<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 15, 1996)
$64,599,280
DLJ MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-Q6
$ 0 CLASS SA CERTIFICATES VARIABLE RATE*
$ 53,917,509 CLASS A-1 CERTIFICATES ADJUSTABLE RATE
$ 8,477,596 CLASS A-2 CERTIFICATES ADJUSTABLE RATE
$ 2,204,175 CLASS B-1 CERTIFICATES ADJUSTABLE RATE
*Based on the Notional Amount as described herein.
The Series 1996-Q6 Mortgage Pass-Through Certificates (the "Certificates")
will consist of the following seven Classes: (i) Class SA Certificates (the
"Variable Strip Certificates"), (ii) Class A-1 Certificates and Class A-2
Certificates (collectively, with the Variable Strip Certificates, the "Senior
Certificates"), (iii) Class B-1 Certificates and Class B-2 Certificates
(together, the "Class B Certificates"), (iv) Class SB Certificates and (v) Class
R Certificates (the "Residual Certificates"). Only the Senior Certificates and
the Class B-1 Certificates (collectively the "Offered Certificates") are offered
hereby.
The Certificates will, in the aggregate, evidence the entire beneficial
ownership interest in a trust fund (the "Trust Fund") consisting primarily of a
pool of certain conventional, fixed and adjustable rate, one- to four-family,
first lien mortgage loans (the "Mortgage Loans") to be deposited by DLJ Mortgage
Acceptance Corp. (the "Depositor") into the Trust Fund for the benefit of the
Certificateholders. The Mortgage Loans will have an aggregate principal balance
as of June 1, 1996 (the "Cut-off Date") of $67,820,767 and have original terms
to maturity from the due dates of their first scheduled monthly payment of
interest and principal of not more than 30 years. All of the Mortgage Loans were
originated or acquired by Quality Mortgage USA, Inc. (the "Seller") and will
have been sold by the Seller to DLJ Mortgage Capital, Inc., an affiliate of the
Depositor, on or prior to the date of initial issuance of the Certificates
(the "Delivery Date") and acquired by the Depositor from such affiliate on the
Delivery Date. The Mortgage Loans will be serviced by Temple-Inland Mortgage
Corporation (the "Master Servicer"). Certain characteristics of the Mortgage
Loans are described herein under "Description of the Mortgage Pool," and certain
matters related to the servicing of the Mortgage Loans are described herein
under "Pooling and Servicing Agreement" and in the Prospectus under "Servicing
of Loans" and "The Pooling and Servicing Agreements."
The rights of the holders of the Class B-1 Certificates to receive
distributions with respect to the Mortgage Loans will be subordinate to the
rights of the holders of the Senior Certificates, and the rights of the holders
of the Class A-2 Certificates to receive distributions with respect to the
Mortgage Loans will be subordinate to the rights of the other Senior
Certificates, as and to the extent described herein.
(CONTINUED ON NEXT PAGE)
______________________________
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING
MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE DEPOSITOR, THE SELLER, THE
MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________________________
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
______________________________
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS," WHICH BEGINS ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT,
AND ALSO SHOULD CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS," WHICH BEGINS ON PAGE 9 OF THE
PROSPECTUS.
___________
The Offered Certificates are being offered by the Underwriter from time to
time to the public in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the Depositor are expected to be
approximately $67,763,688 plus accrued interest, before deducting issuance
expenses payable by the Depositor.
The Offered Certificates are offered when, as and if delivered to and
accepted by the Underwriter, and subject to various conditions, including the
Underwriter's right to reject orders in whole or in part. It is expected that
the Variable Strip Certificates the Class A-1 Certificates, the Class A-2
Certificates and the Class B-1 Certificates will be delivered in book-entry form
through the Same Day Funds Settlement System of The Depository Trust Company as
further discussed herein.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 24, 1996
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Distributions on the Offered Certificates will be made on the 25th day
of each month or, if such day is not a business day, then on the next
succeeding business day, commencing in July 1996 (each, a "Distribution
Date"). As more fully described herein, interest distributions on the
Offered Certificates will be based on the Certificate Principal Balances
thereof (or the Notional Amount (as defined herein) in the case of the
Variable Strip Certificates) and the related Pass-Through Rates. The
Pass-Through Rates on the Offered Certificates will be calculated as
described herein. The Pass-Through Rate with respect to the first
Distribution Date for the Variable Strip Certificates will be approximately
2.825% per annum and for the Class A-1 Certificates, the Class A-2
Certificates and the Class B-1 Certificates will be approximately 5.965%
per annum. Due to the fact that the Mortgage Rates on the GPARM Loans (as
defined herein) adjust monthly and the monthly payments thereon adjust
semi-annually, subject to certain limitations, a portion of the interest
that would otherwise be payable on the GPARM Loans and on the Certificates
may constitute Deferred Interest (as described herein) which will be added
to the principal balance of the GPARM Loans and to the Certificate
Principal Balances of certain of the Certificates, as more fully described
herein. Deferred Interest will generally be allocated to the various
classes of Certificates in the same order in which Realized Losses are
allocated as further described herein.
Distributions in respect of principal will be allocated among the
various Classes of Certificates (other than the Variable Strip Certificates
and the Class SB Certificates), as described herein. No principal
prepayments on the Mortgage Loans will be distributed to holders of the
Class B-1 Certificate prior to the Distribution Date in July 2006 and no
principal prepayments on the Mortgage Loans will be distributed to the
holders of the Class B-1 Certificates thereafter if certain criteria
relating to the delinquency and loss performance of the Mortgage Loans
described herein are not satisfied unless the Class A-1 Certificates and
the Class A-2 Certificates have been retired. Furthermore, as and to the
extent described herein, prior to the Class B Certificate Termination Date
(as defined herein), all amounts, and thereafter a portion of such amounts
otherwise distributable to the Class SB Certificates will be distributed as
principal to the holders of the Class A-1 Certificates, the Class A-2
Certificates and the Class B-1 Certificates.
THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON,
AMONG OTHER THINGS, THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS, REPURCHASES, DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS
WHICH MAY VARY SIGNIFICANTLY OVER TIME. THE YIELD TO MATURITY ON THE CLASS
B-1 CERTIFICATES AND TO A LESSER EXTENT, THE CLASS A-2 CERTIFICATES WILL BE
SENSITIVE TO LOSSES ON THE MORTGAGE LOANS (AND THE TIMING THEREOF) TO THE
EXTENT THAT SUCH LOSSES ARE NOT COVERED BY THE CLASSES OF CERTIFICATES
SUBORDINATE THERETO, AS DESCRIBED HEREIN. THE MORTGAGE LOANS GENERALLY MAY
BE PREPAID IN FULL OR IN PART AT ANY TIME; HOWEVER, PREPAYMENT MAY SUBJECT
THE MORTGAGOR TO A PREPAYMENT CHARGE. THE YIELD TO INVESTORS ON THE OFFERED
CERTIFICATES WILL BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN INTEREST
COLLECTED ON THE MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR
OTHERWISE TO THE EXTENT THAT SUCH SHORTFALLS ARE NOT OTHERWISE COVERED, AS
DESCRIBED HEREIN. THE YIELD TO INVESTORS ON THE VARIABLE STRIP CERTIFICATES
WILL BE EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS, REPURCHASES, DEFAULTS AND LIQUIDATIONS) ON THE
MORTGAGE LOANS WHICH MAY VARY SIGNIFICANTLY OVER TIME. A RAPID RATE OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, REPURCHASES, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF
INVESTORS IN THE VARIABLE STRIP CERTIFICATES TO RECOVER THEIR INITIAL
INVESTMENT. SEE "THE SELLER--LOAN DELINQUENCY, FORBEARANCE, FORECLOSURE,
BANKRUPTCY AND REO PROPERTY STATUS" AND "--REO PROPERTY LIQUIDATION
EXPERIENCE" HEREIN FOR IMPORTANT INFORMATION REGARDING THE DELINQUENCY,
FORBEARANCE, FORECLOSURE, BANKRUPTCY AND REO PROPERTY STATUS AND LOSS
EXPERIENCE OF CERTAIN MORTGAGE LOANS PREVIOUSLY ORIGINATED OR ACQUIRED BY
THE SELLER UNDER SUBSTANTIALLY THE SAME UNDERWRITING CRITERIA PURSUANT TO
WHICH THE MORTGAGE LOANS WERE ORIGINATED OR ACQUIRED. IN ADDITION, THE
YIELD ON THE CLASS A-1 CERTIFICATES, THE CLASS A-2 CERTIFICATES AND THE
CLASS B-1 CERTIFICATES WILL BE SENSITIVE TO FLUCTUATIONS IN THE LEVEL OF
ONE-MONTH LIBOR (AS DEFINED HEREIN), WHICH MAY VARY SIGNIFICANTLY OVER
TIME. SEE "SUMMARY OF PROSPECTUS SUPPLEMENT--SPECIAL PREPAYMENT
CONSIDERATIONS," "--SPECIAL YIELD CONSIDERATIONS" AND "CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS" HEREIN, AND "RISK FACTORS" AND "YIELD,
PREPAYMENT AND MATURITY CONSIDERATIONS" IN THE PROSPECTUS.
It is a condition to the issuance of the Offered Certificates that the
Variable Strip Certificates and the Class A-1 Certificates be rated "Aaa"
by Moody's Investors Service, Inc. ("Moody's") and "AAA" by Duff & Phelps
S-2
<PAGE>
Credit Rating Co. ("DCR"), the Class A-2 Certificates be rated "Aa2" by
Moody's and "AA" by DCR and the Class B-1 Certificates be rated "A2" by
Moody's and "A+" by DCR.
As described herein, a "real estate mortgage investment conduit"
("REMIC") election will be made in connection with the Trust Fund for
federal income tax purposes. Each Class of the Offered Certificates will
constitute a "regular interest" in the REMIC. See "Certain Federal Income
Tax Consequences" herein and in the Prospectus.
There is currently no secondary market for the Offered Certificates.
Donaldson, Lufkin & Jenrette Securities Corporation (the "Underwriter")
intends to make a secondary market in the Offered Certificates but has no
obligation to do so. There can be no assurance that a secondary market for
the Offered Certificates will develop or, if it does develop, that it will
continue or will provide investors with a sufficient level of liquidity.
The Offered Certificates will not be listed on any securities exchange. See
"Risk Factors" in the Prospectus.
The information set forth herein under "Summary of Prospectus
Supplement--The Mortgage Pool," "Description of the Mortgage Pool" and "The
Seller" (other than the information set forth herein under "The Seller--
Loan Delinquency, Forbearance, Foreclosure, Bankruptcy and REO Property
Status" and, to the extent provided by Lomas Mortgage USA, Inc. or the
Master Servicer as described herein, the information set forth herein under
"The Seller--REO Property Liquidation Experience") has been provided by the
Seller. No representation is made by the Depositor, the Underwriter, the
Master Servicer, the Trustee or any of their respective affiliates as to
the accuracy or completeness of the information provided by the Seller.
The information set forth herein under "The Seller --Loan Delinquency,
Forbearance, Foreclosure, Bankruptcy and REO Property Status" and, other
than to the extent provided by the Seller, the information set forth herein
under "The Seller--REO Property Liquidation Experience" has been provided
by Lomas Mortgage USA, Inc. in its capacity as servicer during the periods
indicated or by the Master Servicer with respect to certain other periods
indicated. No representation is made by the Depositor, the Underwriter,
the Master Servicer, the Seller, the Trustee or any of their respective
affiliates as to the accuracy or completeness of the information provided
by Lomas Mortgage USA, Inc.
____________________________________
No person is authorized in connection with this offering to give any
information or to make any representation about the Depositor, the Seller,
the Master Servicer, the Trustee, the Offered Certificates or any other
matter referred to herein, other than those contained in this Prospectus
Supplement or the Prospectus. If any other information or representation is
given or made, such information or representation may not be relied upon as
having been authorized by the Depositor, the Seller, the Trustee or the
Master Servicer. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell or a solicitation of an offer to buy securities
other than the Offered Certificates, or an offer to sell or a solicitation
of an offer to buy securities in any jurisdiction or to any person to whom
it is unlawful to make such offer in such jurisdiction. Neither the
delivery of this Prospectus Supplement or the Prospectus nor any sale
hereunder or thereunder shall, under any circumstances, create any
implication that the information contained herein or therein is correct as
of any time subsequent to their respective dates.
____________________________________
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL BE
PART OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR
PURSUANT TO ITS PROSPECTUS DATED MARCH 15, 1996, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS
NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE
PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL.
____________________________________
UNTIL SEPTEMBER 22, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE
OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO
WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-3
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . S-5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-22
DESCRIPTION OF THE MORTGAGE POOL . . . . . . . . . . . . . . . . . . . . . .S-23
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .S-44
THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-44
DESCRIPTION OF THE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . .S-55
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS. . . . . . . . . . . . . . . . .S-74
POOLING AND SERVICING AGREEMENT. . . . . . . . . . . . . . . . . . . . . . .S-81
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . .S-87
METHOD OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . .S-89
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-90
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-90
RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-90
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-91
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-91
PROSPECTUS
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Reports to Certificateholders. . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference. . . . . . . . . . . . . . . . 2
Summary of Terms of the Certificates . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Description of the Certificates. . . . . . . . . . . . . . . . . . . . . . . .11
Yield, Prepayment and Maturity Considerations. . . . . . . . . . . . . . . . .15
The Trust Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Loan Underwriting Procedures and Standards . . . . . . . . . . . . . . . . . .28
Servicing of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Description of Mortgage and Other Insurance. . . . . . . . . . . . . . . . . .48
The Pooling and Servicing Agreements . . . . . . . . . . . . . . . . . . . . .53
Certain Legal Aspects of Loans . . . . . . . . . . . . . . . . . . . . . . . .62
Certain Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . . .75
State and Other Tax Consequences . . . . . . . . . . . . . . . . . . . . . . .91
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Legal Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
The Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
S-4
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE PROSPECTUS.
CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED HEREIN HAVE THE MEANINGS
ASSIGNED IN THE PROSPECTUS.
TITLE OF SECURITIES. . . . . . . . Mortgage Pass-Through Certificates, Series
1996-Q6.
DEPOSITOR. . . . . . . . . . . . . DLJ Mortgage Acceptance Corp. (the
"Depositor"). See "The Depositor" in the
Prospectus.
MASTER SERVICER. . . . . . . . . . Temple-Inland Mortgage Corporation ("TIMC"
or the "Master Servicer"). See "Pooling and
Servicing Agreement--The Master Servicer"
herein.
TRUSTEE. . . . . . . . . . . . . . Bankers Trust Company (the "Trustee"). See
"Pooling and Servicing Agreement--The
Trustee" herein.
SELLER . . . . . . . . . . . . . . Quality Mortgage USA, Inc. (the "Seller").
See "The Seller" herein.
CUT-OFF DATE . . . . . . . . . . . June 1, 1996.
DELIVERY DATE. . . . . . . . . . . On or about June 27, 1996.
DENOMINATIONS. . . . . . . . . . . The Variable Strip Certificates will be
issued, maintained and transferred on the
book-entry records of the Depository Trust
Company ("DTC") and its Participants in
minimum initial Notional Amounts (as
defined herein) of $1.00 and integral
multiples of $1.00 in excess thereof. The
Class A-1 Certificates, the Class A-2
Certificates and the Class B-1 Certificates
will be issued, maintained and transferred
on the book-entry records of DTC and its
Participants in minimum denominations of
$1.00 and integral multiples of $1.00 in
excess thereof; provided, however, that one
Certificate of such Class may be issued
evidencing the sum of an authorized
denomination thereof and the remainder of
the aggregate initial Certificate Principal
Balance of such Class.
REGISTRATION . . . . . . . . . . . The Offered Certificates (the "DTC
Registered Certificates") will be
represented by one or more Certificates
registered in the name of Cede & Co., as
nominee of DTC. No person acquiring a
beneficial interest in a Class of DTC
Registered Certificates (each, a
"Beneficial Owner") will be entitled to
receive a Certificate of such Class in
certificated form, except under the limited
circumstances described herein. For each
Certificate held
S-5
<PAGE>
by DTC, DTC will effect payments to and
transfers of the related DTC Registered
Certificates among the respective
Beneficial Owners by means of its
electronic recordkeeping services, acting
through organizations that participate in
DTC. This arrangement may result in certain
delays in receipt of distributions by
Beneficial Owners and may restrict a
Beneficial Owner's ability to pledge the
Certificates beneficially owned by it. All
references in this Prospectus Supplement to
the DTC Registered Certificates reflect the
rights of Beneficial Owners of such
Certificates only as such rights may be
exercised through DTC and its participating
organizations so long as such Certificates
are held by DTC. See "Description of the
Certificates--Book-Entry Registration" in
the Prospectus.
THE MORTGAGE POOL. . . . . . . . . Based solely upon information provided by
the Seller, the Mortgage Loans will have
the characteristics described herein. The
Trust Fund (as defined herein) will consist
primarily of a pool (the "Mortgage Pool")
of conventional, fixed and adjustable rate,
mortgage loans (the "Mortgage Loans") with
an aggregate principal balance as of the
Cut-off Date of $67,820,767.14. The
Mortgage Loans will be secured by first
liens on fee simple and leasehold interests
on one- to four-family residential real
properties (each, a "Mortgaged Property")
and have original terms to maturity from
the due dates of their first scheduled
monthly payments of interest and principal
(each such payment, a "Monthly Payment") of
not more than 30 years. All of the
Mortgage Loans have Monthly Payments due on
the first day of each month.
All percentages of the Mortgage Loans
described herein are approximate
percentages (except as otherwise indicated)
by aggregate principal balance of all of
the Mortgage Loans (except as otherwise
indicated) as of the Cut-off Date.
The interest rates (each, a "Mortgage Rate")
will be fixed for 27.67% of the Mortgage
Loans (the "Fixed Rate Loans").
The Mortgage Rates on 0.30% of the Mortgage
Loans (the "Step Loans"), will be reset
twice, approximately one year and
approximately two years after their
respective dates of origination, on the
adjustment dates applicable thereto (each
such date, an "Adjustment Date") to equal,
as to the first Adjustment Date thereof,
the sum of the initial Mortgage Rate
thereof and a fixed percentage and, as to
S-6
<PAGE>
the second Adjustment Date thereof, the sum
of the initial Mortgage Rate thereof and a
greater fixed percentage.
The Mortgage Rates on 71.69% of the Mortgage
Loans (the "Adjustable Rate Loans"),
will be subject to adjustment semi-annually
commencing either (i) six months after
origination, (ii) two years after
origination, (iii) three years after
origination or (iv) seven years after
origination, in each case, on the
Adjustment Date applicable thereto to
equal, as to any Adjustment Date, the sum,
rounded to the nearest 0.125%, of the
related Index (as defined below) and a
fixed percentage amount (the "Gross
Margin"), subject to certain periodic rate
caps and to maximum and minimum Mortgage
Rates as described herein; provided,
however, that such periodic rate caps
generally will not be applicable on the
first Adjustment Date (other than with
respect to those Adjustable Rate Loans that
have their initial adjustment date
approximately six months after
origination). 78.89% of the Adjustable
Rate Loans (by aggregate principal balance
of the Adjustable Rate Loans as of the Cut-
off Date) were originated with a Mortgage
Rate below the sum of the related Index and
Gross Margin, rounded as described herein.
0.34% of the Mortgage Loans are graduated
payment adjustable rate mortgage loans (the
"GPARM Loans"), as further described
herein.
All of the Mortgage Loans will be either
Fixed Rate Loans, Step Loans, Adjustable
Rate Loans or GPARM Loans. See
"Description of the Mortgage Pool" herein
for a further description of certain
characteristics of the Mortgage Loans.
6.32% and 93.68% of the Mortgage Loans, were
originated or acquired pursuant to the
Seller's equity lending program or regular
lending program, respectively, as described
herein. See "Risk Factors--Underwriting
Standards and Potential Delinquencies" and
"Description of the Mortgage Pool--
Underwriting Standards" herein. Mortgage
loans originated or acquired under the
Seller's equity lending program or regular
lending program are likely to experience
rates of delinquency, foreclosure,
bankruptcy and loss that are higher and,
that may be substantially higher
(especially with respect to Mortgage Loans
originated or acquired under the equity
lending program), than those experienced by
mortgage loans originated in a more
traditional manner.
S-7
<PAGE>
0.23% of the Mortgage Loans as of the Cut-
off Date were thirty days or more but less
than sixty days delinquent in their Monthly
Payments (such Mortgage Loans, the
"Delinquent Mortgage Loans"). There were
no Mortgage Loans sixty or more days
delinquent in their Monthly Payments as of
the Cut-off Date. Prospective investors in
the Offered Certificates should be aware,
however, that only approximately 1.13% of
the Mortgage Loans had a first monthly
payment due on or before May 1, 1996, and
therefore, the remaining Mortgage Loans
could not have been Delinquent Mortgage
Loans as of the Cut-off Date.
See "Risk Factors--Underwriting Standards
and Potential Delinquencies" and
"Description of the Mortgage Pool --
Underwriting Standards" herein. In
addition, see "The Seller--Loan
Delinquency, Forbearance, Foreclosure,
Bankruptcy and REO Property Status" and "--
REO Property Liquidation Experience" herein
for important information regarding the
delinquency, forbearance, foreclosure,
bankruptcy and REO property status and loss
experience of certain mortgage loans
previously originated or acquired by the
Seller under substantially the same
underwriting criteria pursuant to which the
Mortgage Loans were originated or acquired.
THE INDEXES APPLICABLE TO THE
ADJUSTABLE RATE LOANS AND
THE GPARM LOANS . . . . . . . . As of any Adjustment Date, the related Index
applicable to the determination of the
Mortgage Rate with respect to each
Adjustable Rate Loan will be the average of
the interbank offered rates for six month
United States dollar deposits in the London
interbank market based on quotations of
major banks ("Six-Month LIBOR") or, with
respect to each GPARM Loan, one month
United States dollar deposits in the London
interbank market based on quotations of
major banks ("One-Month LIBOR"), in each
case as published in the Western Edition of
THE WALL STREET JOURNAL, as most recently
available as of the date 30 days or 45 days
prior to such Adjustment Date. See
"Description of the Mortgage Pool" herein.
THE OFFERED CERTIFICATES . . . . . The Offered Certificates will be issued
pursuant to a Pooling and Servicing
Agreement, to be dated as of June 1, 1996,
among the Depositor, the Master Servicer
and the Trustee (the "Pooling and Servicing
Agreement"). The Class A-1 Certificates,
the Class A-2 Certificates and the Class B-
1 Certificates will evidence initial
undivided beneficial ownership interests of
approximately 79.50%,
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<PAGE>
12.50% and 3.25%, respectively, in a trust
fund (the "Trust Fund") consisting primarily
of the Mortgage Pool. The Offered
Certificates (other than the Variable Strip
Certificates) will have the following
Certificate Principal Balances as of the
Cut-off Date:
Class A-1 Certificates $ 53,917,509
Class A-2 Certificates $ 8,477,596
Class B-1 Certificates $ 2,204,175
The Variable Strip Certificates have no
Certificate Principal Balance and will
accrue interest on the Notional Amount (as
defined herein).
On the first Distribution Date, the Pass-
Through Rate on the Class A-1 Certificates,
Class A-2 Certificates, Class B-1
Certificates, Class B-2 Certificates and
Class R Certificates, will be approximately
5.965% per annum. Thereafter, on the
second business day preceding each
Distribution Date (each such date, an
"Interest Determination Date"), the Trustee
will determine One-Month LIBOR for the
Distribution Date in the following month
for the Certificates on the basis of the
offered rates of the Reference Banks for
one-month U.S. dollar deposits, as such
rates appear on the Reuter Screen LIBO
Page, as of 11:00 a.m. (London time) on
such Interest Determination Date. See
"Description of the Certificates--
Calculation of One-Month LIBOR" herein.
The Pass-Through Rate on each such Class of
Certificates for each Distribution Date
after the initial Distribution Date will be
equal to One-Month LIBOR plus 0.50%;
provided, however, that the Pass-Through
Rate on each such Class of Certificates
will be subject to a maximum rate as of any
Distribution Date equal to the lesser of
(i) 12.00% per annum and (ii) the Net
Mortgage Rate Cap. The Net Mortgage Rate
Cap is a per annum rate equal to the
weighted average of the Net Mortgage Rates
on the then-outstanding Mortgage Loans
minus 1.55%. The Pass-Through Rate on the
Variable Strip Certificates will be equal
to the excess, if any, of the weighted
average Net Mortgage Rate over the sum of
(i) the Pass-Through Rate on the Class A-1
Certificates, Class A-2 Certificates, Class
B Certificates and Class R Certificates and
(ii) 1.55% per annum. The Pass-Through
Rate on the Variable Strip Certificates
with respect to the first Distribution Date
will be approximately 2.825% per annum. The
Pass-Through Rate on the Class SB
Certificates will be equal to 1.55% per
annum. The Net Mortgage Rate on each
Mortgage Loan is equal to the Mortgage Rate
thereon minus 0.50%
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<PAGE>
per annum, in the case of the Mortgage
Loans originated or acquired under the
Seller's regular lending program, and 0.75%
per annum in the case of the Mortgage Loans
originated or acquired under the Sellers
equity lending program, the annual rate at
which the related servicing fee thereon
accrues (the "Servicing Fee Rate").
INTEREST DISTRIBUTIONS . . . . . . Holders of the Variable Strip Certificates
and the Class A-1 Certificates will be
entitled to receive interest distributions
in an amount equal to the Accrued
Certificate Interest (as defined herein)
for each such Class on each Distribution
Date (for such Certificates in the
aggregate, the "Priority Interest
Distribution Amount"), to the extent of the
Available Distribution Amount (as defined
herein) for such Distribution Date. Holders
of the Class A-2 Certificates will be
entitled to receive interest distributions
in an amount equal to the Accrued
Certificate Interest for such Class on each
Distribution Date, to the extent of the
portion of the Available Distribution
Amount for such Distribution Date remaining
after the Priority Interest Distribution
Amount is distributed and after
distributions in respect of principal to
the holders of the Class A-1 Certificates.
Holders of the Class B-1 Certificates will
be entitled to receive interest
distributions in an amount equal to the
Accrued Certificate Interest for such Class
on each Distribution Date, to the extent of
the portion of the Available Distribution
Amount for such Distribution Date remaining
after interest and principal are
distributed to the Senior Certificates and
reimbursement is made to the Master
Servicer for certain Advances as described
herein.
With respect to any Distribution Date,
Accrued Certificate Interest will be equal
to (a) in the case of the Class A-1
Certificates, the Class A-2 Certificates,
the Class B Certificates and the Class R
Certificates, one month's interest accrued
during the Accrual Period (as defined
herein) on the Certificate Principal
Balance of the Certificates of such Class
at the related Pass-Through Rate and (b) in
the case of the Variable Strip Certificates
and the Class SB Certificates, one month's
interest accrued during the Accrual Period
on the Notional Amount at the related
Pass-Through Rate, in each case less (i)
any interest shortfalls not covered with
respect to such Class by Subordination (as
defined herein and allocated as described
herein), including any Prepayment Interest
Shortfall (as defined herein) for such
Distribution Date to the extent not
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<PAGE>
covered by payments by the Master Servicer
as described herein, (ii) the interest
portions of any Realized Losses (as defined
herein) allocated thereto and (iii) the
amount of any Deferred Interest allocated
thereto on such Distribution Date as
described below. The Accrual Period for
each Distribution Date will be from the
25th day of the month preceding such
Distribution Date to the 24th day of the
month of such Distribution Date; provided,
however, that the Accrual Period will be
treated as a 30-day period regardless of
the number of days from the 25th day of the
preceding month to the 24th day of such
month. Accrued Certificate Interest is
calculated on the basis of a 360-day year
consisting of twelve 30-day months. See
"Description of the Certificates--Interest
Distributions" herein.
The notional amount (the "Notional Amount")
with respect to both the Variable Strip
Certificates and the Class SB Certificates,
as of any date of determination, will equal
the aggregate Stated Principal Balances of
all of the Mortgage Loans, except that the
initial Notional Amount will be rounded
down to the nearest dollar increment. The
Notional Amount will be equal to
$67,820,767 as of the Cut-off Date.
References herein to a Notional Amount in
respect of a Class of Certificates are used
solely for certain calculations and do not
represent the right of the holders of such
Class of Certificates to receive
distributions of such amount.
On each Distribution Date, the aggregate
amount of Deferred Interest (as defined
herein), if any, that is added to the
principal balance of the GPARM Loans on the
Due Date occurring in the month in which
such Distribution Date occurs will be
allocated by operation of the payment
provisions described herein.
See "Description of the Certificates--
Interest Distributions" herein.
PRINCIPAL DISTRIBUTIONS. . . . . . Holders of the Class A-1 Certificates will
be entitled to receive on each Distribution
Date, to the extent of the portion of the
Available Distribution Amount remaining
after the Priority Interest Distribution
Amount is distributed, a distribution
allocable to principal that will, as more
fully described herein, include (i) the
then-applicable Class A-1 Percentage (as
defined below) of scheduled principal
payments due on the Mortgage Loans and of
certain unscheduled collections of
principal on the Mortgage Loans as
described herein, (ii) the then-
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<PAGE>
applicable Class A-1 Percentage divided by
the then-applicable Senior Percentage (as
defined herein) multiplied by the then-
applicable Senior Prepayment Percentage (as
defined herein) of all principal
prepayments made by the mortgagors during
the related Prepayment Period, (iii) in
connection with a Mortgage Loan for which a
Cash Liquidation or an REO Disposition (as
defined herein) occurred during the related
Prepayment Period and did not result in any
Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or
Extraordinary Losses (each as defined
herein), an amount equal to the lesser of
(A) the then-applicable Class A-1
Percentage of the Stated Principal Balance
(as defined herein) of such Mortgage Loan
and (B) the Class A-1 Percentage for such
Distribution Date divided by the Senior
Percentage for such Distribution Date
multiplied by the Senior Prepayment
Percentage for such Distribution Date
multiplied by the related collections, to
the extent applied as recoveries of
principal of such Mortgage Loan and (iv)
after certain other distributions on the
Offered Certificates as described herein,
the Class A-1 Percentage divided by the
Senior Percentage multiplied by the Senior
Accrual Diversion Amount (as defined
herein) for such Distribution Date.
Holders of the Class A-2 Certificates will
be entitled to receive on each Distribution
Date, to the extent of the portion of the
Available Distribution Amount remaining
after the Priority Interest Distribution
Amount is distributed, after distributions
in respect of principal to the Class A-1
Certificates and after distributions in
respect of interest to holders of the Class
A-2 Certificates, a distribution allocable
to principal that will, as more fully
described herein, include (i) the then-
applicable Class A-2 Percentage (as defined
below) of scheduled principal payments due
on the Mortgage Loans and of certain
unscheduled collections of principal on the
Mortgage Loans as described herein, (ii)
the then-applicable Class A-2 Percentage
divided by the Senior Percentage multiplied
by the then-applicable Senior Prepayment
Percentage of all principal prepayments
made by the mortgagors during the related
Prepayment Period, (iii) in connection with
a Mortgage Loan for which a Cash
Liquidation or an REO Disposition occurred
during the related Prepayment Period and
did not result in any Excess Special Hazard
Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses,
an amount equal to the lesser of (A) the
then-applicable Class A-2 Percentage of the
Stated Principal Balance of such Mortgage
Loan and (B) the Class
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<PAGE>
A-2 Percentage for such Distribution Date
divided by the Senior Percentage for such
Distribution Date multiplied by the Senior
Prepayment Percentage for such Distribution
Date multiplied by the related collections,
to the extent applied as recoveries of
principal of such Mortgage Loan and (iv)
after certain other distributions on the
Offered Certificates as described herein,
the Class A-2 Percentage divided by the
Senior Percentage multiplied by the Senior
Accrual Diversion Amount for such
Distribution Date.
The Senior Percentage, Class A-1 Percentage
and Class A-2 Percentage initially will be
equal to approximately 92.00%, 79.50% and
12.50%, respectively, and will be
recalculated, as more fully described
herein, after each Distribution Date to
reflect the entitlement of the holders of
the Senior Certificates to subsequent
distributions allocable to principal. For
each Distribution Date occurring prior to
the Distribution Date in July 2006, the
Senior Prepayment Percentage will be equal
to 100% and no principal prepayments will
be distributed to the Class B Certificates
unless the Certificate Principal Balances
of the Class A-1 Certificates and the Class
A-2 Certificates have been reduced to zero.
Thereafter, during certain periods, subject
to certain loss and delinquency criteria
described herein, the Senior Prepayment
Percentage may be 100% or otherwise
disproportionately large (relative to the
Senior Percentage) and the percentage of
principal prepayments distributable in
respect of the Class B-1 Certificates may
be disproportionately small (relative to
the Class B-1 Percentage).
Holders of the Class B-1 Certificates will
be entitled to receive on each Distribution
Date, to the extent of the portion of the
Available Distribution Amount remaining
after distributions of interest and
principal on the Senior Certificates, and
reimbursement is made to the Master
Servicer for certain Advances as described
herein, and after distributions in respect
of interest on such Class, a distribution
allocable to principal (subject to
reduction as described herein) that will,
as more fully described herein, include (i)
the then-applicable Class B-1 Percentage
(as defined below) of scheduled principal
payments due on the Mortgage Loans and of
certain unscheduled collections of
principal on the Mortgage Loans as
described herein, (ii) the then-applicable
Class B-1 Percentage divided by the then-
applicable Class B Percentage (as defined
herein) of all principal prepayments that
were made by the mortgagors during the
related Prepayment Period to the extent not
allocated to the Senior Certificates
and (iii) such
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<PAGE>
Class' pro rata share, based on the
Certificate Principal Balances of the Class
B-1 Certificates, Class B-2 Certificates
and the Class R Certificates, of all
amounts received in connection with a Cash
Liquidation or an REO Disposition that
occurred during the related Prepayment
Period and that did not result in any
Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or
Extraordinary Losses, to the extent applied
as recoveries of principal of the related
Mortgage Loan and to the extent not
otherwise payable to the holders of the
Senior Certificates. In addition, after
certain other distributions on the Offered
Certificates as described herein, the
holders of the Class B-1 Certificates will
be entitled to receive on each Distribution
Date a further distribution in respect of
principal equal to the then-applicable
Class B-1 Percentage divided by the Class B
Percentage multiplied by the portion of the
Available Distribution Amount remaining
after the distributions described above.
Holders of the Variable Strip Certificates
will not be entitled to receive any
distributions of principal.
See "Description of the Certificates--
Principal Distributions on the Class A-1
Certificates," "--Principal Distributions
on the Class A-2 Certificates" "--Principal
Distributions on the Class B Certificates"
and "--Additional Principal Distributions
on the Certificates" herein.
ADVANCES . . . . . . . . . . . . . The Master Servicer is required to make
advances ("Advances") in respect of
delinquent payments of principal and
interest (net of the related Servicing
Fees) on the Mortgage Loans, subject to the
limitations described herein. The Trustee
will be obligated to make any such Advance
if the Master Servicer fails in its
obligation to do so, to the extent provided
in the Pooling and Servicing Agreement. See
"Description of the Certificates--Advances"
herein.
ALLOCATION OF LOSSES;
SUBORDINATION. . . . . . . . . . Neither the Offered Certificates nor the
Mortgage Loans are insured or guaranteed by
any governmental agency or instrumentality
or by the Depositor, the Master Servicer,
the Seller, the Trustee or any of their
respective affiliates. Subject to the
limitations described below, Realized
Losses on the Mortgage Loans will be
allocated first to the Class
R Certificates, then to the Class SB
Certificates (to the extent of the interest
portions thereof), then to the Class B-
2 Certificates, then to the Class B-1
Certificates, then to
the Class A-2 Certificates, in each case
(other than for the
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<PAGE>
Class SB Certificates) until the
Certificate Principal Balance thereof is
reduced to zero, and thereafter, the
principal portion of such losses to the
Class A-1 Certificates and the interest
portion of such losses to the Variable
Strip Certificates and the Class A-1
Certificates on a pro rata basis as
described herein. Notwithstanding the
foregoing, Realized Losses on the Mortgage
Loans will not be allocated to any of the
Senior Certificates or the Class B
Certificates on any Distribution Date to
the extent that such Realized Losses are
less than the sum of (i) the Remaining
Available Distribution Amount (as defined
herein) on such Distribution Date and (ii)
the Certificate Principal Balance of the
Class R Certificates immediately prior to
such Distribution Date. In addition, any
excess of Remaining Available Distribution
Amount over the Senior Accrual Diversion
Amount on any Distribution Date may be
applied to reimburse the principal portions
of Realized Losses previously allocated to
the Senior Certificates or the Class B
Certificates. See "Description of the
Certificates--Additional Principal
Distributions on the Certificates" herein.
The Subordination provided to each Class of
Certificates by the Certificates
subordinate thereto as described herein
will cover Realized Losses on the Mortgage
Loans resulting from defaults on the
Mortgage Loans and from Special Hazard
Losses, Fraud Losses and Bankruptcy Losses
(each as defined herein). However, the
aggregate amounts of Realized Losses which
may be allocated through Subordination,
other than to the Class SB Certificates and
the Class R Certificates to cover Special
Hazard Losses, Fraud Losses and Bankruptcy
Losses initially are limited to $1,526,800,
$2,034,623 and $100,000 respectively.
All of the foregoing amounts are subject to
periodic reduction as described herein. In
addition, any Excess Special Hazard Losses,
Excess Fraud Losses, Excess Bankruptcy
Losses and Extraordinary Losses on the
Mortgage Loans will be borne by the holders
of the Certificates on a pro rata basis as
and to the extent described herein. See
"Description of the Certificates--
Allocation of Losses; Subordination"
herein.
CERTIFICATES
NOT OFFERED HEREBY . . . . . . . The Class B-2 Certificates will have a
Certificate Principal Balance of $3,221,487
as of the Cut-off Date. The Class B-2
Percentage initially will be equal to
approximately 4.75% and will be
recalculated, as more fully described
herein, after each Distribution Date to
reflect the
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<PAGE>
entitlement of the Class B-2 Certificates,
to subsequent distributions of principal.
The Class SB Certificates have no
Certificate Principal Balance and will not
be entitled to receive distributions of
principal. The Class SB Certificates will
accrue interest at the related Pass-Through
Rate on the Notional Amount. The holders
of the Class SB Certificates will not be
entitled to receive interest distributions
prior to the Class B Certificate
Termination Date (as defined herein). On
and after the Class B Certificate
Termination Date, the Class SB Certificates
will be entitled to receive interest
distributions to the extent such amounts
are not otherwise payable to the Class A-1
Certificates and Class A-2 Certificates as
a Senior Accrual Diversion Amount and are
not required to retire the Class B
Certificates, subject to available funds.
See "Description of the Certificates--
Additional Principal Distributions on the
Certificates" herein.
The Class R Certificates will have a
Certificate Principal Balance equal to
$0.00 as of the Cut-off Date. However,
interest accrued and unpaid on the Class SB
Certificates will generally have the effect
of increasing the Certificate Principal
Balance of the Class R Certificates and
interest accrued and unpaid on the Class R
Certificates prior to the Class B
Certificate Termination Date generally will
be added to the Certificate Principal
Balance of the Class R Certificates, in
each case as further described herein.
The Class B-2 Certificates, Class SB
Certificates and Residual Certificates are
not being offered hereby.
OPTIONAL TERMINATION . . . . . . . At its option, the Master Servicer may
purchase from the Trust Fund all remaining
Mortgage Loans and other assets thereof,
and thereby effect early retirement of the
Certificates, on any Distribution Date when
the aggregate principal balance of the
Mortgage Loans is less than 5% of the
aggregate principal balance of such
Mortgage Loans as of the Cut-off Date. See
"Pooling and Servicing Agreement--
Termination" herein and "The Pooling and
Servicing Agreements--Termination" in the
Prospectus.
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<PAGE>
SPECIAL PREPAYMENT
CONSIDERATIONS . . . . . . . . . GENERAL: The rate of principal payments on
the Offered Certificates (other than the
Variable Strip Certificates) will depend
on, among other things, the rate and timing
of principal payments (including
prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans. As is
the case with mortgage-backed securities
generally, the Offered Certificates are
subject to substantial inherent cash-flow
uncertainties because the Mortgage Loans
may be prepaid at any time. Generally, when
prevailing interest rates increase,
prepayment rates on mortgage loans tend to
decrease in subsequent periods, resulting
in a reduced return of principal to
investors at a time when reinvestment at
such higher prevailing rates would be
desirable. Conversely, when prevailing
interest rates decline, prepayment rates on
mortgage loans tend to increase in
subsequent periods, resulting in an
accelerated return of principal to
investors at a time when reinvestment at
comparable yields may not be possible. In
addition, approximately 36.32% of the
Mortgage Loans provide for payment of a
prepayment charge. A majority of the
Mortgage Loans with a prepayment charge
provision provide for a prepayment charge
for partial prepayments and full
prepayments made within approximately five
years after the dates of origination of
such Mortgage Loans. Such prepayment
charges (which will not be distributable to
the Certificateholders) may reduce the rate
of prepayment on the Mortgage Loans.
VARIABLE STRIP CERTIFICATES: The Notional
Amount, and therefore the amount of
interest distributions on the Variable
Strip Certificates, will be highly
sensitive to the rate and timing of
principal payments (including prepayments,
repurchases, defaults and liquidations) on
the Mortgage Loans. See "--Special Yield
Considerations" below and "Certain Yield
and Prepayment Considerations" herein.
CLASSES WITH SUBORDINATION FEATURES: As
described herein, during certain periods
all or a disproportionately large
percentage of principal prepayments on the
Mortgage Loans will be allocated among the
Class A-1 Certificates and the Class A-2
Certificates, and therefore, during certain
periods none or a disproportionately small
percentage of such prepayments will be
allocated among the Class B-1 Certificates,
Class B-2 Certificates and the Class R
Certificates. As a result, the weighted
average lives of the Class B Certificates
will be extended and, as
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<PAGE>
a relative matter, the Subordination
afforded the Senior Certificates by the
Class B-1 Certificates, the Class B-2
Certificates and the Class R Certificates
will be increased (to the extent not
otherwise offset by Realized Losses), which
will cause the Class B Certificate
Termination Date to occur later than would
otherwise be the case. However, as
described herein, because the Class A-1
Certificates, the Class A-2 Certificates,
the Class B Certificates will be entitled
to certain principal distributions that
include amounts, to the extent received or
advanced, that would otherwise be
distributable to holders of the Class SB
Certificates and the Class R Certificates,
the weighted average life of the Class A-1
Certificates, the Class A-2 Certificates
and the Class B-1 Certificates may be
shorter than otherwise would be the case.
See "Description of the Certificates--
Principal Distributions on the Class A-1
Certificates," "--Principal Distributions
on the Class A-2 Certificates", "--
Principal Distributions on the Class B
Certificates," "-Additional Principal
Distributions on the Certificates," and
"Certain Yield and Prepayment
Considerations" herein, and see "Yield,
Prepayment and Maturity Considerations" in
the Prospectus.
SPECIAL YIELD CONSIDERATIONS . . . GENERAL: The yield to maturity on each
Class of Offered Certificates will depend
on, among other things, the rate and timing
of principal payments (including
prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans and the
allocation thereof to reduce the
Certificate Principal Balance of such Class
of Certificates (or the Notional Amount).
The yield to maturity on each Class of
Offered Certificates will also depend on
other factors such as the Pass-Through Rate
and any adjustments thereto and the
purchase price for such Certificates. The
yield to investors on any Class of Offered
Certificates will be adversely affected by
any allocation thereto of any Prepayment
Interest Shortfalls on the Mortgage Loans
to the extent not covered by payments by
the Master Servicer as described herein.
In general, if a Class of Offered
Certificates is purchased at a premium and
principal payments on the Mortgage Loans
occur at a rate faster than anticipated at
the time of purchase, the investor's actual
yield to maturity will be lower than that
originally anticipated. Conversely, if a
Class of Offered Certificates is purchased
at a discount and principal payments on the
Mortgage Loans occur at a rate
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<PAGE>
slower than anticipated at the time of
purchase, the investor's actual yield to
maturity will be lower than that originally
anticipated.
VARIABLE STRIP CERTIFICATES: The yield to
investors on the Variable Strip
Certificates will be extremely sensitive to
the rate and timing of principal payments
on the Mortgage Loans (including
prepayments, repurchases, defaults and
liquidations), which may fluctuate
significantly over time. A rapid rate of
principal payments on the Mortgage Loans
could result in the failure of investors in
the Variable Strip Certificates to recover
their initial investments. The yield on the
Variable Strip Certificates will also be
materially and adversely affected if the
Mortgage Loans experience a high rate of
defaults and liquidations. In addition to
the foregoing, the yield on the Variable
Strip Certificates will be materially and
adversely affected to a greater extent than
the yields on the other Certificates if the
Mortgage Loans with higher Net Mortgage
Rates prepay faster than the Mortgage Loans
with lower Net Mortgage Rates, because
holders of the Variable Strip Certificates
have rights to larger portions of interest
payments on the Mortgage Loans with higher
Net Mortgage Rates than on Mortgage Loans
with lower Net Mortgage Rates.
