or conveys
the property. The enforceability of these clauses was the subject of legislation
or litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses 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.
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Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The OTS, as successor to the
Federal Home Loan Bank Board, is authorized to issue rules and regulations and
to publish interpretations governing implementation of Title V. The statute
authorized any state to reimpose interest rate limits by adopting, before April
1, 1983, a law or constitutional provision which expressly rejects application
of the federal law. In addition, even where Title V is not so rejected, any
state is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V.
Under the Agreement for each series of Certificates, the Seller will
represent and warrant to the Trustee that the Mortgage Loans have been
originated in compliance in all material respects with applicable state laws,
including usury laws.
Soldiers' and Sailors' Civil Relief Act
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination for such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the mort gage
loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
borrowers who are members of the Army, Navy, Air Force, Marines, National Guard,
Reserves, Coast Guard, and officers of the U.S. Public Health Service ordered to
federal duty with the military. Because the Relief Act applies to borrowers who
enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability for the 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 Servicer 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
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upon the late charges which a lender may collect from a borrower for delinquent
payments. Certain states also limit the amounts that a lender may collect from a
borrower as an additional charge if the loan is prepaid. In addition, the
enforceability of provisions that provide for prepayment fees or penalties upon
involuntary prepayment is unclear under the laws of many states. Most
conventional single-family mortgage loans may be prepaid in full or in part
without penalty. The regulations of the Federal Home Loan Bank Board, as
succeeded by the OTS, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher mortgage
rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans.
Environmental Considerations
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the definition
of owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility.
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Conservation Act") amended, among other things, the provisions of CERCLA
with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The
Conservation Act provides that "merely having the capacity to influence, or
unexercised right to control" operations does not constitute participation
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous 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
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paint. Such cleanup costs may be substantial. It is possible that such cleanup
costs could become a liability of a Trust Fund and reduce the amounts otherwise
distributable to the holders of the related series of Certificates. Moreover,
certain federal statutes and certain states by statute impose a lien for any
cleanup costs incurred by such state on the property that is the subject of such
cleanup costs (an "Environmental Lien"). All subsequent liens on such property
generally are subordinated to Environmental Liens. In the latter states, the
security interest of the Trustee in a related parcel of real property that is
subject to such an Environmental Lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Neither the Seller nor any replacement
Servicer will be required by any Agreement to undertake any such evaluations
prior to foreclosure or accepting a deed-in-lieu of foreclosure. The Seller does
not make any representations or warranties or assume any liability with respect
to the absence or effect of contaminants on any related real property or any
foreclose on related real property or accept a deed-in-lieu of foreclosure if it
knows or reasonably believes that there are material contaminated conditions on
such property. A failure so to foreclose may reduce the amounts otherwise
available to Certificateholders of the related series.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment or a
very limited environment assessment of the Mortgaged Properties will have been
conducted.
Forfeiture in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all parties
"known to have an alleged interest in the property," including the holders of
mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
LEGAL INVESTMENT MATTERS
The Prospectus Supplement for each series of Certificates will specify,
which, if any, of the classes of Certificates offered thereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). The appropriate characterization
of those Certificates not qualifying as "mortgage related securities"
("Non-SMMEA Certificates") under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such
Certificates, may be subject to interpretive uncertainties. Accordingly,
investors whose investment authority is subject to legal restrictions should
consult their
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own legal advisors to determine whether and to what extent the Non-SMMEA
Certificates constitute legal investments for them.
Generally, only classes of Certificates that (i) are rated in one of the
two highest rating categories by one or more nationally recognized statistical
rating organizations and (ii) are part of a series evidencing interests in a
Trust Fund consisting of mortgage loans 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 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.
ss. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards in 12 C.F.R. ss. 1.5 concerning
"safety and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. ss. 1.2(1) to include certain "residential
mortgage-related securities." As so defined, "residential mortgage-related
security" means, in relevant part, "mortgage related security" within the
meaning of SMMEA. The National Credit Union Administration ("NCUA") has adopted
rules, codified at 12 C.F.R. Part 703, which permit federal credit unions to
invest in "mortgage related securities" under certain limited circumstances,
other than stripped mortgage related securities and residual interests in
mortgage related securities, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. ss. 703.140. The OTS has issued Thrift Bulletin 13a
(December 1, 1998), "Management of Interest Rate Risk, Investment Securities and
Derivative Activities," which thrift institutions subject to the jurisdiction of
the OTS should consider before investing in any of the Certificates.