CLASSES WITH SUBORDINATION FEATURES: The
yield to maturity on the Class A-2
Certificates and the Class B-1 Certificates
will be extremely sensitive to certain
losses on the Mortgage Loans (and the
timing thereof) to the extent such losses
are not covered by the Certificates
subordinate thereto as described herein,
because the entire amount of such losses
(rather than a pro rata portion thereof)
will be allocable to such Certificates, as
described herein.
See "Certain Yield and Prepayment
Considerations" herein and "Yield,
Prepayment and Maturity Considerations" in
the Prospectus.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES . . . . . . . . A real estate mortgage investment conduit
("REMIC") election will be made with
respect to the Trust Fund for federal
income tax purposes. Upon the issuance of
the Offered Certificates, Thacher Proffitt
& Wood, counsel to the Depositor, will
deliver its opinion generally to the effect
that, assuming compliance with all
provisions of the Pooling and Servicing
Agreement, for federal income tax purposes,
the Trust Fund will qualify as a REMIC
within the meaning of Sections 860A through
860G of the Internal
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<PAGE>
Revenue Code of 1986 (the "Code"). For
federal income tax purposes, the Senior
Certificates, the Class B Certificates and
the Class SB Certificates will be "regular
interests" in the REMIC and the Class R
Certificates will be the sole Class of
"residual interests" in the REMIC. The
Senior Certificates, the Class SB
Certificates and the Class B Certificates
generally will be treated as debt
obligations of the Trust Fund for federal
income tax purposes.
For federal income tax reporting purposes,
the Class A-1 Certificates will not, and
the Variable Strip Certificates, the Class
A-2 Certificates and the Class B-1
Certificate will be treated as having been
issued with original issue discount. The
prepayment assumption that will be used in
determining the rate of accrual of original
issue discount, market discount and
premium, if any, for federal income tax
purposes will be a CPR percentage (as
defined herein) equal to 20.00%. No
representation is made that the Mortgage
Loans will prepay at such rate or at any
other rate.
If the method for computing original issue
discount described in the Prospectus
results in a negative amount for any
period, a holder of a Variable Strip
Certificate will be permitted to offset
such amount only against the future income,
if any, from such Certificate. See "Certain
Federal Income Tax Consequences" herein and
in the Prospectus.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
RATINGS. . . . . . . . . . . . . . It is a condition to the issuance of the
Offered Certificates that the Variable
Strip Certificates and the Class A-1
Certificates be rated "Aaa" by Moody's
Investors Service, Inc. ("Moody's") and
"AAA" by Duff & Phelps Credit Rating Co.
("DCR"), the Class A-2 Certificates be
rated "Aa2" by Moody's and "AA" by DCR and
the Class B-1 Certificates be rated "A2" by
Moody's and "A+" by DCR. A security rating
is not a recommendation to buy, sell or
hold securities and may be subject to
revision or withdrawal at any time by the
assigning rating organization. A security
rating does not address the frequency of
principal prepayments or the corresponding
effect on yield to investors. The ratings
of the Variable
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<PAGE>
Strip Certificates do not address the
possibility that the holders of such
Certificates may fail to fully recover
their initial investment. See "Certain
Yield and Prepayment Considerations" and
"Ratings" herein and "Yield, Prepayment and
Maturity Considerations" in the Prospectus.
LEGAL INVESTMENT . . . . . . . . . The Offered Certificates (other than the
Class B-1 Certificates) will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") for so
long as they are rated as described herein
and, as such, will be legal investments for
certain entities to the extent provided in
SMMEA. SMMEA, however, provides for state
limitation on the authority of such
entities to invest in "mortgage related
securities," provided that such restricting
legislation was enacted on or prior to
October 3, 1991. The Class B-1
Certificates will not constitute "mortgage
related securities" for purposes of SMMEA.
The Depositor makes no representations as to
the proper characterization of any Class of
Offered Certificates for legal investment
or other purposes, or as to the ability of
particular investors to purchase any Class
of Offered Certificates under applicable
legal investment restrictions. These
uncertainties may adversely affect the
liquidity of the Offered Certificates.
Accordingly, all institutions whose
investment activities are subject to legal
investment laws and regulations, regulatory
capital requirements or review by
regulatory authorities should consult with
their own legal advisors in determining
whether and to what extent any Class of
Offered Certificates, and in particular,
the Class B-1 Certificates constitutes a
legal investment or is subject to
investment, capital or other restrictions.
See "Legal Investment" and "ERISA
Considerations" herein and in the
Prospectus.
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<PAGE>
RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following factors before deciding to invest in the Offered Certificates.
REPURCHASE OBLIGATIONS OF THE SELLER
No person other than the Seller is obligated with respect to the
representations and warranties respecting the Mortgage Loans and the remedies
for any breach thereof that are assigned to the Trustee for the benefit of the
Certificateholders, and the Seller has only limited assets available to perform
its repurchase obligations in respect of any breach of such representations and
warranties. Therefore, prospective investors in the Offered Certificates should
consider the possibility that the Seller will not have sufficient assets with
which to satisfy its repurchase obligations in the event that a substantial
amount of Mortgage Loans are required to be repurchased due to breaches of
representations and warranties.
UNDERWRITING STANDARDS AND POTENTIAL DELINQUENCIES
The Seller's underwriting standards applicable to its equity lending
program and regular lending program are primarily intended to assess the value
of the mortgaged property and to evaluate the adequacy of such property as
collateral for the mortgage loan. While one of the Seller's primary
considerations in underwriting a mortgage loan is the value of the mortgaged
property, the Seller also considers (although to a lesser extent in its equity
lending program than it would with respect to mortgage loans underwritten under
its regular lending program), among other things, a mortgagor's credit history,
repayment ability and debt service-to-income ratio, as well as the type and use
of the mortgaged property.
AS A RESULT OF THE SELLER'S UNDERWRITING STANDARDS APPLICABLE TO ITS EQUITY
LENDING PROGRAM AND REGULAR LENDING PROGRAM, THE MORTGAGE LOANS ARE LIKELY TO
EXPERIENCE RATES OF DELINQUENCY, FORECLOSURE, BANKRUPTCY AND LOSS THAT ARE
HIGHER (ESPECIALLY WITH RESPECT TO MORTGAGE LOANS ORIGINATED OR ACQUIRED UNDER
THE EQUITY LENDING PROGRAM), AND THAT MAY BE SUBSTANTIALLY HIGHER, THAN THOSE
EXPERIENCED BY MORTGAGE LOANS UNDERWRITTEN IN A MORE TRADITIONAL MANNER. SEE
"THE SELLER--LOAN DELINQUENCY, FORBEARANCE, FORECLOSURE, BANKRUPTCY AND REO
PROPERTY STATUS" AND "--REO PROPERTY LIQUIDATION EXPERIENCE" HEREIN FOR
IMPORTANT INFORMATION REGARDING THE DELINQUENCY, FORBEARANCE, FORECLOSURE,
BANKRUPTCY AND REO PROPERTY STATUS AND LOSS EXPERIENCE OF CERTAIN MORTGAGE LOANS
PREVIOUSLY ORIGINATED OR ACQUIRED BY THE SELLER UNDER SUBSTANTIALLY THE SAME
UNDERWRITING CRITERIA PURSUANT TO WHICH THE MORTGAGE LOANS WERE ORIGINATED OR
ACQUIRED.
Furthermore, changes in the values of Mortgaged Properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the Mortgage Loans than on mortgage loans originated in a more traditional
manner. No assurance can be given that the values of the Mortgaged Properties
have remained or will remain at the levels in effect on the dates of origination
of the related Mortgage Loans. Approximately 24.14% of the Mortgage Loans (by
aggregate principal balance as of the Cut-off Date) are secured by Mortgaged
Properties located in the State of California. Property values of residential
real estate in California have declined in recent years. If the California
residential real estate market should continue to experience a decline in
property values after the dates of origination of the Mortgage Loans, the rates
of delinquency, foreclosure, bankruptcy and loss on the Mortgage Loans may be
expected to increase, and may increase substantially, as compared to such rates
in a stable or improving real estate market. See "Description of the Mortgage
Pool--Underwriting Standards" herein.
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<PAGE>
INTERIM FUNDING
As described herein under "Description of the Mortgage Pool--General" and
"The Seller," DLJ Mortgage Capital, Inc. ("DLJMC"), an affiliate of the
Depositor and Donaldson, Lufkin & Jenrette Securities Corporation (the
"Underwriter"), has provided funding to the Seller with respect to various
mortgage loans, including the Mortgage Loans, by means of certain mortgage loan
purchase agreements and by means of a master repurchase agreement. Such
transactions were entered into with the expectation that DLJMC would recover
such funding through the proceeds of the issuance of the Certificates and
through the sale of mortgage loans in other secondary market transactions.
SERVICING EXPERIENCE OF THE MASTER SERVICER
Prospective investors in the Offered Certificates should be aware that the
residential mortgage loan servicing portfolio of the Master Servicer consists
primarily of mortgage loans underwritten in a more traditional manner than the
Mortgage Loans and that the Master Servicer has had limited experience in
servicing mortgage loans originated or acquired in accordance with underwriting
standards similar to the underwriting criteria pursuant to which the Mortgage
Loans were originated or acquired. As a result, the rates of delinquency,
foreclosure and loss on the Mortgage Loans may be higher, and could be
substantially higher, than the rates of delinquency, foreclosure and loss on
mortgage loans in the Master Servicer's residential mortgage loan servicing
portfolio and on mortgage loans previously originated or acquired by the Seller
under substantially the same underwriting criteria pursuant to which the
Mortgage Loans were originated or acquired.
See also, "Risk Factors" in the Prospectus.
DESCRIPTION OF THE MORTGAGE POOL
The information set forth in the following paragraphs has been provided by
the Seller. Neither the Depositor, the Underwriter, the Master Servicer, the
Trustee nor any of their respective affiliates have made or will make any
representation as to the accuracy or completeness of such information.
GENERAL
The Trust Fund (as defined herein) will consist primarily of a pool (the
"Mortgage Pool") of mortgage loans (the "Mortgage Loans") with an aggregate
principal balance as of the Cut-off Date of approximately $67,820,767.14. The
Mortgage Loans will be conventional, fixed and adjustable rate, mortgage loans
secured by first liens on fee simple and leasehold interests in one- to
four-family residential real properties (each, a "Mortgaged Property"). The
Mortgage Loans will have original terms to maturity from the due dates of their
first scheduled monthly payment of interest and principal (each such payment, a
"Monthly Payment") of not more than 30 years and will have Monthly Payments due
on the first day of each month. All of the Mortgage Loans will be either Fixed
Rate Loans, Step Loans, Adjustable Rate Loans or GPARM Loans as described below
and were originated or acquired by the Seller in accordance with the
underwriting criteria under its regular lending program or equity lending
program, as described herein. All percentages of the Mortgage Loans described
herein are approximate percentages (except as otherwise indicated) by aggregate
principal balance of all of the Mortgage Loans (except as otherwise indicated)
as of the Cut-off Date.
The Mortgage Loans will have been sold to DLJMC by Quality Mortgage USA,
Inc., in its capacity as the Seller, on or prior to the Delivery Date pursuant
to certain mortgage loan purchase agreements between DLJMC and the Seller (each,
a "Purchase Agreement") and will be acquired by the Depositor from DLJMC on the
Delivery Date pursuant to an Assignment Agreement between the Depositor and
DLJMC (the "Assignment Agreement"). The representations and warranties
S-23
<PAGE>
made by the Seller in each Purchase Agreement with respect to the related
Mortgage Loans will be restated by the Seller on and as of the Delivery Date
pursuant to such Purchase Agreement. Further, insofar as it relates to the
representations and warranties of the Seller made in or pursuant to any Purchase
Agreement and the remedies provided therein or pursuant thereto for any breaches
of such representations and warranties, such Purchase Agreement will be assigned
by DLJMC to the Depositor pursuant to the Assignment Agreement and, as described
herein under "Pooling and Servicing Agreement--Assignment of Mortgage Loans," by
the Depositor to the Trustee for the benefit of the holders of the Certificates
pursuant to the Pooling and Servicing Agreement (as defined herein).
0.23% of the Mortgage Loans as of the Cut-off Date were thirty days or more
but less than sixty days delinquent in their Monthly Payments (such Mortgage
Loans, the "Delinquent Mortgage Loans"). None of the Mortgage Loans were sixty
or more days delinquent in their Monthly Payments as of the Cut-off Date.
Prospective investors in the Offered Certificates should be aware, however, that
only 1.13% of the Mortgage Loans (by aggregate principal balance as of the Cut-
off Date) had a first monthly payment due on or before May 1, 1996, and
therefore, the remaining Mortgage Loans could not have been Delinquent Mortgage
Loans as of the Cut-off Date.
The interest rates (each, a "Mortgage Rate"; as reduced by the related
Servicing Fee Rate as described herein, a "Net Mortgage Rate") will be fixed for
27.67% of the Mortgage Loans (the "Fixed Rate Loans"). The Mortgage Rates on
0.30% of the Mortgage Loans (the "Step Loans"), will be reset twice,
approximately one year and approximately two years after their respective dates
of origination, on the first day of the months specified in the related Mortgage
Notes (each such date, an "Adjustment Date") to equal, as to the first
Adjustment Date thereof, the sum of the initial Mortgage Rate thereof and the
fixed percentage (the "First Step Margin") specified in the related Mortgage
Note and, as to the second Adjustment Date thereof, the sum of the initial
Mortgage Rate thereof and a greater fixed percentage (the "Second Step Margin")
specified in such Mortgage Note. The Mortgage Rates on 71.69% of the Mortgage
Loans (the "Adjustable Rate Loans"), will be subject to adjustment semi-annually
commencing either (i) six months after origination (such Mortgage Loans, the
"6-Month ARMs"), (ii) two years after origination (such Mortgage Loans, the
"2-Year ARMs"), (iii) three years after origination (such Mortgage Loans, the
"3-Year ARMs") or (iv) seven years after origination (such Mortgage Loans, the
"7-Year ARMs"), in each case, on the Adjustment Date applicable thereto to
equal, as to any related Adjustment Date, the sum, rounded to the nearest
0.125%, of (i) the average of the interbank offered rates for six-month United
States dollar deposits in the London interbank market based on quotations of
major banks ("Six-Month LIBOR"), as published in the Western Edition of THE WALL
STREET JOURNAL (the related "Index") and most recently available as of the date
30 days or 45 days prior to such Adjustment Date, and (ii) the fixed percentage
amount (the "Gross Margin") specified in the related Mortgage Note (such sum, as
rounded and based on the Index as of the first day of any month, the "Fully
Indexed Rate"); provided, however, that the Mortgage Rate on any Adjustable Rate
Loan will not increase or decrease by more than 1.00% with respect to 50.32% of
the Adjustable Rate Loans (by aggregate principal balance of the Adjustable Rate
Loans as of the Cut-off Date) or 1.50% with respect to 49.68% of the Adjustable
Rate Loans (by aggregate principal balance of the Adjustable Rate Loans as of
the Cut-off Date) (each, the related "Periodic Rate Cap") on any related
Adjustment Date (other than the first Adjustment Date thereof with respect to a
substantial majority of the 2-Year ARMs, the 3-Year ARMs and the 7-Year ARMs),
will in no event be greater than the initial Mortgage Rate thereof plus 7.00%
with respect to 53.35% of the Adjustable Rate Loans and 6.50% with respect to
46.48% of the Adjustable Rate Loans (each, by aggregate principal balance of the
Adjustable Rate Loans as of the Cut-off Date) (each, the related "Maximum Rate")
and will in no event be less than the amount specified in the related Mortgage
Note as the minimum interest rate thereunder (the "Minimum Rate"). See "--The
Indexes Applicable to the Adjustable Rate Loans and the GPARM Loans" herein.
Effective with the first Monthly Payment due on a Step Loan or an Adjustable
Rate Loan after any related Adjustment Date, the amount of the Monthly Payment
will be adjusted to an amount that will fully amortize the principal
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<PAGE>
balance of such Mortgage Loan over its remaining term and pay interest at the
Mortgage Rate as adjusted on such Adjustment Date.
Certain of the Fixed Rate Loans will have original terms to maturity from
the due dates of their first Monthly Payments of 15 years (the "15-Year Fixed
Loans"), and other Fixed Rate Loans will have original terms to maturity from
the due dates of their first Monthly Payments of 30 years (the "30-Year Fixed
Loans"). The First Step Margin and the Second Step Margin on all of the Step
Loans will be equal to 1.25% and 3.00%, respectively. The Gross Margins on the
Adjustable Rate Loans ranged from 4.25% to 10.80% and had a weighted average
(based on the aggregate principal balance of the Adjustable Rate Loans as of the
Cut-off Date) of approximately 6.262%. The Maximum Rates and the Minimum Rates
on the Adjustable Rate Loans ranged from 12.950% to 23.050% per annum and from
5.950% to 16.050% per annum, respectively, and had weighted averages (based on
the aggregate principal balance of the Adjustable Rate Loans as of the Cut-off
Date) of approximately 17.425% and 10.647% per annum, respectively.
Approximately 78.89% of the Adjustable Rate Loans (by aggregate principal
balance of the Adjustable Rate Loans as of the Cut-off Date) were originated
with Mortgage Rates below the Fully Indexed Rates thereon at their respective
dates of origination. Due to the application of the Periodic Rate Cap and the
Maximum Rate, the Mortgage Rate on any Adjustable Rate Loan, as adjusted on any
related Adjustment Date, may be less than the Fully Indexed Rate thereon for
such date.
0.34% of the Mortgage Loans are graduated payment adjustable rate mortgage
loans (the "GPARM Loans"). The Mortgage Rate on each GPARM Loan will be subject
to monthly adjustment to a per annum rate equal to the sum, rounded to the
nearest 0.125%, of (i) the average of the interbank offered rates for one month
United States dollar deposits in the London interbank market based on quotations
of major banks ("One-Month LIBOR"), as most recently available as of the date 45
days prior to such Adjustment Date, and (ii) the Gross Margin ranging from 4.50%
to 5.00%; provided, however, that the Mortgage Rate will have no periodic rate
limitation and will in no event be greater than the initial Mortgage Rate plus
5.00% (the related "Maximum Rate"), which Maximum Rates range from 15.501% to
15.625% as of the Cut-off Date, or less than the minimum Mortgage Rate stated in
the Mortgage Note (the related "Minimum Rate"), which Minimum Rates range from
9.501% to 9.625% as of the Cut-off Date. Due to the application of the Maximum
Rate, the Mortgage Rate on any GPARM Loan, as adjusted on any Adjustment Date,
may be less than the Fully Indexed Rate. See "--The Indexes Applicable to the
Adjustable Rate Loans and the GPARM Loans" herein.
The amount of the monthly payment on each GPARM Loan is set at a fixed
amount for the first three months of the loan (the "Initial Teaser Period") and
set at a different fixed amount for the next nine months following the Initial
Teaser Period (the "Second Teaser Period"). During the Initial Teaser Period
and the Second Teaser Period, the amount of the monthly payment on each GPARM
Loan is set at a level resulting in a payment that may be less than one month's
interest at the Mortgage Rate thereon, resulting in negative amortization during
the early months of the mortgage loan.
In addition, the amount of the monthly payment on each GPARM Loan adjusts
semi-annually on each "Payment Adjustment Date" commencing on the first
anniversary of the first payment due date, to an amount which will amortize
fully the outstanding principal balance of the GPARM Loan over its remaining
term, and pay interest at the Mortgage Rate as adjusted on the immediately
preceding Adjustment Date, subject to a payment cap (the "Payment Cap") that
limits any increase in the amount of the monthly payment on any Payment
Adjustment Date to an amount not greater than 7.50% of the amount of the monthly
payment due on the immediately preceding payment due date, except to the extent
that the related mortgagor has elected to have the monthly payment not limited
by the Payment Cap. The Payment Cap shall not be in effect on the fifth
anniversary of the first due date and on each fifth anniversary thereafter (each
such anniversary, a "Recast Date"). The weighted average first Recast Date of
the GPARM Loans, rounded to the nearest due date, is March 1, 2001 (by weighted
average of the GPARM Loans as of the Cut-off Date). If on any due date, due to
the addition of Deferred Interest, the
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<PAGE>
principal balance of any GPARM Loan would exceed 110% of the original principal
balance thereof (such limitation, a "Negative Amortization Cap"), the related
monthly payment will be recalculated, without regard to the Payment Cap, to
equal an amount sufficient to amortize such GPARM Loan over its remaining term
at the Mortgage Rate as adjusted on the immediately preceding Payment Adjustment
Date. Any monthly payment so recalculated will remain in effect until the
earlier of the next Payment Adjustment Date, the next Recast Date or the next
due date on which the principal balance of the related GPARM Loan would exceed
the Negative Amortization Cap.
The Mortgage Notes provide that on each Payment Adjustment Date the monthly
payment will be adjusted to be the lesser of (i) the monthly payment that would
be sufficient to amortize fully the then outstanding principal balance of the
related GPARM Loan over its remaining term (the "Full Payment") and (ii) the
monthly payment that would be equal to the above amount subject to the Payment
Cap (the "Limited Payment"). However, upon timely notice, a mortgagor may elect
to pay the Full Payment.
On any Adjustment Date an increase in the Mortgage Rate on a GPARM Loan
will result in a larger portion of each subsequent monthly payment being
allocated to interest and a smaller portion being allocated to principal, and
conversely, a decrease in the Mortgage Rate on a GPARM Loan will result in a
larger portion of each subsequent monthly payment being allocated to principal
and a smaller portion being allocated to interest. However, because Mortgage
Rates on the GPARM Loans adjust on a monthly basis but monthly payments due on
the GPARM Loans adjust only semi-annually, and because the application of
Payment Caps may limit the amount by which the monthly payments may increase,
the amount of a monthly payment may be more or less than the amount necessary to
fully amortize the principal balance of the GPARM Loan over its then remaining
term at the applicable Mortgage Rate. Accordingly, GPARM Loans may be subject
to reduced amortization (if the monthly payment due on a due date is sufficient
to pay interest accrued during the related accrual period at the applicable
Mortgage Rate but is not sufficient to reduce principal in accordance with a
fully amortizing schedule); negative amortization (if interest accrued during
the related accrual period at the applicable Mortgage Rate is greater than the
entire monthly payment due on the related due date (such excess accrued
interest, "Deferred Interest")); or accelerated amortization (if the monthly
payment due on a due date is greater than the amount necessary to pay interest
accrued during the related accrual period at the applicable Mortgage Rate and
to reduce principal in accordance with a fully amortizing schedule). In
addition, subsequent to the final Recast Date and the final Payment Adjustment
Date, the addition of any Deferred Interest to the principal balance of any
GPARM Loan that is not offset by subsequent accelerated amortization will result
in a final lump sum payment at maturity greater than, and potentially
substantially greater than, the monthly payment due on the immediately preceding
due date.
The maximum increase in the principal balance of a GPARM Loan due to the
addition of Deferred Interest to the principal balance of such GPARM Loan and
the resulting Loan-to-Value-Ratio on such GPARM Loan will depend on the
relationship between the Payment Cap, the Maximum Mortgage Rate, the Negative
Amortization Cap and the related Index. If the outstanding principal balance of
a GPARM Loan having a Loan-to-Value Ratio of 80% was to increase to an amount
equal to the Negative Amortization Cap, the Loan-to-Value Ratio, as based on the
then outstanding principal balance thereof, would in no event exceed
approximately 88%.
Approximately 20.78% of the Mortgage Loans are Mortgage Loans that were
originated on or after October 1, 1995, that are not purchase money mortgage
loans and that have interest rates or origination costs in excess of certain
prescribed levels (such Mortgage Loans, the "High Cost Loans"), and therefore
are subject to special rules, disclosure requirements and other provisions that
were added to the federal Truth in Lending Act by the Homeownership and Equity
Protection Act of 1994. Purchasers or assignees of any High Cost Loan or
interests therein could be liable for all claims and defenses arising under such
provisions that the borrower could assert against the Seller. Remedies
available to the borrower include monetary penalties, as well as rescission
rights, if the Mortgage Loans
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<PAGE>
were not originated in compliance with all applicable state and federal laws,
including without limitation truth-in-lending and disclosure laws.
Each Mortgage Loan will contain a customary "due-on-sale" clause. Further,
36.32% of the Mortgage Loans provide for payment of a prepayment charge. As to
each such Mortgage Loan, the prepayment charge generally is the maximum amount
permitted under applicable state law (or, if no maximum prepayment charge is
specified, the prepayment charge generally is calculated as set forth in the
following sentence). A majority of the Mortgage Loans with a prepayment charge
provision provide for payment of a prepayment charge for partial prepayments and
full prepayments made within approximately five years of the origination of the
related Mortgage Loan, in an amount equal to six months' advance interest on the
amount of the prepayment that, when added to all other amounts prepaid during
the twelve-month period immediately preceding the date of the prepayment,
exceeds twenty percent (20%) of the original principal balance of such Mortgage
Loan. With respect to the remainder of the Mortgage Loans with a prepayment
charge provision, the prepayment charge is calculated in a different manner.
The Seller will retain the right to all prepayment charges and late payment
charges received on the Mortgage Loans and such amounts will not be available
for distribution on the Certificates.
Each Mortgage Loan will have been originated or acquired by the Seller on
or before June 1, 1996. Certain of the Mortgage Loans will have their first
Monthly Payments due on August 1, 1996. As to those Mortgage Loans, no
principal amortization payments will be distributed (unless prepayments are
received thereon) until the Distribution Date occurring in August 1996, the
month in which the first Monthly Payment is due. However, on the Delivery Date,
cash will be deposited in the Master Servicer's Custodial Account in an amount
equal to one month's interest (adjusted to the applicable Net Mortgage Rates) on
such Mortgage Loans, to be remitted to the Trustee for distribution to
Certificateholders on the Distribution Date occurring in July 1996, the month
prior to the month in which the first Monthly Payment is due.
Pursuant to its terms, each Mortgage Loan is required to be covered by a
standard hazard insurance policy in an amount equal to the lower of the original
principal loan amount or the replacement value of the improvements on the
Mortgaged Property. None of the Mortgage Loans will be covered by a primary
mortgage insurance policy. See "Description of Mortgage and Other Insurance--
Hazard Insurance on the Loans--Standard Hazard Insurance Policies" in the
Prospectus.
The Mortgage Loans will have the following approximate characteristics as
of the Cut-off Date:
<TABLE>
<CAPTION>
15-YEAR 30-YEAR ALL
FIXED RATE FIXED RATE STEP ADJUSTABLE GPARM MORTGAGE
LOANS LOANS LOANS RATE LOANS LOANS LOANS
----- ----- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Number of Mortgage Loans . . 93 247 2 616 2 960
Aggregate Principal Balance . $2,961,039 $15,804,145 $205,100 $48,623,150 $227,333 $67,820,767
Initial Mortgage Rates:
Weighted Average 12.215% 11.241% 8.464% 10.661% 10.356% 10.856%
Range . . . . . . 8.990%-17.550% 8.250%-17.050% 8.000%-9.000% 5.950%-16.050% 10.000%-10.501% 5.950%-17.550%
Weighted Average
Remaining Term to
Maturity (in
months) . . . . . 179.60 358.40 360.00 355.78 355.53 348.71
</TABLE>
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<PAGE>
The Adjustable Rate Loans and GPARM Loans will have the following
approximate characteristics as of the Cut-off Date.
<TABLE>
<CAPTION>
6-MONTH ARMs 2-YEAR ARMs 3-YEAR ARMs 7-YEAR ARMs GPARM LOANS
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of Mortgage Loans . 328 218 39 31 2
Aggregate Principal Balance $26,525,902 $16,975,839 $3,514,359 $1,607,051 $227,333
Initial Mortgage Rates:
Weighted Average 10.230% 11.117% 11.406% 11.306% 10.356%
Range . . . . . . 5.950%-16.050% 8.050%-15.475% 8.875%-14.875% 9.250%-15.065% 10.000%-10.501%
Gross Margins:
Weighted Average 6.544% 5.828% 6.385% 5.938% 4.855%
Range . . . . . . 4.250%-10.800% 4.250%-8.000% 4.500%-9.510% 4.250%-8.510% 4.500%-5.000%
Maximum Mortgage Rates:
Weighted Average 17.220% 17.617% 17.870% 17.806% 15.537%
Range . . . . . . 12.950%-23.050% 14.550%-21.975% 15.375%-20.760% 15.750%-21.565% 15.501%-15.625%
Maximum Net Mortgage Rates:
Weighted Average 16.686% 17.117% 17.370% 17.306% 15.037%
Range . . . . . . 12.450%-22.300% 14.050%-21.475% 14.875%-20.260% 15.250%-21.065% 15.001%-15.125%
Minimum Net Mortgage Rates:
Weighted Average 9.696% 10.617% 10.906% 10.397% 9.037%
Range . . . . . . 5.450%-15.300% 7.550%-14.975% 8.375%-14.375% 5.500%-14.565% 9.001%-9.125%
Weighted Average
Months to next
Adjustment Date . 5.73 23.62 35.54 83.29 1.00
</TABLE>
The Mortgage Loans will have the following approximate characteristics as
of the Cut-off Date (expressed as a percentage of the aggregate principal
balance of all of the Mortgage Loans, except as otherwise indicated, provided,
that the sum of the percentages in certain of the following paragraphs may not
equal 100% due to rounding):
5.91% of the Mortgage Loans had original terms to maturity from the due
dates of their first Monthly Payments of 15 years, and 93.85% of the Mortgage
Loans had original terms to maturity from the due dates of their first Monthly
Payments of 30 years. None of the Mortgage Loans had a first Monthly Payment
due prior to June 1, 1995, and the latest maturity date of any of the Mortgage
Loans is July 1, 2026.
The Mortgage Loans will each have a principal balance of not less than
$12,000 or more than $763,400 as of the Cut-off Date. The Mortgage Loans will
have an average principal balance of $70,646.63 as of the Cut-off Date.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will be 64.77%, and no Mortgage Loan will have a Loan-to-Value Ratio at
origination exceeding 100%.
With respect to 16.04% of the Mortgage Loans, the proceeds were used to
purchase the related Mortgaged Properties. 30.53% of the Mortgage Loans were
rate and term refinancings and 53.42% of the Mortgage Loans were equity take-out
refinancings.
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<PAGE>
No more than 1.43% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area.
80.50%, 5.25%, 4.76% and 9.25% of the Mortgage Loans will be secured by
detached one-family dwelling units, by units in condominiums, by units in
planned unit developments and by two- to four-family dwelling units,
respectively. 0.31% of the Mortgage Loans will be secured by leasehold
interests. 11.30% and 0.84% of the Mortgage Loans will be secured by investor
properties and by secondary residences, respectively, and with respect to all of
the other Mortgage Loans, the mortgagor represented in the documents submitted
by such mortgagor for the closing of the related Mortgage Loan that the
Mortgaged Property initially would be owner-occupied as the mortgagor's primary
residence.
With respect to the Mortgage Loans underwritten pursuant to the Seller's
regular lending program, 48.56%, 2.60% and 48.84% of the Mortgage Loans (each by
aggregate principal balance of such Mortgage Loans as of the Cut-off Date) were
underwritten under the Seller's Full Documentation Program, Quick Qualifier
Program and Quick Qualifier Plus Program, respectively. See "--Underwriting
Standards" below.
With respect to the Mortgage Loans underwritten pursuant to the Seller's
equity lending program, 65.90% and 34.10% of the Mortgage Loans (by aggregate
principal balance of such Mortgage Loans as of the Cut-off Date) were
underwritten pursuant to the Seller's Documented Income Program and Stated
Income Program. See "--Underwriting Standards" below.
The tables below set forth as of the Cut-off Date the number, aggregate
principal balance and percentage of the Mortgage Loans having Loan-to-Value
Ratios at origination in each given range. (The sum of the amounts and the
percentages in the table below may not equal the totals due to rounding.)
LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF MORTGAGE
AGGREGATE LOANS BY AGGREGATE
LOAN TO VALUE RATIOS NUMBER OF PRINCIPAL PRINCIPAL
AT ORIGINATION % MORTGAGE LOANS BALANCE BALANCE
-------------------- -------------- ------- ----------------------
<S> <C> <C> <C>
0.1 to 60.0 . . . . . . . . . . . . . . 364 $21,316,489.60 31.43%
60.1 to 65.0 . . . . . . . . . . . . . 243 15,194,530.62 22.40
65.1 to 70.0 . . . . . . . . . . . . . 189 14,688,037.33 21.66
70.1 to 75.0 . . . . . . . . . . . . . 113 10,522,013.50 15.51
75.1 to 80.0 . . . . . . . . . . . . . 45 5,581,684.51 8.23
80.1 to 85.0 . . . . . . . . . . . . . 6 518,011.58 0.76
- ---------- ----
Total . . . . . . . . . . . . . . . 960 $67,820,767.14 100.00%
--- -------------- ------
--- -------------- ------
</TABLE>
S-29
<PAGE>
The table below sets forth as of the Cut-off Date the percentage of the
Mortgage Loans of each type underwritten and graded in the Seller's risk
categories indicated.
RISK GRADES
<TABLE>
<CAPTION>
15-YEAR 30-YEAR ALL
RISK FIXED RATE FIXED RATE STEP 6-MONTH 2-YEAR 3-YEAR 7-YEAR GPARM MORTGAGE
CATEGORY LOANS LOANS LOANS ARMS ARMS ARMS ARMS LOANS LOANS
-------- ----- ----- ----- ------- ------ ------ ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Regular
Program:
A+ 0.32% 1.25% 0.00% 4.70% 4.03% 0.08% 0.12% 0.24% 10.73%
A 0.69 10.21 0.16 8.42 3.90 1.51 0.62 0.10 25.62
B 0.82 4.86 0.14 7.86 4.83 1.47 0.64 0.00 20.62
C1 0.78 2.38 0.00 5.81 4.42 0.64 0.59 0.00 14.62
C2 0.70 1.41 0.00 2.06 2.16 0.73 0.09 0.00 7.15
D 0.80 2.51 0.00 4.87 5.69 0.75 0.32 0.00 14.94
Equity
Program:
I 0.10 0.19 0.00 2.29 0.00 0.00 0.00 0.00 2.58
II 0.12 0.50 0.00 2.71 0.00 0.00 0.00 0.00 3.33
III 0.04 0.00 0.00 0.38 0.00 0.00 0.00 0.00 0.42
</TABLE>
S-30
<PAGE>
The table below sets forth as of the Cut-off Date the number, aggregate
principal balance and percentage of the Mortgage Loans having Mortgaged
Properties located in each given state and in the District of Columbia. (The sum
of the amounts and the percentages in the table below may not equal the totals
due to rounding.)
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
NUMBER OF AGGREGATE PRINCIPAL BY AGGREGATE
LOCATION MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
-------- -------------- ------- -----------------
<S> <C> <C> <C>
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 $ 692,069.91 1.02%
Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . 11 472,834.08 0.70
California . . . . . . . . . . . . . . . . . . . . . . . . . 161 16,368,589.07 24.14
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1,066,638.89 1.57
Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . 21 1,720,601.08 2.54
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . 1 79,981.67 0.12
Dist. of Columbia . . . . . . . . . . . . . . . . . . . . . . 10 972,189.04 1.43
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 4,282,234.16 6.31
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 565,755.94 0.83
Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5,983,035.86 8.82
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1,038,579.73 1.53
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . 68 4,808,161.67 7.09
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 495,355.22 0.73
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 290,000.00 0.43
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . 3 138,479.97 0.20
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . 15 733,287.87 1.08
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1,500,927.90 2.21
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . 21 1,186,701.10 1.75
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . 53 1,967,021.28 2.90
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1,479,089.40 2.18
Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . 11 332,736.17 0.49
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . 31 934,751.29 1.38
Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 60,600.00 0.09
Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 178,283.89 0.26
New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . 5 448,475.00 0.66
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . 14 1,216,161.62 1.79
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . 13 1,064,526.86 1.57
New York . . . . . . . . . . . . . . . . . . . . . . . . . . 6 399,531.55 0.59
North Carolina . . . . . . . . . . . . . . . . . . . . . . . 36 1,766,279.66 2.60
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 1,947,424.23 2.87
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . 12 355,491.96 0.52
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1,303,577.08 1.92
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . 17 933,805.25 1.38
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . 30 1,686,330.61 2.49
South Carolina . . . . . . . . . . . . . . . . . . . . . . . 13 609,400.00 0.90
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . 39 1,276,920.29 1.88
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3,809,710.82 5.62
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 563,584.22 0.83
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . 10 686,354.68 1.01
Washington . . . . . . . . . . . . . . . . . . . . . . . . . 19 1,492,233.71 2.20
West Virginia . . . . . . . . . . . . . . . . . . . . . . . . 3 144,016.24 0.21
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . 17 769,038.17 1.13
---- -------------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 960 $67,820,767.14 100.00%
---- -------------- -------
---- -------------- -------
</TABLE>
S-31
<PAGE>
The table below sets forth the number, aggregate principal balance and
percentage of the Mortgage Loans and the date of their first Monthly Payments.
(The sum of the amounts and the percentages in the table below may not equal the
totals due to rounding.)
FIRST MONTHLY PAYMENT
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
NUMBER OF AGGREGATE PRINCIPAL BY AGGREGATE
FIRST MONTHLY PAYMENT MORTGAGE LOANS BALANCE PRINCIPAL BALANCE
--------------------- -------------- ------- -----------------
<S> <C> <C> <C>
June 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 1 $ 65,730.50 0.10%
July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 1 18,944.61 0.03
December 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . 1 84,781.47 0.13
February 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . 2 70,387.03 0.10
March 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 2 98,186.30 0.14
April 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 1 81,845.42 0.12
May 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 3 348,266.97 0.51
June 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 300 21,706,246.84 32.01
July 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 646 45,100,132.00 66.50
August 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 3 246,246.00 0.36
---- -------------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 960 $67,820,767.14 100.00%
---- -------------- -------
---- -------------- -------
</TABLE>
The table below sets forth as of the Cut-off Date certain additional
characteristics of the Fixed Rate Loans. (The sum of the amounts and the
percentages in the table below may not equal the totals due to rounding.)
Mortgage Rates
<TABLE>
<CAPTION>
PERCENTAGE OF FIXED
RATE LOANS BY AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL BALANCE
MORTGAGE RATES (%) FIXED RATE LOANS PRINCIPAL BALANCE OF FIXED RATE LOANS
------------------ ---------------- ----------------- -----------------------
<S> <C> <C> <C>
8.001 to 9.000 . . . . . . . . . . . . . . . . . . . 11 $ 1,506,590.49 8.03%
9.001 to 10.000 . . . . . . . . . . . . . . . . . . . 57 4,516,472.65 24.07
10.001 to 11.000 . . . . . . . . . . . . . . . . . . 62 4,159,228.33 22.16
11.001 to 12.000 . . . . . . . . . . . . . . . . . . 42 2,258,537.35 12.04
12.001 to 13.000 . . . . . . . . . . . . . . . . . . 54 2,459,082.50 13.10
13.001 to 14.000 . . . . . . . . . . . . . . . . . . 53 1,680,009.23 8.95
14.001 to 15.000 . . . . . . . . . . . . . . . . . . 35 1,237,798.00 6.60
15.001 to 16.000 . . . . . . . . . . . . . . . . . . 22 790,368.94 4.21
16.001 to 17.000 . . . . . . . . . . . . . . . . . . 1 70,000.00 0.37
17.001 to 18.000 . . . . . . . . . . . . . . . . . . 3 87,096.42 0.46
---- -------------- -------
Total . . . . . . . . . . . . . . . . . . . . . . 340 $18,765,183.91 100.00%
---- -------------- -------
---- -------------- -------
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate of the Fixed
Rate Loans will be approximately 11.395% per annum.
S-32
<PAGE>
The table below sets forth as of the Cut-off Date certain additional
characteristics of the Adjustable Rate Loans. (The sum of the amounts and the
percentages in the table below may not equal the totals due to rounding.)
Gross Margins
<TABLE>
<CAPTION>
PERCENTAGE OF
ADJUSTABLE RATE
NUMBER OF LOANS BY AGGREGATE
ADJUSTABLE RATE PRINCIPAL PRINCIPAL BALANCE OF
GROSS MARGINS (%) LOANS BALANCE ADJUSTABLE RATE LOANS
----------------- --------------- --------- ---------------------
<S> <C> <C> <C>
4.0001 to 5.0000 . . . . 55 $ 5,750,812 11.83%
5.0001 to 6.0000 . . . . 176 16,557,384 34.05
6.0001 to 7.0000 . . . . 217 17,074,768 35.12
7.0001 to 8.0000 . . . . 102 6,096,805 12.54
8.0001 to 9.0000 . . . . 32 1,563,413 3.22
9.0001 to 10.0000 . . . . 26 1,228,104 2.53
10.0001 to 11.0000 . . . 8 351,863 0.72
--- ----------- ------
Total . . . . . . . . 616 $48,623,150 100.00%
--- ----------- ------
--- ----------- ------
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
6-MONTH ARMS 2-YEAR ARMS 3-YEAR ARMS 7-YEAR ARMS
WITH INDICATED WITH INDICATED WITH INDICATED WITH INDICATED
GROSS MARGIN(1) GROSS MARGIN (1) GROSS MARGIN(1) GROSS MARGIN(1)
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
4.0001 to 5.0000 . . . . 5.32% 5.36% 0.79% 0.36%
5.0001 to 6.0000 . . . . 14.34 15.96 1.48 2.27
6.0001 to 7.0000 . . . . 19.30 12.24 3.26 0.31
7.0001 to 8.0000 . . . . 9.47 1.35 1.49 0.23
8.0001 to 9.0000 . . . . 3.00 0.00 0.08 0.13
9.0001 to 10.0000 . . . . 2.40 0.00 0.12 0.00
10.0001 to 11.0000 . . . 0.72 0.00 0.00 0.00
----- ----- ---- ----
Total . . . . . . . . 54.55% 34.91% 7.23% 3.31%
----- ----- ---- ----
----- ----- ---- ----
</TABLE>
- -----
(1) By aggregate principal balance of the Adjustable Rate Loans as of the Cut-
off Date.
As of the Cut-off Date, the weighted average Gross Margin of such
Adjustable Rate Loans will be approximately 6.262% per annum, and of the 6-Month
ARMs, the 2-Year ARMs, the 3-Year ARMs and the 7-Year ARMs will be approximately
6.544%, 5.828%, 6.385% and 5.938% per annum, respectively.
S-33
<PAGE>
UNDERWRITING STANDARDS
All of the Mortgage Loans were originated or acquired by the Seller. 6.32%
and 93.68% of the Mortgage Loans were underwritten by the Seller pursuant to the
Seller's equity lending program or regular lending program.
GENERAL DESCRIPTION OF THE SELLER'S EQUITY LENDING PROGRAM AND REGULAR
LENDING PROGRAM
The Seller's underwriting standards are primarily intended to assess the
value of the mortgaged property and to evaluate the adequacy of such property as
collateral for the mortgage loan. It is contemplated that all of the mortgage
loans originated or acquired by the Seller will also be underwritten with a view
toward the resale thereof in the secondary mortgage market. While one of the
Seller's primary considerations in underwriting a mortgage loan is the value of
the mortgaged property, the Seller also considers, among other things, a
mortgagor's credit history (placing primary emphasis on the mortgagor's mortgage
credit history), repayment ability and debt service-to-income ratio, as well as
the type and use of the mortgaged property. The maximum Loan-to-Value Ratio
permitted under the Seller's equity lending program is 75%. The maximum Loan-
to-Value Ratio permitted under the Seller's regular lending program is 100%
(however, DLJMC generally does not purchase such mortgage loans with Loan-to-
Value Ratios in excess of 85%). Second lien financing of the Mortgaged
Properties may be provided by lenders other than the Seller at any time
(including at origination), in which case the combined Loan-to-Value Ratio may
exceed 85% with respect to the equity lending program; however, the Seller will
not provide second lien financing on any Mortgaged Property securing a Mortgage
Loan included in the Trust Fund. As used herein, "Loan-to-Value Ratio" shall
mean as of any date, the fraction, expressed as a percentage, the numerator of
which is the principal balance of the related Mortgage Loan as of the date of
determination and the denominator of which is the Collateral Value of the
related Mortgaged Property. Under each underwriting category within which a
mortgage loan is graded under the equity lending program or under the regular
lending program, the maximum combined Loan-to-Value Ratio at origination,
including any then existing deeds of trust subordinate to the Seller's first or
second lien, is 100% (however, DLJMC generally does not purchase such mortgage
loans with a combined Loan-to-Value Ratio in excess of 90%). All of the
Mortgage Loans included in the Trust Fund will be first lien mortgage loans.
All of the Mortgage Loans generally bear higher rates of interest than mortgage
loans that are originated in accordance with FNMA and FHLMC standards. The
combination of these factors is likely to result in rates of delinquency,
foreclosure, bankruptcy and loss that are higher, and (especially with respect
to the mortgage loans underwritten under the equity program or the D Risk
category of the regular lending program), that may be substantially higher, than
those experienced by other mortgage loans underwritten in a more traditional
manner. See "The Seller--Loan Delinquency, Forbearance, Foreclosure, Bankruptcy
and REO Property Status" and "--REO Property Liquidation Experience" below for
important information regarding the delinquency, forbearance, foreclosure,
bankruptcy and REO property status and loss experience of certain mortgage loans
previously originated or acquired by the Seller under similar underwriting
criteria to those pursuant to which the Mortgage Loans were originated or
acquired. Similar information is not available with respect to mortgage loans
underwritten pursuant to the Seller's D Risk regular lending program as such
risk grade was recently established.
Most of the Seller's current single family first lien mortgage loan volume
is originated or acquired primarily based on loan application packages submitted
through mortgage brokerage companies (the "Wholesale Program"). Such loan
application packages, which generally contain relevant credit, property and
underwriting information on the loan request, are compiled by the applicable
mortgage brokerage company and submitted to the Seller for approval and funding.
The mortgage brokerage companies receive all or a portion of the loan
origination fee charged to the borrower at the time the loan is made. As part
of its quality control procedures, the Seller maintains a file with respect to
each broker including reports of any complaints received by the Seller with
respect to such broker. 79.98% of the Mortgage Loans were originated under the
Seller's Wholesale Program. In addition, the Seller purchases mortgage
S-34
<PAGE>
loans from mortgage brokerage companies and a variety of other mortgage loan
originators (the "Conduit Program"). Mortgage loans acquired under the Conduit
Program are generally not reviewed by the Seller prior to origination, and are
not originated on loan document forms provided by the Seller. However, such
mortgage loans are reviewed by the Seller prior to purchase by the Seller to
determine that such mortgage loans are in compliance with the Seller's
underwriting guidelines. 11.64% of the Mortgage Loans were originated under the
Conduit Program. The remaining 8.38% of the Mortgage Loans were originated
directly through the Seller's retail loan origination program. No more than
2.13% of the Mortgage Loans were originated based on loan application packages
submitted through any single mortgage brokerage company. All of the Mortgage
Loans were reviewed by employees of DLJMC at or prior to the inclusion of the
Mortgage Loans in the Trust Fund.
Each prospective mortgagor completes an application which includes
information with respect to the applicant's liabilities, income, credit history,
employment history and personal information. The Seller requires a credit
report on each applicant from a credit reporting company. The report typically
contains information relating to such matters as credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcies, repossessions or judgments.
One- to four-family (sometimes referred to herein as "single family")
properties that are to secure mortgage loans are appraised by qualified
independent appraisers who are approved by the Seller's internal chief
appraiser. Such appraisers inspect and appraise the subject property and verify
that such property is in acceptable condition. Following each appraisal, the
appraiser prepares a report which includes a market value analysis based on
recent sales of comparable homes in the area and, when deemed appropriate,
replacement cost analysis based on the current cost of constructing a similar
home. All appraisals are required to conform to the Uniform Standards of
Professional Appraisal Practice adopted by the Appraisal Standards Board of the
Appraisal Foundation and must be on forms acceptable to FNMA and FHLMC. Every
independent appraisal is reviewed by either a Seller staff appraiser who is
supervised by the Seller's chief appraiser, or by another independent appraiser
approved by the Seller's chief appraiser, to confirm the adequacy of the
property as collateral, and substantially all independent appraisals are
reviewed before the mortgage loan is made. If the value of the subject property
as determined by the Seller's review appraisal is more than either 5% or 10%
(depending upon the original appraisal value and the state in which the subject
property is located) below the original appraisal value, then the Seller's
review appraisal value is used for purposes of establishing the maximum
permissible Loan-to-Value Ratio of the mortgage loan. In all other cases, the
value of the subject property as determined by the original appraisal is used
for purposes of establishing the maximum permissible Loan-to-Value Ratio of the
mortgage loan.
The Seller's underwriting guidelines permit mortgage loans secured by
mortgaged properties consisting of real property together with a mobile home,
manufactured home or modular housing unit located thereon, provided that such
improvements have been permanently affixed to the real property with a
foundation and that all such improvements are legally classified and taxed as
part of the real property under local law (such mortgage loans, "Manufactured
Home Loans"). The maximum Loan-to-Value Ratio for Manufactured Home Loan is
75%, with a 5% reduction in the maximum Loan-to-Value Ratio otherwise allowed
under the applicable lending program (or a 10% reduction for single wide units
or for units with less than 600 square feet of living area), and an additional
5% reduction in the maximum Loan-to Value Ratio (as well as a maximum loan term
of 15 years) for units more than 10 years old.
Equity Lending Program Features
-------------------------------
The equity lending program's underwriting guidelines generally place more
emphasis on the value of the mortgaged property and less emphasis on the
mortgagor's credit history than do either the Seller's regular lending program
or more traditional mortgage loan origination programs. The maximum loan amount
for loans originated or acquired under the Seller's equity lending program is
generally $300,000
S-35
<PAGE>
for loans secured by owner-occupied mortgaged properties and $250,000 for
loans secured by non-owner-occupied properties. Greater mortgage loan
amounts may be approved on a case-by-case basis. Based on the applicable
underwriting guidelines, Mortgage Loans originated or acquired under the
equity lending program, and in particular Mortgage Loans graded in the Class
II or Class III categories thereunder, are likely to experience rates of
delinquency, foreclosure, bankruptcy and loss that are higher, and that may
be substantially higher, than those of Mortgage Loans originated or acquired
under the Seller's regular lending program and, especially, mortgage loans
originated in a more traditional manner.
All of the loans originated or acquired under the Seller's equity lending
program were underwritten under the Seller's "Documented Income" or "Stated
Income" residential loan programs. Under each of these residential loan
programs, the Seller reviews the loan applicant's source of income, calculates
the amount of income from sources indicated on the loan application or similar
documentation, reviews the credit history of the applicant (placing primary
emphasis on the applicant's previous mortgage credit history), calculates the
debt service-to-income ratio to determine the applicant's ability to repay the
loan, reviews the type and use of the property being financed and reviews the
property for compliance with the equity lending program's standards. In
determining the ability of the applicant to repay the loan, the Seller uses a
rate (the "Qualifying Rate") equal to the lesser of the Fully Indexed Rate on
the loan being applied for or the initial interest rate on such loan plus an
amount equal to the periodic rate cap applicable to the loan, but in no event
less than the initial mortgage rate on Adjustable Rate Loans or the interest
rate on Fixed Rate Loans. The Seller verifies the income of each borrower as
follows. Under the Documented Income program, a borrower is generally required
to submit one form of verification of stable monthly income. Under the Stated
Income program, the income stated on the loan application signed by the borrower
is generally acceptable without further documentary verification. Under either
program, the Seller generally performs a telephone verification of the
borrower's employment. No verification is required with respect to the source
of funds (if any) required to be deposited by the applicant with the closing
agent.
The Seller uses the following underwriting categories and characteristics
as guidelines to grade the potential likelihood that the mortgagor will satisfy
the repayment conditions of a mortgage loan originated or acquired under the
Seller's equity lending program:
CLASS I. Under the Class I category, the prospective mortgagor may have
experienced significant credit problems in the past. A maximum of four
30-day late payments and no 60-day late payments (or, alternatively, a
maximum of one 60-day late payment) within the last 12 months is acceptable
on an existing mortgage loan. The Seller generally will consider a
continuous sequence of 30-day late payments as a single 30-day late payment
for the purpose of determining a prospective mortgagor's mortgage payment
history. An existing mortgage loan is not required to be current at the
time the application is submitted. As to non-mortgage credit, significant
prior defaults may have occurred. A bankruptcy filing by the borrower is
permitted if it occurred at least two years previously and the bankruptcy
has been dismissed or the borrower's debts have been discharged prior to
loan funding. The mortgaged property must be in at least adequate
condition and there may not be any significant deferred maintenance or
construction in progress unless: (a) the Loan-to-Value Ratio is 60% or
less; (b) the value of the mortgaged property used in determining the
Loan-to-Value Ratio does not include any value of any construction in
progress; and (c) all appropriate title insurance endorsements are
provided. The mortgaged property may exhibit deferred maintenance that is
cosmetic only, and must not exhibit any structural problems. For loans
secured by owner-occupied properties, a maximum Loan-to-Value Ratio of 75%
is permitted for loans originated under the Documented Income program, and
a maximum Loan-to-Value Ratio of 70% is permitted for loans originated
under the Stated Income program. For loans secured by non-owner-occupied
properties, a maximum Loan-to-Value Ratio of 70% is permitted for loans
originated under the Documented Income program, and a maximum
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Loan-to-Value Ratio of 65% is permitted for loans originated under the
Stated Income program. The debt service-to-income ratio generally is 50%
or less based on the Qualifying Rate (which may be less than the Fully
Indexed Rate).
CLASS II. Under the Class II category, the prospective mortgagor may have
experienced significant credit problems in the past. An existing mortgage
loan is not required to be current at the time the application is
submitted. The maximum delinquency on an existing mortgage loan at the
time of loan approval or during the previous 12 months is 120 days. As to
non-mortgage credit, significant prior defaults may have occurred. A
bankruptcy filing by the borrower is permitted if it occurred at least 12
months previously and the bankruptcy has been dismissed or the borrower's
debts have been discharged prior to loan funding. The mortgaged property
must be in at least adequate condition and there may not be any significant
deferred maintenance or construction in progress unless: (a) the
Loan-to-Value Ratio is 60% or less; (b) the value of the mortgaged property
used in determining the Loan-to-Value Ratio does not include any value of
any construction in progress; and (c) all appropriate title insurance
endorsements are provided. The mortgaged property may exhibit deferred
maintenance that is cosmetic only, and must not exhibit any structural
problems. For loans secured by owner-occupied properties, a maximum
Loan-to-Value Ratio of 70% is permitted for loans originated under the
Documented Income program, and a maximum Loan-to-Value Ratio of 65% is
permitted for loans originated under the Stated Income program. For loans
secured by non-owner-occupied properties, a maximum Loan-to-Value Ratio of
65% is permitted for loans originated under the Documented Income program,
and a maximum Loan-to-Value Ratio of 60% is permitted for loans originated
under the Stated Income program. The debt service-to-income ratio
generally is 55% or less based on the Qualifying Rate (which may be less
than the Fully Indexed Rate).
CLASS III. Under the Class III category, the prospective mortgagor may
have experienced significant credit problems in the past. An existing
mortgage loan is not required to be current at the time the application is
submitted and may have been delinquent more than 120 days at the time of
loan approval or during the previous 12 months. As to non-mortgage credit,
significant prior defaults may have occurred. A bankruptcy filing by the
borrower is permitted but the bankruptcy must be dismissed or the
borrower's debts must be discharged prior to or concurrent with loan
funding. The mortgaged property must be in at least adequate condition and
there may not be any significant deferred maintenance or construction in
progress unless: (a) the Loan-to-Value Ratio is 60% or less; (b) the value
of the mortgaged property used in determining the Loan-to-Value Ratio does
not include any value of any construction in progress; and (c) all
appropriate title insurance endorsements are provided. The mortgaged
property may exhibit deferred maintenance that is cosmetic only, and must
not exhibit any structural problems. For loans secured by owner-occupied
properties, a maximum Loan-to-Value Ratio of 65% is permitted for loans
originated under the Documented Income program, and a maximum Loan-to-Value
Ratio of 60% is permitted for loans originated under the Stated Income
program. For loans secured by non-owner-occupied properties, a maximum
Loan-to-Value Ratio of 60% is permitted for loans originated under the
Documented Income program, and a maximum Loan-to-Value Ratio of 55% is
permitted for loans originated under the Stated Income program. The debt
service-to-income ratio generally is 60% or less based on the Qualifying
Rate (which may be less than the Fully Indexed Rate).
GRADUATED PAYMENT ADJUSTABLE RATE MORTGAGE LOAN PROGRAM. None of the GPARM
Loans (by aggregate principal balance of the GPARM Loans as of the Cut-off Date)
were originated under the Seller's equity "Graduated Payment Adjustable Rate
Mortgage Loan" program ("GPARM"). The underwriting guidelines for this loan
program differ from those generally applicable under the Seller's equity lending
program in that the Qualifying Rate equals a hypothetical interest rate
corresponding to the monthly payment amount during the Initial Teaser Period,
plus 3.00%. In addition, the GPARM
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underwriting guidelines require a maximum Loan-to-Value Ratio that is
generally 5% lower than the maximum loan-to-value ratio permitted under each
of the risk categories in the equity lending program, as described above.
Regular Lending Program Features
--------------------------------
All of the Mortgage Loans originated or acquired under the Seller's regular
lending program, were underwritten by the Seller pursuant to its "Full
Documentation," "Quick Qualifier" and "Quick Qualifier Plus" residential loan
programs. Under each of these residential loan programs, the Seller reviews the
loan applicant's source of income, calculates the amount of income from sources
indicated on the loan application or similar documentation, reviews the credit
history of the applicant, calculates the debt service-to-income ratio to
determine the applicant's ability to repay the loan, reviews the type and use of
the property being financed and reviews the property for compliance with the
regular lending program's standards. In determining the ability of the applicant
to repay a loan of the type included in the Mortgage Pool, the Seller uses a
rate (the "Qualifying Rate") equal to (i) the lesser of the fully indexed rate
or the initial rate plus the periodic rate cap but not less than the initial
interest rate for 6-Month Arms, (ii) the initial interest rate for 2-Year Arms,
3-Year Arms and 7-Year Arms or (iii) the interest rate for Fixed Rate Loans. The
Seller's underwriting standards are applied in a standardized procedure which
complies with applicable federal and state laws and regulations. The Seller
requires its underwriters to be satisfied that the value of the property being
financed, as indicated by an appraisal and a review appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance. In general, the maximum loan amount for mortgage loans originated under
the regular lending program is $350,000; however, the Seller approves mortgage
loans in excess of such amount on a case-by-case basis. The discussion set forth
under the heading "--Regular Lending Program Features" excludes mortgage loans
originated under the Seller's equity lending program, and mortgage loans
originated by the Seller under its REO lending program. The Seller underwrites
single-family loans with Loan-to-Value Ratios at origination of up to 100%
(however, DLJMC generally will not purchase mortgage loans with Loan-to-Value
Ratios in excess of 85%), depending on, among other things, a mortgagor's credit
history, repayment ability and debt service-to-income ratio, as well as the type
and use of the property. Under each risk category of underwriting criteria
described below, the maximum combined Loan-to-Value Ratio at origination,
including any then existing second mortgages subordinate to the Seller's first
mortgage, is 100% (however, DLJMC generally will not purchase mortgage loans
with combined Loan-to-Value Ratios in excess of 90%).
The Seller verifies the income of each borrower (except as described below)
and a portion of the source of funds required to be deposited by the applicant
with the appropriate closing agent or into escrow under its various residential
loan programs as follows: under the Full Documentation program, borrowers are
generally required to submit two forms of verification of stable monthly income
for the last 24 months (or if the Loan-to-Value Ratio is less than or equal to
70%, for the last 12 months); provided that as an alternative, bank statements
for the appropriate time period alone may be accepted as adequate verification
of stable monthly income. Under the Quick Qualifier and Quick Qualifier Plus
programs, one such form of verification is generally required for the last six
months and for any period of less than six months, respectively, except that
borrowers may be qualified based upon monthly income as stated on the mortgage
loan application, without verification, if the borrower and the mortgaged
property meet certain criteria. Under all of the foregoing programs, the Seller
generally performs a telephone verification of the borrower's employment.
Verification of a portion of the source of funds (if any) required to be
deposited by the applicant with the appropriate closing agent or into escrow is
required under the Full Documentation program if the Loan-to-Value Ratio is
greater than 70%; however, no such verification is required under the other
programs.
The Seller uses the following categories and characteristics as guidelines
to grade the potential likelihood that the mortgagor will satisfy the repayment
conditions of a mortgage loan:
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A+ RISK. Under the A+ Risk category, the prospective mortgagor must
have generally repaid installment or revolving debt according to its terms.
No 30-day late payments within the past 12 months are permissible on an
existing mortgage loan. Minor derogatory items are allowed as to non-
mortgage credit and a letter of explanation may be required under the Full
Documentation program. A bankruptcy filing by the prospective mortgagor is
permitted if it occurred at least two years previously, provided, however,
that if the Loan-to-Value Ratio is greater than 75%, the bankruptcy must
have been dismissed or the prospective mortgagor's debts must have been
discharged for a minimum of two years. The mortgaged property must be in at
least average condition. A maximum Loan-to-Value Ratio of 100% (or 75% for
mortgage loans originated under the Quick Qualifier and Quick Qualifier
Plus programs) is permitted for a mortgage loan on a single family owner
occupied property (however, DLJMC generally does not purchase such mortgage
loans with Loan-to-Value Ratios in excess of 85%). A maximum Loan-to-Value
Ratio of 75% (or 65% for mortgage loans originated under the Quick
Qualifier and Quick Qualifier Plus programs) is permitted for a mortgage
loan on a single family non-owner occupied property. If the prospective
mortgagor has owned the subject property for less than nine months, then
the maximum Loan-to-Value Ratio is based on the lesser of the documented
original acquisition cost or the current appraisal value. For refinance
mortgage loans, the prospective mortgagor may receive "cash out" at the
closing directly from the mortgage loan proceeds, exclusive of amounts used
to pay off outstanding consumer debts or other financial obligations of the
prospective mortgagor concurrent with loan funding (however, DLJMC
generally does not purchase such mortgage loans with Loan-to-Value Ratios
in excess of 80% where the borrower received more than $1,000 "cash-out" at
closing. A refinance mortgage loan is considered "cash out" if the
borrower receives more than one percent of the loan amount at closing).
The restrictions set forth in the second preceding sentence apply only if
the Loan-to-Value Ratio is greater than 80% on an owner occupied property
(or 70% on a non-owner occupied property).
A RISK. Under the A Risk category, the prospective mortgagor must
have generally repaid installment or revolving debt according to its terms.
A maximum of two 30-day late payments, and no 60-day late payments, within
the last 12 months is acceptable on an existing mortgage loan. The Seller
generally will consider a continuous sequence of 30-day late payments as a
single 30-day late payment for the purpose of determining a prospective
mortgagor's mortgage payment history. An existing mortgage loan is not
required to be current at the time the application is submitted. Minor
derogatory items are allowed as to non-mortgage credit, and a letter of
explanation may be required under the Full Documentation program. A
previous bankruptcy filing by the prospective mortgagor is permitted if it
occurred at least two years previously, provided, however, that if the
Loan-to-Value Ratio is greater than 75%, the bankruptcy must have been
dismissed or the prospective mortgagor's debts must have been discharged
for a minimum of two years. The mortgaged property must be in at least
average condition. A maximum Loan-to-Value Ratio of 100% (or 75% for
mortgage loans originated under the Quick Qualifier and Quick Qualifier
Plus programs) is permitted for a mortgage loan on a single family owner
occupied property (however, DLJMC generally does not purchase such mortgage
loans with Loan-to-Value Ratios in excess of 85%). A maximum Loan-to-Value
Ratio of 75% (or 65% for mortgage loans originated under the Quick
Qualifier or Quick Qualifier Plus programs) is permitted for a mortgage
loan on a non-owner occupied property. A maximum Loan-to-Value Ratio of 70%
is permitted for a refinance mortgage loan on a non-owner occupied
property. If the prospective mortgagor has owned the subject property for
less than nine months, then the maximum Loan-to-Value Ratio is based on the
lesser of the documented original acquisition cost or the current appraisal
value. For refinance mortgage loans, the prospective mortgagor may receive
"cash out" at the closing directly from the mortgage loan proceeds,
exclusive of amounts used to pay off outstanding consumer debts or other
financial obligations of the prospective mortgagor concurrent with loan
funding. (However, DLJMC generally does not purchase such mortgage loans
with a Loan-to-Value Ratio in excess of 80% where the
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<PAGE>
borrower received more than $1,000 "cash-out" at closing). The restriction
set forth in the second preceding sentence applies only if the
Loan-to-Value Ratio is in excess of 80% on an owner occupied property.
B RISK. Under the B Risk category, the prospective mortgagor must
have generally repaid all installment or revolving debt according to its
terms. A maximum of four 30-day late payments and no 60-day late payments
(or, alternatively, two 30-day late payments and one 60-day late payment),
within the last 12 months is acceptable on an existing mortgage loan. The
Seller generally will consider a continuous sequence of 30-day late
payments as a single 30-day late payment for the purpose of determining a
prospective mortgagor's mortgage payment history. An existing mortgage loan
is not required to be current at the time the application is submitted. As
to non-mortgage credit, some prior defaults may have occurred (provided,
that under the Full Documentation program, any open charge-offs or
collection accounts of $500 or more must be paid at closing if the
Loan-to-Value Ratio is greater than 70%). A bankruptcy filing by the
prospective mortgagor is permitted if it occurred at least two years
previously; provided, however, that if the Loan-to-Value Ratio is greater
than 75%, the bankruptcy must have been dismissed or the prospective
mortgagor's debts must have been discharged for a minimum of two years. The
mortgaged property must be in at least average condition. A maximum
Loan-to-Value Ratio of 80% (or 75% for mortgage loans originated under the
Quick Qualifier and Quick Qualifier Plus programs) is permitted for a
mortgage loan on an owner occupied property. A maximum Loan-to-Value Ratio
of 70% (or 65% for mortgage loans originated under the Quick Qualifier or
Quick Qualifier Plus programs) is permitted for a mortgage loan on a
non-owner occupied property.
C1 RISK. Under the C1 Risk category, the prospective mortgagor may
have experienced significant credit problems in the past. A maximum of six
30-day late payments, including one 60-day late payment and one 90-day late
payment, within the last 12 months is acceptable on an existing mortgage
loan. The Seller generally will consider a continuous sequence of 30-day
late payments as a single 30-day late payment for the purpose of
determining a prospective mortgagor's mortgage payment history. An existing
mortgage loan is not required to be current at the time the application is
submitted. As to non-mortgage credit, significant prior defaults may have
occurred. A bankruptcy filing by the prospective mortgagor is permitted, if
it occurred at least 18 months previously. The mortgaged property must be
in adequate condition. A maximum Loan-to-Value Ratio of 70% (or 65% for
mortgage loans originated under the Quick Qualifier Plus program) is
permitted for a mortgage loan on an owner occupied property; provided,
however, that a maximum Loan-to-Value Ratio of 80% is permitted under the
Full Documentation program if the principal balance of the mortgage loan at
origination is $50,000 or less, and the prospective mortgagor warrants an
upgrade or exception. See "--Variations" below for a description of certain
compensating factors which the Seller may consider in granting such an
upgrade or exception. A maximum Loan-to-Value Ratio of 65% (or 60% for
mortgage loans originated under the Quick Qualifier Plus program) is
permitted for a mortgage loan on a non-owner occupied property. However,
the maximum Loan-to-Value Ratio may be increased to 75% (or 72% under the
Quick Qualifier Plus Program) on an owner occupied property provided the
mortgaged property meets the following criteria: (a) the property is a
detached single-unit dwelling structure; (b) the property has a minimum of
800 square feet of living area with a minimum of two bedrooms; and (c) the
property value as determined by the Seller's review appraisal is not more
than 5% below the original appraisal value unless the Seller's review value
is used for establishing the Loan-to-Value Ratio of the mortgage loan. In
general, DLJMC does not purchase mortgage loans in the C1 Risk category
with Loan-to-Value Ratios in excess of 70% unless such mortgage loans have
significant compensating factors as described in "--Variations" below and
are underwritten pursuant to the Full Documentation program.
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<PAGE>
C2 RISK. Under the C2 Risk category, the prospective mortgagor may
have experienced significant credit problems in the past. A maximum of 180
days late within the last 12 months is acceptable on an existing mortgage
loan and the existing mortgage loan is not required to be current at the
time the application is submitted (however, DLJMC generally does not
purchase such mortgage loans in this category that are in excess of 120
days delinquent). As to non-mortgage credit, significant prior defaults
may have occurred. A bankruptcy filing by the prospective mortgagor is
permitted but the bankruptcy must be dismissed or the prospective
mortgagor's debts must be discharged prior to or concurrent with loan
funding. The mortgaged property may exhibit some deferred maintenance. A
maximum Loan-to-Value Ratio of 65% (or 60% for mortgage loans originated
under the Quick Qualifier Plus program) is permitted for a mortgage loan on
an owner occupied property. A maximum Loan-to-Value Ratio of 65% (or 55%
for mortgage loans originated under the Quick Qualifier Plus program) is
permitted for a mortgage loan on a non-owner occupied property. However,
the maximum Loan-to-Value Ratio may be increased to 70% on an owner
occupied property provided the mortgaged property meets the following
criteria: (a) the property is a detached single-unit dwelling structure;
(b) the property has a minimum of 800 square feet of living area with a
minimum of two bedrooms; and (c) the property value as determined by the
Seller's review appraisal is not more than 5% below the original appraisal
value unless the Seller's review value is used for establishing the Loan-
to-Value Ratio of the mortgage loan. In general, DLJMC does not purchase
mortgage loans in the C2 Risk category with Loan-to-Value Ratios in excess
of 65% unless such mortgage loans have significant compensating factors as
described in "--Variations" below and are underwritten pursuant to the Full
Documentation program.
D RISK. Under the D Risk category, the prospective mortgagor may have
experienced significant credit problems in the past. An existing mortgage
loan is not required to be current at the time the application is submitted
and may have been delinquent more than 120 days at the time of mortgage
loan approval or during the previous 12 months. As to non-mortgage credit,
significant prior defaults may have occurred. A bankruptcy filing by the
borrower is permitted but the bankruptcy must be dismissed or the
borrower's debt must be discharged prior to or concurrent with mortgage
loan funding. The mortgaged property must be in at least adequate
condition and there may not be any significant deferred maintenance or
construction in progress unless: (a) the Loan-to-Value Ratio is 60% or
less; (b) the value of the mortgaged property used in determining the Loan-
to-Value Ratio does not include any value of any construction in progress;
and (c) all appropriate title insurance endorsements are provided. The
mortgaged property may exhibit deferred maintenance that is cosmetic only,
and must not exhibit any structural problems. A maximum Loan-to-Value
Ratio of 65% (or 60% for mortgage loans originated under the Quick
Qualifier Plus program) is permitted for a mortgage loan on an owner
occupied property. A maximum Loan-to-Value Ratio of 65% (or 55% for
mortgage loans originated under the Quick Qualifier Plus program) is
permitted for a mortgage loan on a non-owner occupied property. However,
the maximum Loan-to-Value Ratio may be increased to 70% (or 65% under the
Quick Qualifier Plus program) on an owner occupied property provided that
the mortgaged property meets the following criteria: (a) the property is a
detached single-unit dwelling structure; (b) the property has a minimum of
800 square feet of living area with a minimum of two bedrooms; and (c) the
property value as determined by the Seller's review appraisal is not more
than 5% below the original appraisal value unless the Seller's review value
is used for establishing the Loan-to-Value Ratio of the mortgage loan. In
addition, an existing mortgage loan may not have been more than 180 days
delinquent in the last 12 months and the prospective mortgagor may not
receive more than $1,000 "cash out" at the closing directly from the
mortgage loan proceeds, exclusive of amounts used to pay off outstanding
consumer debts or other financial obligations of the prospective mortgagor,
concurrent with mortgage loan funding in order to qualify for the increased
Loan-to-Value Ratio. In general, DLJMC does not purchase such mortgage
loans in the D Risk category with Loan-to-Value Ratios in excess of 65%
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<PAGE>
unless such mortgage loans have significant compensating factors as
described in "--Variations" below and are underwritten Pursuant to the Full
Documentation program.
DEBT SERVICE-TO-INCOME RATIOS. In addition to the Loan-to-Value Ratio
limitations imposed under the risk categories outlined above, the Seller also
considers each prospective mortgagor's debt service-to- income ratio based on
the Qualifying Rate (which may be less than the Fully Indexed Rate) in
establishing the maximum Loan-to-Value Ratio available for each mortgage loan
application as follows: to qualify for a maximum Loan-to-Value Ratio of up to
100%, a prospective mortgagor's debt service-to-income ratio generally must be
45% or less (provided, DLJMC generally will not purchase, mortgage loans with
Loan-to-Value Ratios in excess of 85%); to qualify for a maximum Loan-to-Value
Ratio of up to 80%, a prospective mortgagor's debt service-to-income ratio must
generally be 50% or less; to qualify for a maximum Loan-to-Value Ratio of up to
75%, a prospective mortgagor's debt service-to-income ratio generally must be
55% or less; and to qualify for a maximum Loan-to-Value Ratio of up to 70%, a
prospective mortgagor's debt service-to-income ratio must generally be 60% or
less. The Seller generally will not originate a mortgage loan if the prospective
mortgagor's debt service-to-income ratio exceeds 60%.
GRADUATED PAYMENT ADJUSTABLE RATE MORTGAGE LOAN PROGRAM. All of the GPARM
Loans (by aggregate principal balance of the GPARM Loans as of the Cut-off Date)
were originated under the Seller's regular GPARM program. The underwriting
guidelines for this loan program differ from those generally applicable under
the Seller's regular lending program in that the Qualifying Rate equals a
hypothetical interest rate corresponding to the monthly payment amount during
the Initial Teaser Period, plus 3.00%. In addition, the GPARM underwriting
guidelines require a maximum Loan-to-Value Ratio that is generally 5% lower than
the maximum loan-to-value ratio permitted under each of the risk categories in
the regular lending program, as described above.
VARIATIONS. As described above, the Seller uses the foregoing categories
and characteristics as guidelines only. On a case-by-case basis, the Seller may
determine that the prospective mortgagor warrants an underwriting category
upgrade, a debt service-to-income ratio exception, a pricing exception or some
other exception to its underwriting guidelines (each an "upgrade or exception").
An upgrade or exception may be allowed if the application reflects certain
compensating factors, including among others: low loan-to-value ratio; pride of
ownership; a maximum of one 30-day late payment on all mortgage loans during the
last 12 months; stable employment of five or more years at the applicant's
current place of employment; and residence of five or more years at the
applicant's current residence. An upgrade or exception may also be allowed in a
purchase transaction if the applicant deposits a downpayment with the
appropriate closing agent or into escrow of at least 20% of the purchase price
of the mortgaged property. Accordingly, the Seller may classify in a more
favorable underwriting category certain mortgage loans that, in the absence of
such compensating factors, would satisfy only the criteria of a less favorable
underwriting category.
Mortgage loans originated under either the Seller's regular lending program
or its equity lending program may include mortgage loans to facilitate the sale
of real estate owned properties ("REO properties") acquired by the Seller,
provided that all guidelines under the applicable lending program are met;
however, no such mortgage loans are included in the Mortgage Pool. The Seller
also originates mortgage loans to facilitate the sale of REO properties under
separate underwriting guidelines, which are not included under either the
Seller's regular or equity lending programs and which may have Loan-to-Value
Ratios of up to 90%.
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<PAGE>
THE INDEXES APPLICABLE TO THE ADJUSTABLE RATE LOANS AND THE GPARM LOANS
The related Index applicable to determine the Mortgage Rate for the
Adjustable Rate Loans is the average of the interbank offered rates for six-
month United States dollar deposits in the London interbank market based on
quotations of major banks ("Six-Month Libor"), as published in the Western
Edition of THE WALL STREET JOURNAL. The related Index applicable on any
Adjustment Date is the most recent Index figure available as of the date 30 days
or 45 days before such Adjustment Date. Listed below are some historical
average values for the months indicated of Six-Month Libor (as made available
from Reuters and published by Data Resources, Inc.), which values may differ
from those published in the Western Edition of THE WALL STREET JOURNAL:
YEAR
----
MONTH 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ----
January . . . . . . . . . . 5.40% 6.80% 3.41% 3.47% 4.23%
February . . . . . . . . . 5.21 6.63 3.66 3.35 4.29
March . . . . . . . . . . . 5.40 6.44 4.15 3.35 4.58
April . . . . . . . . . . . 5.55 6.44 4.43 3.33 4.32
May . . . . . . . . . . . . 5.60 6.13 4.99 3.32 4.12
June . . . . . . . . . . . 5.90 4.96 3.49 4.14
July . . . . . . . . . . . 5.85 5.27 3.48 3.64
August . . . . . . . . . . 5.93 5.29 3.46 3.54
September . . . . . . . . . 5.87 5.49 3.36 3.31
October . . . . . . . . . . 5.88 5.90 3.39 3.42
November . . . . . . . . . 5.74 6.21 3.53 3.79
December . . . . . . . . . 5.61 6.86 3.49 3.69
The related Index applicable to determine the Mortgage Rate for the GPARM
Loans is the average of the interbank offered rates for one-month United States
dollar deposits in the London interbank market based on quotations of major
banks ("One-Month LIBOR"), as published in the Western Edition of THE WALL
STREET JOURNAL. The related Index applicable on any Adjustment Date is the most
recent Index figure available as of the date 45 days before such Adjustment
Date. Listed below are some historical average values for the months indicated
of One-Month LIBOR (as made available from Reuters and published by Data
Resources, Inc.), which values may differ from those published in the Western
Edition of THE WALL STREET JOURNAL:
YEAR
----
MONTH 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ----
January . . . . . . . . . . 5.58% 5.93% 3.15% 3.22% 4.19%
February . . . . . . . . . 5.33 6.12 3.38 3.15 4.16
March . . . . . . . . . . . 5.38 6.13 3.62 3.19 4.34
April . . . . . . . . . . . 5.45 6.11 3.82 3.17 4.09
May . . . . . . . . . . . . 5.44 6.07 4.32 3.15 3.89
June . . . . . . . . . . . 6.06 4.38 3.21 3.94
July . . . . . . . . . . . 5.91 4.55 3.17 3.31
August . . . . . . . . . . 5.89 4.50 3.19 3.41
September . . . . . . . . . 5.85 4.93 3.17 3.27
October . . . . . . . . . . 5.87 5.07 3.19 3.23
November . . . . . . . . . 5.83 5.48 3.21 3.33
December . . . . . . . . . 5.86 6.09 3.32 3.68
If either Index becomes unpublished or is otherwise unavailable, the Master
Servicer will select an alternative index that is based upon comparable
information.
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ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Loans and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Offered
Certificates, Mortgage Loans may be removed from the Mortgage Pool as a result
of incomplete documentation or otherwise, if the Depositor deems such removal
necessary or appropriate. A limited number of other mortgage loans may be
included in the Mortgage Pool prior to the issuance of the Offered Certificates.
A Current Report on Form 8-K will be available to purchasers of the Offered
Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Offered Certificates. In the event that Mortgage
Loans are removed from or added to the Mortgage Pool as set forth in the
preceding paragraph, such removal or addition will be noted in such Current
Report on Form 8-K.
THE SELLER
The information set forth in the following paragraphs (other than the
information set forth under the caption "--Loan Delinquency, Forbearance,
Foreclosure, Bankruptcy and REO Property Status" and, to the extent provided by
Lomas Mortgage USA, Inc. ("Lomas") or the Master Servicer as described herein,
the information set forth under the caption "--REO Property Liquidation
Experience") has been provided by the Seller. Neither the Depositor, the
Trustee, the Master Servicer nor any of their respective affiliates have made or
will make any representation as to the accuracy or completeness of the
information provided by the Seller. The information set forth below under the
caption "--Loan Delinquency, Forbearance, Foreclosure, Bankruptcy and REO
Property Status" and, other than to the extent provided by the Seller, the
information set forth below under the caption "--REO Property Liquidation
Experience" has been provided by Lomas or the Master Servicer, each in its
capacity as servicer of loans originated or acquired by the Seller during the
relevant periods indicated. No representation is made by the Depositor, the
Seller, the Trustee, the Master Servicer or any of their respective affiliates
as to the accuracy or completeness of the information provided by Lomas.
Quality Mortgage USA, Inc., a California corporation, was incorporated in
1984, and is approved as a non-supervised mortgagee by the U.S. Department of
Housing and Urban Development. Prior to September 1991, the Seller did not
engage in lending activities of the type involved under its present lending
programs, and was owned and operated by persons no longer connected with the
Seller. In September 1991, the Seller was acquired by CALMAC Funding, a Nevada
corporation, for the purpose of commencing operations as an originator and
seller of residential mortgage loans. The Seller began originating and
acquiring mortgage loans under its regular lending program and equity lending
program in January 1992 and September 1992, respectively.
The initial working capital for the Seller's operations was provided by
CALMAC Funding. CALMAC Funding presently owns 51% of the voting stock of the
Seller and has the right to appoint three out of five of the Seller's directors.
Accordingly, CALMAC Funding generally has the rights of a majority shareholder
of the Seller, subject to the rights of DLJMC as described below. CALMAC
Funding also has a consulting agreement with the Seller to provide certain
marketing, administrative, cost containment and expense reduction services to
the Seller including, among other things, the promotion of the Seller's present
lending programs to mortgage brokerage companies. The principal executive
officers of CALMAC Funding, who are also the directors and sole shareholders of
CALMAC Funding, are the former principal executive officers of Guardian Savings
and Loan Association ("Guardian"), a California-chartered, SAIF-insured savings
and loan association which was placed into receivership by the Resolution Trust
Corporation ("RTC") during 1991. In addition, one such principal executive
officer
S-44
<PAGE>
was the shareholder of Guardian's holding company. In December 1995,
the principal executive officers of CALMAC Funding announced that they had
entered into definitive agreements with the RTC and the Office of Thrift
Supervision ("OTS") in full settlement and release of all potential claims which
could be asserted against the principal executive officers of CALMAC, as well as
all former officers and directors of Guardian, by the RTC and the OTS and other
Federal agencies in connection with Guardian without admitting or denying any
such claims. Under the terms of the agreements, the foregoing individuals
agreed to a restitution payment as well as an agreement not to operate a bank or
other federally insured institution without the prior consent and approval by
federal banking regulators.
The Seller's president resigned from that position in 1995 and one of the
Seller's directors continues to serve as interim president pending appointment
of a permanent successor. Concurrently with the foregoing, CALMAC Funding has
taken a more active role in advising the management of the Seller.
The majority of the mortgage loans originated or acquired by the Seller
under its current programs are funded by the purchase thereof under a master
repurchase agreement by DLJMC. It is contemplated that substantially all
mortgage loans originated or acquired by the Seller and approved by DLJMC will
be purchased by DLJMC or an affiliate with a view towards securitization or
other resale transactions in the secondary mortgage market. DLJMC owns 49% of
the voting stock of the Seller. Two employees of DLJMC serve as directors of
the Seller, and pursuant to certain provisions of the applicable agreements,
DLJMC has the right to control certain aspects of the management of the Seller.
In addition, DLJMC maintains one or more mortgage loan underwriters, who are
employees of DLJMC, at the principal executive offices of the Seller for the
purpose of reviewing the underwriting of all the mortgage loans originated or
acquired by the Seller after the origination or acquisition of such mortgage
loans.
At September 30, 1995, the Seller had total assets of $270,699,630, total
liabilities of $242,860,791 and shareholders' equity of $27,838,839. At March
31, 1996, the Seller had total assets of $351,778,985, total liabilities of
$321,546,240, and shareholders' equity of $30,232,744. For the six-months ended
March 31, 1996, the Seller had net income (after taxes) of $2,393,909. The
Seller's principal executive offices are located at 16800 Aston Street, Irvine,
California 92714. The Seller currently maintains additional loan origination
offices at various locations in the States of California, Colorado, Nevada,
Washington, Maryland, Oregon, Missouri, Indiana, Ohio, Minnesota, Pennsylvania,
North Carolina, South Carolina, Kansas, Tennessee, Oklahoma, Wisconsin, Utah,
Louisiana, Arkansas, Kentucky, Illinois, Florida, Idaho, Georgia, Hawaii, New
Mexico, Connecticut, Michigan and Rhode Island.
No person other than the Seller is obligated with respect to the
representations and warranties respecting the Mortgage Loans and the remedies
for any breach thereof that are assigned to the Trustee for the benefit of the
Certificateholders. Moreover, as discussed above, the Seller has only limited
assets available to perform its repurchase obligations in respect of any breach
of such representations and warranties, relative to the potential amount of
repurchase liability, and the total potential amount of repurchase liability is
expected to increase over time as the Seller continues to originate, acquire and
sell mortgage loans. There can be no assurance that the Seller will continue to
generate operating earnings, or that it will be successful under its current
business plan. Therefore, prospective investors in the Certificates should
consider the possibility that the Seller will not have sufficient assets with
which to satisfy its repurchase obligations in the event that a substantial
amount of Mortgage Loans are required to be repurchased due to breaches of
representations and warranties.
The Seller is currently a defendant in several pending lawsuits that
allege, among other things, violations of certain federal and state consumer
credit laws and regulations and related common law claims. The plaintiffs in
three of these lawsuits are seeking class certification but the court in each
such lawsuit has not yet reached a decision on such request. Each of these
lawsuits is in the preliminary stages
S-45
<PAGE>
of litigation. Accordingly, the Seller is unable to predict either the
outcome of any of such lawsuits or whether any adverse outcome would have a
material adverse effect on the Seller's financial condition.
The Seller will retain the right to all prepayment charges and late payment
charges received on the Mortgage Loans and the Certificateholders will have no
right thereto. In addition, it is anticipated that the Seller will be the
holder of a 99.99% Percentage Interest in the Residual Certificates. The Seller
may sell such interest at any time, subject to certain conditions set forth in
the Pooling and Servicing Agreement.
LOAN DELINQUENCY, FORBEARANCE, FORECLOSURE, BANKRUPTCY AND REO PROPERTY STATUS
Based solely upon information provided by Lomas and the Master Servicer,
the tables, below summarize, at the respective dates indicated, the delinquency,
forbearance, foreclosure, bankruptcy and REO property status with respect to all
mortgage loans originated under the Seller's equity lending program or regular
lending program that, in each case, were transferred to REMIC trust funds as of
the respective dates three months prior to the dates indicated. The tables,
below are based solely upon information provided by Lomas, as servicer of
such mortgage loans at or for March 31, 1995 and the Master Servicer, as
servicer of such mortgage loans at or for March 31, 1996, and do not include
information with respect to: (i) mortgage loans not purchased by DLJMC, (ii)
mortgage loans purchased by DLJMC but not transferred to REMIC trust funds,
(iii) mortgage loans originated under the Seller's D Risk regular lending
program, (iv) mortgage loans originated by the Seller under its REO lending
program, (v) fixed rate mortgage loans originated under the Seller's equity
lending program or (vi) GPARM Loans. The delinquency, forbearance, foreclosure,
bankruptcy and REO property status with respect to any of the foregoing types of
Mortgage Loans may vary materially and adversely from the status that appears in
the tables below. The indicated periods of delinquency are based on the number
of days past due on a contractual basis. The monthly payments under all of such
mortgage loans are due on the first day of each calendar month. (The sum of the
amounts and the percentages in the tables below may not equal the totals due to
rounding.)
S-46
<PAGE>
EQUITY LENDING PROGRAM
<TABLE>
<CAPTION>
AT MARCH 31, 1996 AT MARCH 31, 1995
------------------- -------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<C> <S> <S> <S> <S>
Total Loans Outstanding . . . . . . 7,891 $ 516,791 4,078 $ 325,840
DELINQUENCY(1)
Period of Delinquency:
31-60 Days . . . . . . . . . . 635 $ 38,972 98 $7,346
61-90 Days . . . . . . . . . . 160 $ 9,859 19 1,804
91-120 Days or More. . . . . . 569 $ 37,498 8 614
----- -------- --- ----------
Total Delinquencies . . . . . . . 1,364 $ 86,329 125 $ 9,764
----- -------- --- ----------
----- -------- --- ----------
Delinquencies as a Percentage of
Total Loans Outstanding . . . . . . 17.29% 16.70% 3.07% 3.00%
FORBEARANCE LOANS(2) . . . . . . . N/A N/A 2 $202
Forbearance Loans as a Percentage
of Total Loans Outstanding. . . . . 0.00% 0.00% 0.05% 0.06%
FORECLOSURES PENDING(3) . . . . . . 924 $62,661 434 $36,400
Foreclosures Pending as a Percentage
of Total Loans Outstanding. . . . . 11.71% 12.13% 10.64% 11.17%
BANKRUPTCIES PENDING(4) . . . . . . 533 $ 38,477 181 $16,520
Bankruptcies Pending as a Percentage of
Total Loans Outstanding . . . . . . 6.75% 7.45% 4.44% 5.07%
TOTAL DELINQUENCIES PLUS
FORBEARANCE LOANS, FORECLOSURES
PENDING AND BANKRUPTCIES PENDING . 2,821 $187,467 742 $62,886
Total Delinquencies plus Forbearance
Loans, Foreclosures Pending and
Bankruptcies Pending as Percentage
of Total Loans Outstanding. . . . . 35.75% 36.28% 18.20% 19.30%
REO PROPERTIES(5) . . . . . . . . . 433 $ 29,499 62 $6,124
REO Properties as a Percentage of
Total Loans Outstanding . . . . . . 5.49% 5.71% 1.52% 1.88%
</TABLE>
- ------------------
(1) The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were subject to
forbearance agreements with the related mortgagors at the respective dates
indicated ("Forbearance Loans") with respect to the information indicated
in the March 31, 1995 section of the table, (b) delinquent mortgage loans
that were in foreclosure at the respective dates indicated ("Foreclosure
Loans"), (c) delinquent mortgage loans as to which the related mortgagor
was in bankruptcy proceedings at the respective dates indicated
("Bankruptcy Loans") and (d) REO properties that have been purchased by or
on behalf of REMIC trust funds upon foreclosure of the related mortgage
loans (other than REO properties purchased by the Seller as described below
under "--REO Property Liquidation Experience." All Forbearance Loans,
Foreclosure Loans, Bankruptcy Loans and REO properties have been segregated
into the sections of the table entitled "Forbearance Loans," "Foreclosures
Pending," "Bankruptcies Pending" and "REO Properties," respectively, and
are not included in the "31-60 Days," "61-90 Days," "91-120 Days or More"
and "Total Delinquencies" sections of the table. See the section of the
table entitled "Total Delinquencies plus Forbearance Loans, Foreclosures
Pending and Bankruptcies Pending" for total delinquency balances,
percentages and numbers which include Forbearance Loans, Foreclosure Loans
and Bankruptcy Loans, and see the section of the table entitled "REO
Properties" for delinquency balances, percentages and numbers related to
REO properties that have been purchased by or on behalf of REMIC trust
funds upon foreclosure of the related mortgage loans (other than REO
properties purchased by the Seller as described below under "--REO Property
Liquidation Experience").