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All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Council, which has been adopted by the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and OTS, effective May 26, 1998, and by the NCUA, effective
October 1, 1998. The 1998 Policy Statement sets forth general guidelines which
depository institutions must follow in managing risks (including market, credit,
liquidity, operational (transaction), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain series or classes may be deemed to be unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying", and with regard to any Certificates issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain Certificates as "mortgage related
securities," no representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
Investors should consult their own legal advisors in determining whether and to
what extent the Certificates constitute legal investments for such investors
and, if applicable, whether SMMEA has been overridden in any jurisdiction
relevant to such investor.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended, (the "Code") impose
requirements on employee benefit plans (including retirement plans and
arrangements, collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested) subject to ERISA or the Code
(collectively, "Plans") and on persons who are fiduciaries with respect to such
Plans. Among other things, ERISA requires that the assets of a Plan subject to
ERISA be held in trust and that the trustee, or other duly authorized fiduciary,
have exclusive authority and discretion to manage and control the assets of such
Plan. ERISA also imposes certain duties on persons who are fiduciaries with
respect to a Plan. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a Plan
generally is considered to be a fiduciary of such Plan. In addition to the
imposition by ERISA of general fiduciary standards of investment prudence and
diversification, ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving Plan assets and persons having certain
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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 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.
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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.
FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion represents the opinion of Morgan, Lewis &
Bockius LLP as to the 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. It is recommended that
investors 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
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whether an election will be made to treat the Trust Fund as one or more REMICs,
and if so, which Certificates will be Regular Certificates and which will be
Residual Certificates.
If a REMIC election is made, the Trust Fund, or each portion thereof
that is treated as a separate REMIC, will be referred to as a "REMIC Pool". If
the Trust Fund is comprised of two REMIC Pools, one will be an "Master REMIC"
and one a "Subsidiary REMIC". The assets of the Subsidiary REMIC will consist of
the Mortgage Loans and related Trust Fund assets. The assets of the Master REMIC
will consist of all of the regular interests issued by the Subsidiary REMIC.
The discussion below under the heading "REMIC Certificates" considers
series for which a REMIC election will be made. Series for which no such
election will be made are addressed under "Non-REMIC Certificates".
REMIC Certificates
The discussion in this section applies only to a series of Certificates
for which a REMIC election is made.
Tax Opinion.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Upon the issuance of each Series of Certificates for which a REMIC
election is made, Morgan, Lewis & Bockius LLP, counsel to the Seller, will
deliver an additional opinion, dated as of the date of such issuance, that with
respect to each such Series of Certificates, under then existing law and
assuming compliance by the Seller, the Servicer and the Trustee for such Series
with all of the provisions of the related Agreement (and such other agreements
and representations as may be referred to in such opinion), each REMIC Pool will
be a REMIC, and the Certificates of such Series will be treated as either
Regular Certificates or Residual Certificates.
Status of Certificates.
The Certificates will be:
o 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
o "real estate assets" under Code Section 856(c)(5)(B) (relating to
real estate interests, interests in real estate mortgages, and shares or
certificates of beneficial interests in real estate investment trusts),
to the extent the assets of the related REMIC Pool are so treated. Interest on
the Regular Certificates will be "interest on obligations secured by mortgages
on real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) in the same proportion that the income of the REMIC Pool is
so treated. If at all times 95% or more of the assets or income of the REMIC
Pool qualifies under the foregoing Code sections, the Certificates (and income
thereon) will so qualify in their entirety.
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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 Subsidiary 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
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Certificate's weighted average maturity. The weighted average maturity of a
Regular Certificate is computed based on the number of full years (i.e.,
rounding down partial years) each distribution of principal (or other amount
included in the stated redemption price at maturity) is scheduled to be
outstanding. The schedule of such distributions should be determined in
accordance with the Prepayment Assumption.
The Owner of a Regular Certificate 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 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
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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 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).
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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 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 apply to all its debt instruments and may not be revoked without
the consent of the Internal Revenue Service.
Special Election to Apply OID Rules. In lieu of the rules described
above with respect to de minimis discount, acquisition premium, market discount
and premium, an Owner of a Regular Certificate may elect to accrue such
discount, or adjust for such premium, by applying the principles of the OID
rules described above. An election made by a taxpayer with respect to one
obligation can affect other obligations it holds. Owners should consult with
their tax advisors regarding the merits of making this election.
Retail Regular Certificates. For purposes of the original issue and
market discount rules, a repayment in full of a Retail Certificate that is
subject to payment in units or other increments, rather than on a pro rata basis
with other Retail Certificates, will be treated in the same manner as any other
prepayment.
Variable Rate Regular Certificates. The Regular Certificates may
provide for interest that varies based on an interest rate index. The OID
Regulations provide special rules for calculating income from certain "variable
rate debt instruments" (or "VRDIs"). A debt instrument must meet certain
technical requirements to qualify as a VRDI, which are outlined in the next
paragraph. Under the regulations, income on a VRDI is calculated by (1) creating
a hypothetical debt instrument that pays fixed interest at rates equivalent to
the variable interest, (2) applying the original issue discount rules of the
Code to that fixed rate instrument, and (3) adjusting the income accruing in any
accrual period by the difference between the assumed fixed interest amount and
the actual amount for the period. In general, where a variable rate on a debt
instrument is based on an interest rate index (such as LIBOR), a fixed rate
equivalent to a variable rate is determined based on the value of the index as
of the issue date of the debt instrument. In cases where rates are reset at
different intervals over the life of a VRDI, adjustments are made to ensure that
the equivalent fixed rate for each accrual period is based on the same reset
interval.
A debt instrument must meet a number of requirements in order to
qualify as a VRDI. A VRDI cannot be issued at a premium above its principal
amount that exceeds a specified percentage of its principal amount (15% or if
less, 1.5% times its weighted average life). As a result, Interest Only
Certificates will never be VRDIs. Also, a debt instrument that pays interest
based on a multiple of an interest rate index is not a VRDI if the multiple is
less than or equal to 0.65 or greater than 1.35, unless, in general, interest is
paid based on a single formula that lasts over the life of the instrument. A
debt instrument is not a VRDI if it is subject to caps and floors, unless they
remain the same over the life of the instrument or are not expected to change
significantly the yield on the instrument. Variable rate Regular Certificates
other than Interest Only Certificates may or may not qualify as VRDIs depending
on their terms.
In a case where a variable rate Regular Certificate does not qualify as
a VRDI, it will be treated under the OID Regulations as a contingent payment
debt instrument. The Internal Revenue Service has
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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. Owners of Residual Certificates in a REMIC
Pool ("Residual Owners") must report ordinary income or loss equal to their pro
rata shares (based on the portion of all Residual Certificates they own) of the
taxable income or net loss of the REMIC. Such income must be reported regardless
of the timing or amounts of distributions on the Residual Certificates.
The taxable income of a REMIC Pool is 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 a Master REMIC and a Subsidiary REMIC,
the OID Regulations provide that the regular interests issued by the Subsidiary
REMIC to the Master 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
Subsidiary REMIC.
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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 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.
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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 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 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 more than one year, or one year or less. Such gain or loss will be ordinary
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income or loss (i) for a bank or thrift institution, and (ii) in the case of a
Regular Certificate, (a) to the extent of any accrued, but unrecognized, market
discount, or (b) to the extent income recognized by the Owner is less than the
income that would have been recognized if the yield on such Certificate were
110% of the applicable federal rate under Code Section 1274(d).
A Residual Owner should be allowed a loss upon termination of the REMIC
Pool equal to the amount of the Owner's remaining adjusted basis in its Residual
Certificates. Whether the termination will be treated as a sale or exchange
(resulting in a capital loss) is unclear.
Except as provided in Treasury regulations, the wash sale rules of Code
Section 1091 (relating to the disallowance of losses on the sale or disposition
of certain stock or securities) will apply to dispositions of a Residual
Certificate where the seller of the interest, during the period beginning six
months before the sale or disposition of the interest and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any REMIC residual
interest, or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a residual interest.
Taxation of Certain Foreign Investors.