S-47
<PAGE>
(2) For each of the Forbearance Loans, the servicer has entered into a written
forbearance agreement with the related mortgagor, based on the servicer's
determination that the mortgagor is temporarily unable to make the
scheduled monthly payment on such mortgage loan. Prior to entering into
each forbearance agreement, the servicer confirmed the continued employment
status of the mortgagor and found the payment history of such mortgagor to
be satisfactory. There can be no assurance that the mortgagor will be able
to make the payments as required by the forbearance agreement, and any
failure to make such payments will constitute a delinquency. None of the
Mortgage Loans included in the Mortgage Pool are Forbearance Loans. Any
Forbearance Loans with respect to the information indicated in the March
31, 1996 section of the table are indicated in the delinquency information.
(3) Mortgage loans that are in foreclosure but as to which the mortgaged
property has not been liquidated at the respective dates indicated. It is
generally the policy, with respect to mortgage loans originated by the
Seller, to commence foreclosure proceedings when a mortgage loan is between
31 and 60 days delinquent.
(4) Mortgage loans as to which the related mortgagor is in bankruptcy
proceedings at the respective dates indicated.
(5) REO properties that have been purchased by or on behalf of REMIC trust
funds upon foreclosure of the related mortgage loans, including mortgaged
properties that were purchased by the Seller after the respective dates
indicated, as described below under "--REO Property Liquidation
Experience," but not including mortgaged properties that the Seller had
already purchased as of such dates. In April 1995, the Seller indicated
that it did not intend to purchase additional mortgaged properties, and
since then, the Seller has discontinued its practice of purchasing
mortgaged properties. Consequently, the number of REO properties held by
or on behalf of REMIC trust funds from time to time is expected to
increase. See "--REO Property Liquidation Experience" below.
S-48
<PAGE>
REGULAR LENDING PROGRAM
<TABLE>
<CAPTION>
AT MARCH 31, 1996 AT MARCH 31, 1995
------------------- -------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- ---------- -------- ---------
(DOLLARS IN THOUSANDS)
<C> <S> <S> <S> <S>
Total Loans Outstanding . . . . . . 22,641 $2,186,578 19,474 $2,054,376
DELINQUENCY(1)
Period of Delinquency:
31-60 Days . . . . . . . . . . 877 $86,213 160 $17,623
61-90 Days . . . . . . . . . . 181 $19,083 21 2,471
91-120 Days or More. . . . . . 578 $ 58,271 5 440
----- -------- --- -------
Total Delinquencies . . . . . . . 1,636 $163,567 186 $20,534
----- -------- --- -------
----- -------- --- -------
Delinquencies as a Percentage of
Total Loans Outstanding . . . . . . 7.23% 7.48% 0.96% 1.00%
FORBEARANCE LOANS(2) . . . . . . . N/A N/A 6 $781
Forbearance Loans as a Percentage
of Total Loans Outstanding. . . . . 0.00% 0.00% 0.03% 0.04%
FORECLOSURES PENDING(3) . . . . . . 735 $84,246 595 $72,565
Foreclosures Pending as a Percentage
of Total Loans Outstanding . . . . 3.25% 3.85% 3.06% 3.53%
BANKRUPTCIES PENDING(4) . . . . . . 590 $66,369 268 $33,845
Bankruptcies Pending as a Percentage of
Total Loans Outstanding . . . . . . 2.61% 3.04% 1.38% 1.65%
TOTAL DELINQUENCIES PLUS
FORBEARANCE LOANS, FORECLOSURES
PENDING AND BANKRUPTCIES PENDING . 2,961 $314,182 1,055 $127,726
Total Delinquencies plus Forbearance
Loans, Foreclosures Pending and
Bankruptcies Pending as Percentage of
Total Loans Outstanding . . . . . . 13.08% 14.37% 5.42% 6.22%
REO PROPERTIES(5) . . . . . . . . . 491 $55,651 141 $17,711
REO Properties as a Percentage of
Total Loans Outstanding . . . . . . 2.17% 2.55% 0.72% 0.86%
</TABLE>
- --------------------
(1) The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were subject to
forbearance agreements with the related mortgagors at the respective dates
indicated ("Forbearance Loans") with respect to the information indicated
in the March 31, 1995 section of the table, (b) delinquent mortgage loans
that were in foreclosure at the respective dates indicated ("Foreclosure
Loans"), (c) delinquent mortgage loans as to which the related mortgagor
was in bankruptcy proceedings at the respective dates indicated
("Bankruptcy Loans") and (d) REO properties that have been purchased by or
on behalf of REMIC trust funds upon foreclosure of the related mortgage
loans (other than REO properties purchased by the Seller as described below
under "--REO Property Liquidation Experience." All Forbearance Loans,
Foreclosure Loans, Bankruptcy Loans and REO properties have been segregated
into the sections of the table entitled "Forbearance Loans," "Foreclosures
Pending," "Bankruptcies Pending" and "REO Properties," respectively, and
are not included in the "31-60 Days," "61-90 Days," "91-120 Days or More"
and "Total Delinquencies" sections of the table. See the section of the
table entitled "Total Delinquencies plus Forbearance Loans, Foreclosures
Pending and Bankruptcies Pending" for total delinquency balances,
percentages and numbers which include Forbearance Loans, Foreclosure Loans
and Bankruptcy Loans, and see the section of the table entitled "REO
Properties" for delinquency balances, percentages and numbers related to
REO properties that have been purchased by or on behalf of REMIC trust
funds upon foreclosure of the related mortgage loans (other than
REO properties purchased by the Seller as described below under "--REO
Property Liquidation Experience").
S-49
<PAGE>
(2) For each of the Forbearance Loans, the servicer has entered into a written
forbearance agreement with the related mortgagor, based on the servicer's
determination that the mortgagor is temporarily unable to make the
scheduled monthly payment on such mortgage loan. Prior to entering into
each forbearance agreement, the servicer confirmed the continued employment
status of the mortgagor and found the payment history of such mortgagor to
be satisfactory. There can be no assurance that the mortgagor will be able
to make the payments as required by the forbearance agreement, and any
failure to make such payments will constitute a delinquency. None of the
Mortgage Loans included in the Mortgage Pool are Forbearance Loans. Any
Forbearance Loans with respect to the information indicated in the March
31, 1996 section of the table are indicated in the delinquency information.
(3) Mortgage loans that are in foreclosure but as to which the mortgaged
property has not been liquidated at the respective dates indicated. It is
generally the policy, with respect to mortgage loans originated by the
Seller, to commence foreclosure proceedings when a mortgage loan is between
31 and 60 days delinquent.
(4) Mortgage loans as to which the related mortgagor is in bankruptcy
proceedings at the respective dates indicated.
(5) REO properties that have been purchased by or on behalf of REMIC trust
funds upon foreclosure of the related mortgage loans, including mortgaged
properties that were purchased by the Seller after the respective dates
indicated, as described below under "--REO Property Liquidation
Experience," but not including mortgaged properties that the Seller had
already purchased as of such dates. In April 1995, the Seller indicated
that it did not intend to purchase additional mortgaged properties, and
since then, the Seller has discontinued its practice of purchasing
mortgaged properties. Consequently, the number of REO properties held by or
on behalf of REMIC trust funds from time to time is expected to increase.
See "--REO Property Liquidation Experience" below.
The above data does not include information with respect to mortgage loans
originated or acquired under the D Risk category of the Seller's regular lending
program. Such mortgage loans have not been outstanding long enough to be
transferred to REMIC trust funds as of the respective dates three months prior
to the dates indicated. Prospective investors should be aware that based on the
underwriting standards applicable to such mortgage loans, the delinquency,
forbearance, foreclosure, bankruptcy and REO property percentages with respect
to such mortgage loans may be expected to be higher, and may be substantially
higher, than the percentages indicated above.
The above data on delinquency, forbearance, foreclosure, bankruptcy and REO
property status are calculated on the basis of the total mortgage loans
originated or acquired under the Seller's equity lending program and regular
lending program that, in each case, were transferred to a REMIC trust fund as of
the dates three months prior to the respective dates indicated. However, the
total amount of mortgage loans on which the above data are based includes many
mortgage loans which were not, as of the respective dates indicated, outstanding
long enough to give rise to some of the indicated periods of delinquency, to
foreclosure or bankruptcy proceedings or to forbearance or REO property status.
In the absence of such mortgage loans, the delinquency, forbearance,
foreclosure, bankruptcy and REO property percentages indicated above would be
higher and could be substantially higher. Because the Mortgage Pool will consist
of a fixed group of Mortgage Loans, the actual delinquency, forbearance,
foreclosure, bankruptcy and REO property percentages with respect to the
Mortgage Pool may therefore be expected to be higher, and may be substantially
higher, than the percentages indicated above. Prospective investors should also
be aware that while the information set forth in the table above has been
compiled on the basis of reports that are prepared as of the last day of each
month, monthly remittance reports that will be sent to investors will include
delinquency and foreclosure information on the Mortgage Loans included in
the Mortgage Pool that will be based on reports prepared as of the fifteenth day
of each month (the "Monthly Remittance Reports"), and that the delinquency and
foreclosure information appearing in the Monthly Remittance Reports may
therefore be expected to be higher than would be the case if such information
were based on reports prepared as of the last day of each month. For example,
for purposes of the foregoing tables, a payment due on February 1 would be
treated as 31 to 60 days delinquent only if the payment was not received as of
March 31, while the same payment would be treated as 31 to 60 days delinquent
for purposes of the Monthly Remittance Report in March if the payment was not
received as of March 15. In addition, the delinquency and foreclosure
information appearing in the Monthly Remittance Reports is used in the
calculation of the Senior Prepayment Percentage for the Mortgage Pool.
S-50
<PAGE>
REO PROPERTY LIQUIDATION EXPERIENCE
The pooling and servicing agreements relating to the REMIC trust funds to
which mortgage loans originated or acquired under the Seller's equity lending
program and regular lending program were transferred by the Depositor prior to
October 1, 1995 (the "REMIC Agreements") permit the Seller at its sole option to
purchase any mortgaged property acquired or about to be acquired by foreclosure
by the servicer thereof on behalf of the related trustee, provided, that if the
Seller fails to purchase any two of such mortgaged properties from a REMIC trust
fund, the Seller will forfeit such option to purchase any further mortgaged
properties from such REMIC trust fund. Prior to April 1995, the Seller had not
declined to exercise the foregoing purchase option. However, in April 1995, the
Seller indicated that it did not intend to purchase additional mortgaged
properties as described above. Since then, the Seller has discontinued its
practice of purchasing mortgaged properties pursuant to the foregoing provisions
of the above-referenced REMIC Agreements.
The tables below summarize, respectively, for the periods indicated (i) the
total number of mortgage loans originated or acquired under the Seller's equity
lending program and regular lending program and transferred to REMIC trust
funds, and the aggregate outstanding principal balance thereof at origination,
and (ii) the combined experience of the Seller, Lomas and the Master Servicer ,
as servicer of such mortgage loans during the periods indicated, as of March 31,
1996 with respect to all REO properties relating to such mortgage loans that
were transferred to REMIC trust funds as of December 31, 1995. The experience
of the Seller reflected in the tables below relates to the period ending in
April 1995, during which the Seller purchased mortgaged properties as described
above, and to REO properties acquired by the Seller during such period and
liquidated thereafter. The experience of Lomas and the Master Servicer
reflected in the tables below relates to the period beginning in April 1995,
following the Seller's decision to discontinue its practice of purchasing
mortgaged properties as described above, and
S-51
<PAGE>
to REO properties acquired and liquidated by the respective REMIC trust funds
after such decision. The tables below are based solely upon information
provided by the Seller, Lomas and the Master Servicer, and such tables do not
include information with respect to (i) mortgage loans not purchased by
DLJMC, (ii) mortgage loans purchased by DLJMC but not transferred to REMIC
trust funds, (iii) mortgage loans originated under the Seller's D Risk
regular lending program, (iv) mortgage loans originated by the Seller under
its REO lending program, (v) fixed rate mortgage loans originated under the
Seller's equity lending program or (vi) GPARM Loans. The REO property
experience with respect to any of the foregoing types of Mortgage Loans may
vary materially and adversely from the experience shown in the tables below.
EQUITY LENDING PROGRAM
<TABLE>
<CAPTION>
SEPTEMBER 21, 1992(1)
THROUGH
DECEMBER 31, 1995
---------------------
<S> <C>
Aggregate Principal Balance at Origination . . . . . . . $757,832,225
Total Number of Loans . . . . . . . . . . . . . . . . . 10,905
OCTOBER 12, 1993(2)
THROUGH
MARCH 31, 1996
---------------------
Total Number of Liquidated Properties(3) . . . . . . . . 199
Aggregate Principal Balance of Liquidated Properties(4). $19,758,876
Aggregate Net Gains/(Losses)(5) . . . . . . . . . . . . $(5,131,240)
Average Net Gain/(Loss) per Liquidated Property(6) . . . (25.97)%
</TABLE>
- ---------------
(1) The Seller began originating and acquiring mortgage loans under its equity
lending program on September 21, 1992.
(2) Prior to October 12, 1993, no mortgaged property securing a mortgage loan
included in any REMIC trust fund had been acquired by foreclosure on behalf
of the trustee under the related REMIC Agreement. Accordingly, prior to
October 12, 1993, the Seller did not have any opportunity to exercise its
option to purchase any mortgaged properties acquired or about to be
acquired by foreclosure on behalf of a trustee under the provisions of the
REMIC Agreements.
(3) Total number of REO properties that were finally liquidated during the
indicated period (each, a "Liquidated Property"), including by sale with
Seller-provided financing.
(4) Aggregate of the outstanding principal balances of the related mortgage
loans at the respective dates such mortgage loans were converted to REO
property status (not including accrued interest).
(5) As to each Liquidated Property, the Net Gain/(Loss) is equal to (a) all
amounts received in connection with the liquidation of such Liquidated
Property (including the net proceeds of any Seller-provided financing),
minus (b) the unpaid principal balance, foreclosure costs, accrued interest
and all liquidation expenses related to such Liquidated Property.
(6) Aggregate Net Gains/(Losses) divided by the Aggregate Balance of Liquidated
Properties.
S-52
<PAGE>
REGULAR LENDING PROGRAM
<TABLE>
<CAPTION>
JANUARY 17, 1992 THROUGH
DECEMBER 31, 1995(1)
------------------------
<S> <C>
Aggregate Principal Balance at Origination . . . . . . $3,228,749,875
Total Number of Loans . . . . . . . . . . . . . . . . 31,760
OCTOBER 1, 1992 THROUGH
MARCH 31, 1996(2)
------------------------
Total Number of Liquidated Properties(3) . . . . . . . 533
Aggregate Principal Balance of Liquidated Properties(4) $70,532,498
Aggregate Net Gains/(Losses)(5) . . . . . . . . . . . $(20,548,223)
Average Net Gain/(Loss) per Liquidated Property(6) . . (29.13)%
</TABLE>
- ---------------------
(1) The Seller began originating and acquiring mortgage loans under its regular
lending program on January 17, 1992.
(2) Prior to October 1, 1992, no mortgaged property securing a mortgage loan
included in any REMIC trust fund had been acquired by foreclosure on behalf
of the trustee under the related REMIC Agreement. Accordingly, prior to
October 1, 1992, the Seller did not have any opportunity to exercise its
option to purchase any mortgaged properties acquired or about to be
acquired by foreclosure on behalf of a trustee under the provisions of the
REMIC Agreements.
(3) Total number of REO properties that were finally liquidated during the
indicated period (each, a "Liquidated Property"), including by sale with
Seller-provided financing.
(4) Aggregate of the outstanding principal balances of the related mortgage
loans at the respective dates such mortgage loans were converted to REO
property status (not including accrued interest).
(5) As to each Liquidated Property, the Net Gain/(Loss) is equal to (a) all
amounts received in connection with the liquidation of such Liquidated
Property (including the net proceeds of any Seller-provided financing),
minus (b) the unpaid principal balance, foreclosure costs, accrued interest
and all liquidation expenses related to such Liquidated Property.
(6) Aggregate Net Gains/(Losses) divided by the Aggregate Balance of Liquidated
Properties.
The above data on loss experience are calculated on the basis of the total
mortgage loans originated or acquired under the Seller's equity lending program
or regular lending program that were transferred to REMIC trust funds as of
December 31, 1995. However, the total amount of mortgage loans on which the
above data are based includes many mortgage loans which were not, as of December
31, 1995, outstanding long enough to give rise to the possibility of default and
final liquidation. The loss experience with respect to the Mortgage Pool may be
expected to be higher, and may be substantially higher, than indicated above.
The Seller will have no right to purchase Mortgaged Properties from the
Trust Fund as described above. Consequently, any losses incurred upon the
liquidation of defaulted Mortgage Loans will be borne by the Certificateholders
as described herein under "Description of the Certificates--Allocation of
Losses; Subordination," unless the related Mortgaged Properties are purchased by
the Master Servicer as
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described herein under "Description of the Certificates--Optional Purchase of
the Delinquent Mortgage Loans." Further, Seller-provided financing has been
used to facilitate the sale of REO properties from time to time. Such
financing may have had the effect of minimizing losses that might otherwise
have been incurred upon the liquidation of REO properties if financing on
terms equivalent to those provided by the Seller were not available from
other sources at the time of sale. However, neither the Depositor, the
Underwriter, the Seller, the Master Servicer, the Trustee nor any other
person will have any obligation to purchase Mortgaged Properties from the
Trust Fund as described above or to provide financing to facilitate the sale
of REO properties. THERE CAN BE NO ASSURANCE THAT THE LOSS EXPERIENCE FOR
FUTURE DISPOSITIONS OF MORTGAGED PROPERTIES ON BEHALF OF THE TRUST FUND WILL
BE SIMILAR TO THE LOSS EXPERIENCE INDICATED IN THE FOREGOING TABLES.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1996-Q6 Mortgage Pass-Through Certificates (the "Certificates")
will consist of the following seven Classes: (i) Class SA Certificates (the
"Variable Strip Certificates"), (ii) Class A-1 Certificates and Class A-2
Certificates (collectively, with the Variable Strip Certificates, the "Senior
Certificates"), (iii) Class B-1 Certificates and Class B-2 Certificates
(together, the "Class B Certificates"), (iv) Class SB Certificates and (v) Class
R Certificates (the "Residual Certificates"). Only the Senior Certificates and
the Class B-1 Certificates (collectively, the "Offered Certificates") are
offered hereby.
The Certificates will, in the aggregate, evidence the entire beneficial
ownership interest in a trust fund (the "Trust Fund"). The Trust Fund will
consist of (i) the Mortgage Loans, (ii) such assets as from time to time are
identified as deposited in respect of the Mortgage Loans in the account
established by the Master Servicer for the collection of payments on the
Mortgage Loans (the "Custodial Account") and in the Excess Proceeds Account and
the Certificate Account (each as defined herein) and as belonging to the Trust
Fund, (iii) property acquired by foreclosure of such Mortgage Loans or by deed
in lieu of foreclosure, (iv) any applicable hazard insurance policies, any other
applicable insurance policies and all proceeds thereof and (v) the
representations and warranties made by the Seller with respect to the Mortgage
Loans.
Distributions on the Offered Certificates will be made on the 25th day of
each month or, if such day is not a business day, then on the next succeeding
business day (each, a "Distribution Date"), commencing in July 1996, to
Certificateholders of record on the immediately preceding Record Date. The
record date (the "Record Date") for each Distribution Date will be the close of
business on the last business day of the month immediately preceding the month
in which such Distribution Date occurs.
Distributions on the Offered Certificates will be made to each registered
holder entitled thereto, either (i) by check mailed to the address of such
Certificateholder as it appears on the books of the Trustee or (ii) at the
request, submitted to the Trustee in writing at least five business days prior
to the related Record Date, of any holder of an Offered Certificate having an
initial Certificate Principal Balance of not less than $2,500,000 (or, with
respect to a Variable Strip Certificate, an initial Notional Amount of not less
than $10,000,000), by wire transfer in immediately available funds, provided,
that the final distribution in respect of any Offered Certificate will be made
only upon presentation and surrender of such Certificate at the Corporate Trust
Office of the Trustee. See "Pooling and Servicing Agreement--The Trustee"
herein.
The Offered Certificates (the "DTC Registered Certificates") will be
issued, maintained and transferred on the book-entry records of the Depository
Trust Company ("DTC") and its Participants. The DTC Registered Certificates will
be issued in minimum denominations (or, in the case of the Variable Strip
Certificates, in initial Notional Amounts) of $1.00 and integral multiples of
$1.00 in excess thereof.
The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Depositor has
been informed by DTC that DTC's nominee will be Cede & Co. ("Cede"). No person
acquiring an interest in the DTC Registered Certificates (each, a "Beneficial
Owner") will be entitled to receive a certificate representing such person's
interest (a "Definitive Certificate"), except as set forth below under "--
Book-Entry Registration of the DTC Registered Certificates--Definitive
Certificates." Unless and until Definitive Certificates are issued for the DTC
Registered Certificates under the limited circumstances described herein, all
references to actions by Certificateholders with respect to the DTC Registered
Certificates shall refer to actions taken by DTC upon instructions from its
Participants, and all references herein to distributions, notices, reports and
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statements to Certificateholders with respect to the DTC Registered Certificates
shall refer to distributions, notices, reports and statements to DTC or Cede, as
the registered holder of the DTC Registered Certificates, for distribution to
Beneficial Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION OF THE DTC REGISTERED CERTIFICATES
GENERAL. Beneficial Owners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the related DTC Registered Certificates may do so only
through Participants and Indirect Participants. In addition, Beneficial Owners
will receive all distributions of principal and interest on the related DTC
Registered Certificates through DTC and its Participants. Accordingly,
Beneficial Owners may experience delays in their receipt of payments. Unless and
until Definitive Certificates are issued for the related DTC Registered
Certificates, it is anticipated that the only registered Certificateholder of
such DTC Registered Certificates will be Cede, as nominee of DTC. Beneficial
Owners will not be recognized by the Trustee or the Master Servicer as
Certificateholders, as such term is used in the Pooling and Servicing Agreement,
and Beneficial Owners will be permitted to receive information furnished to
Certificateholders and to exercise the rights of Certificateholders only
indirectly through DTC, its Participants and Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
DTC Registered Certificates among Participants and to receive and transmit
distributions of principal and of interest on such DTC Registered Certificates.
Participants and Indirect Participants with which Beneficial Owners have
accounts with respect to such DTC Registered Certificates similarly are required
to make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess physical certificates evidencing their interests in the
DTC Registered Certificates, the Rules provide a mechanism by which Beneficial
Owners, through their Participants and Indirect Participants, will receive
distributions and will be able to transfer their interests in the DTC Registered
Certificates.
None of the Depositor, the Master Servicer or the Trustee or any of their
respective affiliates will have any liability for any actions taken by DTC or
its nominee, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the DTC Registered Certificates held by Cede, as nominee for DTC,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
DEFINITIVE CERTIFICATES. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates--Book-Entry Registration."
Upon the occurrence of an event described in the Prospectus in the last
paragraph under "Description of the Certificates--Book-Entry Registration," the
Trustee (through DTC) is required to notify Participants who have ownership of
DTC Registered Certificates as indicated on the records of DTC of the
availability of Definitive Certificates for their DTC Registered Certificates.
Upon surrender by DTC of the definitive certificates representing the DTC
Registered Certificates and upon receipt of instructions from DTC for
re-registration, the Trustee will re-issue the DTC Registered Certificates as
Definitive Certificates in the respective principal amounts owned by individual
Beneficial Owners, and thereafter the Trustee and the Master Servicer will
recognize the holders of such Definitive Certificates as Certificateholders
under the Pooling and Servicing Agreement. Such Definitive Certificates will be
issued in minimum denominations of $1,000, except that any certificate that was
represented by a DTC Registered Certificate in an amount less than $1,000
immediately prior to the issuance of a Definitive
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Certificate shall be issued in a minimum denomination equal to the amount
represented by such DTC Registered Certificate.
For additional information regarding DTC and the DTC Registered
Certificates, see "Description of the Certificates--Book-Entry Registration" in
the Prospectus.
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for any Distribution Date will equal
(a) the sum of (i) the balance on deposit in the Custodial Account as of the
close of business on the related Determination Date, (ii) all Advances made with
respect to such Distribution Date and (iii) certain related amounts to be
deposited by the Master Servicer in the Certificate Account, reduced by (b) the
sum of (i) scheduled payments on the Mortgage Loans collected but due after the
related Due Date, (ii) reinvestment income on amounts in the Custodial Account,
(iii) all amounts reimbursable to the Master Servicer or any subservicer in
respect of the Mortgage Loans and (iv) any unscheduled payments, including
mortgagor prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation
Proceeds and proceeds from repurchases of the Mortgage Loans occurring in the
month of such Distribution Date. With respect to any Distribution Date, (i) the
Due Date is the first day of the month in which such Distribution Date occurs
and (ii) the Determination Date is the 15th day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
preceding business day.
INTEREST DISTRIBUTIONS
Holders of the Variable Strip Certificates and the Class A-1 Certificates
will be entitled to receive interest distributions in an amount equal to the
Accrued Certificate Interest (as defined herein) for each such Class on each
Distribution Date (for such Certificates in the aggregate, the "Priority
Interest Distribution Amount"), to the extent of the Available Distribution
Amount for such Distribution Date. Holders of the Class A-2 Certificates will
be entitled to receive interest distributions in an amount equal to the Accrued
Certificate Interest for such Class on each Distribution Date, to the extent of
the portion of the Available Distribution Amount for such Distribution Date
remaining after the Priority Interest Distribution Amount is distributed and
after distributions in respect of principal to the Class A-1 Certificates.
Holders of the Class B-1 Certificates will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate Interest for such
Class on each Distribution Date, to the extent of the portion of the Available
Distribution Amount for such Distribution Date remaining after the Priority
Interest Distribution Amount is distributed, principal is distributed to the
Class A-1 Certificates and interest and principal are distributed to the Class
A-2 Certificates and reimbursement is made to the Master Servicer for certain
Advances as described herein. Holders of the Class B-2 Certificates will be
entitled to receive interest distributions in an amount equal to the Accrued
Certificate Interest for such Class on each Distribution Date, to the extent of
the portion of the Available Distribution Amount for such Distribution Date
remaining after the Priority Interest Distribution Amount is distributed,
principal is distributed to the Class A-1 Certificates and interest and
principal are distributed to the Class A-2 Certificates and the Class B-1
Certificates, and reimbursement is made to the Master Servicer for certain
Advances as described herein.
Holders of the Class SB Certificates will not be entitled to receive
interest distributions on any Distribution Date prior to the Class B Certificate
Termination Date. The Class B Certificate Termination Date is the Distribution
Date upon which the Certificate Principal Balances of the Class B-1 Certificates
and the Class B-2 Certificates are reduced to zero. On each Distribution Date,
the interest accrued and unpaid on the Class SB Certificates, computed in the
manner described below and to the extent such interest otherwise would have been
distributed to the Class SB Certificates for such Distribution Date together
with the amount of any Deferred Interest allocated thereto (such amount, the
"Class SB Accrual Amount") will have the effect of increasing the Certificate
Principal Balance of the Class R Certificates
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(except to the extent of any concurrent reduction thereof resulting from the
allocation of any Realized Loss thereto) and will be carried forward as part
of the Outstanding Class SB Unpaid Interest Amount (as defined herein)
distributable in respect of the Class SB Certificates, as and to the extent
described herein, on subsequent Distribution Dates. On each Distribution
Date prior to the Class B Certificate Termination Date, the Class SB Accrual
Amount will be equal to the entire amount of the Accrued Certificate Interest
on the Class SB Certificates for such Distribution Date. On each
Distribution Date on or after the Class B Certificate Termination Date,
holders of the Class SB Certificates will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate Interest thereon
for such Distribution Date to the extent of the portion of the Remaining
Available Distribution Amount (as defined herein) for such Distribution Date
remaining after distributions of the Senior Accrual Diversion Amount,
distributions of any Loss Reimbursement Payment (as defined herein), and
distributions on the Class B Certificates and reimbursement to the holders of
the Class A-1 Certificates, the Class A-2 Certificates and the Class B
Certificates described below under "--Additional Principal Distributions on
the Certificates." In addition, on each Distribution Date on or after the
Class B Certificate Termination Date, holders of the Class SB Certificates
will be entitled to receive interest distributions in an amount up to the
Outstanding Class SB Unpaid Interest Amount for such Distribution Date to the
extent of the portion of the Available Distribution Amount for such
Distribution Date remaining immediately prior to the distributions described
below on the Class R Certificates.
Holders of the Class R Certificates will not be entitled to receive
interest distributions on any Distribution Date prior to the Class B Certificate
Termination Date. On each Distribution Date on or prior to the Class B
Certificate Termination Date, the interest accrued and unpaid on the Class R
Certificates, computed in the manner described below and to the extent such
interest otherwise would have been distributed to the Class R Certificates for
such Distribution Date (such amount, the "Class R Accrual Amount") will be added
to the Certificate Principal Balance of the Class R Certificates (except to the
extent of any concurrent reduction thereof resulting from the allocation of any
Realized Loss thereto). On each Distribution Date occurring on or after the
Class B Certificate Termination Date, after the Outstanding Class SB Unpaid
Interest Amount has been reduced to zero, holders of the Class R Certificates
will be entitled to receive interest distributions in an amount equal to the
Accrued Certificate Interest thereon to the extent of the portion of the
Remaining Available Distribution Amount for such Distribution Date remaining
after distributions of the Senior Accrual Diversion Amount, distributions of any
Loss Reimbursement Payment, distributions to the Class B Certificates and
distributions of interest to the holders of the Class SB Certificates.
In the event that the amount available for interest distributions on the Class R
Certificates on any Distribution Date on or after the Class B Certificate
Termination Date is less than the amount of interest to which the holders of the
Class R Certificates are entitled to be paid on such Distribution Date, the
difference between such amounts will not be carried forward to subsequent
Distribution Dates and such difference will not be added to the Certificate
Principal Balance of the Class R Certificates.
With respect to any Distribution Date, Accrued Certificate Interest will be
equal to: (a) in the case of the Class A-1 Certificates, the Class A-2
Certificates, the Class B Certificates and the Class R Certificates, one month's
interest accrued during the Accrual Period on the Certificate Principal Balance
(as in effect immediately prior to such Distribution Date) of the Certificates
of such Class at the related Pass-Through Rate and (b) in the case of the
Variable Strip Certificates and the Class SB Certificates, one month's interest
accrued during the Accrual Period on the Notional Amount (as in effect
immediately prior to such Distribution Date) at the related Pass-Through Rate;
in each case less interest shortfalls, if any, for such Distribution Date not
covered (I) with respect to the Senior Certificates (other than the Class A-2
Certificates), by the Subordination provided by the Class A-2 Certificates, the
Class B Certificates, the Class SB Certificates and the Class R Certificates,
(II) with respect to the Class A-2 Certificates, by the Subordination provided
by the Class B Certificates, the Class SB Certificates and the Class R
Certificates and (III) with respect to the Class B-1 Certificates, by the
Subordination provided by the Class B-2 Certificates, Class SB Certificates and
the Class R Certificates, including (i) any related
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Prepayment Interest Shortfall (as defined below) to the extent not covered by
the Master Servicer as described below, (ii) the interest portions of
Realized Losses (including Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses and Extraordinary Losses) not allocated through
Subordination, (iii) the interest portion of any Advances that were made with
respect to delinquencies that were ultimately determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses, (iv) any Deferred Interest for such Distribution Date allocated
thereto as described herein, and (v) any other interest shortfalls not
covered by Subordination, including interest shortfalls relating to the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief
Act"), or similar legislation or regulations, all allocated among the holders
of all Classes of Certificates in proportion to the respective amounts of
Accrued Certificate Interest for such Distribution Date on each such Class,
before taking into account any such shortfall. In the case of the Class A-2
Certificates, the Class B Certificates, the Class SB Certificates and the
Class R Certificates, Accrued Certificate Interest will be further reduced by
the allocation of the interest portion of certain losses thereto, if any, as
described below under "--Allocation of Losses; Subordination." The Accrual
Period for each Distribution Date will be from the 25th day of the month
preceding such Distribution Date to the 24th day of the month of such
Distribution Date, provided, however, that the Accrual Period will be treated
as a 30-day period regardless of the number of days from the 25th day of the
preceding month to the 24th day of such month. Accrued Certificate Interest
is calculated on the basis of a 360-day year consisting of twelve 30-day
months.
On each Distribution Date, the aggregate amount of Deferred Interest, if
any, that is added to the principal balance of the GPARM Loans on the Due Date
occurring in the month in which such Distribution Date occurs will be allocated
by operation of the payment provisions described herein as follows: first, to
the Class R Certificates, second, to the Class SB Certificates, third, to the
Class B-2 Certificates, fourth to the Class B-1 Certificates, fifth to the Class
A-2 Certificates, and sixth, to the Class A-1 Certificates, in each case to the
extent of the Accrued Certificate Interest thereon as calculated under the above
described provisions without regard to the allocation of Deferred Interest
thereto. Deferred Interest allocated to a Class of Certificates on any
Distribution Date will be added to the Certificate Principal Balance thereof
(or, in the case of any Deferred Interest allocated to the Class SB
Certificates, to the Certificate Principal Balance of the Class R Certificates)
on such Distribution Date and will thereafter bear interest at the then
applicable Pass-Through Rate.
The Prepayment Interest Shortfall for any Distribution Date is equal to the
aggregate shortfall, if any, in collections of interest (adjusted to the related
Net Mortgage Rates as described below) resulting from principal prepayments on
the Mortgage Loans received in the preceding calendar month (each, a "Prepayment
Period"). Such shortfalls will result because interest on prepayments in full is
distributed only to the date of prepayment and because no interest is collected
or distributed on prepayments in part, as such prepayments in part are applied
to reduce the outstanding principal balance of such Mortgage Loan as of the Due
Date in the month of prepayment. The Master Servicer will be obligated to apply
amounts otherwise payable to it as servicing compensation in any month to cover
any shortfalls in collections of one full month's interest at the applicable Net
Mortgage Rate resulting from principal prepayments.
In the event that the amount available for distributions of interest on the
Senior Certificates (other than the Class A-2 Certificates) on any Distribution
Date is less than the Priority Interest Distribution Amount for such
Distribution Date, the shortfall will be allocated among the holders of such
Classes of Senior Certificates in proportion to the respective amounts of
Accrued Certificate Interest for such Distribution Date on each such Class.
With respect to any shortfall in the amount available for distributions of
interest on any particular Class of Certificates on any Distribution Date, the
amount of such shortfall will be distributable to the holders of the
Certificates of such Class on subsequent Distribution Dates, to the extent of
available funds after distributions as required herein, subject to the
priorities described herein. Any such amounts so carried forward will not bear
interest.
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On the first Distribution Date, the Pass-Through Rate on the Class A-1
Certificates, Class A-2 Certificates, Class B-1 Certificates, Class B-2
Certificates and Class R Certificates will be approximately 5.965% per annum.
The Pass-Through Rate on each such Class of Certificates for each Distribution
Date thereafter will be equal to One-Month LIBOR plus 0.50%; provided, however,
that the Pass-Through Rate on each such Class of Certificates will be subject to
a maximum rate as of any Distribution Date equal to the lesser of (i) 12.00% per
annum and (ii) the Net Mortgage Rate Cap. The Net Mortgage Rate Cap is a per
annum rate equal to the weighted average of the Net Mortgage Rates on the then-
outstanding Mortgage Loans minus 1.55%. The Pass-Through Rate on the Variable
Strip Certificates will be equal to the excess, if any, of the weighted average
Net Mortgage Rate over the sum of (i) the Pass-Through Rate on the Class A-1
Certificates, Class A-2 Certificates, Class B Certificates and Class R
Certificates and (ii) 1.55%. The Pass-Through Rate on the Variable Strip
Certificates with respect to the first Distribution Date will be approximately
2.825% per annum. The Pass-Through Rate on the Class SB Certificates will be
equal to 1.55% per annum. The Net Mortgage Rate on each Mortgage Loan is equal
to the Mortgage Rate thereon minus 0.50% per annum; in the case of the Mortgage
Loans originated under the Seller's regular lending program, and 0.75% per annum
in the case of the Mortgage Loans originated or acquired under the Seller's
equity lending program, the annual rate at which the related servicing fee
thereon accrues (the "Servicing Fee Rate").
As described herein, the Accrued Certificate Interest allocable to each
Class of Certificates is based on the Certificate Principal Balance of the
related Class or, in the case of the Variable Strip Certificates and the Class
SB Certificates, on the Notional Amount. The Certificate Principal Balance of
any Class A-1 Certificate, Class A-2 Certificate or Class B Certificate as of
any date of determination is equal to the initial Certificate Principal Balance
thereof and reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such Certificate and (b) any reductions
in the Certificate Principal Balance thereof deemed to have occurred in
connection with allocations of Realized Losses in the manner described herein;
provided, however, that (i) after the aggregate Certificate Principal Balance of
the Class B Certificates has been reduced to zero and if the Certificate
Principal Balance of the Class R Certificates would be equal to zero if
determined without regard to this proviso, the Certificate Principal Balance of
any Class A-2 Certificate remaining shall equal the Percentage Interest
evidenced thereby, multiplied by the excess, if any, of (x) the then aggregate
Stated Principal Balance of all of the Mortgage Loans over (y) the then
aggregate Certificate Principal Balances of all of the Class A-1 Certificates,
(ii) after the Certificate Principal Balance of the Class B-2 Certificates has
been reduced to zero and if the Certificate Principal Balance of the Class R
Certificates would be equal to zero if determined without regard to this
proviso, the Certificate Principal Balance of any Class B-1 Certificate shall
equal the Percentage Interest evidenced thereby multiplied by the excess, if
any, of (x) the then aggregate Stated Principal Balance of all of the Mortgage
Loans over (y) the then aggregate Certificate Principal Balance of the Class A-1
Certificates and the Class A-2 Certificates and (iii) if after the Certificate
Principal Balance of Class R Certificates would be equal to zero if determined
without regard to this proviso, the Certificate Principal Balance of any
Class B-2 Certificate shall equal the Percentage Interest evidenced thereby
multiplied by the excess, if any, of (x) the then aggregate Stated Principal
Balance of all of the Mortgage Loans over (y) the then aggregate Certificate
Principal Balance of the Class A-1 Certificates, Class A-2 Certificates and
Class B-1 Certificates. The Certificate Principal Balance of any Class R
Certificate as of any date of determination is equal to the Percentage Interest
evidenced thereby multiplied by the excess, if any, of (x) the then aggregate
Stated Principal Balance of the Mortgage Loans over (y) the then aggregate
Certificate Principal Balances of the Senior Certificates and the Class B
Certificates. The Variable Strip Certificates and the Class SB Certificates
have no Certificate Principal Balance. The Notional Amount of the Variable
Strip Certificates and the Class SB Certificates, as of any date of
determination, will be equal to the aggregate Stated Principal Balances of all
of the Mortgage Loans, except that the initial Notional Amount of the Variable
Strip Certificates and the Class SB Certificates will be rounded down to the
nearest dollar increment. References herein to the Notional Amount of any Class
of Certificates are used solely for convenience in certain calculations and do
not represent the right of holders of such Certificates to receive distributions
of such amounts.
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CALCULATION OF ONE-MONTH LIBOR
The Pass-Through Rate on the Class A-1 Certificates, Class A-2
Certificates, Class B-1 Certificates, Class B-2 Certificates and Class R
Certificates, on the first Distribution Date will be 5.965% per annum.
Thereafter, on the second business day preceding each Distribution Date (each
such date, an "Interest Determination Date"), the Trustee will determine
"One-Month LIBOR" for the Distribution Date in the following month for the Class
A-1 Certificates, Class A-2 Certificates, Class B-1 Certificates, Class B-2
Certificates and Class R Certificates, on the basis of the offered rates of the
Reference Banks for one-month U.S. dollar deposits, as such rates appear on the
Reuter Screen LIBO Page, as of 11:00 a.m. (London time) on such Interest
Determination Date. As used in this section, "business day" means a day on
which banks are open for dealing in foreign currency and exchange in London and
New York City; "Reuter Screen LIBO Page" means the display designated as page
"LIBO" on the Reuter Monitor Money Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks); and "Reference Banks" means leading
banks selected by the Trustee and engaged in transactions in Eurodollar deposits
in the international Eurocurrency market (i) with an established place of
business in London, (ii) whose quotations appear on the Reuter Screen LIBO Page
on the Interest Determination Date in question, (iii) which have been designated
as such by the Trustee and (iv) not controlling, controlled by, or under common
control with, the Depositor or any Seller or any affiliate thereof.
On each Interest Determination Date, One-Month LIBOR for the Distribution
Date in the following month for the Class A-1 Certificates, Class A-2
Certificates, Class B-1 Certificates, Class B-2 Certificates and Class R
Certificates, will be established by the Trustee as follows:
(a) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, One-Month LIBOR for the Distribution
Date in the following month shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple of
0.0625%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the Distribution
Date in the following month shall be the higher of (x) One-Month LIBOR as
determined on the previous Interest Determination Date and (y) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
that the Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 0.0625%) of the
one-month U.S. dollar lending rates which New York City banks selected by
the Trustee are quoting on the relevant Interest Determination Date to the
principal London offices of leading banks in the London interbank market
or, in the event that the Trustee can determine no such arithmetic mean,
(ii) the lowest one-month U.S. dollar lending rate which New York City
banks selected by the Trustee are quoting on such Interest Determination
Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Trustee and the Trustee's calculation of the rate of interest applicable to
the Class A-1 Certificates, Class A-2 Certificates, Class B-1 Certificates,
Class B-2 Certificates and Class R Certificates, for the Distribution Date in
the following month shall (in the absence of manifest error) be final and
binding.
PRINCIPAL DISTRIBUTIONS ON THE CLASS A-1 CERTIFICATES
Holders of the Class A-1 Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the Available Distribution
Amount remaining after distributions of the Priority Interest Distribution
Amount, a distribution allocable to principal equal to the sum of the following
amounts:
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(i) the product of (A) the then-applicable Class A-1 Percentage and
(B) the Scheduled Principal and Net Recoveries (as defined below) for such
Distribution Date;
(ii) an amount equal to (A) the then-applicable Class A-1 Percentage
divided by the then-applicable Senior Percentage multiplied by (B) the
then-applicable Senior Prepayment Percentage of all principal prepayments
made by the respective mortgagors during the related Prepayment Period;
(iii) in connection with a Mortgage Loan for which a Cash Liquidation
or an REO Disposition (each as defined below) occurred during the related
Prepayment Period and did not result in any Excess Special Hazard Losses,
Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, an
amount equal to the lesser of (A) the then-applicable Class A-1 Percentage
of the Stated Principal Balance of such Mortgage Loan and (B)(1) the Class
A-1 Percentage for such Distribution Date divided by the Senior Percentage
for such Distribution Date multiplied by (2) the Senior Prepayment
Percentage for such Distribution Date multiplied by the related collections
(including without limitation Insurance Proceeds and Liquidation Proceeds)
to the extent applied as recoveries of principal of such Mortgage Loan; and
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated as described in the three preceding clauses) that remain
undistributed to the extent that any such amounts are not attributable to
Realized Losses that were allocated to the Class A-2 Certificates, the
Class B Certificates, the Class SB Certificates or the Class R
Certificates.
With respect to any Distribution Date, the lesser of (a) the balance of the
Available Distribution Amount remaining after the Priority Interest Distribution
Amount is distributed and (b) the sum of the amounts described in clauses (i)
through (iv) of the preceding paragraph is hereinafter referred to as the "Class
A-1 Principal Distribution Amount."
In addition to the foregoing amounts, the Class A-1 Certificates may be
entitled to receive on each Distribution Date, an additional distribution
allocable to principal as described below under "--Additional Principal
Distributions on the Certificates."
Scheduled Principal and Net Recoveries for any Distribution Date is equal
to the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments on the
Mortgage Loans due on the related Due Date, whether or not received on or
prior to the related Determination Date, less the principal portion of Debt
Service Reductions (as defined below) which constitute Excess Bankruptcy
Losses;
(2) the principal portion of all proceeds of the repurchase of a
Mortgage Loan as required by the Pooling and Servicing Agreement during the
related Prepayment Period; and
(3) the principal portion of all Insurance Proceeds and Liquidation
Proceeds received during the related Prepayment Period minus the aggregate
amount of expenses incurred by the Master Servicer in connection with the
liquidation of the related Mortgage Loans to the extent such expenses are
not otherwise recoverable from related Liquidation Proceeds, but only to
the extent that any such amounts either (A) were not received in connection
with a Cash Liquidation or REO Disposition, or (B) were received in
connection with a Cash Liquidation or REO Disposition which resulted in an
Excess Special Hazard Loss, Excess Bankruptcy Loss, Excess Fraud Loss or
Extraordinary Loss.