Regular Certificates. A Regular Certificate held by an Owner that is a
non-U.S. person (as defined below), and that has no connection with the United
States other than owning the Certificate, will not be subject to U.S.
withholding or income tax with respect to the Certificate provided such Owner
(i) is not a "10-percent shareholder", related to the issuer, within the meaning
of Code Section 871(h)(3)(B) or a controlled foreign corporation, related to the
issuer, described in Code Section 881(c)(3)(C), and (ii) provides an appropriate
statement, signed under penalties of perjury, identifying the Owner and stating,
among other things, that the Owner is a non-U.S. person. If these conditions are
not met, a 30% withholding tax will apply to interest (including original issue
discount) unless an income tax treaty reduces or eliminates such tax or unless
the interest is effectively connected with the conduct of a trade or business
within the United States by such Owner. In the latter case, such Owner will be
subject to United States federal income tax with respect to all income from the
Certificate at regular rates then applicable to U.S. taxpayers (and in the case
of a corporation, possibly also the "branch profits tax").
The term "non-U.S. person" means any person other than a U.S. person. A
U.S. person is a citizen or resident of the United States, a corporation, or
partnership (unless, in the case of a partnership, Treasury regulations are
adopted that provide otherwise) created or organized in or under the laws of the
United States, any state thereof or the District of Columbia, including an
entity treated as a corporation or partnership for federal income tax purposes,
an estate whose income is subject to United States federal income tax regardless
of its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust, and one or
more such U.S. Persons have the authority to control all substantial decisions
of such trust (or, to the extent provided in applicable Treasury regulations,
certain trusts in existence on August 20, 1996 which are eligible to elect to be
treated as U.S. Persons).
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
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after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
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 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
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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.
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,
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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 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.
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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.
Trust Fund as Grantor Trust.
Upon issuance of each series of Certificates, Morgan, Lewis & Bockius
LLP, counsel to the Seller, will deliver an additional opinion, dated as of the
date of such issuance, to the effect that, under then current law, assuming
compliance by the Seller, the Servicer and the Trustee with all the provisions
of the Agreement (and such other agreements and representations as may be
referred to in the opinion), the Trust Fund will be classified for federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation.
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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:
o "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
o 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
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gain or loss on disposition. The Internal Revenue Service has indicated that
with respect to certain mortgage loans, original issue discount would be
considered zero either if (i) the original issue discount did not exceed an
amount that would be eligible for the de minimis rule described above under
"REMIC Certificates -- Income From Regular Certificates -- Original Issue
Discount", or (ii) the annual stated rate of interest on the mortgage loan was
not more than 100 basis points lower than on the loan prior to its being
stripped. In either such case the rules described above under "REMIC
Certificates--Income From Regular Certificates--Market Discount" (including the
applicable de minimis rule) would apply with respect to the mortgage loan.
Taxation of Certificates if Stripped Bond Rules Do Not Apply.
If the stripped bond rules do not apply to a Certificate, then the
Owner will be required to include in income its share of the interest payments
on the Mortgage Loans held by the Trust Fund in accordance with its tax
accounting method. The Owner must also account for discount or premium on the
Mortgage Loans if it is considered to have purchased its interest in the
Mortgage Loans at a discount or premium. An Owner will be considered to have
purchased an interest in each Mortgage Loan at a price determined by allocating
its purchase price for the Certificate among the Mortgage Loans in proportion to
their fair market values at the time of purchase. It is likely that discount
would be considered to accrue and premium would be amortized, as described
below, based on an assumption that there will be no future prepayments of the
Mortgage Loans, and not based on a reasonable prepayment assumption. Legislative
proposals which are currently pending would, however, generally require a
reasonable prepayment assumption.
Discount. The treatment of any discount relating to a Mortgage Loan
will depend on whether the discount is original issue discount or market
discount. Discount at which a Mortgage Loan is purchased will be original issue
discount only if the Mortgage Loan itself has original issue discount; the
issuance of Certificates is not considered a new issuance of a debt instrument
that can give rise to original issue discount. A Mortgage Loan 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.
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In the case of market discount that does not exceed a de minimis
amount, the Owner 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, 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 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 would 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. It is recommended that Owners 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.
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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).
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 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 DISTRIBUTION
The Seller may sell Certificates of each series to or through
underwriters (the "Underwriters") by a negotiated firm commitment underwriting
and public reoffering by the Underwriters, and also may sell and place
Certificates directly to other purchasers or through agents. The Seller intends
that Certificates will be offered through such various methods from time to time
and that offerings may be made concurrently through more than one of these
methods or that an offering of a particular series of Certificates may be made
through a combination of such methods.