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A Cash Liquidation of a defaulted Mortgage Loan, other than a Mortgage Loan
as to which an REO Disposition occurred, is deemed to have occurred upon the
final receipt by or on behalf of the Master Servicer of all Insurance Proceeds,
Liquidation Proceeds and other payments or cash recoveries which the Master
Servicer reasonably and in good faith expects to be finally recoverable with
respect to such Mortgage Loan.
An REO Disposition is deemed to have occurred upon the final receipt by the
Master Servicer of all Insurance Proceeds, Liquidation Proceeds and other
payments and recoveries (including proceeds of a final sale) which the Master
Servicer reasonably and in good faith expects to be finally recoverable from the
sale or other disposition of the related REO Property.
The Stated Principal Balance of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received, increased by all Deferred Interest
thereon (if such Mortgage Loan is a GPARM Loan) reduced by all amounts allocable
to principal that have been distributed to Certificateholders with respect to
such Mortgage Loan on or before such date, and as further reduced to the extent
that any Realized Loss thereon has been allocated to one or more Classes of
Certificates on or before the date of determination.
The "Senior Percentage", which initially will be equal to approximately
92.00% and will in no event exceed 100%, will be adjusted for each Distribution
Date to be the percentage equal to the aggregate Certificate Principal Balances
of the Senior Certificates immediately prior to such Distribution Date divided
by the aggregate of the Stated Principal Balances of all of the Mortgage Loans
immediately prior to such Distribution Date. The "Class A-1 Percentage", which
initially will be equal to approximately 79.50% and will in no event exceed
100%, will be adjusted for each Distribution Date to be the percentage equal to
the aggregate Certificate Principal Balance of the Class A-1 Certificates
immediately prior to such Distribution Date divided by the aggregate of the
Stated Principal Balances of all of the Mortgage Loans immediately prior to such
Distribution Date. The "Subordinate Percentage" as of any date of determination
is equal to 100% minus the Senior Percentage as of such date. The Class A-2
Percentage will be adjusted as described below under "--Principal Distributions
on the Class A-2 Certificates."
The "Senior Prepayment Percentage" for any Distribution Date occurring
prior to the Distribution Date in July 2006 will equal 100% and, for any
Distribution Date occurring in or after the Distribution Date in July 2006, will
be as follows: for any Distribution Date occurring in or after July 2006 to and
including the Distribution Date in June 2007, the Senior Percentage for such
Distribution Date plus 70% of the Subordinate Percentage for such Distribution
Date; for any Distribution Date occurring in or after June 2007 to and including
the Distribution Date in June 2008, the Senior Percentage for such Distribution
Date plus 60% of the Subordinate Percentage for such Distribution Date; for any
Distribution Date occurring in or after July 2008 to and including the
Distribution Date in June 2009, the Senior Percentage for such Distribution Date
plus 40% of the Subordinate Percentage for such Distribution Date; for any
Distribution Date occurring in or after July 2009 to and including the
Distribution Date in June 2010, the Senior Percentage for such Distribution Date
plus 20% of the Subordinate Percentage for such Distribution Date; and for any
Distribution Date thereafter, the Senior Percentage for such Distribution Date
(unless on any such Distribution Date the Senior Percentage exceeds the initial
Senior Percentage, in which case the Senior Prepayment Percentage for such
Distribution Date will once again equal 100%). Any scheduled reduction to the
Senior Prepayment Percentage described above will not be made as of any
Distribution Date unless (i) the outstanding principal balance of the Mortgage
Loans delinquent 60 days or more (including foreclosures and REO Property)
averaged over the last six months, does not exceed 50% of the sum of the
balances of the Class B Certificates and the Class R Certificates averaged over
the last six months and (ii) Realized Losses on the Mortgage Loans to date for
such Distribution Date, if occurring during the eleventh, twelfth, thirteenth,
fourteenth or fifteenth year (or any year
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thereafter) after June 1996, are less than 30%, 35%, 40%, 45% or 50%,
respectively, of the sum of the aggregate initial Certificate Principal
Balances of the Class B Certificates and 2.20% of the aggregate initial
Certificate Principal Balance of all of the Certificates. Notwithstanding the
foregoing, upon reduction of the Certificate Principal Balances of the Class
A-1 Certificates and the Class A-2 Certificates to zero, the Senior
Prepayment Percentage will equal 0%.
PRINCIPAL DISTRIBUTIONS ON THE CLASS A-2 CERTIFICATES
Holders of the Class A-2 Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the Available Distribution
Amount remaining after (i) distributions of the Priority Interest Distribution
Amount and the Class A-1 Principal Distribution Amount and (ii) after
distributions in respect of interest to holders of the Class A-2 Certificates, a
distribution allocable to principal (the "Class A-2 Principal Distribution
Amount") that will, as more fully described herein, be equal to the sum of the
following amounts:
(i) the product of (A) the then-applicable Class A-2 Percentage and
(B) the Scheduled Principal and Net Recoveries for such Distribution Date;
(ii) an amount equal to (A) the then-applicable Class A-2 Percentage
divided by the then-applicable Senior Percentage multiplied by (B) the
then-applicable Senior Prepayment Percentage of all principal prepayments
made by the respective mortgagors during the related Prepayment Period;
(iii) in connection with a Mortgage Loan for which a Cash Liquidation
or an REO Disposition occurred during the related Prepayment Period and did
not result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses, an amount equal to the lesser of
(A) the then-applicable Class A-2 Percentage of the Stated Principal
Balance of such Mortgage Loan and (B)(1) the Class A-2 Percentage for such
Distribution Date divided by the Senior Percentage for such Distribution
Date multiplied by (2) the Senior Prepayment Percentage for such
Distribution Date multiplied by the related collections (including without
limitation Insurance Proceeds and Liquidation Proceeds) to the extent
applied as recoveries of principal of such Mortgage Loan; and
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated as described in the three preceding clauses) that remain
undistributed to the extent that any such amounts are not attributable to
Realized Losses that were allocated to the Class B Certificates, the Class
SB Certificates or the Class R Certificates.
With respect to any Distribution Date, the lesser of (a) the balance
of the Available Distribution Amount remaining after the Priority Interest
Distribution Amount, the Class A-1 Principal Distribution Amount and interest on
the Class A-2 Certificates are distributed and (b) the sum of the amounts
described in clauses (i) through (iv) of the preceding paragraph is hereinafter
referred to as the "Class A-2 Principal Distribution Amount."
In addition to the foregoing amounts, the Class A-2 Certificates may be
entitled to receive on each Distribution Date, an additional distribution
allocable to principal as described below under "--Additional Principal
Distributions on the Certificates."
The "Class A-2 Percentage", which initially will be equal to approximately
12.50% and will in no event exceed 100%, will be adjusted for each Distribution
Date to be the percentage equal to the aggregate Certificate Principal Balance
of the Class A-2 Certificates immediately prior to such Distribution Date
divided by the aggregate of the Stated Principal Balances of all of the Mortgage
Loans
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immediately prior to such Distribution Date, provided that if the Certificate
Principal Balance of the Class B Certificates and the Class R Certificates
are reduced to zero, thereafter the Class A-2 Percentage will equal 100%
minus the Class A-1 Percentage as of such date.
PRINCIPAL DISTRIBUTIONS ON THE CLASS B CERTIFICATES
The portion of the Available Distribution Amount remaining after (a) the
sum of the Priority Interest Distribution Amount and the Class A-1 Principal
Distribution Amount are distributed and interest and principal is distributed to
the Class A-2 Certificates, (b) reimbursement is made to the Master Servicer for
certain Advances remaining unreimbursed to the extent described below under "--
Advances" and (c) the aggregate amount of Accrued Certificate Interest required
to be distributed to holders of the Class B-1 Certificates is so distributed,
will be distributed on each Distribution Date in the following order of
priority, in each case to the extent of remaining available funds included in
the Available Distribution Amount:
(A) to the holders of the Class B-1 Certificates, in respect of principal,
the sum of the following amounts:
(i) the product of (A) the then-applicable Class B-1 Percentage and
(B) the Scheduled Principal and Net Recoveries for such Distribution Date;
(ii) an amount equal to (A) the then-applicable Class B-1 Percentage
divided by the then-applicable Class B Percentage (as defined below)
multiplied by (B) the then-applicable Class B Prepayment Percentage (as
defined below) of all principal prepayments made by the respective
mortgagors during the related Prepayment Period;
(iii) such Class' pro rata share, based on the Certificate Principal
Balance of the Class B-1 Certificates, the Class B-2 Certificates and the
Class R Certificates, of all amounts received in connection with a Mortgage
Loan for which a Cash Liquidation or an REO Disposition occurred during the
related Prepayment Period and did not result in any Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses, to the extent applied as recoveries of principal of such Mortgage
Loan and to the extent not otherwise payable to the Class A-1 Certificates
or the Class A-2 Certificates; and
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated as described in the three preceding clauses) that remain
undistributed to the extent that any such amounts are not attributable to
Realized Losses that were allocated to the Class B-2 Certificates, the
Class SB Certificates or the Class R Certificates.
(B) to the holders of the Class B-2 Certificates, in respect of interest,
an amount equal to the Accrued Certificate Interest on such Class on such
Distribution Date; and
(C) to the holders of the Class B-2 Certificates, in respect of principal,
the sum of the following amounts:
(i) the product of (A) the then-applicable Class B-2 Percentage and
(B) the Scheduled Principal and Net Recoveries for such Distribution Date;
(ii) an amount equal to (A) the then-applicable Class B-2 Percentage
divided by the then-applicable Class B Percentage multiplied by (B) the
then-applicable Class B Prepayment Percentage of all principal prepayments
made by the respective mortgagors during the related Prepayment Period;
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(iii) such Class' pro rata share, based on the Certificate Principal
Balance of the Class B-1 Certificates, the Class B-2 Certificates and the
Class R Certificates, of all amounts received in connection with a Mortgage
Loan for which a Cash Liquidation or an REO Disposition occurred during the
related Prepayment Period and did not result in any Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses, to the extent applied as recoveries of principal of such Mortgage
Loan and to the extent not otherwise payable to the Class A-1 Certificates
or the Class A-2 Certificates; and
(iv) any amounts allocable to principal for any previous Distribution
Date (calculated as described in the three preceding clauses) that remain
undistributed to the extent that any such amounts are not attributable to
Realized Losses that were allocated to the Class SB Certificates or the
Class R Certificates.
The Class B Prepayment Percentage with respect to any Distribution Date
will equal 100% minus the Senior Prepayment Percentage for such Distribution
Date.
The Class B-1 Percentage, Class B-2 Percentage and Class R Percentage,
which initially will be equal to approximately, 3.25%, 4.75% and 0.0%,
respectively, and will in no event exceed 100%, will each be adjusted for each
Distribution Date to be the percentage equal to the Certificate Principal
Balance of such Class of Certificates immediately prior to such Distribution
Date divided by the aggregate Stated Principal Balance of all of the Mortgage
Loans immediately prior to such Distribution Date. The Class B Percentage with
respect to any Distribution Date will equal the sum of the Class B-1 Percentage
and the Class B-2 Percentage.
In addition to the foregoing amounts, the Class B-1 Certificates and the
Class B-2 Certificates may be entitled to receive on each Distribution Date, an
additional distribution allocable to principal as described below under "--
Additional Principal Distributions on the Certificates."
ADDITIONAL PRINCIPAL DISTRIBUTIONS ON THE CERTIFICATES
The portion of the Available Distribution Amount remaining after (a) the
sum of the Priority Interest Distribution Amount and the Class A-1 Principal
Distribution Amount are distributed and interest and principal is distributed to
the Class A-2 Certificates, the Class B-1 Certificates and the Class B-2
Certificates as described in the preceding sections and (b) and reimbursement is
made to the Master Servicer for certain Advances as described herein (in the
aggregate, the "Remaining Available Distribution Amount") will be distributed on
each Distribution Date in the following order of priority, in each case to the
extent of remaining available funds included in the Remaining Available
Distribution Amount:
(A) to the holders of the Class A-1 Certificates, an amount equal to (i)
the then-applicable Class A-1 Percentage divided by the then-applicable Senior
Percentage multiplied by (ii) the Senior Accrual Diversion Amount (as defined
herein) for such Distribution Date up to and in reduction of the Certificate
Principal Balance thereof;
(B) to the holders of the Class A-2 Certificates, an amount equal to (i)
the then-applicable Class A-2 Percentage divided by the then-applicable Senior
Percentage multiplied by (ii) the Senior Accrual Diversion Amount for such
Distribution Date up to and in reduction of the Certificate Principal Balance
thereof;
(C) to the holders of the Class A-1 Certificates, the Class A-2
Certificates, the Class B-1 Certificates and the Class B-2 Certificates in that
order, with respect to the principal portions of any
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Realized Losses allocated thereto on any previous Distribution Date and not
previously reimbursed (any such payment, a "Loss Reimbursement Payment");
(D) to the Class B-1 Certificateholders, an amount equal to (i) the then-
applicable Class B-1 Percentage divided by the then-applicable Class B
Percentage multiplied by (ii) the amount remaining following the distribution
pursuant to clause (C) above, up to and in reduction of the Certificate
Principal Balance thereof;
(E) to the Class B-2 Certificateholders, an amount equal to (i) the then-
applicable Class B-2 Percentage divided by the then-applicable Class B
Percentage multiplied by (ii) the amount remaining following the distribution
pursuant to clause (C) above, up to and in reduction of the Certificate
Principal Balance thereof;
(F) to the holders of the Class SB Certificates, first, an amount equal to
the Accrued Certificate Interest on such Class on such Distribution Date, to the
extent such Accrued Certificate Interest is not added to the Outstanding Class
SB Unpaid Interest Amount on such Distribution Date and then, up to an amount
equal to the Outstanding Class SB Unpaid Interest Amount for such Distribution
Date, in reduction thereof; and
(G) to the holders of the Class R Certificates, first, in respect of
Accrued Certificate Interest thereon for such Distribution Date and, then, in
respect of principal, until the Certificate Principal Balance thereof is reduced
to zero.
For purposes of the foregoing, the "Outstanding Class SB Unpaid Interest
Amount" at any time is the aggregate of the Class SB Accrual Amounts for all
preceding Distribution Dates, minus the aggregate amount of all previous
distributions on the Class SB Certificates in reduction of the Outstanding Class
SB Unpaid Interest Amount pursuant to clause (F) above. The Outstanding Class
SB Unpaid Interest Amount will not accrue interest and will not represent any
portion of the principal amount of the Mortgage Loans. With respect to any
Distribution Date, the "Senior Accrual Diversion Amount" is equal to the lesser
of (A) the Accrued Certificate Interest on the Class SB Certificates for such
Distribution Date, and (B) the amount, if any, by which the aggregate of all
Senior Accrual Diversion Amounts for all preceding Distribution Dates is less
than the sum of (i) an amount equal to 2.20% of the aggregate Certificate
Principal Balance of all Classes of Certificates as of the Cut-off Date and (ii)
100% of all Realized Losses with respect to such Distribution Date and all
preceding Distribution Dates, except to the extent such Realized Losses were
allocated to any of the Class A Certificates or the Class B Certificates on any
such preceding Distribution Date.
The effect of the provisions described above will be that holders of the
Class B Certificates will receive on each Distribution Date prior to the Class B
Certificate Termination Date all amounts otherwise distributable to holders of
the Class R Certificates on such Distribution Date, which, absent any
delinquencies or losses on the Mortgage Loans, would be equal to (i) the Accrued
Certificate Interest on the Class R Certificates for such Distribution Date,
(ii) the Class R Percentage of the Scheduled Principal and Net Recoveries for
such Distribution Date, (iii) the amount of full and partial Principal
Prepayments not otherwise distributed to holders of the Class A-1 Certificates,
the Class A-2 Certificates or the Class B Certificates; and (iv) all amounts
received in connection with a Cash Liquidation or an REO Disposition (x) that
occurred during the preceding calendar month and (y) that did not result in any
Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses, to the extent applied as recoveries of principal and to
the extent not otherwise payable to holders of the Class A-1 Certificates, the
Class A-2 Certificates or the Class B Certificates. In addition, holders of the
Class A-1 Certificates and Class A-2 Certificates will receive on each
Distribution Date all amounts otherwise distributable to holders of the Class SB
Certificates (which absent delinquencies or losses on the Mortgage Loans would
be equal to the Accrued Certificate Interest on the Class SB Certificates on
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such Distribution Date) up to the Senior Accrual Diversion Amount, and holders
of the Class B Certificates will receive on each Distribution Date prior to the
Class B Certificate Termination Date, an amount equal to the excess, if any, of
all amounts otherwise distributable to holders of the Class SB Certificates on
such Distribution Date over the Senior Accrual Diversion Amount for such
Distribution Date.
As described above, holders of the Class SB Certificates will be entitled
to receive in respect of the Outstanding Class SB Unpaid Interest Amount the
portion, if any, of the Remaining Available Distribution Amount remaining after
the distributions described in clauses (D) and (E) above. If, on any
Distribution Date, the entire Outstanding Class SB Unpaid Interest Amount for
such Distribution Date is distributed to the holders of the Class SB
Certificates as described in clause (F) above, holders of the Class R
Certificates will be entitled to receive the portion, if any, of the Remaining
Available Distribution Amount remaining after such distribution, applied as
described in clause (G) above. However, the distribution of all or any portion
of the Outstanding Class SB Unpaid Interest Amount for any Distribution Date
will cause the aggregate amount of distributions on the Class R Certificates to
be less than the full amount of the Certificate Principal Balance thereof and
Accrued Certificate Interest thereon.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence.
June 1 . . . . . Cut-off Date. The initial principal balance of the
Mortgage Pool will be the aggregate
principal balance of the Mortgage Loans
as of June 1, 1996, after deducting
any principal payments due on or before
such date. Any principal and interest
payments due on or before June 1 will
not be part of the Mortgage Pool.
June 1 through
June 30 . . . . Prepayment Period. Partial principal prepayments and
prepayments in full with interest
thereon to the date of such prepayment
in full, received at any time during
this period will be deposited into the
Custodial Account for distribution to
Certificateholders on July 25.
June 25 through
July 24 . . . . Accrual Period. Accrued Certificate Interest to be
distributed on July 25, will be
calculated from the 25th day of June to
the 24th day of July, provided however,
that the Accrual Period will be treated
as a 30-day period regardless of the
number of days from the 25th day of the
preceding month to the 24th day of such
month.
June 28 . . . . Record Date. Distributions on July 25 will be made
to Certificateholders of record at the
close of business on June 28, 1996.
June 2 through
July 15 . . . . Collection Period. Payments due during the related Due
Period (June 2 through July 1) from
mortgagors will be deposited in the
Custodial Account as received, and will
include scheduled principal payments
plus interest on the June balances.
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July 15 . . . . Determination Date. On the second business day following
the Determination Date, the amounts of
principal and interest that will be
distributed on July 25 will be
determined by the Trustee.
July 24 . . . . Certificate Account
Deposit Date. On the business day immediately
preceding the Distribution Date the
Master Servicer will remit to the
Trustee the amount of principal and
interest to be distributed to the
Certificateholders on such Distribution
Date from amounts on deposit in the
Custodial Account, together with any
Advances required to be made by the
Master Servicer for such Distribution
Date.
July 25 . . . . Distribution Date. On July 25 the Trustee will distribute
or cause to be distributed to the
Certificateholders the amounts
determined as of the second business
day following the Determination Date.
If a Monthly Payment due during the
related Due Period is received from a
mortgagor after July 15 and an Advance
has been made with respect to such late
payment from the Custodial Account,
such late payment will be deposited
into the Custodial Account as
reimbursement therefor. If the Master
Servicer has made an Advance with
respect to such late payment from its
own funds, the Master Servicer will
reimburse itself to the extent
permitted by the Pooling and Servicing
Agreement by withdrawing from the
Custodial Account the amount relating
to such Advance. If no such Advance has
been made with respect to such late
payment, the proceeds of such late
payment will be distributed to the
Certificateholders on the Distribution
Date occurring in August.
Succeeding months follow the same pattern, except for the Cut-off Date.
Also, the Record Date shall be the close of business on the last business day of
the month immediately preceding the month of distribution.
ALLOCATION OF LOSSES; SUBORDINATION
As described above, on each Distribution Date until the Class B Certificate
Termination Date, the Class SB Accrual Amount (representing all interest accrued
but unpaid on the Class SB Certificates) will be distributed as additional
principal distributions on the Class A-1 Certificates and the Class A-2
Certificates up to certain specified amounts, and thereafter on the Class B
Certificates. Following the Class B Certificate Termination Date, the Class SB
Accrual Amount will be distributed as additional principal distributions on the
Class A-1 Certificates and Class A-2 Certificates up to the Senior Accrual
Diversion Amount (representing certain payments in respect of any Realized
Losses). See "--Additional Principal Distributions on the Certificates." Such
additional principal distributions as and when made will result in a
corresponding increase in the Certificate Principal Balance of the Class R
Certificates (except to the extent of any concurrent reduction thereof resulting
from the allocation of any Realized Loss thereto), thereby increasing the
available subordination provided by the Class R Certificates for purposes of
allocations of Realized Losses as described below.
Any Realized Losses, other than losses of a type generally covered by a
special hazard insurance policy as described in the Prospectus under
"Description of Mortgage and other Insurance--Hazard
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Insurance on the Loans" (any such loss, a "Special Hazard Loss") to the
extent in excess of the Special Hazard Amount ("Excess Special Hazard
Losses"), losses incurred on defaulted Mortgage Loans as to which there was
fraud in the origination of such Mortgage Loans (any such loss, a "Fraud
Loss") to the extent in excess of the Fraud Loss Amount ("Excess Fraud
Losses"), losses attributable to certain actions which may be taken by a
bankruptcy court in connection with a Mortgage Loan, including a reduction by
a bankruptcy court of the principal balance or the Mortgage Rate on a
Mortgage Loan or an extension of its maturity (any such loss, a "Bankruptcy
Loss") to the extent in excess of the Bankruptcy Loss Amount ("Excess
Bankruptcy Losses"), and losses occasioned by war, civil insurrection,
certain governmental actions, nuclear reaction and certain other risks
("Extraordinary Losses"), will be allocated as follows: Realized Losses on
the Mortgage Loans will be allocated first, to the Class R Certificates, then
to the Class SB Certificates (to the extent of the interest portions of such
Realized Losses), then to the Class B-2 Certificates, then to the Class B-1
Certificates, then to the Class A-2 Certificates, in each case (other than
for the Class SB Certificates) until the Certificate Principal Balance
thereof is reduced to zero, and thereafter, the principal portion thereof to
the Class A-1 Certificates and the interest portion thereof to the Variable
Strip Certificates and the Class A-1 Certificates on a pro rata basis as
described below. Notwithstanding the foregoing, any such Realized Losses on
the Mortgage Loans will not be allocated to any of the Senior Certificates or
the Class B Certificates on any Distribution Date to the extent that such
Realized Losses are less than the sum of (i) the Remaining Available
Distribution Amount on such Distribution Date and (ii) the Certificate
Principal Balance of the Class R Certificates immediately prior to such
Distribution Date. On any Distribution Date, such Realized Losses will be
satisfied first from the Remaining Available Distribution Amount on such
Distribution Date prior to reducing the Certificate Principal Balance of the
Class R Certificates. In addition, any excess of the Remaining Available
Distribution Amount over the Senior Accrual Diversion Amount may be applied
to reimburse the principal portions of Realized Losses previously allocated
to the Senior Certificates or the Class B Certificates. Any allocation of a
Realized Loss (other than a Debt Service Reduction) to an Offered Certificate
will generally be made by reducing the Certificate Principal Balance thereof,
in the case of the principal portion of such Realized Loss, and the Accrued
Certificate Interest thereon, in the case of the interest portion of such
Realized Loss, by the amount so allocated as of the Distribution Date
occurring in the month following the calendar month in which such Realized
Loss was incurred. As used herein, "Debt Service Reductions" means reductions
in the amount of monthly payments due to certain bankruptcy proceedings, but
does not include any permanent forgiveness of principal. In addition to the
foregoing allocations of Realized Losses, the Accrued Certificate Interest on
certain Classes of Offered Certificates is subject to reduction due to
shortfalls in collections of interest as described above under "Description
of the Certificates--Interest Distributions." Allocations of the principal
portion of Debt Service Reductions to the Class A-2 Certificates, the Class
B-1 Certificates, the Class B-2 Certificates and the Class R Certificates
will result from the priority of distributions of the Available Distribution
Amount as described herein. As used herein, "Subordination" refers to the
provisions discussed above for the sequential allocation of Realized Losses
in respect of the Mortgage Loans among the various Classes of Certificates
(other than the allocation of Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses to Classes of
Certificates other than the Class SB Certificates and Class R Certificates),
as well as all provisions effecting such allocations including the priorities
for distribution of cash flows in the amounts described herein.
Special Hazard Losses, Fraud Losses, Bankruptcy Losses and Extraordinary
Losses may be allocated without limitation to the Class SB Certificates and
the Class R Certificates, the Loss Reimbursement Payments to the holders of
the Senior Certificates and the Class B Certificates may be in respect of
such losses without limitation from amounts otherwise distributable on the
Class SB Certificates and the Class R Certificates (if the Senior Accrual
Diversion Amount has been paid in full). Any such Realized Losses will not
be allocated to any of the Senior Certificates or Class B Certificates on any
Distribution Date to the extent that such Realized Losses (together with any
other Realized Losses for such Distribution Date) are less than the sum (i)
the Remaining Available Distribution Amount on such Distribution Date and
(ii) the Certificate Principal Balance of the Class R Certificates immediately
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prior to such Distribution Date. Any Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses, Extraordinary Losses not covered as
described in the preceding sentence or other losses of a type not covered by
Subordination will be allocated on a pro rata basis among all of the
Certificates. An allocation of a Realized Loss on a "pro rata basis" among
two or more Classes of Certificates means an allocation to each such Class of
Certificates on the basis of their then-outstanding Certificate Principal
Balances, in the case of the principal portion of a Realized Loss, or based
on the Accrued Certificate Interest thereon in the case of an interest
portion of a Realized Loss.
With respect to any defaulted Mortgage Loan that is finally liquidated,
through foreclosure sale, disposition of the related Mortgaged Property if
acquired on behalf of the related Certificateholders by deed in lieu of
foreclosure, or otherwise, the amount of loss realized, if any, will be equal
to the portion of the Stated Principal Balance remaining, if any, plus
interest thereon through the last day of the month in which such Mortgage
Loan was finally liquidated, after application of all amounts recovered (net
of amounts reimbursable to the Master Servicer or any subservicer for
Advances and expenses, including attorneys' fees) towards interest and
principal owing on the Mortgage Loan. Such amount of loss realized and any
Special Hazard Losses, Fraud Losses, Bankruptcy Losses and Extraordinary
Losses are referred to herein as "Realized Losses."
The Trustee will establish and maintain one or more separate accounts
(collectively, the "Excess Proceeds Account") in which the Master Servicer
will deposit or cause to be deposited on a daily basis, or as and when
received from subservicers, the excess, if any, of all amounts recovered on
any Mortgage Loan as to which an REO Disposition occurs (net of amounts
reimbursable to the Master Servicer or any subservicer for Advances and
expenses, including attorneys' fees) over the Stated Principal Balance of
such Mortgage Loan plus interest thereon through the last day of the month in
which such REO Disposition occurs (the "Excess Proceeds"). The
Certificateholders will be entitled to receive on each Distribution Date, in
addition to the distributions of interest and principal described above, a
distribution of Excess Proceeds (including any interest or other income
earned thereon) in an amount equal to the lesser of (a) the amount on deposit
in the Excess Proceeds Account as of the related Determination Date and (b)
the aggregate of all Realized Losses allocated among the Certificates on any
Distribution Date and not covered by any subsequent distribution. Such
distribution will be allocated in the following order of priority: first, to
the holders of the Variable Strip Certificates and the Class A-1 Certificates
on a pro rata basis, second, to the holders of the Class A-2 Certificates,
third, to the holders of the Class B-1 Certificates, fourth, to the holders
of the Class B-2 Certificates, fifth, to the holders of the Class SB
Certificates, in each case to the extent of the interest and principal
portions, as applicable, of Realized Losses allocated to such Class of
Certificates on any Distribution Date and not covered by any subsequent
distribution, and then sixth, to the holders of the Class R Certificates. If
the amount on deposit in the Excess Proceeds Account exceeds an amount
calculated periodically pursuant to the terms of the Pooling and Servicing
Agreement or is in excess of zero upon the termination of the Trust Fund, the
excess amount will be distributed to the holders of the Class R Certificates
in accordance with the terms of the Pooling and Servicing Agreement. The
distribution of Excess Proceeds will not have the effect of reducing the
Certificate Principal Balance of or Accrued Certificate Interest on any Class
of Certificates to which such distribution is allocated. The amount on
deposit in the Excess Proceeds Account initially will be equal to zero and is
not expected to be substantial at any time when the Certificates are
outstanding. Therefore, prospective investors in the Offered Certificates
should not rely on the Excess Proceeds Account to provide significant
protection against Realized Losses on the Mortgage Loans. Further,
prospective investors in the Offered Certificates should not rely on the
distribution of Excess Proceeds to provide a return on the Offered
Certificates in addition to the interest and principal to which the holders
of the Offered Certificates are entitled. The Excess Proceeds Account will
be an interest-bearing account of the type described in the Prospectus under
"Servicing of Loans--Deposits to and Withdrawals from the Collection Account"
and may be invested in Eligible Investments (as defined in the Prospectus)
for the benefit of and at the risk of the Certificateholders. Any interest or
other
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income earned on amounts in the Excess Proceeds Account will be held therein
until distributed as described above.
The application of the Senior Prepayment Percentage (when it exceeds the
Senior Percentage) as described herein to determine the Class A-1 Principal
Distribution Amount and the Class A-2 Principal Distribution Amount will
accelerate the amortization of the Class A-1 Certificates and the Class A-2
Certificates relative to the actual amortization of the Mortgage Loans.
Accordingly, to the extent that the Class A-1 Certificates and the Class A-2
Certificates are amortized faster than the Mortgage Loans, in the absence of
offsetting Realized Losses allocated to the Class B Certificates or the Class
R Certificates, the undivided beneficial ownership interest in the Trust Fund
evidenced by the Class A-1 Certificates and the Class A-2 Certificates will
be decreased (with a corresponding increase in the undivided beneficial
ownership interest in the Trust Fund evidenced by the Class B Certificates
and the Class R Certificates in the aggregate), thereby increasing, as a
relative matter, the Subordination afforded the Senior Certificates by the
Class B Certificates and the Class R Certificates.
The priority of payments (including principal prepayments) to each class
of Class B Certificates as described herein also may have the effect, during
certain periods and in the absence of losses, of decreasing the percentage
interest evidenced by each class of Class B Certificates, thereby increasing,
relative to its Certificate Principal Balance, the Subordination afforded to
the Class B Certificates by the Class R Certificates.
The aggregate amount of Realized Losses which may be allocated through
Subordination, other than to the Class SB Certificates and Class R
Certificates, in connection with Special Hazard Losses (the "Special Hazard
Amount") will initially be equal to $1,526,800. As of any date of
determination following the Cut-off Date, the Special Hazard Amount will
equal the initial amount thereof less the sum of (A) any amounts allocated
through Subordination, in respect of Special Hazard Losses and (B) the
Adjustment Amount. On each anniversary of June 1, 1996, the Adjustment Amount
will be equal to the amount, if any, by which the Special Hazard Amount,
without giving effect to the deduction of the Adjustment Amount for such
anniversary, exceeds the greater of (i) 1.0% (or, if greater than 1.0%, the
highest percentage of Mortgage Loans, by principal balance, in any California
zip code area) multiplied by the aggregate principal balance of all of the
Mortgage Loans on such anniversary and (ii) twice the principal balance of
the single Mortgage Loan having the largest principal balance.
The aggregate amount of Realized Losses which may be allocated through
Subordination, other than to the Class SB Certificates and Class R
Certificates, in connection with Fraud Losses (the "Fraud Loss Amount") will
initially be equal to $2,034,623. As of any date of determination after the
Cut-off Date, the Fraud Loss Amount will equal (X) prior to June 1, 1997 an
amount equal to 3.00% of the aggregate principal balance of all the Mortgage
Loans as of the Cut-off Date minus the aggregate amount allocated through
Subordination, with respect to Fraud Losses up to such date of determination,
(Y) from June 1, 1997 through May 30, 1998 an amount equal to (1) the lesser
of (a) the Fraud Loss Amount as of June 1, 1997 and (b) 2.00% of the
aggregate principal balance of all of the Mortgage Loans as of June 1, 1997
minus (2) the aggregate amount allocated through Subordination, with respect
to Fraud Losses since, June 1, 1997 up to such date of determination, and (Z)
from June 1, 1998 through May 30, 2001, an amount equal to (1) the lesser of
(a) the Fraud Loss Amount as of the most recent June 1st and (b) 1.00% of the
aggregate principal balance of all of the Mortgage Loans as of the most
recent June 1st minus (2) the aggregate amount allocated through
Subordination, with respect to Fraud Losses since the most recent June 1st up
to such date of determination. On and after June 1, 2001, the Fraud Loss
Amount will be zero and Fraud Losses will not be allocated through
Subordination but rather on a pro rata basis among all Classes of
Certificates except with respect to the Class SB Certificates and Class R
Certificates.
The aggregate amount of Realized Losses which may be allocated through
Subordination, other than to the Class SB Certificates and Class R
Certificates, in connection with Bankruptcy Losses (the
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"Bankruptcy Amount") will initially be equal to $100,000. As of any date of
determination prior to June 1, 1997, the Bankruptcy Amount will equal the
initial amount thereof less the sum of any amounts allocated through
Subordination, for such losses up to such date of determination. As of any
date of determination on or after June 1, 1997, the Bankruptcy Amount will
equal the excess, if any, of (1) the lesser of (a) the Bankruptcy Amount as
of the business day next preceding the most recent June 1st and (b) an amount
calculated pursuant to the terms of the Pooling and Servicing Agreement,
which amount as calculated will provide for a reduction in the Bankruptcy
Amount, over (2) the aggregate amount of Bankruptcy Losses allocated through
Subordination, since such anniversary. The Bankruptcy Amount and the related
formulas referred to above may be reduced or modified upon written
confirmation from each Rating Agency that such reduction or modification will
not adversely affect the then-current ratings assigned to the Offered
Certificates by such Rating Agency. Such a reduction or modification may
adversely affect the coverage provided by such Subordination with respect to
Bankruptcy Losses.
OPTIONAL PURCHASE OF DELINQUENT MORTGAGE LOANS
The Master Servicer will have the right to purchase from the Trust Fund
any Mortgage Loan that is 90 days or more delinquent (I.E., any Mortgage Loan
on which the related mortgagor has failed to make four consecutive monthly
payments) if the Master Servicer determines that such Mortgage Loan otherwise
would become subject to foreclosure or related proceedings. The purchase
price for any such Mortgage Loan will equal the outstanding principal balance
of such Mortgage Loan plus accrued and unpaid interest to first day of the
month in which the amount of such purchase price will be distributed to the
Certificateholders. The Master Servicer will be obligated to deposit into
the Custodial Account the purchase price for any Mortgage Loan purchased by
it as described above.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to make
Advances (out of its own funds or funds held in the Custodial Account for
future distribution or withdrawal) with respect to any payments of principal
and interest (net of the related Servicing Fees) that were due on the
Mortgage Loans on the immediately preceding Due Date and delinquent as of the
close of business on the related Determination Date.
Such Advances are required to be made only to the extent they are deemed
by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds, Liquidation Proceeds or amounts otherwise distributable
on the Certificates after distributions of the Priority Interest Distribution
Amount, the Class A-1 Principal Distribution Amount, Accrued Certificate
Interest on the Class A-2 Certificates and the Class A-2 Principal
Distribution Amount. The purpose of making such Advances is to maintain a
regular cash flow to the Certificateholders, rather than to guarantee or
insure against losses. The Master Servicer will not be required to make any
Advances with respect to reductions in the amount of the monthly payments on
the Mortgage Loans due to Debt Service Reductions or the application of the
Relief Act or similar legislation or regulations. Any failure by the Master
Servicer to make an Advance as required under the Pooling and Servicing
Agreement will constitute an Event of Default thereunder, in which case the
Trustee, as successor Master Servicer, will be obligated to make any such
Advance, in accordance with the terms of the Pooling and Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made, (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, from
amounts otherwise distributable on the Certificates after distributions of
the Priority Interest Distribution Amount, the Class A-1 Principal
Distribution Amount, Accrued Certificate Interest on the Class A-2
Certificates and the Class A-2 Principal Distribution Amount or (c) out of
any funds in the Custodial Account prior to any distributions
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on any of the Certificates, if the Master Servicer determines that such
Advances will not otherwise be recoverable as provided above; provided,
however, that any such Advances that were made with respect to delinquencies
which ultimately were determined to be Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses are
reimbursable to the Master Servicer out of any funds in the Custodial Account
prior to distributions on any of the Certificates and the amount of such
losses will be allocated as described herein.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by, among other things, the rate and
timing of principal payments on the Mortgage Loans and the amount and timing
of mortgagor defaults resulting in Realized Losses. Such yield may be
adversely affected by a higher or lower than anticipated rate of principal
payments on the Mortgage Loans. The rate of principal payments on such
Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans, the rate and timing of prepayments thereon by the mortgagors,
liquidations of defaulted Mortgage Loans and repurchases of Mortgage Loans
due to certain breaches of representations. The timing of changes in the rate
of prepayments, liquidations and repurchases of the Mortgage Loans may, and
the timing of Realized Losses will, significantly affect the yield to an
investor, even if the average rate of principal payments experienced over
time is consistent with an investor's expectation. After the Certificate
Principal Balances of the Class R Certificates and the Class B-2 Certificates
have been 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 (subject to the limits
described herein with respect to certain types of losses as described herein)
of such losses (rather than a pro rata portion thereof) will be allocable to
such Class of Certificates. After the Certificate Principal Balances of the
Class R Certificates, Class B-2 Certificates and Class B-1 Certificates have
been reduced to zero, the yield to maturity on the Class A-2 Certificates
will be extremely sensitive to losses on the Mortgage Loans (and the timing
thereof) because the entire amount (subject to the limits described herein
with respect to certain types of losses) of such losses (rather than a pro
rata portion thereof) will be allocable to such Class of Certificates.
Certain loss scenarios could lead to the failure of the Class A-2
Certificateholders or the Class B-1 Certificateholders to recover fully their
initial investments. Since the rate and timing of principal payments on the
Mortgage Loans will depend on future events and on a variety of factors (as
described more fully herein and in the Prospectus under "Yield, Prepayment
and Maturity Considerations"), no assurance can be given as to such rate or
the timing of principal prepayments on the Offered Certificates.
The Mortgage Loans may be prepaid by the mortgagors at any time;
however, in certain circumstances, the Mortgage Loans will be subject to a
prepayment charge for prepayments. See "Description of the Mortgage Pool"
herein. The Mortgage Loans generally contain due-on-sale clauses.
Prepayments, liquidations and repurchases of the Mortgage Loans will result
in distributions to holders of the Offered Certificates (other than the
Variable Strip Certificates) of principal amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans. Factors affecting
prepayment (including defaults and liquidations) of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgaged properties, changes in the value of
the mortgaged properties, mortgage market interest rates and servicing
decisions. As described under "Description of the Mortgage Pool" herein, the
Mortgage Pool consists of a large percentage of Mortgage Loans with fixed
interest rates. If prevailing mortgage rates fell significantly below the
Mortgage Rates on such Mortgage Loans the rate of prepayments (including from
refinancings) on such Mortgage Loans would be expected to increase.
Conversely, if prevailing mortgage rates rose significantly above such
Mortgage Rates, the rate of prepayments on such mortgage loans would be
expected to decrease. Furthermore, as described under "Description of the
Certificates--Principal Distributions on the Class
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A-1 Certificates" and "--Principal Distributions on the Class A-2
Certificates" herein, during certain periods all or a disproportionately
large percentage of principal prepayments on the Mortgage Loans will be
allocated among the Class A-1 Certificates and the Class A-2 Certificates,
which will cause the Certificate Principal Balances of each class of Class B
Certificates and Class R Certificates to decline more slowly than would be
the case if the such Certificates received their proportionate share of
principal prepayments. To the extent that all or a disproportionately large
percentage of principal prepayments are allocated to the Class A-1
Certificates and the Class A-2 Certificates during any period as described
herein, the Senior Percentage upon which future allocations of prepayments to
the Senior Certificates would thereafter be based would, assuming a high
level of prepayments but a low level of losses on the Mortgage Loans, be
significantly decreased, with the result that principal payments, including
principal prepayments subsequent to such periods, would be allocated to the
holders of the Class B-1 Certificates in a greater percentage than the
initial Class B-1 Percentage. However, as and to the extent described under
"Description of the Certificates--Additional Principal Distributions on the
Certificates" herein, because holders of the Class SB Certificates and the
Class R Certificates will not be entitled to receive any distributions until
certain distributions in respect of principal are made to the Class A-1
Certificates, Class A-2 Certificates and Class B Certificates from amounts
otherwise distributable to holders of the Class SB Certificates and the Class
R Certificates, the weighted average life of the Senior Certificates and the
Class B Certificates will be shorter than otherwise would be the case.
The weighted average lives of the various Classes of Certificates will
also be affected by the application of the Remaining Available Distribution
Amount. See "Description of the Certificates--Additional Distributions on the
Certificates" herein.
In addition, the weighted average lives of the various Classes of
Certificates may be affected by changes in the amortization schedules of the
GPARM Loans resulting from changes in the Mortgage Rates thereof and the
application of the Payment Cap to changes in the monthly payment amount as
described herein under "Description of the Mortgage Pool--General." The
GPARM Loans may be subject to periods of slower amortization, in which case
the weighted average lives of all Classes of Certificates will be increased,
or to periods of negative amortization, in which case the weighted average
life of the Class of Certificates to which the related Deferred Interest is
allocated will be increased, or to periods of accelerated amortization, in
which case the weighted average lives of all Classes of Certificates will be
decreased. Such Deferred Interest will be allocated as described herein
under "Description of the Certificates--Interest Distributions."
Because it is impossible to accurately predict the timing and dollar
amount of principal prepayments on the Mortgage Loans, if any, that will be
made, as well as the percentage according to which those prepayments will be
allocated among Classes of Certificates at any particular point in time,
investors in the Certificates, and particularly investors in the Class B
Certificates, may find it difficult to analyze the effect of principal
prepayments on the yield and average life of the various Classes of
Certificates.
The yield to maturity on the Certificates will be affected by the value
of an index (One-Month LIBOR) which is different from the value of the
indices applicable to certain of the Mortgage Loans, as described under
"Description of the Mortgage Pool" herein.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. Increases in the Monthly Payments on the Step Loans and the
Adjustable Rate Loans to an amount in excess of the Monthly Payment required
at their respective dates of origination may result in a default rate higher
than that on level payment mortgage loans. Substantial increases in the
amount of the monthly payments on each Step Loan will occur after the
Adjustment Dates thereof, because the related Mortgage Rate will increase on
such Adjustment Dates. With respect to a
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substantial majority of the Adjustable Rate Loans (other than the 6-Month
ARMs), a substantial increase in the amount of the Monthly Payments could
occur after the initial Adjustment Date thereof, because of the Periodic Rate
Cap thereon will not limit increases in the related Mortgage Rate on such
date. The repayment of the Adjustable Rate Loans will be dependent on the
ability of the related mortgagors to make larger Monthly Payments as a result
of increases in the related Mortgage Rates. The rate of default on Mortgage
Loans which are refinance mortgage loans or which were not originated under
the Full Documentation program or Documented Income program may be higher
than for other types of Mortgage Loans. As a result of the underwriting
standards for the Seller's equity lending program and regular lending
program, the Mortgage Loans are likely to experience rates of delinquency,
foreclosure, bankruptcy and loss that are higher, and (especially with
respect to mortgage loans originated or acquired under the equity lending
program), that may be substantially higher, than those experienced by
mortgage loans underwritten in a more traditional manner. See "The
Seller-Loan Delinquency, Forbearance, Foreclosure, Bankruptcy and REO
Property Status" and "--REO Property Liquidation Experience" above for
important information regarding the delinquency, forbearance, foreclosure,
bankruptcy and REO property status and loss experience of certain mortgage
loans previously originated by the Seller under the equity lending program
and the regular lending program. In addition, because of such underwriting
criteria and their likely effect on the delinquency, foreclosure, bankruptcy
and loss experience of the Mortgage Loans, the Mortgage Loans will be
serviced in a manner intended to result in a faster exercise of remedies,
including foreclosure, in the event Mortgage Loan delinquencies and defaults
occur, than would be the case if the Mortgage Loans were serviced in a more
conventional manner. Furthermore, the rate and timing of prepayments,
defaults and liquidations on the Mortgage Loans will be affected by the
general economic condition of the region of the country in which the related
Mortgaged Properties are located. the risk of delinquencies and loss is
greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among, other factors,
increasing unemployment or falling property values. See "Yield, Prepayment
and Maturity Considerations" in the Prospectus.