The distribution of the Certificates may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more classes of Certificates of such series from the Underwriter or
Underwriters at a price specified in such Prospectus Supplement. Such purchaser
may thereafter from time to time offer and sell, pursuant to this Prospectus,
some or all of such Certificates so purchased directly, through one or more
underwriters to be designated at the time of the offering of such Certificates
or through broker-dealers acting as agent and/or principal. Such offering may be
restricted in the manner specified in such Prospectus Supplement and may be
effected from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.
In connection with the sale of the Certificates, Underwriters may
receive compensation from the Seller or from the purchasers of Certificates for
whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell the Certificates of a series to or through
dealers and such dealers may receive compensation in the form of discounts,
concessions or commissions from the Underwriters and/or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of the Certificates of a series may be
deemed to be Underwriters and any discounts or commissions received by them from
the Seller and any profit on the resale of the Certificates by them may be
deemed to be underwriting discounts and commissions, under the Securities Act of
1933, as amended (the "Act"). Any such Underwriters or agents will be
identified, and any such compensation received from the Seller will be
described, in the applicable Prospectus Supplement.
It is anticipated that the underwriting agreement pertaining to the
sale of any series or class of Certificates will provide that the obligations of
the underwriters will be subject to certain conditions precedent and that the
underwriters will be obligated to purchase all such Certificates if any are
purchased.
Under agreements which may be entered into by the Seller, Underwriters
and agents who participate in the distribution of the Certificates may be
entitled to indemnification by the Seller against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Seller will authorize
Underwriters or other persons acting as the Seller's agents to solicit offers by
certain institutions to purchase the Certificates from the Seller pursuant to
contracts providing for payment and delivery on a future date. Institutions
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with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational charitable
institutions and others, but in all cases such institutions must be approved by
the Seller. The obligation of any purchaser under any such contract will be
subject to the condition that the purchaser of the offered Certificates shall
not at the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject from purchasing such Certificates. The
Underwriters and such other agents will not have responsibility in respect of
the validity or performance of such contracts.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and there
is no assurance that any market, if established, will continue.
USE OF PROCEEDS
Substantially all of the net proceeds from the sale of each series of
Certificates will be applied by the Seller to the purchase price of the Mortgage
Loans underlying the Certificates of such series.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered
hereby, including certain federal income tax matters, will be passed upon for
the Seller by Morgan, Lewis & Bockius LLP, New York, New York.
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.
WHERE YOU CAN FIND MORE INFORMATION
The Seller filed a registration statement (the "Registration
Statement") relating to the Certificates with the Securities and Exchange
Commission (the "SEC" or the "Commission"). This Prospectus is part of the
Registration Statement, but the Registration Statement includes additional
information.
Copies of the Registration Statement may be obtained from the Public
Reference Room of the Commission, Washington, D.C. 20549 upon payment of the
prescribed charges, or may be examined free of charge at the Commission's
offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at the regional
offices of the Commission located at Suite 1300, 7 World Trade Center, New York,
New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800- SEC-0330. The
Commission also maintains a site on the World Wide Web at "http://www.sec.gov"
at which you can view and download copies of reports, proxy and information
70
<PAGE>
statements and other information filed electronically through the Electronic
Data Gathering, Analysis and Retrieval ("EDGAR") system. The Seller has filed
the Registration Statement, including all exhibits, through the EDGAR system and
therefore such materials should be available by logging onto the Commission's
Web site. The Commission maintains computer terminals providing access to the
EDGAR system at each of the officers referred to above. Copies of any documents
incorporated into this Prospectus by reference will be provided, at no cost, to
each person to whom a Prospectus is delivered, upon written or oral request
directed to the Seller at 343 Thornall Street, Edison, New Jersey 08837,
telephone number (732) 205-0600.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows the Seller to "incorporate by reference" information it
files with the SEC, which means that the Seller can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this Prospectus.
Information that the Seller files later with the SEC will automatically update
the information in this Prospectus. In all cases, you should rely on the later
information rather than on any different information included in this Prospectus
or the accompanying Prospectus Supplement. The Seller incorporates by reference
any future annual, monthly and special SEC reports filed by or on behalf of the
Trust until the termination of the offering of the Certificates.