Several factors contribute to the increased risk of default in
connection with negatively amortizing mortgage loans. The outstanding
principal balance of a mortgage loan which is subject to negative
amortization increases by the amount of interest which is deferred as
described herein. During periods in which the outstanding principal balance
of a GPARM Loan is increasing due to the addition of Deferred Interest
thereto, such increasing principal balance of the GPARM Loan may approach or
exceed the value of the related Mortgaged Property, thus increasing the
likelihood of defaults as well as the amount of any loss experienced with
respect to any such GPARM Loan that is required to be liquidated.
Additionally, although increases in the amount of the related monthly payment
are subject to Payment Caps, such Payment Caps are not in effect on any of
the Recast Dates, as described herein, or when the outstanding principal
balance exceeds the Negative Amortization Cap, in which case the monthly
payment for each such GPARM Loan will be recalculated to equal an amount
which would be sufficient to fully amortize such GPARM Loan over its
remaining term at the Mortgage Rate as adjusted on the immediately preceding
Rate Adjustment Date. The amount of such increased monthly payment may be
substantially higher than the monthly payment in effect prior to such
recalculation and the repayment of the GPARM Loans will be dependent on the
ability of the mortgagor to make such larger monthly payments. Furthermore,
each GPARM Loan provides for the payment of any remaining unamortized
principal balance of such GPARM Loan (due to the additional Deferred
Interest, if any, to the principal balance of such GPARM Loan) in a single
payment at the maturity of the GPARM Loan. Because the mortgagors may be so
required to make a larger single payment upon maturity,it is possible that
the default risk associated with the GPARM Loan is greater than that
associated with fully amortizing mortgage loans.
As described under "Description of the Certificates--Allocation of
Losses; Subordination" and "Description of the Certificates--Advances,"
amounts otherwise distributable to holders of the Class B Certificates will
be made available to protect the holders of the Senior Certificates against
interruptions
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in distributions due to certain mortgagor delinquencies and amounts otherwise
distributable to holders of the Class A-2 Certificates will be made available
to protect the holders of the Variable Strip Certificates and the Class A-1
Certificates against interruptions in distributions due to certain mortgagor
delinquencies in each case to the extent not covered by Advances. Such
delinquencies will affect the yield to investors in the Class B-1
Certificates to the extent not covered by the Class B-2 Certificates, the
Class SB Certificates and Class R Certificates and the Class A-2 Certificates
to the extent not covered by the Class B Certificates, the Class SB
Certificates and the Class R Certificates. Even if subsequently cured, such
delinquencies may affect the timing of the receipt of distributions by the
holders of the Class B-1 Certificates or the Class A-2 Certificates, because
the entire amount (rather than a pro rata portion) thereof would be borne by
such Class of Certificates.
When a principal prepayment in full is made on a Mortgage Loan, the
mortgagor is charged interest only for the period from the Due Date of the
immediately preceding monthly payment up to the date of such prepayment,
instead of for a full month. Partial principal prepayments are applied as of
the first day of the month of receipt, with a resulting reduction in interest
payable for the month during which the partial prepayment is made. Full or
partial prepayments (or other liquidations) received in any calendar month
will be distributed to Certificateholders on the Distribution Date in the
month following the month of receipt. With respect to such full or partial
prepayments (or other liquidations), the Master Servicer is obligated to fund
shortfalls in collection of one full month's interest (adjusted to the
related Net Mortgage Rate) but only to the extent of the servicing
compensation otherwise payable to the Master Servicer. Accordingly, to the
extent any such shortfall in interest collections exceeds the amount that the
Master Servicer is obligated to fund, the effect of any such principal
prepayment will be to reduce the aggregate amount of interest that is
available for distribution to the related Certificateholders, and will be
allocated among the Certificates in proportion to the interest otherwise
distributable or accrued thereon.
In addition, the yield to maturity of the Offered Certificates will
depend on the prices paid by the holders of the Offered Certificates and the
related Pass-Through Rates. The extent to which the yield to maturity of an
Offered Certificate is sensitive to prepayments will depend upon the degree
to which it is purchased at a discount or premium. For additional
considerations relating to the yield on the Certificates, see "Yield,
Prepayment and Maturity Considerations" in the Prospectus.
VARIABLE STRIP CERTIFICATE YIELD CONSIDERATIONS
THE YIELD TO MATURITY ON THE VARIABLE STRIP CERTIFICATES WILL BE HIGHLY
SENSITIVE TO THE PREPAYMENT, REPURCHASE AND DEFAULT EXPERIENCE ON THE
MORTGAGE LOANS INCLUDED IN THE TRUST FUND. INVESTORS SHOULD CAREFULLY
CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK THAT A RAPID RATE OF
PRINCIPAL PREPAYMENTS, DEFAULTS OR REPURCHASES OF THE MORTGAGE LOANS COULD
RESULT IN THE FAILURE OF INVESTORS IN THE VARIABLE STRIP CERTIFICATES TO
FULLY RECOVER THEIR INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement
represents an assumed constant rate of prepayment ("CPR") each month relative
to the then outstanding principal balance of a pool of mortgage loans for the
life of such mortgage loans. CPR does not purport to be either an historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any mortgage loans,
including the Mortgage Loans to be included in the Trust Fund.
The following table indicates the approximate pre-tax yields to maturity
(on a corporate bond equivalent basis (CBE)) on the Variable Strip
Certificates for the specified percentages of CPR and assumed purchase
prices. For the purposes of the table, it is assumed that (i) the Mortgage
Loans have the characteristics set forth under "Description of the Mortgage
Pool" herein except that Six-Month LIBOR is constant and equals 5.777%, (ii)
One-Month LIBOR is constant and equals 5.465%, (iii) the
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distributions in respect of the Certificates are received in cash on the 25th
day of each month commencing in July 1996, (iv) no defaults or delinquencies
in the payment by mortgagors of principal and interest on the Mortgage Loans
are experienced, (v) the Master Servicer does not exercise its option to
repurchase all of the Mortgage Loans as described under the caption "Pooling
and Servicing Agreement--Termination," (vi) prepayments representing payment
in full of individual Mortgage Loans are received on the last day of each
month and include 30 days interest thereon, commencing in June 1996, (vii)
the aggregate assumed purchase price of each Class of Variable Strip
Certificates is equal to the sum of (a) the percentage of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date, as specified
below, and (b) two days of accrued interest, (viii) the Certificates are
purchased on June 27, 1996 and (ix) the number of days between the date the
Offered Certificates are purchased and the first Distribution Date is 28 days
(such assumptions, collectively, the "Structuring Assumptions").
PRE-TAX YIELD TO MATURITY (CBE) OF THE VARIABLE STRIP CERTIFICATES
PERCENTAGES OF CPR
--------------------------------------
ASSUMED PURCHASE PRICE 10% 15% 20% 25% 30%
- ---------------------- ----- ----- ----- ----- -----
5.8750% . . . . . . . . . . . . 52.6% 45.8% 38.7% 31.4% 23.9%
6.0000% . . . . . . . . . . . . 51.2% 44.4% 37.4% 30.2% 22.7%
6.1250% . . . . . . . . . . . . 49.9% 43.1% 36.2% 29.0% 21.5%
The yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on the Variable Strip Certificates, would
cause the discounted present values of such assumed cash flows to equal the
aggregate assumed purchase prices of the Variable Strip Certificates, and by
converting such monthly discount rates to corporate bond equivalent rates.
Such calculations do not take into account the effect of any Prepayment
Interest Shortfalls or variations that may occur in the interest rates at
which investors may be able to reinvest funds received by them as
distributions on the Variable Strip Certificates and consequently do not
purport to reflect the return on any investment in the Variable Strip
Certificates when such reinvestment rates are considered.
The Mortgage Loans will not have all of the characteristics assumed
above. There can be no assurance that the Mortgage Loans will prepay at any
of the constant rates shown in the table or at any other particular rate,
that the pre-tax yields on the Variable Strip Certificates will correspond to
any of the pre-tax yields shown therein or that the aggregate purchase prices
paid for the Variable Strip Certificates will be equal to any of the amounts
assumed above. Because the rate of distributions of principal on the
Certificates will be related to the actual amortization (including
prepayments) of the Mortgage Loans, which may include Mortgage Loans that
have remaining terms to stated maturity shorter or longer than those assumed
and interest rates higher or lower than those assumed, the pre-tax yields on
the Variable Strip Certificates will differ from those set forth above, even
if all of the Mortgage Loans prepay at the indicated CPR percentages. It is
unlikely that any Mortgage Loan will prepay at a constant rate to maturity or
that all of the Mortgage Loans will prepay at the same rate. The foregoing
table assumes that all of the Mortgage Loans prepay at the same constant
rate. In fact, mortgage loans bearing different (or the same) mortgage rates
may prepay at different rates. Accordingly, investors should calculate
expected yields based on their own assumptions and should not rely on the
yields specified above.
The timing of changes in the rate of prepayments may significantly
affect the actual yields to investors on the Variable Strip Certificates,
even if the average rate of principal prepayments is consistent with the
expectations of investors. In general, the earlier the payment of principal
of the Mortgage Loans the greater the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated
by the investor during the period immediately following the issuance of the
Variable Strip Certificates will not be offset by a
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<PAGE>
subsequent like reduction (or increase) in the rate of principal prepayments.
Investors must make their own decisions as to the appropriate prepayment
assumptions to be used in deciding whether to purchase the Variable Strip
Certificates.
In addition to the foregoing, holders of the Variable Strip Certificates
generally have rights to relatively larger portions of interest payments on
the Mortgage Loans with higher Net Mortgage Rates than on Mortgage Loans with
lower Net Mortgage Rates, and, with respect to the Adjustable Rate Loans,
after the initial Adjustment Dates, holders of the Variable Strip
Certificates generally have rights to relatively larger portions of interest
payments on the Adjustable Rate Loans with higher Gross Margin than on
Adjustable Rate Loans with lower Gross Margins. Thus, the yield on the
Variable Strip Certificates will be materially and adversely affected to a
greater extent than on the other Certificates if the Adjustable Rate Loans
with higher Gross Margins prepay faster than the Adjustable Rate Loans with
lower Gross Margins Rates thereof or if the Adjustable Rate Mortgage Loans
with higher Net Mortgage Rates prepay faster than the Adjustable Rate Loans
with lower Net Mortgage Rates after such Adjustment Dates. Because Mortgage
Loans having higher Net Mortgage Rates generally have higher Mortgage Rates,
such Mortgage Loans are generally more likely to be prepaid under most
circumstances than are Mortgage Loans having lower Net Mortgage Rates.
Investors should consider that the yield to maturity on the Variable Strip
Certificates will be sensitive to an even greater degree to the prepayment,
repurchase and default experience on the Adjustable Rate Loans after the
initial Adjustment Dates thereof than it was prior to such Adjustment Dates,
because holders of Variable Strip Certificates generally will have rights to
relatively larger portions of interest payments on the Adjustable Rate Loans
after the initial Adjustment Dates thereof than they had prior to such
Adjustment Dates.
See "Description of the Certificates--Interest Distributions" herein.
WEIGHTED AVERAGE LIFE OF THE CLASS A-1 CERTIFICATES, THE CLASS A-2
CERTIFICATES AND THE CLASS B-1 CERTIFICATES
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security to the date of distribution to
the investor of each dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Class A-1
Certificates, the Class A-2 Certificates and the Class B-1 Certificates will
be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
Based on the Structuring Assumptions (except for assumption (vii)) in
the foregoing discussions, the following tables indicate the weighted average
life of the Class A-1 Certificates, the Class A-2 Certificates and the Class
B-1 Certificates and set forth the percentages of the initial Certificate
Principal Balance of the Class A-1 Certificates, the Class A-2 Certificates
and the Class B-1 Certificates that would be outstanding after each of the
Distribution Dates indicated at various percentages of CPR.
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<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES
AND CLASS A-2 CERTIFICATES CLASS B-1 CERTIFICATES
---------------------------------- ----------------------------------
DISTRIBUTION DATE 0% 10% 15% 20% 25% 30% 0% 10% 15% 20% 25% 30%
- ------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial . . . . . . . . . 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
June 1997 . . . . . . . . 98 87 82 76 71 66 99 99 99 99 99 99
June 1998 . . . . . . . . 96 76 67 58 49 42 85 89 91 93 94 96
June 1999 . . . . . . . . 96 67 55 44 34 26 62 71 75 78 82 85
June 2000 . . . . . . . . 95 59 44 33 23 15 38 53 60 66 71 76
June 2001 . . . . . . . . 94 51 36 24 14 7 12 35 45 54 61 68
June 2002 . . . . . . . . 93 45 29 17 8 2 0 18 31 43 52 61
June 2003 . . . . . . . . 92 39 22 11 3 0 0 1 18 32 44 30
June 2004 . . . . . . . . 91 33 17 7 0 0 0 0 4 21 33 0
June 2005 . . . . . . . . 90 29 13 3 0 0 0 0 0 11 0 0
June 2006 . . . . . . . . 89 24 9 1 0 0 0 0 0 00 0 0
June 2007 . . . . . . . . 87 21 7 0 0 0 0 0 0 0 0 0
June 2008 . . . . . . . . 85 18 5 0 0 0 0 0 0 0 0 0
June 2009 . . . . . . . . 83 15 4 0 0 0 0 0 0 0 0 0
June 2010 . . . . . . . . 81 13 3 0 0 0 0 0 0 0 0 0
June 2011 . . . . . . . . 78 12 2 0 0 0 0 0 0 0 0 0
June 2012 . . . . . . . . 76 10 2 0 0 0 0 0 0 0 0 0
June 2013 . . . . . . . . 74 9 2 0 0 0 0 0 0 0 0 0
June 2014 . . . . . . . . 71 8 1 0 0 0 0 0 0 0 0 0
June 2015 . . . . . . . . 68 7 1 0 0 0 0 0 0 0 0 0
June 2016 . . . . . . . . 65 6 1 0 0 0 0 0 0 0 0 0
June 2017 . . . . . . . . 62 5 1 0 0 0 0 0 0 0 0 0
June 2018 . . . . . . . . 58 4 1 0 0 0 0 0 0 0 0 0
June 2019 . . . . . . . . 53 3 0 0 0 0 0 0 0 0 0 0
June 2020 . . . . . . . . 48 3 0 0 0 0 0 0 0 0 0 0
June 2021 . . . . . . . . 42 2 0 0 0 0 0 0 0 0 0 0
June 2022 . . . . . . . . 35 2 0 0 0 0 0 0 0 0 0 0
June 2023 . . . . . . . . 28 1 0 0 0 0 0 0 0 0 0 0
June 2024 . . . . . . . . 20 1 0 0 0 0 0 0 0 0 0 0
June 2025 . . . . . . . . 10 0 0 0 0 0 0 0 0 0 0 0
June 2026 . . . . . . . . 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Lives
in Years . . . . . . . 21.1 7.0 4.5 3.2 2.5 2.1 3.5 4.2 4.8 5.5 5.9 5.7
</TABLE>
- ------------------
* The weighted average life of a Certificate is determined by (i) multiplying
the amount of each distribution in reduction of the Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results and (iii)
dividing the sum by the initial Certificate Principal Balance of the
Certificate.
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<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") dated as of June 1, 1996
among the Depositor, the Master Servicer, and Bankers Trust Company, as
Trustee. Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Offered Certificates. The Offered
Certificates will be transferable and exchangeable at the corporate trust
office of the Trustee, which will serve as Certificate Registrar and Paying
Agent. The Depositor will provide a prospective or actual Certificateholder
without charge, on written request, a copy (without exhibits) of the Pooling
and Servicing Agreement. Requests should be addressed to N. Dante LaRocca,
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, 9th
Floor, New York, New York 10172.
The Master Servicer has the right to resign from the obligations and
duties imposed on it under the Pooling and Servicing Agreement upon the
appointment of a successor servicer and delivery to the Trustee of a letter
from each Rating Agency that such resignation and appointment will not, in
and of itself, result in a downgrading of the Certificates. The Master
Servicer may not assign its obligations and duties under the Pooling and
Servicing Agreement.
ASSIGNMENT OF MORTGAGE LOANS
The Mortgage Loans will be assigned by the Depositor to the Trustee
pursuant to the terms of the Pooling and Servicing Agreement, together with
all principal and interest due on the Mortgage Loans after the Cut-off Date.
The Trustee will, concurrently with such assignment, authenticate and deliver
the Certificates. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Pooling and Servicing Agreement which will
specify with respect to each Mortgage Loan, among other things, the original
principal balance, the principal balance as of the close of business on the
Cut-off Date, the Monthly Payment, the maturity date and the Mortgage Rate.
As to each Mortgage Loan, the following documents are required to be
delivered to the Trustee in accordance with the Pooling and Servicing
Agreement: (i) the related original Mortgage Note endorsed without recourse
to the Trustee, (ii) the original Mortgage with evidence of recording
indicated thereon (or, if such original recorded Mortgage has not yet been
returned by the recording office, a copy thereof certified by the Seller to
be a true and complete copy of such Mortgage sent for recording), (iii) an
original recorded assignment of the Mortgage to the Trustee (or if such
original recorded assignment has not yet been returned by the recording
office, a copy thereof certified by the Seller to be a true and complete copy
of such assignment sent for recording), (iv) the policies of title insurance
issued with respect to each Mortgage Loan and (v) the originals of any
assumption, modification, extension or guaranty agreements. The assignments
to the Trustee in connection with each Mortgage Loan are required to be
submitted for recording promptly after the Delivery Date. The Trustee will
review each Mortgage File within 90 days of the Delivery Date, and if any
such document is found to be defective in any material respect and the Seller
does not cure such defect within 60 days of notice thereof from the Trustee,
the Seller will be obligated to purchase the related Mortgage Loan from the
Trust Fund within 90 days of such notice.
Pursuant to the terms of the Pooling and Servicing Agreement, the
Depositor will assign to the Trustee for the benefit of the holders of the
Certificates all of its right, title and interest in and to each Purchase
Agreement insofar as it relates to the representations and warranties made by
the Seller in respect of the related Mortgage Loans and the remedies provided
for breach of such representations and warranties. The representations and
warranties made by the Seller with respect to the Mortgage Loans differ but
are similar in nature to the representations and warranties summarized in the
Prospectus under the caption "Loan Underwriting Procedures and
Standards--Representations and Warranties." Upon discovery by the Trustee of
a breach of any representation, warranty or covenant which materially and
adversely affects the interests of the Certificateholders in a Mortgage Loan,
the Trustee will promptly notify the Seller and the Master Servicer. The
Seller will have 90 days from its discovery or its receipt of such notice to
cure such breach or repurchase the Mortgage Loan. The Seller will not have
any right to substitute another mortgage loan for a Mortgage Loan as to which
such a breach has occurred. See "The Seller" above.
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<PAGE>
Neither the Depositor, the Master Servicer, the Trustee nor any of their
respective affiliates will make any representations or warranties with
respect to the Mortgage Loans, or have any obligation to purchase a Mortgage
Loan if the Seller defaults on its obligation to repurchase a Mortgage Loan
either in connection with a breach of a representation and warranty or in
connection with a defective document as described above, and no assurance can
be given that the Seller will carry out such obligations with respect to
Mortgage Loans. Although the Subordination described herein will not be
available to support the Seller's obligation to repurchase any Mortgage Loan,
to the extent any such Mortgage Loan is not repurchased by the Seller and
losses occur on such Mortgage Loans, Subordination with respect to such
Mortgage Loans will be available to the extent provided herein. To the extent
that the Subordination is so utilized, such Subordination will be depleted
more quickly than if such Mortgage Loans had been repurchased by the Seller.
THE MASTER SERVICER
Temple-Inland Mortgage Corporation ("TIMC"), a Nevada corporation, will
serve as the Master Servicer under the Pooling and Servicing Agreement. TIMC is
a full service mortgage banking company and is a FNMA- and FHLMC-approved
seller/servicer. TIMC originates mortgage loans through a network of retail and
wholesale branches, and the mortgage loans it originates are generally sold in
the secondary market on a servicing-retained basis. In addition, TIMC services
loans in all fifty states and in the District of Columbia, and its servicing
portfolio includes a full range of mortgage products serviced for a variety of
mortgage loan and mortgage-backed security investors. TIMC's principal executive
offices are located at 1300 Mo-Pac Expressway South, Austin, Texas 78746, and
its telephone number is (512) 434-8000.
TIMC is a wholly-owned subsidiary of Guaranty Federal Bank, F.S.B. ("GFB"),
a Dallas, Texas-based financial institution. GFB is a wholly-owned subsidiary
of Temple-Inland Financial Services ("TIFS"), a financial services holding
company that is wholly-owned by Temple-Inland Inc. ("T-I"). T-I is a
Texas-based, holding company with interests primarily in paper, packaging,
building products and financial services. T-I's stock is publicly traded on the
New York Stock Exchange and the Pacific Stock Exchange.
The following table sets forth certain information concerning the
delinquency experience (including bankruptcies) and foreclosures inprogress on
one-to four-family residential mortgage loans included in TIMC's servicing
portfolio at the end of the indicated periods. The indicated periods of
delinquency are based on the number of days past due on a contractual basis. No
mortgage loan is considered delinquent for these purposes until it is one month
past due on a contractual basis.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993 AT DECEMBER 31, 1994 AT DECEMBER 31, 1995 AT DECEMBER 31, 1996
--------------------- -------------------- -------------------- ---------------------
BY NUMBER PERCENT BY BY NUMBER PERCENT BY BY NUMBER PERCENT BY BY NUMBER PERCENT BY
OF NUMBER OF NUMBER OF NUMBER OF NUMBER
LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS LOANS OF LOANS
--------- --------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Residential
Portfolio. . . . . . . . . . 144,497 N/A 149,393 N/A 184,310 N/A 222,956 100.00%
Period of Delinquency:
31-60 days . . . . . . . . . 1,103 0.76% 1,145 0.76% 1,692 0.92% 3,223 1.45%
61-90 days(1). . . . . . . . 941 0.65 1,425 0.95 756 0.41 1,893 0.85%
91 days or more (2). . . . . -- -- -- -- 1,487 0.81 3,123 1.40%
Foreclosures in
Progress. . . . . . . . . . 267 0.18 404 0.27 504 0.27 2,408 1.08%
----- ---- ----- ---- ----- ---- ------ -----
Total Delinquent
Loans. . . . . . . . . . . . 2,311 1.59% 2,974 1.99% 4,439 2.41% 10,647 4.78%
----- ---- ----- ---- ----- ---- ------ -----
----- ---- ----- ---- ----- ---- ------ -----
Bankruptcy Loans. . . . . . . 669 0.46% 612 0.41% 723 0.39% 1,718 0.77%
</TABLE>
- ------------------
(1) Includes mortgage loans 61 to 90 days and 91 days or more delinquent at
December 31, 1992, December 31, 1993 and December 31, 1994.
(2) TIMC did not keep separate records of mortgage loans 91 days or more
delinquent prior to January 1, 1995.
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<PAGE>
The aggregate principal balances of the one- to four-family residential
mortgage loans included in TIMC's servicing portfolio at close of business on
December 31, 1993, December 31, 1994, December 31, 1995 and March 31, 1996 were
approximately $9.0 billion, $10.1 billion, $13.4 billion and $17.2 billion,
respectively.
The following table sets forth certain information concerning the
foreclosure experience on one- to four-family residential mortgage loans
included in TIMC's servicing portfolio at or for the indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31 1996
----------------- ---------------- ----------------- ----------------
BY NUMBER BY NUMBER BY NUMBER BY NUMBER
OF OF OF OF
LOANS LOANS LOANS LOANS
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Foreclosed Loans . . 788 786 786 429
Foreclosed Ratio . . 0.55% 0.53% 0.43% 0.19%
</TABLE>
There can be no assurance that the delinquency experience of the Mortgage
Loans comprising the Mortgage Pool will correspond to the delinquency experience
of TIMC's mortgage portfolio set forth in the foregoing tables. The statistics
shown above represent the delinquency experience for TIMC's residential mortgage
servicing portfolio only for the periods presented, whereas the aggregate
delinquency experience on the Mortgage Loans comprising the Mortgage Pool will
depend on the results obtained over the life of the Mortgage Pool. Moreover,
TIMC's residential mortgage servicing portfolio includes mortgage loans with a
variety of payment and other characteristics (including geographic location)
which are not necessarily representative of the payment and other
characteristics of the Mortgage Loans comprising the Mortgage Pool. PROSPECTIVE
INVESTORS IN THE OFFERED CERTIFICATES PARTICULARLY SHOULD BE AWARE THAT PRIOR TO
1995, TIMC'S SERVICING PORTFOLIO, ON WHICH THE FOREGOING TABLES ARE BASED, DID
NOT INCLUDE ANY MORTGAGE LOANS HAVING UNDERWRITING STANDARDS SIMILAR TO THOSE
APPLICABLE TO THE MORTGAGE LOANS AND CONSISTED PRIMARILY OF MORTGAGE LOANS
UNDERWRITTEN IN A MORE TRADITIONAL MANNER. TIMC HAS HAD LIMITED EXPERIENCE IN
SERVICING MORTGAGE LOANS ORIGINATED OR ACQUIRED IN ACCORDANCE WITH UNDERWRITING
STANDARDS SIMILAR TO THE UNDERWRITING CRITERIA PURSUANT TO WHICH THE MORTGAGE
LOANS WERE ORIGINATED OR ACQUIRED.
It also should be noted that if the residential real estate market should
experience a decline in property values, the actual rates of delinquency and
foreclosure could be higher than those previously experienced by TIMC. In
addition, adverse economic conditions may affect the timely payment by
mortgagors of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquency, bankruptcy and foreclosure
with respect to the Mortgage Pool. See "The Seller--Loan Delinquency,
Forbearance, Foreclosure, Bankruptcy and REO Property Status" and "--REO
Property Liquidation Experience" herein for important information regarding the
delinquency, forbearance, foreclosure, bankruptcy and REO property status and
loss experience of mortgage loans previously originated by the Seller under
substantially the same underwriting criteria pursuant to which the Mortgage
Loans were originated or acquired.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee (the "Servicing Fee") for each Mortgage Loan is payable
out of the interest payments on such Mortgage Loan. The Servicing Fee in respect
of each Mortgage Loan originated or acquired under the regular lending program
or the equity lending program will be payable at a rate (the "Servicing Fee
Rate") equal to 0.50% per annum or 0.75% per annum, respectively, on the
outstanding
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<PAGE>
principal balance of each Mortgage Loan. The Servicing Fees consist
of (a) servicing compensation payable to the Master Servicer in respect of its
master servicing activities, (b) subservicing and other related compensation
payable to any subservicer (including such compensation paid to the Master
Servicer as the direct servicer of a Mortgage Loan for which there is no
subservicer) and (c) the fees payable to the Trustee. The Master Servicer is
entitled to retain as additional servicing compensation any assumption and
reconveyance fees, to the extent collected from mortgagors, and any interest or
other income earned on funds held in the Custodial Account or the Certificate
Account. It is not anticipated that the Master Servicer will enter into any
subservicing arrangements with respect to the Mortgage Loans. However, the
Master Servicer intends to enter into an arrangement with a newly-formed
affiliate of DLJMC under which such affiliate will assist the Master Servicer in
collection and loss mitigation activities with respect to those Mortgage Loans
that become delinquent. The Master Servicer will pay the fee charged by such
entity in connection therewith. The Master Servicer is obligated to pay
certain ongoing expenses associated with the Trust Fund and incurred by the
Master Servicer in connection with its responsibilities under the Pooling and
Servicing Agreement. See "Servicing of Loans--Servicing Compensation and
Payment of Expenses" in the Prospectus for information regarding other possible
compensation to the Master Servicer and subservicers and for information
regarding expenses payable by the Master Servicer.
THE INTERIM SUBSERVICER
Immediately prior to the date of initial issuance of the Certificates (the
"Delivery Date"), all of the servicing rights and obligations with respect to
the Mortgage Loans were owned by DLJMC, and the servicing functions with respect
to a substantial majority of the Mortgage Loans were performed by the Master
Servicer. 20.24% of the Mortgage Loans (the "Interim Serviced Mortgage Loans")
will be subserviced by Quality Mortgage USA, Inc., (the "Interim Subservicer"),
as of the Delivery Date. Effective on the Delivery Date, DLJMC will transfer
and assign ownership of all such servicing rights and obligations to the Master
Servicer and the Master Servicer will become responsible for the proper
performance of all servicing functions with respect to the Mortgage Loans in
accordance with the Pooling and Servicing Agreement. The servicing functions
with respect to the Interim Serviced Mortgage Loans will be performed for the
Master Servicer by the Interim Subservicer, as a subservicer, during an interim
period, which is scheduled to expire on July 31, 1996.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
Certificates evidencing a specified percentage of all undivided interests in the
Trust Fund may be taken by holders of Certificates entitled in the aggregate to
such percentage of the Voting Rights. 95% of all Voting Rights will be
allocated among all holders of the Certificates (other than the Variable Strip
Certificates, the Class SB Certificates, the Class R Certificates) in proportion
to their then outstanding Certificate Principal Balances, 2%, 2%, and 1% of all
Voting Rights will be allocated among holders of the Variable Strip
Certificates, Class SB Certificates, Class R Certificates, respectively, in
proportion to the Percentage Interests (as defined in the Prospectus) evidenced
by their respective Certificates. The Pooling and Servicing Agreement will be
subject to amendment without the consent of the holders of the Residual
Certificates in certain circumstances.
EVENTS OF DEFAULT AND TERMINATION EVENT
Events of default ("Events of Default") under the Pooling and Servicing
Agreement will consist of (i) any failure by the Master Servicer to distribute
or cause to be distributed to Certificateholders any required payment which
continues unremedied for five days after the giving of written notice of such
failure to the Master Servicer by the Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights; (ii) any failure by the
Master Servicer duly to observe or perform in any material respect any of its
other
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<PAGE>
covenants or agreements in the Pooling and Servicing Agreement which
continues unremedied for thirty days after the giving of written notice of such
failure to the Master Servicer by the Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights; (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations; and (iv) any
failure of the Master Servicer to make any Advance as required which is not
remedied one business day prior to the related Distribution Date.
A termination event ("Termination Event") under the Pooling and Servicing
Agreement will consist of a determination by the Trustee on the Determination
Date in June of any year, commencing in July 1997 and ending in July 2006, that
(a) if such Determination Date occurs in or before July 2001, the Total Expected
Losses (as defined below) on such Determination Date is greater than 50% of the
Initial Loss Coverage Amount (as defined below) and (b) if such Determination
Date occurs after July 2001 and in or before July 2006, the Total Expected
Losses on such Determination Date is greater than 75% of the Initial Loss
Coverage Amount.
On any Determination Date, "Total Expected Losses" will equal the sum of
(a) all Realized Losses previously allocated through Subordination and (b) all
Prospective Losses (as defined below) as of such Determination Date.
"Prospective Losses," as of any Determination Date, will be an amount equal to
the sum of (i) the product of (x) the aggregate Stated Principal Balance of the
Mortgage Loans that are 31 days to 60 days delinquent, (y) 25% and (z) the Loss
Severity Percentage (as defined below), (ii) the product of (x) the aggregate
Stated Principal Balance of the Mortgage Loans that are 61 days to 90 days
delinquent, (y) 50% and (z) the Loss Severity Percentage and (iii) the product
of (x) the aggregate Stated Principal Balance of the Mortgage Loans that are 91
days or more delinquent plus the aggregate Stated Principal Balance of all REO
Properties, if any, and (y) the Loss Severity Percentage. For purposes of
calculating Prospective Losses, Mortgage Loans in foreclosure will be
categorized based on their respective number of days of delinquency. The
"Initial Loss Coverage Amount" will equal the sum of the aggregate initial
Certificate Principal Balance of the Class B Certificates and 2.20% of the
aggregate Certificate Principal Balance of all of the Certificates and the "Loss
Severity Percentage" will be equal to 43%.
RIGHTS UPON EVENT OF DEFAULT OR TERMINATION EVENT
So long as an Event of Default under the Pooling and Servicing Agreement as
described in clauses (i), (ii) and (iii) of the third preceding paragraph
remains unremedied, the Depositor or the Trustee may, and at the direction of
holders of Certificates evidencing not less than 51% of the Voting Rights shall,
by notice in writing to the Master Servicer terminate all of the rights and
obligations of the Master Servicer under the Pooling and Servicing Agreement and
in and to the Trust Fund. If an Event of Default under the Pooling and Servicing
Agreement as described in clause (iv) of the third preceding paragraph shall
occur, the Trustee will, by notice to the Master Servicer and the Depositor,
terminate all of the rights and obligations of the Master Servicer under the
Pooling and Servicing Agreement and in and to the Trust Fund; provided, however,
that if the Trustee determines that the failure by the Master Servicer to make
any required Advance was due to circumstances beyond its control and the
required Advance was otherwise made, the Trustee shall not terminate the Master
Servicer. If a Termination Event under the Pooling and Servicing Agreement as
described in the second preceding paragraph shall occur, the Trustee will give
notice to the Master Servicer and the Certificateholders of such Termination
Event within 5 days and, upon the direction of holders of Certificates entitled
to at least 51% of the Voting Rights received within 90 days of such notice, the
Trustee shall, by notice to the Master Servicer and the Depositor, terminate all
of the rights and obligations of the Master Servicer under the Pooling and
Servicing Agreement and in and to the Trust Fund. Upon receipt by the Master
Servicer of any such written notice, all authority and power of the Master
Servicer under the Pooling and Servicing Agreement will
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pass to and be vested in the Trustee, and the Trustee will be authorized and
empowered to execute and deliver, on behalf of the Master Servicer, as
attorney-in-fact, or otherwise, any and all documents and other instruments,
and to do or accomplish all other acts or things necessary or appropriate to
effect the purposes of such termination. Upon receipt by the Master Servicer
of notice of termination, the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under the
Pooling and Servicing Agreement and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling, it may, or if it is
unable or if the holders of Certificates evidencing not less than 51% of the
Voting Rights request in writing, it shall, appoint or petition a court of
competent jurisdiction for the appointment of a mortgage loan servicing
institution, with a net worth of at least $10,000,000 to act as successor to
the Master Servicer under the Pooling and Servicing Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. 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 Master Servicer
under the Pooling and Servicing Agreement. In addition, holders of
Certificates evidencing at least 66% of the Voting Rights of Certificates
affected by an Event of Default may waive such Event of Default; provided,
however, that (a) an Event of Default with respect to the Master Servicer's
obligation to make Advances may be waived only by all of the holders of
Certificates affected by such Event of Default and (b) no such waiver is
permitted that would materially adversely affect any non-consenting
Certificateholder. See "The Pooling and Servicing Agreements--Rights Upon
Event of Default" in the Prospectus.
LIMITATION ON RESIGNATION OF THE MASTER SERVICER
The Master Servicer may resign from its obligations and duties under the
Pooling and Servicing Agreement only if such resignation, and the appointment of
a successor, will not result in a downgrading of the ratings assigned to any
Class of Certificates, or upon a determination that its duties under the Pooling
and Servicing Agreement are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor servicer has
assumed the Master Servicer's responsibilities, liabilities, obligations and
duties under the Pooling and Servicing Agreement. Any proposed successor Master
Servicer must be an established mortgage loan servicing institution, must be
reasonably acceptable to the Trustee, must be acceptable to each Rating Agency
for purposes of maintaining its then-current ratings of the Certificates and
must comply with any further requirements of a successor Master Servicer under
the Pooling and Servicing Agreement.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate upon payment to the Certificateholders of all amounts held in the
Certificate Account and the Excess Proceeds Account required to be paid to the
Certificateholders pursuant to such Pooling and Servicing Agreement, following
the earlier of (i) the final payment or other liquidation of the last Mortgage
Loan remaining in the Trust Fund or the disposition of all property acquired
upon foreclosure of any such Mortgage Loan and (ii) the repurchase of all of the
assets of the Trust Fund by the Master Servicer when the aggregate principal
balance of the Mortgage Loans equals 5% or less of the aggregate principal
balance as of the Cut-off Date, pursuant to a provision of the Agreement giving
the Master Servicer the right to do so. Written notice of termination of the
Pooling and Servicing Agreement will be given to each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination.
Any such repurchase of Mortgage Loans and property acquired in respect of
the Mortgage Loans shall be made at a price equal to the sum of (a) 100% of the
unpaid principal balance of each outstanding Mortgage Loan (net of unreimbursed
advances attributable to principal) as of the day of such repurchase plus
accrued interest thereon at the Net Mortgage Rate to the first day of the month
of such repurchase,
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plus (b) the appraised value of any property acquired in respect of any
defaulted Mortgage Loan (but not more than the unpaid principal balance of
that Mortgage Loan together with accrued interest at the applicable Net
Mortgage Rate to the first day of the month of such purchase) less the good
faith estimate of the Master Servicer of liquidation expenses to be incurred
in connection with its disposal thereof. The exercise of the right to
purchase the assets of the Trust Fund as set forth in clause (ii) of the
preceding paragraph will effect early retirement of the Certificates.
THE TRUSTEE
Bankers Trust Company will be the Trustee under the Pooling and Servicing
Agreement. The Depositor and the Seller may maintain other banking relationships
in the ordinary course of business with the Trustee. Offered Certificates may be
surrendered at the Corporate Trust Office of the Trustee located at 4 Albany
Street, Second Floor, New York, New York 10006, or at such other addresses as
the Trustee may designate from time to time by notice to the Certificateholders,
the Depositor and the Master Servicer.
The Trustee is eligible to serve as such under the Pooling and Servicing
Agreement only if it is a corporation or banking association organized and doing
business under the laws of the United States or any state thereof, authorized
under such laws to exercise corporate trust powers and subject to supervision or
examination by federal or state authority and has combined capital and surplus
of at least $50,000,000.
The Trustee may, upon written notice to the Master Servicer, the Depositor
and all Certificateholders, resign at any time, in which event the Master
Servicer will be obligated to appoint a successor Trustee. If no successor
Trustee has been appointed and has accepted appointment within 60 days after
giving such notice of resignation, the resigning Trustee may petition any court
of competent jurisdiction for appointment of a successor Trustee. Any such
successor Trustee must be approved by Moody's and DCR. The Trustee may also be
removed at any time (i) by the Master Servicer, if the Trustee ceases to be
eligible to continue as such as described above or if the Trustee becomes
insolvent or (ii) by holders of Certificates evidencing at least 51% of the
Voting Rights. Any removal or resignation of the Trustee and appointment of a
successor Trustee as described above will not become effective until acceptance
of appointment by the successor Trustee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, the Trust Fund will qualify as a REMIC within
the meaning of Sections 860A through 860G of the Internal Revenue Code of 1986
(the "Code").
For federal income tax purposes, the Senior Certificates, the Class B
Certificates and the Class SB Certificates will be "regular interests" in the
REMIC and the Class R Certificates will be the sole Class of "residual
interests" in the REMIC. The Senior Certificates, the Class SB Certificates, and
the Class B Certificates generally will be treated as debt obligations of the
Trust Fund for federal income tax purposes.
For federal income tax reporting purposes, the Class A-1 Certificates will
not and the Class SA Certificates, the Class A-2 Certificates and the Class B-1
Certificates will, be treated as having been issued with original issue
discount. The prepayment assumption that will be used in determining the rate
of accrual of original issue discount, market discount and amortizable premium,
if any, for federal income tax purposes will be that subsequent to the date of
any determination the Mortgage Loans will prepay at a CPR percentage equal to
20.00%. No representation is made that the Mortgage Loans will prepay at
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that rate or at any other rate. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount," "--Market Discount" and "--Premium"
in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the Offered Certificates should be aware that the OID Regulations do not
adequately address certain issues relevant to, or are not applicable to,
securities such as the Offered Certificates. In addition, there is considerable
uncertainty concerning the application of the OID Regulations to REMIC Regular
Certificates that provide for payments based on an adjustable rate. Because of
the uncertainty concerning the application of Section 1272(a)(6) of the Code to
such Certificates and because the rules of the OID Regulations relating to debt
instruments having an adjustable rate of interest are limited in their
application in ways that could preclude their application to such Certificates
even in the absence of Section 1272(a)(6) of the Code, the IRS could assert that
the Class A-1 Certificates should be treated as issued with original issue
discount or the Offered Certificates should be governed by the rules applicable
to debt instruments having contingent payments or by some other method not yet
set forth in regulations. Prospective purchasers of the Offered Certificates are
advised to consult their tax advisors concerning the tax treatment of such
Certificates.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificate issued with original issue discount, in particular the Variable
Strip Certificates, the amount of original issue discount allocable to such
period will be zero and the holder of such a Certificate will be permitted to
offset such negative amount only against future original issue discount, if any,
attributable to such Certificate. Although uncertain, a Certificateholder may be
permitted to deduct a loss to the extent that his or her respective remaining
basis in such Certificate exceeds the maximum amount of future payments to which
such Certificateholder is entitled, assuming no further prepayments of the
Mortgage Loans. Although the matter is not free from doubt, any such loss might
be treated as a capital loss.
The OID Regulations appear to permit in some circumstances the holder of a
debt instrument to recognize original issue discount under a method that differs
from that used by the issuer. Accordingly, it is possible that the holder of an
Offered Certificate may be able to select a method for recognizing original
issue discount that differs from that used by the Trust Fund in preparing
reports to the Certificateholders and the IRS. Prospective purchasers of the
Offered Certificates are advised to consult their tax advisors concerning the
tax treatment of such Certificates in this regard.
Certain Classes of Certificates may be treated as having been issued with a
premium. Certificateholders may elect to amortize such premium under a constant
yield method in which case such amortizable premium will generally be allocated
among the interest payments on such Certificates and will be applied as an
offset against such interest payments. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium"
in the Prospectus.
The Holders of the Offered Certificates will be required to include in
income all accrued but unpaid interest.
The Offered Certificates will be treated as "qualifying real property
loans" under Section 593(d) of the Code, assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(5)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Offered Certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c)(3)(B) of the Code generally to the extent that such Offered
Certificates are treated as "real estate assets" under Section 856(c)(5)(A) of
the Code. Moreover,
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the Offered Certificates will be "qualified mortgages" within the meaning of
Section 860G(a)(3) of the Code. See "Certain Federal Income Tax
Consequences--REMICs--Characterization of Investment in REMIC Certificates"
in the Prospectus.
To the extent permitted by then applicable law, any "prohibited
transactions tax," "contributions tax," tax on "net income from foreclosure
property" or state or local income or franchise tax that may be imposed on the
Trust Fund will be borne by the Master Servicer or Trustee in either case out of
its own funds, provided that the Master Servicer or the Trustee, as the case may
be, has sufficient assets to do so, and provided further that such tax arises
out of a breach of the Master Servicer's or the Trustee's obligations, as the
case may be, under the Pooling and Servicing Agreement and in respect of
compliance with then applicable law. Any such tax not borne by the Master
Servicer or the Trustee will be payable out of the Trust Fund, which may reduce
the amounts otherwise payable to holders of the Offered Certificates, to the
extent any such tax exceeds amounts otherwise payable to holders of the
Certificates not offered hereby. See "Certain Federal Income Tax Consequences--
REMICs--Prohibited Transactions Tax and Other Taxes" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates" in the
Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") between the Depositor and Donaldson, Lufkin &
Jenrette Securities Corporation (the "Underwriter"), an affiliate of the
Depositor, the Depositor has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Depositor, the Offered Certificates.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Offered Certificates is subject to, among
other things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Offered Certificates by the Underwriter will be
effected 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
proceeds to the Depositor from the sale of the Offered Certificates will be
approximately $67,763,688 plus accrued interest at the weighted average of the
Net Mortgage Rates as of the Cut-off Date but before deducting expenses payable
by the Depositor. The Underwriter may effect such transactions by selling its
Certificates to or through dealers, and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter for whom they act as agent. In connection with the sale of the
Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of an underwriting discount. 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 profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter, and under limited circumstances the Underwriter will indemnify the
Depositor, against certain civil liabilities under the Securities Act of 1933,
or contribute to payments required to be made in respect thereof.
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See "The Seller" for certain information regarding the relationship between
certain affiliates of the Underwriter and the Seller.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue or will
provide investors with a sufficient level of liquidity. The primary source of
information available to investors concerning the Offered Certificates will be
the monthly statements discussed in the Prospectus under "The Pooling and
Servicing Agreements--Reports to Certificateholders," which will include
information as to the outstanding principal balance of the Offered Certificates
and the status of the applicable form of credit enhancement. There can be no
assurance that any additional information regarding the Offered Certificates
will be available through any other source. In addition, the Depositor is not
aware of any source through which price information about the Offered
Certificates will be generally available on an ongoing basis. The limited nature
of such information regarding the Offered Certificates may adversely affect the
liquidity of the Offered Certificates, even if a secondary market for the
Offered Certificates becomes available.
USE OF PROCEEDS
The Depositor will apply the net proceeds from the sale of the Offered
Certificates against the purchase price of the Mortgage Loans.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and for the Underwriter by Thacher Proffitt & Wood, New York, New
York.
RATINGS
It is a condition to the issuance of the Offered Certificates that the
Variable Strip Certificates and the Class A-1 Certificates be rated "Aaa" by
Moody's Investors Service, Inc. ("Moody's") and "AAA" by Duff & Phelps Credit
Rating Co. ("DCR"), the Class A-2 Certificates be rated "Aa2" by Moody's and
"AA" by DCR and the Class B-1 Certificates be rated "A2" by Moody's and "A+" by
DCR.
The ratings assigned by Moody's to mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
on the underlying mortgage loans to which such certificateholders are entitled.
Ratings by Moody's address the structural, legal and issuer-related aspects
associated with the certificates, including the nature and quality of the
underlying mortgage loans. Such ratings do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. With respect to the
Variable Strip Certificates, the ratings address only the likelihood of receipt
by the holders of the Variable Strip Certificates of distributions thereon in
the amounts calculated as described herein and does not address the possibility
that such Certificateholders might suffer a lower than anticipated yield or the
possibility that investors in the Variable Strip Certificates may fail to fully
recoup their initial investment.
The ratings assigned by DCR to mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of all distributions to
which they are entitled under the transaction structure. DCR's ratings reflect
its analysis of the riskiness of the mortgage loans and its analysis of the
structure of the transaction as set forth in the operative documents. DCR's
ratings do not address the effect on the certificates' yield attributable to
prepayments or recoveries on the underlying mortgages. Further, in the case of
the Variable Strip Certificates, the rating does not address whether investors
will recoup their initial investment.
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The Depositor has not requested ratings on the Offered Certificates by any
rating agency other than Moody's and DCR. However, there can be no assurance as
to whether any other rating agency will rate the Offered Certificates, or, if it
does, what ratings would be assigned by such other rating agency. Ratings on the
Offered Certificates by another rating agency, if assigned at all, may be lower
than the ratings assigned to the Offered Certificates by Moody's and DCR.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
LEGAL INVESTMENT
The Offered Certificates (other than the Class B-1 Certificates) will
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") so long as they are rated in at least
the second highest rating category by Moody's or DCR and, as such, are legal
investments for certain entities to the extent provided in SMMEA. SMMEA provided
that states could override its provisions on legal investment and restrict or
condition investment in mortgage related securities by taking statutory action
on or prior to October 3, 1991. Certain states have enacted legislation which
overrides the preemption provisions of SMMEA. The Class B Certificates will not
constitute "mortgage related securities" for purposes of SMMEA.
The Federal Financial Institutions Examination Council issued a supervisory
policy statement (the "Policy Statement") applicable to all depository
institutions (to the extent adopted by the respective federal regulators)
setting forth guidelines for and significant restrictions on investments in
"high-risk mortgage securities." The Policy Statement has been adopted by the
Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Comptroller of the Currency, the Office of Thrift Supervision
and, in part, by the National Credit Union Administration (the "NCUA"). In
addition, the NCUA has issued regulations governing federal credit union
investments which prohibit investment in certain specified types of securities.
The NCUA has indicated that its regulations will take precedence over the Policy
Statement. Similar policy statements and regulations have been issued by other
regulators having jurisdiction over depository institutions. The Depositor makes
no representations regarding the application of the Policy Statement, or of such
similar statements and regulations, to any Class of Offered Certificates or the
treatment of the Offered Certificates thereunder.
The Depositor makes no representations as to the proper characterization of
any Class of Offered Certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase any Class of Offered
Certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of the Offered Certificates. Accordingly, all
institutions whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent any Class of the Offered Certificates, constitutes a legal
investment or is subject to investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
The U.S. Department of Labor has granted to the Underwriter an individual
exemption (Prohibited Transaction Exemption 90-83) which generally exempts from
the application of certain of the prohibited transaction provisions of Section
406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the excise taxes imposed by Section 4975(a) and (b) of the Code and 502(i)
of ERISA, transactions relating to the purchase, sale and holding by employee
benefit plans and
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other persons subject to ERISA and the Code ("Plans") of pass-through
certificates underwritten by the Underwriter, provided that certain
conditions are satisfied. In addition, other exemptions may possibly apply to
a Plan's investment in Certificates. Because the Class A-2 Certificates and
the Class B-1 Certificates will not qualify for the foregoing prohibited
transaction exemption (or any similar exemption that might be available),
transfers of such Certificates to any Plan as described above, to a trustee
or other Person acting on behalf of any Plan, or to any other person who is
using "plan assets" of any Plan to effect such acquisition (including any
insurance company using funds in its general or separate accounts that may
constitute "plan assets"), will not be registered unless the transferee
provides an opinion of counsel satisfactory to the Master Servicer, the
Depositor and the Trustee that the purchase of any such Certificate is
permissible under applicable law and will not subject the Master Servicer,
the Depositor or the Trustee to any obligation in addition to those
undertaken in the Pooling and Servicing Agreement. In the case of any
transfer of the foregoing Certificates to an insurance company, in lieu of
such opinion of counsel, the transferee may provide a certification
substantially to the effect that the source of funds used to purchase such
Certificates is an "insurance company general account" (as such term is
defined in the Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
issued by the United States Department of Labor) and that there is no Plan
with respect to which the amount of such general account's reserves and
liabilities for contracts held by or on behalf of such Plan and all other
Plans maintained by the same employer (or any "affiliate" thereof, as defined
in PTCE 95-60), or by the same employee organization, exceed 10% of the total
of all reserves and liabilities of such general account (as determined under
PTCE 95-60) as of the date of acquisition of such Certificates. In addition,
so long as the Class A-2 Certificates and the Class B-1 Certificates are DTC
Registered Certificates, any purchaser of a Class A-2 Certificate or a Class
B-1 Certificate will be deemed to have represented by such purchase that
either (a) such purchaser is not a Plan and is not purchasing such
Certificates on behalf of or with "plan assets" of any Plan or (b) the
purchase of any such Certificate by or on behalf of or with "plan assets" of
any Plan is permissible under applicable law, will not result in any
non-exempt prohibited transaction under ERISA or Section 4975 of the Code,
and will not subject the Master Servicer, the Company or the Trustee to any
obligation in addition to those undertaken in the Pooling and Servicing
Agreement. See "ERISA Considerations" in the Prospectus.
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PROSPECTUS
MARCH 15, 1996
DLJ MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
This Prospectus relates to Mortgage Pass-Through Certificates (the
"Certificates") which may be sold from time to time under this Prospectus and
related Prospectus Supplement in one or more series (each a "Series") by DLJ
Mortgage Acceptance Corp. (the "Depositor"). Capitalized terms not otherwise
defined herein have the meanings specified in the Glossary attached hereto.
Each Certificate of a Series will evidence a beneficial ownership interest
in assets deposited into a trust (a "Trust Fund") by the Depositor pursuant to a
Pooling and Servicing Agreement executed by the Depositor, the Trustee and the
Master Servicer for such Series specified in the related Prospectus Supplement.
The Trust Fund will consist of Mortgage Assets, which may include Mortgage Loans
or participation interests therein, Manufactured Home Loans or participation
interests therein, Agency Securities, Private Mortgage-Backed Securities or any
combination of the foregoing and other assets, including any insurance policies,
reserve funds or other forms of credit support specified in the related
Prospectus Supplement. Manufactured Home Loans and the Mortgage Loans in the
Trust Fund for a Series will have been originated by various financial
institutions and other entities engaged generally in the business of originating
and/or servicing housing loans and will have been acquired by the Depositor from
one or more Sellers on or prior to the Closing Date. Some of the Mortgage Loans
or Manufactured Home Loans may have been originated by an affiliate of the
Depositor. The Mortgage Loans and the Manufactured Home Loans may include
(without limitation) fixed rate or adjustable rate Conventional Loans, FHA Loans
or VA Loans and may provide for graduated equity, graduated payment, balloon
payment, "buy-down" or other payment features, and may call for payments from
the obligors other than monthly, as specified in the related Prospectus
Supplement, Mortgage Loans underlying or comprising the Mortgage Assets will be
secured by property consisting of single family (one-to-four family) attached or
detached residential housing or multifamily residential rental properties or
cooperatively owned properties consisting of five or more attached or detached
dwelling units. Mortgage Loans that are Cooperative Loans will be secured by
assignments of shares and a proprietary lease or occupancy agreement on a
cooperative apartment. Manufactured Home Loans underlying or comprising the
Mortgage Assets will be secured by property consisting of a Manufactured Home.
See "The Trust Funds" herein. Manufactured Home Loans and the Mortgage Loans (or
participation interests therein) will be serviced by various servicers under the
supervision of the Master Servicer or by the Master Servicer directly as
specified in the related Prospectus Supplement. The Master Servicer's and any
Servicer's obligations will be limited to its contractual, supervisory and/or
servicing obligations and such other obligations as are specified in the related
Prospectus Supplement. See "Servicing of Loans" herein.
Each Series of Certificates will consist of one or more Classes, and any
Class may include subclasses. If a Series includes multiple Classes, such
Classes may vary with respect to the amount, percentage and timing of
distributions of principal, interest or both and one or more Classes may be
subordinated to other Classes with respect to distributions of principal,
interest or both as described herein and in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Mortgage Assets held
under the Pooling and Servicing Agreement may be divided into one or more Asset
Groups and the Certificates of each separate Class will evidence beneficial
ownership of each corresponding Asset Group. See "Description of the
Certificates" herein.
Distribution of principal and interest of the Certificates of each Series
will be made on each Distribution Date for a Series. The rate of reduction of
the aggregate principal balance of each Class of a Series will depend
principally upon the rate of payment (including prepayments) with respect to the
Loans comprising or underlying the Mortgage Assets. A rate of prepayment lower
or higher than anticipated may affect yield on Certificates of a Series in the
manner described herein and in the related Prospectus Supplement. Under certain
limited circumstances described herein and in the related Prospectus Supplement,
the Mortgage Assets may be purchased by the entity specified in the related
Prospectus Supplement and the related Trust Fund terminated prior to the
maturity of the Mortgage Assets or the Final Scheduled Distribution Date of the
Certificates of the related Series. See "Description of the Certificates" and
"Yield, Prepayment and Maturity Considerations" herein.
The Depositor's only obligations with respect to any Series will be pursuant
to certain representations and warranties, if any, set forth in the related
Pooling and Servicing Agreement as described herein or in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements" herein.
If specified in the related Prospectus Supplement, one or more separate
elections may be made to treat the Trust Fund for a Series as a "Real Estate
Mortgage Investment Conduit" (a "REMIC") for federal income tax purposes. See
"Certain Federal Income Tax Considerations" herein.
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENT IN THE
CERTIFICATES, SEE "RISK FACTORS," WHICH BEGINS ON PAGE 9.
------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF THE DEPOSITOR, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS OR
MORTGAGE SECURITIES WILL BE GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE
DEPOSITOR, THE MASTER SERVICER OR ANY OF THEIR
AFFILIATES.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Certificates of a Series offered hereby and by the related Prospectus
Supplement may be made through one or more different methods, including
offerings through Donaldson, Lufkin & Jenrette Securities Corporation, an
affiliate of the Depositor, as more fully described herein and in the related
Prospectus Supplement. See "Plan of Distribution" herein.
The Certificates are offered when, as and if delivered to and accepted by
the Underwriters subject to prior sale, withdrawal or modification of the offer
without notice, the approval of counsel and other conditions. Retain this
Prospectus for future reference. This Prospectus may not be used to consummate
sales of the securities offered hereby unless accompanied by a Prospectus
Supplement.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES
OFFERED HEREBY AND THEREBY OR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN ANY
STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS
WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL
BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
ADDITIONAL INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, omits certain information contained in such
Registration Statement pursuant to the Rules and Regulations of the Commission.
The Registration Statement and the exhibits thereto can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at certain of its Regional Offices
located as follows: Chicago Regional Office, 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661; and New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the related Trust Fund are required
under the Pooling and Servicing Agreement to be forwarded to Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, such reports
will not be examined and reported on by an independent public accountant. See
"The Pooling and Servicing Agreements--Reports to Certificateholders" herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Depositor on behalf of the Trust
Fund referred to in the accompanying Prospectus Supplement with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), after the date of such Prospectus
Supplement and prior to the termination of any offering of the Certificates
issued by such Trust Fund shall be deemed to be incorporated by reference in
this Prospectus and to be a part of this Prospectus from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this Prospectus.
The Depositor on behalf of any Trust Fund will provide without charge to
each person to whom this Prospectus is delivered, on the written or oral request
of such person, a copy of any or all of the documents referred to above that
have been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to: DLJ Mortgage
Acceptance Corp., 277 Park Avenue, New York, New York 10172, Attention: N. Dante
LaRocca.
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SUMMARY OF PROSPECTUS
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE PROSPECTUS
SUPPLEMENT WITH RESPECT TO THE SERIES OFFERED THEREBY AND TO THE TERMS AND
PROVISIONS OF THE RELATED POOLING AND SERVICING AGREEMENT EXECUTED BY THE
DEPOSITOR, THE MASTER SERVICER AND THE TRUSTEE AS SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT. ALL CAPITALIZED TERMS NOT OTHERWISE DEFINED IN THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT FOR A SERIES HAVE THE RESPECTIVE
MEANINGS ASSIGNED TO THEM IN THE GLOSSARY ATTACHED HERETO.
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SECURITIES OFFERED..................... The Mortgage Pass-Through Certificates (the
"Certificates") are issuable from time to time in
separate Series pursuant to separate Pooling and
Servicing Agreements. Each Certificate of a Series
will evidence a beneficial ownership interest in
the Trust Fund for such Series, or in an Asset
Group specified in the related Prospectus
Supplement.
The Certificates of a Series will evidence
interests in the related Trust Fund only and will
not be guaranteed by any governmental agency, by
the Depositor, the Trustee, the Master Servicer or
by any of their respective affiliates, or unless
otherwise specified in the related Prospectus
Supplement, by any other person or entity. See
"Risk Factors" and "Credit Support" herein.
Each Series of Certificates will consist of one or
more Classes. If a Series consists of multiple
Classes, the respective Classes may differ with
respect to the amount, percentage and timing of
distributions of principal, interest or both.
Additionally, one or more Classes may consist of
Subordinate Certificates which are subordinated to
other Classes of Certificates with respect to the
right to receive distributions of principal,
interest, or both under the circumstances and in
such amounts as described herein and in the related
Prospectus Supplement. Unless otherwise specified
in the related Prospectus Supplement, any Class of
Certificates of a Series will be offered hereby and
by such Prospectus Supplement only if rated by at
least one Rating Agency in one of its four highest
rating categories. See "Description of the
Certificates--General," "Credit
Support--Subordinated Certificates" and "Risk
Factors" herein.
DEPOSITOR.............................. DLJ Mortgage Acceptance Corp., a Delaware
corporation (the "Depositor"), is a limited purpose
corporation organized primarily for the purpose of
investing in the Mortgage Assets for each Trust
Fund. All of the outstanding capital stock of the
Depositor is owned by Donaldson, Lufkin & Jenrette,
Inc. See "The Depositor."
MASTER SERVICER........................ The entity named as Master Servicer in the related
Prospectus Supplement. See "The Pooling and
Servicing Agreements."
TRUSTEE................................ The Trustee with respect to a Series will be
specified in the related Prospectus Supplement.
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INTEREST DISTRIBUTIONS................. Interest Distributions on the Certificates of a
Series will be made from amounts available therefor
in the related Certificate Account on each
Distribution Date at the applicable Pass-Through
Rate or Certificate Rate specified in (or, with
respect to Floating Interest Certificates,
determined in the manner set forth in) the related
Prospectus Supplement. The Pass-Through Rate on
Certificates of a Series may be variable and change
with changes in the mortgage rate or pass-through
rates of the Mortgage Assets included in the
related Trust Fund and/or as prepayments occur with
respect to such Mortgage Assets.
Principal Weighted Certificates may not be entitled
to receive any interest distributions or may be
entitled to receive only nominal interest
distributions.
Compound Interest Certificates will not receive
distributions of interest but interest accruing
with respect to the principal balance of such
compound Interest Certificates will be added to
such principal balance on each Distribution Date
until the Accrual Termination Date. Following the
Accrual Termination Date, interest distributions
with respect to such Compound Interest Certificates
will be made on the basis of their Compound Value.
A Multiple Class Series may include one or more
Classes of Floating Interest Certificates. With
respect to any such Class of Floating Interest
Certificates, the related Prospectus Supplement
will set forth: (a) the initial Floating Rate (or
manner of determining the initial Floating Rate);
(b) the method by which the Floating Rate will be
determined from time to time; (c) the periodic
intervals at which such determination will be made;
and (d) the Maximum Floating Rate and the Minimum
Floating Rate, if any. See "Description of the
Certificates" and "Yield, Prepayment and Maturity
Considerations" herein.
PRINCIPAL DISTRIBUTIONS................ Principal distributions on the Certificates of a
Series will be made from amounts available therefor
in the related Certificate Account on each
Distribution Date in an aggregate amount determined
as specified in the related Prospectus Supplement.
Principal distributions will be allocated among the
respective Classes of a Series in the manner and in
the priority set forth in the related Prospectus
Supplement.
Interest Weighted Certificates may not be entitled
to any principal distributions or may be entitled
to receive only nominal principal distributions.
See "Description of the Certificates" and "Yield,
Prepayment and Maturity Considerations" herein.
FUNDING ACCOUNT........................ If so specified in the related Prospectus
Supplement, a portion of the proceeds of the sale
of one or more Classes of
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Certificates of a series or a portion of
collections on the Loans in respect of principal
may be deposited in a segregated account to be
applied to acquire additional Loans, subject to the
limitations set forth herein under "Description of
the Certificates--Funding Account." Monies on
deposit in the Funding Account and not applied to
acquire such additional Loans within the time set
forth in the related Pooling and Servicing
Agreement or other applicable agreement may be
treated as principal and applied in the manner
described in the related Prospectus Supplement.
OPTIONAL TERMINATION................... If so specified in the related Prospectus
Supplement, the Depositor, the Master Servicer, or
such other entity that is specified in the related
Prospectus Supplement, may, at its option, cause an
early termination of the related Trust Fund by
repurchasing all of the Mortgage Assets remaining
in the Trust Fund on or after a specified date, or
on or after such time as the aggregate unpaid
principal balance of the Mortgage Assets is less
than the percentage specified in the related
Prospectus Supplement. See "Description of the
Certificates--Optional Termination."
THE TRUST FUND......................... The Trust Fund for a Series will consist of Private
Mortgage-Backed Securities, Agency Securities,
Mortgage Loans or participation interests therein,
Manufactured Home Loans or participation interests
therein, or any combination of the foregoing (the
"Mortgage Assets"), together with certain accounts,
reserve funds, insurance policies and related
agreements specified in the related Prospectus
Supplement. (Mortgage Loans and Manufactured Home
Loans are referred to herein as "Loans.") If so
specified in the related Prospectus Supplement, the
Mortgage Assets may be divided into Asset Groups
and the Certificates of separate Classes will
evidence beneficial interests of a corresponding
Asset Group. The Trust Fund for a Series will also
include the Collection Account, the Certificate
Account, and may include certain policies of
insurance relating to the Mortgage Assets, and
various forms of credit support, all as specified
in the related Prospectus. See "The Trust Funds--
Collection Account and Certificate Account" and
"Credit Support" and "Description of Mortgage and
Other Insurance" herein.
CREDIT SUPPORT......................... Credit support in the form of reserve funds,
subordination, overcollateralization, insurance
policies, letters of credit or other types of
credit support may be provided with respect to the
Mortgage Assets or with respect to one or more
Classes of Certificates of a Series. If the
Mortgage Assets are divided into separate Asset
Groups, the beneficial ownership of which is
evidenced by a separate Class or Classes of a
Series, credit support may be provided by a
cross-support feature which requires that
distributions be made with respect to Certificates
evidencing beneficial
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ownership of one Asset Group prior to distributions
to Subordinate Certificates evidencing a beneficial
ownership interest in another Asset Group within
the Trust Fund.
The type, characteristics and amount of credit
support will be determined based on the
characteristics of the Loans underlying or
comprising the Mortgage Assets and other factors
and will be established on the basis of
requirements of each Rating Agency rating the
Certificates of such Series. The protection against
losses provided by such credit support will be
limited. See "Credit Support" and "Risk Factors"
herein.
SERVICING OF LOANS..................... The Master Servicer identified in the related
Prospectus Supplement will service the Loans
directly or administer and supervise the
performance by Servicers of their duties and
responsibilities under separate servicing
agreements (the "Servicing Agreements") entered
into between the Master Servicer and such
Servicers. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer
and each Servicer must be approved by either FNMA
or FHLMC as a seller/servicer of Mortgage Loans
and, in the case of FHA Loans, approved by HUD as
an FHA mortgagee. Each Servicer will be obligated
under its Servicing Agreement to perform customary
servicing functions. Advances with respect to
delinquent payments of principal or interest on a
Loan will be made by the Master Servicer or the
Servicers only to the extent described in the
related Prospectus Supplement. Such advances will
be intended to provide liquidity only and, unless
otherwise specified in the related Prospectus
Supplement, will be reimbursable to the Master
Servicer or the Servicer, as the case may be, from
scheduled payments of principal and interest, late
collections, or from the proceeds of liquidation of
the related Loans, from other recoveries relating
to such Loans (including any insurance proceeds or
payments from other forms of credit support). See
"Servicing of Loans."
FEDERAL INCOME TAX CONSIDERATIONS...... If an election is made for treatment of the Trust
Fund as a REMIC or as REMICs under the Internal
Revenue Code of 1986 (the "Code"), one or more
Classes of Certificates will be REMIC "Regular
Interests" and one Class will be REMIC "Residual
Interests" in the related REMIC. If a REMIC
election will not be made for a Trust Fund, the
federal income consequences of the purchase,
ownership and disposition of the related
Certificates will be set forth in the related
Prospectus Supplement.
Investors are advised to consult their tax advisors
and to review "Certain Federal Income Tax
Considerations" herein and in the related
Prospectus Supplement. See "Certain Federal Income
Tax Considerations."
ERISA CONSIDERATIONS................... A fiduciary of any employee benefit plan subject to
the Employee Retirement Income Security Act of
1974, as
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amended ("ERISA"), or the Code should carefully
review with its own legal advisors whether the
purchase or holding of Certificates could give rise
to a transaction prohibited or otherwise
impermissible under ERISA or the Code. See "ERISA
Considerations."
LEGAL INVESTMENT....................... At the date of issuance, as to each Series, it will
be a requirement for issuance of any Series that
the Certificates offered by this Prospectus and
such Prospectus Supplement be rated by at least one
Rating Agency in one of its four highest applicable
rating categories. The rating or ratings applicable
to Certificates of each Series offered hereby and
by the related Prospectus Supplement will be as set
forth in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus
Supplement, Certificates of each Series offered by
this Prospectus and such Prospectus Supplement will
constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") so long as they are rated by at least one
Rating Agency in one of its two highest categories
and, as such, will be legal investments for certain
types of institutional investors to the extent
provided in SMMEA, subject, in any case, to any
other regulations which may govern investments by
such institutional investors. See "Legal
Investment."
USE OF PROCEEDS........................ The Depositor will use the net proceeds from the
sale of each Series for one or more of the
following purposes: (i) to purchase the related
Mortgage Assets, (ii) to repay indebtedness which
has been incurred to obtain funds to acquire such
Mortgage Assets, (iii) to establish any reserve
funds described in the related Prospectus
Supplement and (iv) to pay costs of structuring,
guaranteeing and issuing such Certificates. If so
specified in the related Prospectus Supplement, the
purchase of the Mortgage Assets for a Series may be
effected by an exchange of Certificates with the
Depositor of such Mortgage Assets. See "Use of
Proceeds."
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with an investment in the Certificates.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with a sufficient level of liquidity or will continue for the
life of the Certificates. Donaldson, Lufkin & Jenrette Securities Corporation
(or one or more of its affiliates) intends to make a secondary market in the
Certificates, but has no obligation to do so. In addition, the market value of
Certificates of each Series will fluctuate with changes in prevailing rates of
interest. Consequently, sale of the Certificates by a Holder in any secondary
market which may develop may be at a discount from par value or from their
purchase price. Certificateholders have no optional redemption rights. The
Certificates will not be listed on any securities exchange.
YIELD, PREPAYMENT AND MATURITY
The rate at which prepayments (which include both voluntary prepayments by
the obligors on the Loans and liquidations due to defaults and foreclosures)
occur on the Loans underlying or comprising the Mortgage Assets for a Series
will be affected by a variety of factors, including, without limitation, the
level of prevailing mortgage market interest rates and economic, demographic,
tax, social, legal and other factors. Prepayments on the Loans comprising or
underlying the Mortgage Assets for a Series generally will result in a faster
rate of distributions of principal on the Certificates. Thus, the prepayment
experience on the Loans comprising or underlying the Mortgage Assets will affect
the average life and yield to investors of each Class and the extent to which
each such Class is paid prior to its Final Scheduled Distribution Date. A Series
may include an Interest Weighted Class offered at a significant premium or a
Principal Weighted Class offered at a substantial discount. Yields on such
Classes of Certificates will be extremely sensitive to prepayments on the Loans
comprising or underlying the Mortgage Assets for such Series. In general, if a
Certificate, including a Certificate of an Interest Weighted Class, is purchased
at a premium and principal distributions on the Loans occur at a rate faster
than anticipated at the time of purchase, the investor's actual yield to
maturity could be significantly lower than that assumed at the time of purchase.
Where the amount of interest allocated with respect to an Interest Weighted
Class is extremely disproportionate to principal, a Certificateholder of such
Class could, under some such prepayment scenarios, fail to recoup its original
investment. Conversely, if a Certificate, including a Certificate of a Principal
Weighted Class, is purchased at a discount and principal distributions thereon
occur at a rate slower than assumed at the time of purchase, the investor's
actual yield to maturity could be significantly lower than that originally
anticipated. Any rating assigned to the Certificates by a Rating Agency will
reflect only such Rating Agency's assessment of the likelihood that timely
distributions will be made with respect to such Certificates in accordance with
the related Pooling and Servicing Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the Loans underlying
or comprising the Mortgage Assets will be made by borrowers or of the degree to
which the rate of such prepayments might differ from that originally
anticipated. As a result, such rating will not address the possibility that
prepayment rates higher or lower than anticipated by an investor may cause such
investor to experience a lower than anticipated yield, or that an investor
purchasing an Interest Weighted Certificate at a significant premium might fail
to recoup its initial investment. See "Yield, Prepayment and Maturity
Considerations."
CREDIT SUPPORT LIMITATIONS
The amount, type and nature of insurance policies, subordination,
overcollateralization, Certificate Guarantee Insurance, letters of credit and
other credit support, if any, required with respect to a Series will be
determined on the basis of criteria established by each Rating Agency rating
such Series. Such criteria are necessarily based upon an actuarial analysis of
the behavior of Loans in a larger group. Such actuarial analysis is the basis
upon which each Rating Agency determines (a) required amounts and types of pool
insurance, special hazard insurance, reserve funds, subordination,
overcollateralization or other credit support and (b) limits on the number and
amount of Loans which have various special payment characteristics, have various
Loan-to-Value Ratios and/or were made for various purposes (e.g., primary
residence,
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second home, refinancing). There can be no assurance that the historical data
supporting such actuarial analysis will accurately reflect future experience nor
any assurance that the data derived from a large pool of housing loans
accurately predicts the delinquency, foreclosure or loss experience of any
particular pool of Loans.
In addition, if distributions in reduction of the principal balance of
Certificates of a Multiple Class Series are made in order of the respective
Final Scheduled Distribution Dates of the Class, any limits with respect to the
aggregate amount of losses covered by credit support may be exhausted before the
principal of the later-maturing Classes has been repaid. As a result, the impact
of significant losses on the Mortgage Loans may bear primarily upon the
Certificates of the later-maturing Classes.
The Prospectus Supplement for a Series will describe any reserve funds,
insurance policies, letter of credit or other third-party credit support
relating to the Mortgage Assets or to the Certificates of such Series. Use of
such reserve funds and payments under such insurance policies, letter of credit
or other third-party credit support will be subject to the conditions and
limitations described herein and in the related Prospectus Supplement. Moreover,
such reserve funds, insurance policies, letter of credit or other credit support
will not cover all potential losses or risks. The obligations of the issuers of
any credit support such as a pool insurance policy, special hazard insurance
policy, bankruptcy bond, letter of credit, Certificate Guarantee Insurance,
repurchase bond or other third-party credit support will not be guaranteed or
insured by the United States, or by any agency or instrumentality thereof. A
Series of Certificates may include a Class or multiple Classes of Subordinate
Certificates to the extent described in the related Prospectus Supplement.
Although such subordination is intended to reduce the risk of delinquent
distributions or ultimate losses to Holders of Senior Certificates, the
Subordinated Amount will be limited and will decline under certain circumstances
and the related Subordination Reserve Fund, if any, could be depleted in certain
circumstances. See "Description of the Certificates," "The Trust Funds" and
"Credit Support."
CERTAIN LOANS AND MORTGAGED PROPERTY
Reliable prepayment, loss and foreclosure statistics relating to certain
types of Loans may not be available for a Series. Such Loans may be underwritten
on the basis of an assessment that the borrower will have the ability to make
payments in higher amounts in later years and, in the case of Loans with
adjustable mortgage rates, after relatively short periods of time. See "Loan
Underwriting Procedures and Standards" and "Credit Support." Other loans may be
underwritten principally on the basis of the initial Loan-to-Value Ratio of the
Loans. To the extent losses on Loans exceed the amount of credit support, the
Trust Fund may experience a loss. Furthermore, Multifamily Loans, Manufactured
Homes or Cooperative Dwellings may entail risks of loss in the event of
delinquency and foreclosure or repossession that are greater than similar risks
associated with traditional single-family property. To the extent losses on such
Loans exceed levels estimated by the Rating Agency in determining required
levels of subordination or other credit support, the Trust Fund may experience a
loss. See "Servicing of Loans-- Maintenance of Insurance Policies and Other
Servicing Procedures" and "Credit Support."
LIMITED OBLIGATIONS AND ASSETS OF DEPOSITOR
Unless otherwise set forth in the Prospectus Supplement for a Series of
Certificates, the Trust Fund for a Series will be the only available source of
funds to make distributions on the Certificates of such Series. The only
obligations of the Depositor with respect to the Certificates of any Series will
be pursuant to certain representations and warranties, if any, in the related
Pooling and Servicing Agreement. See "The Pooling and Servicing
Agreements--Assignment of Mortgage Assets" herein. The Depositor does not have,
and is not expected in the future to have, any significant assets with which to
meet any obligation to repurchase Mortgage Assets with respect to which there
has been a breach of any representation or warranty. If, for example, the
Depositor were required to repurchase a Loan which constitutes a Mortgage Asset,
its only sources of funds to make such repurchase would be from funds obtained
from the enforcement of a corresponding obligation, if any, on the part of the
Seller, the Servicer or the Master Servicer, as the case may be, or from a
reserve fund established to provide funds for such repurchases. See "The
Depositor."
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ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Certificates of any Series. See
"ERISA Considerations."
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL INTERESTS
Holders of REMIC Residual Interests will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the related REMIC regardless of the amount or timing of their
receipt of cash payments as described in "Certain Federal Income Tax
Considerations--Residual Interests in a REMIC." Accordingly, under certain
circumstances, holders of Certificates which constitute REMIC Residual Interests
might have taxable income and tax liabilities arising from such investment
during a taxable year in excess of the cash received during such period. The
requirement that Holders of Residual Interest Certificates report their pro rata
share of the taxable income and net loss of the related REMIC will continue
until the principal balances of all Classes of Certificates of the related
Series have been reduced to zero, even though holders of Residual Interests have
received full payment of their stated interest and principal. A portion (or, in
certain circumstances, all) of a Residual Interest Certificateholder's share of
the related REMIC's taxable income may be treated as "excess inclusion" income
to such holder which (i) except in the case of certain thrift institutions, will
not be subject to offset by losses from other activities, (ii) for a tax-exempt
Holder, will be treated as unrelated business taxable income and (iii) for a
foreign holder, will not qualify for exemption from withholding tax. Individual
Holders of Certificates constituting Residual Interests may be limited in their
ability to deduct servicing fees and other expenses of the related REMIC.
Because of the special tax treatment of REMIC residual interests, the taxable
income arising in a given year on a REMIC residual interest will not be equal to
the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Residual Interest Certificates may be
negative or significantly less than that of a corporate bond or stripped
instrument having similar cash flow characteristics.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in Series pursuant to separate Pooling and
Servicing Agreements among the Depositor, the Master Servicer and the Trustee
for the related Series identified in the related Prospectus Supplement. The
following summaries describe certain provisions common to each Series. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the provisions of the Pooling and Servicing
Agreement and the Prospectus Supplement relating to each Series. When particular
provisions or terms used in the Pooling and Servicing Agreement are referred to,
such provisions or terms shall be as specified in the Pooling and Servicing
Agreement.
Each Series will consist of one or more Classes, one or more of which may
consist of Compound Interest Certificates, Floating Interest Certificates,
Interest Weighted Certificates or Principal Weighted Certificates. A Series may
also include one or more Classes of Subordinate Certificates. Unless otherwise
specified in the related Prospectus Supplement, a Class of Subordinate
Certificates will be offered hereby or by such Prospectus Supplement only if
rated by a Rating Agency in at least its fourth highest applicable rating
category. If so specified in the related Prospectus Supplement, the Mortgage
Assets in a Trust Fund may be divided into multiple Asset Groups and the
Certificates of each separate Class will evidence beneficial ownership of each
corresponding Asset Group.
The Certificates for each Series will be issued in fully registered form, in
the minimum original principal amount, notional amount or percentage interest
specified in the related Prospectus Supplement. The transfer of the Certificates
may be registered, and the Certificates may be exchanged, without the payment of
any service charge payable in connection with such registration of transfer or
exchange, but the Trustee may
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require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates. If
specified in the related Prospectus Supplement, one or more Classes of a Series
may be available in book-entry form only.
DISTRIBUTIONS ON THE CERTIFICATES
GENERAL. Commencing on the date specified in the related Prospectus
Supplement, distributions of principal and interest on the Certificates will be
made on each Distribution Date to the extent of the "Available Distribution
Amount" as set forth in the related Prospectus Supplement.
Distributions of interest on Certificates which receive interest will be
made periodically at the intervals and at the Pass-Through Rate or Certificate
Rate specified or, with respect to Floating Interest Certificates, determined in
the manner described in the related Prospectus Supplement. Interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months unless otherwise specified in the related Prospectus
Supplement.
Distributions of principal of and interest on Certificates of a Series will
be made by check mailed to Certificateholders of such Series registered as such
on the close of business on the record date specified in the related Prospectus
Supplement at their addresses appearing on the Certificate Register, except that
(a) distributions may be made by wire transfer in certain circumstances
described in the related Prospectus Supplement and (b) the final distribution in
retirement of a Certificate will be made only upon presentation and surrender of
such Certificate at the corporate trust office of the Trustee for such Series or
such other office of the Trustee as specified in the Prospectus Supplement.
Notice of the final distribution on a Certificate will be mailed to the Holder
of such Certificate before the Distribution Date on which such final
distribution in retirement of the Certificate is expected to be made. If
specified in the related Prospectus Supplement, the Certificates of a Series or
certain Classes of a Series may be available only in book-entry form. See
"Book-Entry Registration" herein.
With respect to reports to be furnished to Certificateholders concerning a
distribution, see "The Pooling and Servicing Agreements--Reports to
Certificateholders."
PASS-THROUGH CERTIFICATES GENERALLY. With respect to a Series other than a
Multiple Class Series, distributions on the Certificates on each Distribution
Date will generally be allocated to each Certificate entitled thereto on the
basis of the undivided percentage interest (the "Percentage Interest") evidenced
by such Certificate in the Trust Fund or on the basis of their outstanding
principal amounts or notional amounts. If the Mortgage Assets for a Series have
adjustable or variable interest or pass-through rates, then the Pass-Through
Rate of the Certificates of such Series may also vary, due to changes in such
rates and due to prepayments with respect to Loans comprising or underlying the
related Mortgage Assets. If the Mortgage Assets for a Series have fixed interest
or pass-through rates, then the Pass-Through Rate on Certificates of the related
Series may be fixed, or may vary, to the extent prepayments cause changes in the
weighted average interest rate or pass-through rate of the Mortgage Assets. If
the Mortgage Assets have lifetime or periodic adjustment caps on their
respective pass-through rates, then the Pass-Through Rate on the Certificates of
the related Series may also reflect such caps.
MULTIPLE CLASS SERIES. Each Certificate of a Multiple Class Series will
have a principal amount or a notional amount and a specified Certificate Rate
(which may be zero). Interest distributions on a Multiple Class Series will be
made on each Certificate entitled to an interest distribution on each
Distribution Date at the Certificate Rate specified or, with respect to Floating
Interest Certificates, determined as described in the related Prospectus
Supplement, to the extent funds are available in the Certificate Account,
subject to any subordination of the rights of any Subordinate Certificates to
receive current distributions. See "Subordinate Certificates" below and "Credit
Support."
Interest on all Certificates of a Multiple Class Series currently entitled
to receive interest will be distributed on the Distribution Date specified in
the related Prospectus Supplement, to the extent funds are available in the
Certificate Account, subject to any subordination of the rights of any
Subordinate Class to receive current distributions. See "Subordinate
Certificates" below and "Credit Support." Distributions of
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interest on a Class of Compound Interest Certificates will commence only after
the related Accrual Termination Date specified in the related Prospectus
Supplement. On each Distribution Date prior to and including the Accrual
Termination Date, interest on such Class of Compound Interest Certificates will
accrue and the amount of interest accrued on such Distribution Date will be
added to the principal balance thereof on the related Distribution Date. On each
Distribution Date after the Accrual Termination Date, interest distributions
will be made on Classes of Compound Interest Certificates on the basis of the
current Compound Value of such Class. The Compound Value of a Class of Compound
Interest Certificates equals the initial aggregate principal balance of the
Class, plus accrued and undistributed interest added to such Class through the
immediately preceding Distribution Date, less any principal distributions
previously made in reduction of the aggregate outstanding principal balance of
such Class.
To the extent provided in the related Prospectus Supplement, the
Certificates of a Multiple Class Series may include one or more Classes of
Floating Interest Certificates. The Certificate Rate of a Floating Interest
Certificate will be a variable or adjustable rate, subject to a Maximum Floating
Rate, Minimum Floating Rate, or both. For each Class of Floating Interest
Certificates, the related Prospectus Supplement will set forth the initial
Floating Rate (or the method of determining it), the Floating Interest Period,
and the formula, index, or other method by which the Floating Rate for each
Floating Interest Period will be determined.
If so specified in the related Prospectus Supplement, a Series may include
one or more Classes of Interest Weighted Certificates, Principal Weighted
Certificates, or both. Unless otherwise specified in the Prospectus Supplement,
payments received from the Mortgage Assets will be allocated on the basis of the
Percentage Interest of each Class in the principal component of such
distributions, the interest component of such distributions, or both, and will
be further allocated on a pro rata basis among the Certificates within each
Class. The method or formula for determining the Percentage Interest of a
Certificate will be set forth in the related Prospectus Supplement.
In the case of a Multiple Class Series, the timing, sequential order,
priority of payment or amount of distributions in respect of principal, and any
schedule or formula or other provisions applicable to the determination thereof
of each Class of Certificates shall be as set forth in the related Prospectus
Supplement. A Multiple Class Series may contain two or more classes of
Certificates as to which distributions of principal or interest or both on any
class may be made upon the occurrence of specified events, in accordance with a
schedule or formula (including "planned amortization classes" and "targeted
amortization classes"), or on the basis of collections from designated portions
of the Trust Fund.
SUBORDINATE CERTIFICATES. One or more Classes of a Series may consist of
Subordinate Certificates. Subordinate Certificates may be included in a Series
to provide credit support as described herein under "Credit Support" in lieu of
or in addition to other forms of credit support. The extent of subordination of
a Class of Subordinate Certificates may be limited as described in the related
Prospectus Supplement. See "Credit Support." If the Mortgage Assets are divided
into separate Asset Groups, beneficial ownership of which is evidenced by
separate Classes of a Series, credit support may be provided by a cross-support
feature which requires that distributions be made to Senior Certificates
evidencing beneficial ownership of one Asset Group prior to making distributions
on Subordinate Certificates evidencing a beneficial ownership interest in
another Asset Group within the Trust Fund. Subordinate Certificates will not be
offered hereby or by such related Prospectus Supplement unless they are rated in
one of the four highest rating categories by at least one Rating Agency.
FUNDING ACCOUNT
If so specified in the related Prospectus Supplement, the Pooling and
Servicing Agreement may provide for the transfer by the Master Servicer of
additional Loans to the related Trust Fund after the Closing Date. Such
additional Loans will be required to conform to the requirements set forth in
the related Pooling and Servicing Agreement or other agreement providing for
such transfer. As specified in the related Prospectus Supplement, such transfer
may be funded by the establishment of a Funding Account (a "Funding Account").
If a Funding Account is established, all or a portion of the proceeds of the
sale of one or more Classes of Certificates of the related Series or a portion
of collections on the Loans in respect of principal
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will be deposited in such account to be released as additional Loans are
transferred. Unless otherwise specified in the related Prospectus Supplement,
all amounts deposited in a Funding Account will be required to be invested in
Eligible Investments and the amount held therein shall at no time exceed 25% of
the aggregate outstanding principal balance of the Certificates. Unless
otherwise specified in the related Prospectus Supplement, the related Pooling
and Servicing Agreement or other agreement providing for the transfer of
additional Loans will provide that all such transfers must be made within 3
months after the
Closing Date, and that amounts set aside to fund such transfers (whether in a
Funding Account or otherwise) and not so applied within the required period of
time will be deemed to be principal prepayments and applied in the manner set
forth in such Prospectus Supplement.
OPTIONAL TERMINATION
If so specified in the related Prospectus Supplement for a Series, the
Depositor, the Master Servicer, or another entity designated in the related
Prospectus Supplement may, at its option, cause an early termination of a Trust
Fund by repurchasing all of the Mortgage Assets from such Trust Fund on or after
a date specified in the related Prospectus Supplement, or on or after such time
as the aggregate outstanding principal amount of the Mortgage Assets is less
than a specified percentage of their initial aggregate principal amount. In the
case of a Trust Fund for which a REMIC election or elections have been made, the
Trustee shall receive a satisfactory opinion of counsel that the repurchase
price will not jeopardize the REMIC status of the REMIC or REMICs and that the
optional termination will be conducted so as to constitute a "qualified
liquidation" under Section 860F of the Code. See "The Pooling and Servicing
Agreements--Termination."
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Certificates will
be issued in book-entry form in the minimum denominations specified in such
Prospectus Supplement and integral multiples thereof, and each Class will be
represented by a single Certificate registered in the name of the nominee of the
depository, The Depository Trust Company ("DTC"), a limited-purpose trust
company organized under the laws of the State of New York. If so specified in
the related Prospectus Supplement, no person acquiring an interest in the
Certificates (a "Certificateowner") will be entitled to receive a Certificate
issued in fully registered, certificated form (a "Definitive Certificate")
representing such person's interest in the Certificates except in the event that
the book-entry system for the Certificates is discontinued (as described below).
Unless and until Definitive Certificates are issued, it is anticipated that the
only Certificateholder of the Certificates will be Cede & Co., as nominee of
DTC. Certificateowners will not be registered "Certificateholders" or registered
"Holders" under the Pooling and Servicing Agreement, and Certificateowners will
only be permitted to exercise the rights of Certificateholders indirectly
through DTC Participants.
DTC was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is available
to entities that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants").
Certificateowners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of Certificates may do
so only though Participants and Indirect Participants. Because DTC can only act
on behalf of Participants and Indirect Participants, the ability of a
Certificateowner to pledge such owner's Certificate to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such Certificate, may be limited. In addition, under a book-entry format,
Certificateowners may experience some delay in their receipt of principal and
interest distributions with respect to the Certificates since such distributions
will be forwarded to DTC and DTC will then forward such distributions to its
Participants which in turn will forward them to Indirect Participants or
Certificateowners.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC Participants may make book-entry transfers
among Participants through DTC facilities with respect to the Certificates and
DTC, as registered holder, is required to receive and transmit principal and
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interest distributions and distributions with respect to the Certificates.
Participants and Indirect Participants with which Certificateowners have
accounts with respect to Certificates similarly are required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificateowners. Accordingly, although Certificateowners will not
possess certificates, the Rules provide a mechanism by which Certificateowners
will receive distributions and will be able to transfer their interests.
The Depositor understands that DTC will take any action permitted to be
taken by a Certificateholder under the Pooling and Servicing Agreement only at
the direction of one or more Participants to whose account with DTC the
Certificates are credited. Additionally, the Depositor understands that DTC will
take such actions with respect to holders of a certain specified interest in the
certificates or holders having a certain specified voting interest only at the
direction of and on behalf of Participants whose holdings represent that
specified interest or voting interest. DTC may take conflicting actions with
respect to other Holders of Certificates to the extent that such actions are
taken on behalf of Participants whose holdings represent that specified interest
or voting interest.