As a recipient of this Prospectus, you may request a copy of any
document the Seller incorporates by reference, except exhibits to the documents
(unless the exhibits are specifically incorporated by reference), at no cost, by
writing or calling the Seller at 343 Thornall Street, Edison, New Jersey 08837,
telephone number (732) 205-0600).
71
<PAGE>
INDEX OF DEFINED TERMS IN PROSPECTUS
Term Page
- ---- ----
15-Year......................................................................14
1998 Policy Statement........................................................49
30-Year......................................................................14
Accretion Directed...........................................................11
Accrual Certificates..........................................................8
Accrual Class................................................................13
Act..........................................................................69
Advance Guarantee............................................................17
Agreement.....................................................................7
ARM Loans....................................................................14
ARMS.........................................................................14
bankruptcy bond..............................................................21
Book-Entry Nominee...........................................................61
Borrower.....................................................................15
Buy-Down Fund................................................................15
Buy-Down Mortgage Loans......................................................15
Buy-Down Reserve.............................................................15
Cash-Out Refinance Loans.....................................................15
CERCLA.......................................................................46
Certificate Rate..............................................................8
Certificateholder.............................................................7
Chase Manhattan Mortgage.....................................................23
Code.........................................................................39
Collection Account............................................................9
Commission...................................................................70
Companion Class..............................................................12
Compensating Interest Payment................................................24
Component Certificates.......................................................11
Conservation Act.............................................................46
Current Report...............................................................15
Cut-Off Date..................................................................8
Defective Mortgage Loan......................................................34
Defined Terms................................................................18
Delivery Date.................................................................7
Deposit Guarantee............................................................17
Distribution Date.............................................................9
DOL..........................................................................50
EDGAR........................................................................71
Eligible Investments.........................................................22
ERISA........................................................................49
FHLMC........................................................................26
Fixed Rate Class.............................................................13
<PAGE>
Term Page
- ---- ----
Floating Rate Class..........................................................13
FNMA.........................................................................26
Garn-St Germain Act.........................................................44
GIC..........................................................................22
Guarantor....................................................................17
Insurance Proceeds...........................................................16
Interest Accrual Period......................................................10
Interest Only Certificate....................................................65
Interest-Only Class..........................................................13
Inverse Floating Rate Class..................................................13
Limited Guarantee............................................................17
Liquidation Proceeds.........................................................16
Loan-to- Value Ratio.........................................................14
Lockout Class................................................................11
Master REMIC.................................................................52
Mortgage.....................................................................14
Mortgage Loan Schedule.......................................................32
Mortgage Loans................................................................7
Mortgage Pool................................................................14
Mortgage Rate................................................................14
Mortgaged Properties.........................................................14
Mortgaged Property...........................................................15
NAS Class....................................................................11
NCUA.........................................................................48
New Regulations..............................................................60
Non-SMMEA Certificates.......................................................47
Nonrecoverable Advance.......................................................30
Note.........................................................................14
Notional Amount Class........................................................11
OCC..........................................................................48
OID Regulations..............................................................53
OTS..........................................................................44
PAC..........................................................................11
PAC I........................................................................11
PAC II.......................................................................11
Parties in Interest..........................................................50
Paying Agent..................................................................9
Planned Amortization Class...................................................11
Plans........................................................................49
Prepayments..................................................................10
Primary Mortgage Insurance Policy............................................14
Principal Prepayments........................................................10
Principal-Only Class.........................................................13
PTE 83-1.....................................................................50
72
<PAGE>
Term Page
- ---- ----
PUD..........................................................................14
Record Date...................................................................9
Registration Statement.......................................................70
Regular Certificates.........................................................51
Relief Act...................................................................45
REMIC Regulations............................................................58
Remittance Rate...............................................................8
Representing Party...........................................................32
Residual Certificates........................................................51
Residual Owners..............................................................57
RICO.........................................................................47
Scheduled Amortization Class.................................................12
SEC..........................................................................70
Seller........................................................................7
Senior Certificates..........................................................17
Sequential Pay Class.........................................................12
Series........................................................................7
Servicer......................................................................7
SMMEA........................................................................47
Step-up Class................................................................13
Strip Class..................................................................12
stripped bond rules..........................................................65
Stripped Certificate.........................................................65
Subordinated Certificates....................................................17
Subsidiary REMIC.............................................................52
Support Class................................................................12
TAC..........................................................................12
Targeted Amortization Class..................................................12
Title V......................................................................45
Trust Fund....................................................................7
Trustee.......................................................................7
Underwriters.................................................................69
Variable Rate Class..........................................................13
VRDIs........................................................................56
73
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
SEC Registration Fee......................... $2,780,000.00
Legal Fees and Expenses...................... 2,500,000.00
Accounting Fees and Expenses................. 700,000.00
Trustee's Fees and Expenses.................. 200,000.00
Printing and Engraving Fees.................. 650,000.00
Rating Agency Fees........................... 3,000,000.00
Miscellaneous................................ 400,000.00
--------------
Total........................................ $10,230,000.00
Item 15. Indemnification of Directors and Officers.
The Company's By-laws provide for indemnification of directors and
officers of the Company to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits and proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they were
or are such directors, officers, employees or agents, against expenses incurred
in any such action, suit or proceeding. The Delaware General Corporation Law
also provides that the Registrant may purchase insurance on behalf of any such
director, officer, employee or agent.
<PAGE>
Item 16. Exhibits.
*1.1 Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Registrant.
*3.2 By-laws of the Registrant.
*4.1 Form of Pooling and Servicing Agreement.
**5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality
of the securities being registered.
**8.1 Opinion of Morgan, Lewis & Bockius LLP regarding certain
federal income tax matters with respect to the securities
being registered.
**23.1 Consent of Morgan, Lewis & Bockius LLP (incorporated in
Exhibits 5.1 and 8.1).
**24.1 Power of Attorney (incorporated in Signatures).
- ----------
* Previously filed.
** Filed herewith
Item 17. Undertakings.
The Registrant hereby undertakes:
(a) Undertaking pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
<PAGE>
(ii) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof."
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, that it reasonably believes that the
security rating requirement set forth in Transaction Requirement B-5 will be met
by the time of sale of the registered securities and that it has duly caused
this Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Edison, New Jersey, on the 12th
day of May, 1999.
CHASE MORTGAGE FINANCE CORPORATION
By: /s/ Paul E. Mullings
-----------------------------------
Name: Paul E. Mullings
Title: President
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Paul E. Mullings and Michael D. Katz, and
both of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in their capacities as directors and officers of Chase
Mortgage Finance Corporation in the capacities and on the date indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Luke S. Hayden Principal Executive May 12, 1999
- --------------------------------- Officer and Director
Luke S. Hayden
/s/ Stephen J. Fortunato Treasurer (Principal May 12, 1999
- --------------------------------- Financial and Accounting
Stephen J. Fortunato Officer)
/s/ Paul E. Mullings Director May 12, 1999
- ---------------------------------
Paul E. Mullings
/s/ Chatherine Eckert Director May 12, 1999
- ---------------------------------
Catherine Eckert
/s/ Michael D. Katz Director May 12, 1999
- ----------------------------------
Michael D. Katz
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
*1.1 Form of Underwriting Agreement
*3.1 Restated Certificate of Incorporation of the Registrant
*3.2 By-laws of the Registrant
*4.1 Form of Pooling and Servicing Agreement
**5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality
of the securities being registered.
**8.1 Opinion of Morgan, Lewis & Bockius LLP regarding certain
federal income tax matters with respect to the securities
being registered.
**23.1 Consent of Morgan, Lewis & Bockius LLP (incorporated in
Exhibits 5.1 and 8.1).
**24.1 Power of Attorney (incorporated in Signatures).
- ----------
* Previously filed.
** Filed herewith
<PAGE>
EXHIBIT 5.1
May 12, 1999
Chase Mortgage Finance Corporation
343 Thornall Street
Edison, NJ 08837
Ladies and Gentlemen:
We have acted as your counsel in connection with Amendment No. 1 to the
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission on April 22, 1999, pursuant to the Securities
Act of 1933, as amended (the "Act") in respect of Pass-Through Certificates
("Certificates") that you plan to offer in series. We hereby confirm that the
discussion of federal income tax consequences appearing in the Prospectus under
the heading "Federal Income Tax Consequences" and in the Prospectus Supplement
under the headings "Terms of the Certificates -- Federal Income Tax
Consequences" and "Federal Income Tax Consequences" is our opinion as to the
material federal income tax consequences of purchasing, owning and disposing of
Certificates and we adopt it as such.
Our opinion is based upon existing federal income tax laws, regulations,
administrative pronouncements and judicial decisions. All such authorities are
subject to change, either prospectively or retroactively. No assurance can be
provided as to the effect of any such change upon our opinion. In addition, our
opinion is based on the facts and circumstances set forth in the Prospectus and
the Prospectus Supplement and in the other documents reviewed by us. Our opinion
as to the matters set forth herein could change with respect to a particular
Series of Certificates as a result of changes in facts and circumstances,
changes in the terms of the documents reviewed by us, or changes in the law
subsequent to the date hereof. As the Registration Statement contemplates Series
of Certificates with numerous different characteristics, the particular
characteristics of each Series of Certificates must be considered in determining
the applicability of this opinion to a particular Series of Certificates. The
opinion contained in each Prospectus Supplement and Prospectus prepared pursuant
to the Registration Statement is, accordingly, deemed to be incorporated herein.
<PAGE>
Chase Mortgage Finance Corporation
May 12, 1999
Page 2
The opinion set forth herein has no binding effect on the Internal Revenue
Service or any court. No assurance can be given that, if the matter were
contested, a court would agree with the opinion set forth herein.
In giving the foregoing opinion, we express no opinion other than as to the
federal income tax law.
We hereby consent to the filing of this letter as an Exhibit to the Registration
Statement and to the reference to this firm in the Registration Statement under
the heading "Federal Income Tax Consequences", without admitting that we are
"experts" within the meaning of the Act or the rules and regulations of the
Securities and Exchange Commission issued thereunder.
Very truly yours,
MORGAN, LEWIS & BOCKIUS LLP
<PAGE>
EXHIBIT 8.1
May 12, 1999
Chase Mortgage Finance Corporation
343 Thornall Street
Edison, NJ 08837
Ladies and Gentlemen:
We have acted as your counsel in connection with Amendment No. 1 to the
Registration Statement on Form S-3 (the "Registration Statement") filed on April
22, 1999 with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Act") in respect of Mortgage Pass-Through
Certificates ("Certificates") which you plan to offer in series, each series to
be issued under a separate pooling and servicing agreement (a "Pooling and
Servicing Agreement"), in all material respects relevant hereto substantially in
the form of Exhibit 4.1 to the Registration Statement, among Chase Mortgage
Finance Corporation (the "Company"), Chase Manhattan Mortgage Corporation or
another servicer to be identified in the prospectus supplement for such series
of Certificates (the "Servicer" for such series), and a bank, trust company or
other entity with trust powers, to be identified in the prospectus supplement
for such series of Certificates, as trustee (the "Trustee" for such series).
We have examined originals or copies certified or otherwise identified to our
satisfaction of such documents and records of the Company, and such public
documents and records, as we have deemed necessary as a basis for the opinions
hereinafter expressed.
Based on the foregoing and having regard for such legal considerations as we
have deemed relevant, we are of the opinion that:
1. When, in respect of a series of Certificates, a Pooling and Servicing
Agreement has been duly authorized by all necessary action and duly executed and
delivered by the Company, the Servicer and the Trustee for such series, such
Pooling and Servicing Agreement will be a legal and valid obligation of the
Company; and
<PAGE>
Chase Mortgage Finance Corporation
May 12, 1999
Page 2
2. When a Pooling and Servicing Agreement for a series of Certificates has been
duly authorized by all necessary action and duly executed and delivered by the
Company, the Servicer and the Trustee for such series, and when the certificates
of such series of Certificates have been duly executed, countersigned, issued
and sold as contemplated in the Registration Statement and the prospectus
delivered pursuant to Section 5 of the Act in connection therewith, such
Certificates will be legally and validly issued, fully paid and nonassessable,
and the holders of such Certificates will be entitled to the benefits of such
Pooling and Servicing Agreement.
The form of Pooling and Servicing Agreement indicates that it is governed by the
laws of the State of New York. We express no opinion as to the law of any
jurisdiction other than the law of the State of New York, the General
Corporation Law of the State of Delaware and the federal law of the United
States of America.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm in the Registration
Statement and the related prospectus under the heading "Legal Matters", without
admitting that we are "experts" within the meaning of the Act or the rules and
regulations of the Securities and Exchange Commission issued thereunder with
respect to any part of the Registration Statement including this Exhibit.
Very truly yours,
MORGAN, LEWIS & BOCKIUS LLP