DTC may discontinue providing its services as securities depository with
respect to the Certificates at any time by giving reasonable notice to the
Depositor or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Certificates will be
printed and delivered. In addition, the Depositor may at its option elect to
discontinue use of the book-entry system through DTC. In that event, too,
Definitive Certificates will be printed and delivered.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
PAYMENT DELAYS
With respect to any Series, a period of time will elapse between receipt of
payments or distributions on the Mortgage Assets and the Distribution Date on
which such payments or distributions are passed through to Certificateholders.
Such a delay will effectively reduce the yield that would otherwise be obtained
if payments or distributions were distributed on or near the date of receipt.
The related Prospectus Supplement may set forth an example of the timing of
receipts and the distribution thereof to Certificateholders.
PRINCIPAL PREPAYMENTS
With respect to a Series for which the Mortgage Assets consist of Loans or
participation interests therein, when a Loan prepays in full, the borrower will
generally be required to pay interest on the amount of prepayment only to the
prepayment date. In addition, the prepayment may not be required to be passed
through to Certificateholders until the month following receipt. The effect of
these provisions is to reduce the aggregate amount of interest which would
otherwise be available for distributions on the Certificates, thus effectively
reducing the yield that would be obtained if interest continued to accrue on the
Loan until the date on which the principal prepayment was scheduled to be paid.
To the extent specified in the related Prospectus Supplement, this effect on
yield may be mitigated by, among other things, an adjustment to the servicing
fee otherwise payable to the Master Servicer or Servicer with respect to any
such prepaid Loans. See "Servicing of Loans--Advances and Limitations Thereon."
TIMING OF REDUCTION OF PRINCIPAL BALANCE
A Multiple Class Series may provide that, for purposes of calculating
interest distributions, the principal amount of the Certificates is deemed
reduced as of a date prior to the Distribution Date on which principal thereon
is actually distributed. Consequently, the amount of interest accrued during any
Interest Accrual Period will be less than the amount that would have accrued on
the actual principal balance of the Certificate outstanding. The effect of such
provisions is to produce a lower yield on the Certificates than would be
obtained if interest were to accrue on the Certificates on the actual unpaid
principal amount of such Certificates to each Distribution Date. The related
Prospectus Supplement will specify the time at which the principal amounts of
the Certificates are determined or are deemed to reduce for purposes of
calculating interest distributions on Certificates of a Multiple Class Series.
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INTEREST OR PRINCIPAL WEIGHTED CERTIFICATES
If a Class of Certificates consists of Interest Weighted Certificates or
Principal Weighted Certificates, a lower rate of principal prepayments than
anticipated will negatively affect the yield to investors in Principal Weighted
Certificates, and a higher rate of principal prepayments than anticipated will
negatively affect the yield to investors in Interest Weighted Certificates. The
Prospectus Supplement for a Series including such Certificates will include a
table showing the effect of various levels of prepayment on yields on such
Certificates. Such tables will be intended to illustrate the sensitivity of
yields to various prepayment rates and will not be intended to predict, or
provide information which will enable investors to predict, yields or prepayment
rates.
FUNDING ACCOUNT
If the applicable Pooling and Servicing Agreement for a Series of
Certificates provides for a Funding Account or other means of funding the
transfer of additional Loans to the related Trust Fund, as described under
"Description of the Certificates--Funding Account" herein, and the Trust Fund is
unable to acquire such additional Loans within any applicable time limit, the
amounts set aside for such purpose may be applied as principal payments on one
or more Classes of Certificates of such Series. See "Risk Factors--Yield,
Prepayment and Maturity."
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Date of each Class of any Series other than
a Multiple Class Series will be the Distribution Date following the latest
stated maturity of any Mortgage Asset in the related Trust Fund. The Final
Scheduled Distribution Date of each Class of any Multiple Class Series, if
specified in the related Prospectus Supplement, will be the date (calculated on
the basis of the assumptions applicable to such Series described therein) on
which the aggregate principal balance of such Class will be reduced to zero.
Since prepayments on the Loans underlying or comprising the Mortgage Assets will
be used to make distributions in reduction of the outstanding principal amount
of the Certificates, it is likely that the actual maturity of any Class will
occur earlier, and may occur substantially earlier, than its Final Scheduled
Distribution Date.
PREPAYMENTS AND WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of the principal of such
security will be repaid to the investor. The weighted average life of the
Certificates of a Series will be influenced by the rate at which principal on
the Loans comprising or underlying the Mortgage Assets for such Certificates is
paid, which may be in the form of scheduled amortization or prepayments (for
this purpose, the term "prepayment" includes prepayments, in whole or in part,
and liquidations due to default).
The rate of principal prepayments on pools of housing loans is influenced by
a variety of economic, demographic, geographic, legal, tax, social and other
factors. The rate of prepayments of conventional housing loans has fluctuated
significantly in recent years. In general, however, if prevailing mortgage
market interest rates fall significantly below the interest rates on the Loans
comprising or underlying the Mortgage Assets for a Series, such Loans are likely
to prepay at rates higher than if prevailing interest rates remain at or above
the interest rates borne by such Loans. In this regard, it should be noted that
the Loans comprising or underlying the Mortgage Assets of a Series may have
different interest rates, and the stated pass-through or interest rate of
certain Mortgage Assets or the Certificate Rate or Pass-Through Rate on the
Certificates may be a number of percentage points less than interest rates on
such Loans. In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Loans comprising or underlying the
Mortgage Assets. If any Loans comprising or underlying the Mortgage Assets for a
Series have actual terms-to-stated maturity of less than those assumed in
calculating the Final Scheduled Distribution Date of the related Certificates,
one or more Class of the Series may be fully paid prior to its Final Scheduled
Distribution Date, even in the absence of prepayments and a reinvestment return
higher than assumed.
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Prepayments on loans are commonly measured relative to a prepayment standard
or model, such as the Constant Prepayment Rate ("CPR") prepayment model or the
Standard Prepayment Assumption ("SPA") prepayment model. CPR represents a
constant assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of loans for the life of such loans. SPA represents
an assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of loans. A prepayment assumption of 100% of SPA
assumes prepayment rates of 0.2% per annum of the then outstanding principal
balance of such loans in the first month of the life of the 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 loans, 100% of SPA assumes a constant prepayment rate of 6% per annum.
Neither CPR or SPA nor any other prepayment model or assumption purports to
be an historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Loans
underlying or comprising the Mortgage Assets. Thus, it is likely that prepayment
of any Loans comprising or underlying the Mortgage Assets for any Series will
not conform to any level of CPR or SPA.
The Prospectus Supplement for each Multiple Class Series may describe the
prepayment standard or model used to prepare the illustrative tables setting
forth the weighted average life of each Class of such Series under a given set
of prepayment assumptions. The related Prospectus Supplement may also describe
the percentage of the initial principal balance of each Class of such Series
that would be outstanding on specified Distribution Dates for such Series based
on the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Loans comprising or underlying the related Mortgage
Assets are made at rates corresponding to various percentages of CPR, SPA or at
such other rates specified in such Prospectus Supplement. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average life
of the Certificates to various prepayment rates and will not be intended to
predict or to provide information which will enable investors to predict the
actual weighted average life of the Certificates or prepayment rates of the
Loans comprising or underlying the related Mortgage Assets.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF LOAN. Multifamily Loans may have provisions which prevent
prepayment for a number of years and may provide for payments of interest only
during a certain period followed by amortization of principal on the basis of a
schedule extending beyond the maturity of the related mortgage loan. Additional
Collateral Loans, ARMs, Balloon Loans, Bi-Weekly Loans, GEM Loans, GPM Loans or
Buy-Down Loans comprising or underlying the Mortgage Assets may experience a
rate of principal prepayments which is different from the principal prepayment
rate for Additional Collateral Loans, ARMs, Balloon Loans, Bi-Weekly Loans, GEM
Loans, GPM Loans or Buy-Down Loans included in any other mortgage pool or from
Conventional fixed rate Loans or from other adjustable rate or graduated equity
mortgages having different characteristics.
In the case of Negatively Amortizing ARMs, if interest rates rise without a
simultaneous increase in the related Scheduled Payment, Deferred Interest and
Negative Amortization may result. However, borrowers may pay amounts in addition
to their Scheduled Payments in order to avoid such Negative Amortization and to
increase tax deductible interest payments. To the extent that any of such
Mortgage Loans negatively amortize over their respective terms, future interest
accruals are computed on the higher outstanding principal balance of such
mortgage loan and a smaller portion of the Scheduled Payment is applied to
principal than would be required to amortize the unpaid principal over its
remaining term. Accordingly, the weighted average life of such Loans will
increase. During a period of declining interest rates, the portion of each
Scheduled Payment in excess of the scheduled interest and principal due will be
applied to reduce the outstanding principal balance of the related Loan, thereby
resulting in accelerated amortization of such Negatively Amortizing ARM. Any
such acceleration in amortization of the principal balance of any Negatively
Amortizing ARM will shorten the weighted average life of such Mortgage Loan. The
application of partial prepayments to reduce the outstanding principal balance
of a Negatively Amortizing ARM will tend to reduce the weighted average life of
the mortgage loan and will adversely affect the yield to Holders who purchased
their Certificates at a premium, if any, and Holders of an Interest Weighted
Class. The pooling of
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Negatively Amortizing ARMs having Rate Adjustment Dates in different months,
together with different initial Mortgage Rates, Maximum Mortgage Rates, Minimum
Mortgage Rates and stated maturity dates, could result in some Negatively
Amortizing ARMs which comprise or underlie the Mortgage Assets experiencing
negative amortization while the amortization of other Negatively Amortizing ARMs
may be accelerated.
If the Loans comprising or underlying the Mortgage Assets for a Series
include ARMs that permit the borrower to convert to a long-term fixed interest
rate loan, the Master Servicer, the Servicer, the applicable Seller, the PMBS
Servicer or another party, as applicable, may, if specified in the related
Prospectus Supplement, be obligated to repurchase any Loan so converted. Any
such conversion and repurchase would reduce the average weighted life of the
Certificates of the related Series.
Because of the payment terms of Balloon Loans, there is a risk that such
Mortgage Loans, including Multifamily Loans and Additional Collateral Loans,
that require Balloon Payments may default at maturity, or that the maturity of
such Mortgage Loans may be extended in connection with a workout. With respect
to Balloon Loans, payment of the Balloon Payment (which, based on the
amortization schedule of such Mortgage Loans, is expected to be the entire or a
substantial amount of the original principal balance) will generally depend on
the Mortgagor's ability to obtain refinancing of such Mortgage Loans, to sell
the Mortgaged Property prior to the maturity of the Balloon Loan or to otherwise
have sufficient funds to pay such Balloon Payment. The ability to obtain
refinancing will depend on a number of factors prevailing at the time
refinancing or sale is required, including, without limitation, real estate
values, the Mortgagor's financial situation, prevailing mortgage market interest
rates, the Mortgagor's equity in the related Mortgaged Property, tax laws and
prevailing general economic conditions. Unless otherwise specified in the
related Prospectus Supplement, none of the Depositor, the Master Servicer, or
any of their affiliates will be obligated to refinance or repurchase any
Mortgage Loan or to sell the Mortgaged Property.
A GEM Loan provides for scheduled annual increases in the borrower's
Scheduled Payment. Because the additional portion of the Scheduled Payment is
applied to reduce the unpaid principal balance of the GEM Loan, the stated
maturity of a GEM Loan will be significantly shorter than the 25 to 30 year term
used as the basis for calculating the installments of principal and interest
applicable until the first adjustment date.
The prepayment experience with respect to Manufactured Home Loans will
generally not correspond to the prepayment experience on other types of housing
loans.
FORECLOSURES AND PAYMENT PLANS. The number of foreclosures and the
principal amount of the Loans comprising or underlying the Mortgage Assets which
are foreclosed in relation to the number of Loans which are repaid in accordance
with their terms will affect the weighted average life of the Loans comprising
or underlying the Mortgage Assets and that of the related Series of
Certificates. Servicing decisions made with respect to the Loans, including the
use of payment plans prior to a demand for acceleration and the restructuring of
Loans in bankruptcy proceedings, may also have an impact upon the payment
patterns of particular Loans. In particular, the return to Holders of
Certificates who purchased their Certificates at a premium, if any, and the
yield on an Interest Weighted Class may be adversely affected by servicing
policies and decisions relating to foreclosures.
DUE ON SALE CLAUSES. The acceleration of prepayment as a result of certain
transfers of the Mortgaged Property securing a Loan is another factor affecting
prepayment rates. Whereas FHA Loans are assumable by a purchaser of the
underlying mortgaged property, the Loans constituting or underlying the Mortgage
Assets may include "due-on-sale" clauses. Except as otherwise described in the
Prospectus Supplement for a Series, the PMBS Servicer of Loans underlying
Private Mortgage-Backed Securities and the Master Servicer or the Servicer of
Loans constituting or underlying the Mortgage Assets for a Series will be
required, to the extent it knows of any conveyance or prospective conveyance of
the related residence by any borrower, to enforce any "due-on-sale" clause
applicable to the related Loan under the circumstances and in the manner it
enforces such clauses with respect to other similar loans in its portfolio.
Certain of the Multifamily Loans in a Trust Fund may also contain a
due-on-encumbrance clause that entitles the lender to accelerate the maturity of
the Mortgage Loan upon the creation of any other lien or encumbrance upon the
Mortgaged Property. FHA Loans and VA Loans are not permitted to contain
"due-on-sale" clauses and are freely
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assumable by qualified persons. However, as homeowners move or default on their
housing loans, the Mortgaged Property is generally sold and the loans prepaid,
even though, by their terms, the loans are not "due-on-sale" and could have been
assumed by new buyers.
OPTIONAL TERMINATION. If so specified in the related Prospectus Supplement,
the entity specified therein may cause an early termination of the related Trust
Fund by its repurchase of the remaining Mortgage Assets therein. See
"Description of the Certificates--Optional Termination."
THE TRUST FUNDS
GENERAL
The Trust Fund for each Series will be held by the Trustee for the benefit
of the related Certificateholders. Each Trust Fund will consist of (a) the
Mortgage Assets; (b) amounts held from time to time in the Collection Account
and the Certificate Account established for such Series; (c) Mortgaged Property
which secured a Loan and which is acquired on behalf of the Certificateholders
by foreclosure, deed in lieu of foreclosure or repossession and certain proceeds
from the disposition of any related Additional Collateral; (d) any reserve fund
for such Series, if specified in the related Prospectus Supplement; (e) the
Servicing Agreements, if any, relating to Loans in the Trust Fund; (f) any
primary mortgage insurance policies relating to Loans in the Trust Fund; (g) any
pool insurance policy, any special hazard insurance policy, any bankruptcy bond
or other credit support relating to the Series; (h) investments held in any fund
or account or any Guaranteed Investment Contract and, if so specified in the
Prospectus Supplement, income from the reinvestment of such funds; and (i) any
other instrument or agreement relating to the Trust Fund and specified in the
related Prospectus Supplement (which may include an interest rate swap agreement
or an interest rate cap agreement or similar agreement issued by a bank,
insurance company or savings and loan association); provided, that if so
specified in the related Prospectus Supplement, certain of the items listed
above may be held outside of the Trust Fund.
To the extent specified in the related Prospectus Supplement, certain
amounts ("Retained Interests") which are received with respect to a Private
Mortgage-Backed Security or Loan comprising the Mortgage Assets for a Series
will not be included in the Trust Fund for such Series, but will be retained by
or payable to the originator, Servicer or seller of such Private Mortgage-Backed
Security or Loan, free and clear of the interest of Certificateholders under the
related Pooling and Servicing Agreement.
Mortgage Assets in the Trust Fund for a Series may consist of any
combination of the following to the extent and as specified in the related
Prospectus Supplement: (a) Private Mortgage-Backed Securities, (b) Mortgage
Loans or participation interests therein and Manufactured Home Loans or
participation interests therein or (c) Agency Securities. Loans which comprise
the Mortgage Assets will be purchased by the Depositor directly or through an
affiliate in the open market or in privately negotiated transactions from the
Seller. Some of the Loans may have been originated by an affiliate of the
Depositor. Participation interests in Loans may be purchased by the Depositor,
or an affiliate, pursuant to a participation agreement. See "The Pooling and
Servicing Agreements--Assignment of Mortgage Assets."
PRIVATE MORTGAGE-BACKED SECURITIES
GENERAL. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates, evidencing an undivided interest in a pool of Loans,
(b) collateralized mortgage obligations secured by Loans or (c) pass-through
certificates representing beneficial interests in Agency Securities. Private
Mortgage-Backed Securities will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement (a "PMBS Agreement"). The
seller/servicer of the underlying Loans will have entered into the PMBS
Agreement with the trustee under such PMBS Agreement (the "PMBS Trustee"). The
PMBS Trustee or its agent, or a custodian, will possess the Loans underlying
such Private Mortgage-Backed Security. Loans underlying a Private
Mortgage-Backed Security will be serviced by a servicer (the "PMBS Servicer")
directly or by one or more subservicers who may be subject to the supervision of
the PMBS Servicer. The PMBS Servicer will be an FNMA- or FHLMC-approved servicer
and, if FHA Loans underlie the Private Mortgage-Backed Securities, approved by
HUD as an FHA mortgagee.
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The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
will be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose corporation organized for the
purpose of, among other things, establishing trusts and acquiring and selling
housing loans to such trusts, and selling beneficial interests in such trusts.
If so specified in the Prospectus Supplement, the PMBS Issuer may be the
Depositor or an affiliate of the Depositor. The obligations of the PMBS Issuer
will generally be limited to certain representations and warranties with respect
to the assets conveyed by it to the related trust. Unless otherwise specified in
the related Prospectus Supplement, the PMBS Issuer will not have guaranteed any
of the assets conveyed to the related trust or any of the Private
Mortgage-Backed Securities issued under the PMBS Agreement. Additionally,
although the Loans underlying the Private Mortgage-Backed Securities may be
guaranteed by an agency or instrumentality of the United States, the Private
Mortgage-Backed Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
UNDERLYING LOANS. The Loans underlying the Private Mortgage-Backed
Securities may consist of fixed rate, level payment, fully amortizing Loans or
Additional Collateral Loans, GEM Loans, GPM Loans, Balloon Loans, Buy-Down
Loans, Bi-Weekly Loans, ARMs, or Loans having other special payment features.
Loans may be secured by Single Family Property, Multifamily Property,
Manufactured Homes, or, in the case of Cooperative Loans, by an assignment of
the proprietary lease or occupancy agreement relating to a Cooperative Dwelling
and the shares issued by the related cooperative. Except as otherwise specified
in the related Prospectus Supplement, (i) no Loan will have had a Loan-to-Value
Ratio at origination in excess of 95%, (ii) each Mortgage Loan secured by Single
Family Property and having a Loan-to-Value Ratio in excess of 80% at origination
will be covered by a primary mortgage insurance policy, (iii) each Loan will
have had an original term to stated maturity of not less than 10 years and not
more than 40 years, (iv) no Loan that was more than 30 days delinquent as to the
payment of principal or interest will have been eligible for inclusion in the
assets under the related PMBS Agreement, (v) each Loan (other than a Cooperative
Loan) will be required to be covered by a standard hazard insurance policy
(which may be a blanket policy), and (vi) each Loan (other than a Cooperative
Loan or a Loan secured by a Manufactured Home) will be covered by a title
insurance policy.
CREDIT SUPPORT RELATING TO PRIVATE MORTGAGE-BACKED SECURITIES. Credit
support in the form of reserve funds, subordination of other private mortgage
certificates issued under the PMBS Agreement, overcollateralization, letters of
credit, insurance policies or other types of credit support may be provided with
respect to the Loans underlying the Private Mortgage-Backed Securities or with
respect to the Private Mortgage-Backed Securities themselves. The type,
characteristics and amount of credit support, if any, will be a function of
certain characteristics of the Loans and other factors and will have been
established for the Private Mortgage-Backed Securities on the basis of
requirements of the rating agencies which initially assigned a rating to the
Private Mortgage-Backed Securities.
ADDITIONAL INFORMATION. The Prospectus Supplement for a Series for which
the Trust Fund includes Private Mortgage-Backed Securities will specify (i) the
aggregate approximate principal amount and type of the Private Mortgage-Backed
Securities to be included in the Trust Fund, (ii) certain characteristics of the
Loans which comprise the underlying assets for the Private Mortgage-Backed
Securities including (A) the payment features of such Loans (i.e., whether they
are fixed rate or adjustable rate and whether they provide for fixed level
payments or other payment features), (B) the approximate aggregate principal
balance, if known, of underlying Loans insured or guaranteed by a governmental
entity, (C) the servicing fee or range of servicing fees with respect to the
Loans, and (D) the minimum and maximum stated maturities of the
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underlying Loans at origination, (iii) the maximum original term-to-stated
maturity of the Private Mortgage-Backed Securities, (iv) the weighted average
term-to-stated maturity of the Private Mortgage-Backed Securities, (v) the
pass-through or certificate rate or ranges thereof for the Private
Mortgage-Backed Securities, (vi) the weighted average pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vii) the PMBS
Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS Trustee
for such Private Mortgage-Backed Securities, (viii) certain characteristics of
credit support, if any, such as reserve funds, insurance policies, letters of
credit or guarantees relating to the Loans underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed Securities
themselves, (ix) the terms on which the underlying Loans for such Private
Mortgage-Backed Securities may, or are required to, be purchased prior to their
stated maturity or the stated maturity of the Private Mortgage-Backed Securities
and (x) the terms on which Loans may be substituted for those originally
underlying the Private Mortgage-Backed Securities.
THE AGENCY SECURITIES
All of the Agency Securities will be registered in the name of the Trustee
or its nominee or, in the case of Agency Securities issued only in book-entry
form, a financial intermediary (which may be the Trustee) that is a member of
the Federal Reserve System or of a clearing corporation on the books of which
the security is held. Each Agency Security will evidence an interest in a pool
of mortgage loans and/or cooperative loans and/or in principal distributions and
interest distributions thereon.
The descriptions of GNMA, FHLMC and FNMA Certificates that are set forth
below are descriptions of certificates representing proportionate interests in a
pool of mortgage loans and in the payments of principal and interest thereon.
GNMA, FHLMC or FNMA may also issue mortgage-backed securities representing a
right to receive distributions of interest only or principal only or
disproportionate distributions of principal or interest or to receive
distributions of principal and/or interest prior or subsequent to distributions
on other certificates representing interests in the same pool of mortgage loans.
In addition, any of such issuers may issue certificates representing interests
in mortgage loans having characteristics that are different from the types of
mortgage loans described below. The terms of any such certificates to be
included in a Trust Fund (and of the underlying mortgage loans) will be
described in the related Prospectus Supplement, and the descriptions that follow
are subject to modification as appropriate to reflect the terms of any such
certificates that are actually included in a Trust Fund.
GNMA. GNMA is a wholly-owned corporate instrumentality of the United States
within HUD. Section 306(g) of Title III of the National Housing Act of 1934, as
amended (the "Housing Act"), authorizes GNMA to guarantee the timely payment of
the principal of and interest on certificates representing interests in a pool
of mortgages (i) insured by the FHA, under the Housing Act or under Title V of
the Housing Act of 1949, or (ii) partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended, or under Chapter 37 of Title
38, United States Code.
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guarantee under this subsection." In order to meet
its obligations under any such guarantee, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury an amount that is at any
time sufficient to enable GNMA to perform its obligations under its guarantee.
See "Additional Information" for the availability of further information
regarding GNMA and GNMA Certificates.
GNMA CERTIFICATES. Unless otherwise specified in the related Prospectus
Supplement, each GNMA Certificate relating to a Series (which may be a "GNMA I
Certificate" or a "GNMA II Certificate" as referred to by GNMA) will be a "fully
modified pass-through" mortgage-backed certificate issued and serviced by a
mortgage banking company or other financial concern approved by GNMA, except
with respect to any stripped mortgage backed securities guaranteed by GNMA or
any REMIC securities issued by GNMA. The characteristics of any GNMA
Certificates included in the Trust Fund for a Series of Certificates will be set
forth in the related Prospectus Supplement.
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FHLMC. FHLMC is a corporate instrumentality of the United States created
pursuant to Title III of the Emergency Home Finance Act of 1970, as amended (the
"FHLMC Act"). FHLMC was established primarily for the purpose of increasing the
availability of mortgage credit for the financing of needed housing. The
principal activity of FHLMC currently consists of purchasing first-lien,
conventional, residential mortgage loans or participation interests in such
mortgage loans and reselling the mortgage loans so purchased in the form of
guaranteed mortgage securities, primarily FHLMC Certificates. In 1981, FHLMC
initiated its Home Mortgage Guaranty Program under which it purchases mortgage
loans from sellers with FHLMC Certificates representing interests in the
mortgage loans so purchased. All mortgage loans purchased by FHLMC must meet
certain standards set forth in the FHLMC Act. FHLMC is confined to purchasing,
so far as practicable, mortgage loans that it deems to be of such quality and
type as to meet generally the purchase standards imposed by private
institutional mortgage investors. See "Additional Information" for the
availability of further information regarding FHLMC and FHLMC Certificates.
Neither the United States nor any agency thereof is obligated to finance FHLMC's
operations or to assist FHLMC in any other manner.
FHLMC CERTIFICATES. Unless otherwise specified in the related Prospectus
Supplement, each FHLMC Certificate relating to a Series will represent an
undivided interest in a pool of mortgage loans that typically consists of
conventional loans (but may include FHA Loans and VA Loans) purchased by FHLMC,
except with respect to any stripped mortgage backed securities issued by FHLMC.
Each such pool will consist of mortgage loans (i) substantially all of which are
secured by one- to four-family residential properties or (ii) if specified in
the related Prospectus Supplement, are secured by five or more family
residential properties. The characteristics of any FHLMC Certificates included
in the Trust Fund for a Series of Certificates will be set forth in the related
Prospectus Supplement.
FNMA. FNMA is a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act (12 U.S.C. Section1716 ET SEQ.). It is the nation's largest supplier of
residential mortgage funds. FNMA was originally established in 1938 as a United
States government agency to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder-owned and privately managed
corporation by legislation enacted in 1968. FNMA provides funds to the mortgage
market primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. See "Additional Information"
for the availability of further information respecting FNMA and FNMA
Certificates. Although the Secretary of the Treasury of the United States has
authority to lend FNMA up to $2.25 billion outstanding at any time, neither the
United States nor any agency thereof is obligated to finance FNMA's operations
or to assist FNMA in any other manner.
FNMA CERTIFICATES. Unless otherwise specified in the related Prospectus
Supplement, each FNMA Certificate relating to a Series will represent a
fractional undivided interest in a pool of mortgage loans formed by FNMA, except
with respect to any stripped mortgage backed securities issued by FNMA. Mortgage
loans underlying FNMA Certificates will consist of (i) fixed, variable or
adjustable rate conventional mortgage loans or (ii) fixed-rate FHA Loans or VA
Loans. Such mortgage loans may be secured by either one- to four-family or
multi-family residential properties. The characteristics of any FNMA
Certificates included in the Trust Fund for a Series of Certificates will be set
forth in the related Prospectus Supplement.
THE MORTGAGE LOANS
The Trust Fund for a Series may consist of Mortgage Loans or participation
interests therein. Mortgage Loans comprising the Mortgage Assets and Mortgage
Loans in which participation interests are conveyed to the Trustee are both
referred to herein as the "Mortgage Loans." If so specified in the related
Prospectus Supplement, the Mortgage Loans will have been originated by mortgage
lenders which are FNMA- or FHLMC-approved seller/servicers or by their
wholly-owned subsidiaries, and, in the case of FHA Loans, approved by HUD as an
FHA mortgagee. Some of the Mortgage Loans may have been originated by an
affiliate of the Depositor. The Mortgage Loans may include Conventional Loans,
FHA Loans or VA Loans. The Mortgage Loans may have fixed interest rates or
adjustable interest rates and may provide for fixed level payments or may be
Additional Collateral Loans, GPM Loans, GEM Loans, Balloon Loans, Buy-Down
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Loans, Bi-Weekly Loans or Mortgage Loans with other payment characteristics as
described below and under "Yield, Prepayment and Maturity Considerations" herein
or in the related Prospectus Supplement. ARMs may have a feature which permits
the borrower to convert the rate thereon to a long-term fixed rate. The Mortgage
Loans may be secured by mortgages or deeds of trust or other similar security
instruments creating a first lien on Mortgaged Property. The Mortgage Loans may
also include Cooperative Loans evidenced by promissory notes secured by a lien
on the shares issued by private, non-profit, cooperative housing corporations
and on the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specific Cooperative Dwellings. The Mortgage Loans may also
include Condominium Loans secured by a Mortgage on a Condominium Unit together
with such Condominium Unit's appurtenant interest in the common elements.
The Mortgaged Properties may include Single Family Property (i.e., one-to
four-family residential housing, including Condominium Units, and Cooperative
Dwellings) or Multifamily Property (i.e., multifamily residential rental
properties or cooperatively-owned properties consisting of five or more dwelling
units). The Mortgaged Properties may consist of detached individual dwellings,
individual condominiums, townhouses, duplexes, row houses, individual units in
planned unit developments and other attached dwelling units. Multifamily
Property may include mixed commercial and residential structures. Each Single
Family Property and Multifamily Property will be located on land owned in fee
simple by the borrower or on land leased by the borrower. The fee interest in
any leased land will be subject to the lien securing the related Mortgage Loan.
Attached dwellings may include owner-occupied structures where each borrower
owns the land upon which the unit is built, with the remaining adjacent land
owned in common or dwelling units subject to a proprietary lease or occupancy
agreement in a cooperatively owned apartment building. The proprietary lease or
occupancy agreement securing a Cooperative Loan is generally subordinate to any
blanket mortgage on the related cooperative apartment building and/or on the
underlying land. Additionally, in the case of a Cooperative Loan, the
proprietary lease or occupancy agreement is subject to termination and the
cooperative shares are subject to cancellation by the cooperative if the
tenant-stockholder fails to pay maintenance or other obligations or charges owed
by such tenant-stockholder. See "Certain Legal Aspects of Loans."
If specified in the related Prospectus Supplement, a Trust Fund will contain
Additional Collateral Loans. Unless otherwise specified in the related
Prospectus Supplement, the security agreements and other similar security
instruments related to the Additional Collateral for the Loans in a Trust Fund
will, in the case of Additional Collateral consisting of personal property,
create first liens thereon, and, in the case of Additional Collateral consisting
of real estate, create first or second liens thereon. Additional Collateral, or
the liens thereon in favor of the related Additional Collateral Loans, may be
greater or less in value than the principal balances of such Additional
Collateral Loans, the Appraised Values of the underlying Mortgaged Properties or
the differences, if any, between such principal balances and such Appraised
Values, and the requirements that Additional Collateral be maintained may be
terminated upon the reduction of the Loan-to-Value Ratios or principal balances
of the related Additional Collateral Loans to certain pre-determined amounts.
Additional Collateral (including any related third-party guarantees) may be
provided either in addition to or in lieu of primary mortgage insurance policies
for the Additional Collateral Loans in a Trust Fund, as specified in the related
Prospectus Supplement. Guarantees supporting Additional Collateral Loans may be
guarantees of payment or guarantees of collectability and may be full guarantees
or limited guarantees. If a Trust Fund includes Additional Collateral Loans, the
related Prospectus Supplement will specify the nature and extent of such
Additional Collateral Loans and of the related Additional Collateral. If
specified in such Prospectus Supplement, the Trustee, on behalf of the related
Certificateholders, will have only the right to receive certain proceeds from
the disposition of any such Additional Collateral consisting of personal
property and the liens thereon will not be assigned to the Trustee. No assurance
can be given as to the amount of proceeds, if any, that might be realized from
the disposition of the Additional Collateral for any of the Additional
Collateral Loans. See "Certain Legal Aspects of Loans--Anti-Deficiency
Legislation and Other Limitations on Lenders" herein.
Additional Collateral Loans may include Nest Egg Mortgage Loans-SM-. Such
Mortgage Loans are interest-only Mortgage Loans for an initial period specified
in the related Prospectus Supplement. If the
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related Mortgagor pledges an eligible life insurance policy as Additional
Collateral after such initial period, the Mortgagor will continue to make
interest-only payments with respect to the Mortgage Loan until the final
scheduled payment on such Mortgage Loan, as described in the Prospectus
Supplement.
The percentage of Mortgage Loans which are owner-occupied will be disclosed
in the related Prospectus Supplement. Unless otherwise specified in the
Prospectus Supplement, the sole basis for a representation that a given
percentage of the Mortgage Loans are secured by Single Family Property that is
owner-occupied will be either (i) the making of a representation by the
Mortgagor at origination of the Mortgage Loan either that the underlying
Mortgaged Property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the Mortgaged Property as
a primary residence, or (ii) a finding that the address of the underlying
Mortgaged Property is the borrower's mailing address as reflected in the
Servicer's records. To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may include non-owner occupied investment
properties and vacation and second homes. Mortgage Loans secured by investment
properties and Multifamily Property may also be secured by an assignment of
leases and rents and operating or other cash flow guarantees relating to the
Loans to the extent specified in the related Prospectus Supplement.
The characteristics of the Mortgage Loans comprising or underlying the
Mortgage Assets for a Series may vary to the extent that credit support is
provided in levels satisfactory to the Rating Agency which assigns a rating to a
Series of Certificates. Unless otherwise specified in the related Prospectus
Supplement for a Series, the following selection criteria shall apply with
respect to the Mortgage Loans comprising the Mortgage Assets:
(a) no Mortgage Loan will have had a Loan-to-Value Ratio at origination
in excess of 95%;
(b) no Mortgage Loan that is a Conventional Loan secured by a Single
Family Property may have a Loan-to-Value Ratio in excess of 80%, unless
covered by a primary mortgage insurance policy as described herein;
(c) each Mortgage Loan must have an original term to maturity of not
less than 10 years and not more than 40 years;
(d) no Mortgage Loan may be included which, as of the Cut-off Date, is
more than 30 days delinquent as to payment of principal or interest; and
(e) no Mortgage Loan (other than a Cooperative Loan) may be included
unless a title insurance policy and a standard hazard insurance policy
(which may be a blanket policy) is in effect with respect to the Mortgaged
Property securing such Mortgage Loan.
Each Mortgage Loan will be selected by the Depositor for inclusion in a
Trust Fund from among those purchased by the Depositor, either directly or
through its affiliates, from a Seller or Sellers. The related Prospectus
Supplement will specify the extent of Mortgage Loans so acquired. Other mortgage
loans available for purchase by the Depositor may have characteristics which
would make them eligible for inclusion in a Trust Fund but were not selected for
inclusion in such Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans to be included in a Trust Fund will be delivered either directly
or indirectly to the Depositor by one or more Sellers identified in the related
Prospectus Supplement, concurrently with the issuance of the related series of
Certificates (a "Designated Seller Transaction"). Such Certificates may be sold
in whole or in part to any such Seller in exchange for the related Mortgage
Loans, or may be offered under any of the other methods described herein under
"Methods of Distribution." The related Prospectus Supplement for a Trust Fund
composed of Mortgage Loans acquired by the Depositor pursuant to a Designated
Seller Transaction will generally include information, provided by the related
Seller, about the Seller, the Mortgage Loans and the underwriting standards
applicable to the Mortgage Loans. Neither the Depositor nor any of its
affiliates (other than the Seller, if applicable) will make any representation
or warranty with respect to such Mortgage Loans, or any representation as to the
accuracy or completeness of such information provided by the Seller and no
assurances are made as to any such Seller's financial strength, stability or
wherewithal to honor its repurchase obligations for breaches of representations
and warranties or otherwise honor its obligations.
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The Depositor will not require that a standard hazard or flood insurance
policy be maintained for any Cooperative Loan. Generally, the cooperative itself
is responsible for maintenance of hazard insurance for the property owned by the
cooperative and the tenant-stockholders of that cooperative do not maintain
individual hazard insurance policies. To the extent, however, a cooperative and
the related borrower on a Cooperative Note do not maintain such insurance or do
not maintain adequate coverage or any insurance proceeds are not applied to the
restoration of the damaged property, damage to such borrower's Cooperative
Dwelling or such cooperative's building could significantly reduce the value of
the collateral securing such Cooperative Note.
The initial Loan-to-Value Ratio of any Mortgage Loan represents the ratio of
the principal amount of the Mortgage Loan at origination to the Appraised Value
of such Mortgaged Property.
Unless otherwise specified in the related Prospectus Supplement, with
respect to Buy-Down Loans, during the period (the "Buy-Down Period") when the
borrower is not obligated to pay the full Scheduled Payment otherwise due on
such loan, each of the Buy-Down Loans will provide for Scheduled Payments based
on a hypothetical reduced interest rate (the "Buy-Down Mortgage Rate") that will
not have been more than 3% below the mortgage rate at origination, and for
annual increases in the Buy-Down Mortgage Rate during the Buy-Down Period that
will not exceed 1%. The Buy-Down Period will not exceed three years. Unless
specified otherwise in the related Prospectus Supplement, the maximum amount of
funds ("Buy-Down Amounts") that may be contributed by the Servicer of the
related Buy-Down Loan is limited to 6% of the Appraised Value of the related
Mortgaged Property. This limitation does not apply to contributions from
immediate relatives or the employer of the mortgagor. Except as may be otherwise
indicated in the related Prospectus Supplement, the borrower under each Buy-Down
Loan will have been qualified at a mortgage rate which is not more than 3% per
annum below the current mortgage rate at origination. Accordingly, the repayment
of a Buy-Down Loan is dependent on the ability of the borrower to make larger
Scheduled Payments after the Buy-Down Amounts have been depleted and, for
certain Buy-Down Loans, while such Buy-Down Amounts are being depleted.
Unless otherwise specified in the related Prospectus Supplement, with
respect to Multifamily Loans, (a) no Mortgage Loan will have been delinquent for
more than 30 days within the 12-month period ending with the Cut-off Date, (b)
no more than two payments will have been 30 days or more delinquent during a
three-year period ending on the Cut-off Date, (c) Mortgage Loans with respect to
any single borrower will not exceed 5% of the aggregate principal balance of the
Loans comprising the Mortgage Assets as of the Cut-off Date, and (d) the debt
service coverage ratio with respect to each Mortgage Loan (calculated as
described in the related Prospectus Supplement) will not be less than 11:1.
Unless otherwise specified in the related Prospectus Supplement, the
Bi-Weekly Loans will consist of fixed-rate, bi-weekly payment, conventional,
fully-amortizing Mortgage Loans payable on every other Friday during the term
thereof and secured by first mortgages on one-to four-family residential
properties.
Unless otherwise specified in the related Prospectus Supplement, ARMs will
provide for a fixed initial mortgage rate for either the first six or twelve
Scheduled Payments. Thereafter, the Mortgage Rates are subject to periodic
adjustment based, subject to the applicable limitations, on changes in the
relevant Index described in the applicable Prospectus Supplement, to a rate
equal to the Index plus the Gross Margin, which is a fixed percentage spread
over the Index established contractually for each ARM, at the time of its
origination. An ARM may be convertible into a fixed-rate Mortgage Loan. To the
extent specified in the related Prospectus Supplement, any ARM so converted may
be subject to repurchase by the Seller, the Servicer or the Master Servicer.
ARMs have features that can cause payment increases that some borrowers may
find difficult to make. However, each of the ARMs provides that its mortgage
rate may not be adjusted to a rate above the applicable lifetime mortgage rate
cap (the "Maximum Mortgage Rate") or below the applicable lifetime minimum
mortgage rate (the "Minimum Mortgage Rate"), if any, for such ARM. In addition,
certain of the ARMs provide for limitations on the maximum amount by which their
mortgage rates may adjust for any single adjustment period (the "Periodic Rate
Cap"). Some ARMs are payable in self-amortizing payments of principal and
interest. Other ARMs ("Negatively Amortizing ARMs") instead provide for
limitations on
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changes in the Scheduled Payment on such ARMs to protect borrowers from payment
increases due to rising interest rates. Such limitations can result in Scheduled
Payments which are greater or less than the amount necessary to amortize a
Negatively Amortizing ARM by its original maturity at the mortgage rate in
effect during any particular adjustment period. In the event that the Scheduled
Payment is not sufficient to pay the interest accruing on a Negatively
Amortizing ARM, then the Deferred Interest is added to the principal balance of
such ARM causing the negative amortization thereof, and will be repaid through
future Scheduled Payments. If specified in the related Prospectus Supplement,
Negatively Amortizing ARMs may provide for the extension of their original
stated maturity to accommodate changes in their mortgage rate. The relevant
Prospectus Supplement will specify whether the ARMs comprising or underlying the
Mortgage Assets are Negatively Amortizing ARMs.
If applicable, the Prospectus Supplement for each Series will specify the
Index to be used with respect to any Mortgage Loans underlying such Series.
The related Prospectus Supplement for each Series will provide information
with respect to the Mortgage Loans as of the Cut-off Date, including, among
other things, (a) the aggregate outstanding principal balance of the Mortgage
Loans; (b) the weighted average mortgage rate on the Mortgage Loans, and, in the
case of ARMs, the weighted average of the current mortgage rates and the Maximum
Mortgage Rates, if any; (c) the average outstanding principal balance of the
Mortgage Loans; (d) the weighted average remaining term-to-stated maturity of
the Mortgage Loans and the range of remaining terms-to-stated maturity; (e) the
range of Loan-to-Value Ratios of the Mortgage Loans; (f) the relative percentage
(by outstanding principal balance as of the Cut-off Date) of Mortgage Loans that
are Additional Collateral Loans, ARMs, Balloon Loans, Buy-Down Loans, GEM Loans,
GPM Loans, Cooperative Loans, Conventional Loans, Bi-Weekly Loans, FHA Loans and
VA Loans, (g) the percentage of Mortgage Loans (by outstanding principal balance
as of the Cut-off Date) that are covered by primary mortgage insurance policies;
(h) any pool insurance policy, special hazard insurance policy or bankruptcy
bond or other credit support relating to the Mortgage Loans; (i) the geographic
distribution of the Mortgaged Properties securing the Mortgage Loans and (j) the
percentage of Mortgage Loans (by principal balance as of the Cut-off Date) that
are secured by Single Family Property, Multifamily Property, Cooperative
Dwellings, investment property and vacation or second homes. The related
Prospectus Supplement will also specify any other limitations on the types or
characteristics of Mortgage Loans which may comprise or underlie the Mortgage
Assets for a Series.
If information of the nature described above respecting the Mortgage Loans
is not known to the Depositor at the time the Certificates are initially
offered, more general information of the nature described above will be provided
in the Prospectus Supplement and the final specific information will be set
forth in a Current Report on Form 8-K to be available to investors on the date
of issuance of the related Series and to be filed with the Commission within 15
days after the initial issuance of such Certificates.
THE MANUFACTURED HOME LOANS
The Manufactured Home Loans comprising or underlying the Mortgage Assets for
a Series of Certificates will consist of manufactured housing conditional sales
contracts and installment loan agreements originated by a manufactured housing
dealer in the ordinary course of business and purchased by the Depositor. Each
Manufactured Home Loan will have been originated by a bank or savings
institution which is a FNMA- or FHLMC-approved seller/servicer or by any
financial institution approved for insurance by the Secretary of Housing and
Urban Development pursuant to Section 2 of the National Housing Act.
The Manufactured Home Loans may be Conventional Loans, FHA Loans or VA
Loans. Each Manufactured Home Loan will be secured by a Manufactured Home.
Unless otherwise specified in the related Prospectus Supplement, the
Manufactured Home Loans will be fully amortizing and will bear interest at a
fixed interest rate.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Manufactured Homes securing the Manufactured Home Loans consist of
manufactured homes within the meaning of 42 United
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States Code, Section 5402(6). In addition, unless otherwise specified in the
related Prospectus Supplement for a Series, the following restrictions apply
with respect to Manufactured Home Loans comprising or underlying the Mortgage
Assets for a Series:
(a) no Manufactured Home Loan will have had a Loan-to-Value Ratio at
origination in excess of 95%;
(b) each Manufactured Home Loan must have an original term to maturity
of not less than three years and not more than 25 years;
(c) no Manufactured Home Loan may be more than 30 days delinquent as to
payment of principal or interest as of the Cut-off Date; and
(d) each Manufactured Home Loan must have, as of the Cut-off Date, a
standard hazard insurance policy (which may be a blanket policy) in effect
with respect thereto.
The initial Loan-to-Value Ratio of any Manufactured Home Loan represents the
ratio of the principal amount of the Manufactured Home Loan at origination to
the Appraised Value of such Manufactured Home. With respect to underwriting of
Manufactured Home Loans, see "Loan Underwriting Procedures and Standards." With
respect to servicing of Manufactured Home Loans, see "Servicing of Loans."
The related Prospectus Supplement for each Series will provide information
with respect to the Manufactured Home Loans comprising the Mortgage Assets as of
the Cut-off Date, including, among other things, (a) the aggregate outstanding
principal balance of the Manufactured Home Loans comprising or underlying the
Mortgage Assets; (b) the weighted average interest rate on the Manufactured Home
Loans; (c) the average outstanding principal balance of the Manufactured Home
Loans; (d) the weighted average remaining scheduled term to maturity of the
Manufactured Home Loans and the range of remaining scheduled terms to maturity;
(e) the range of Loan-to-Value Ratios of the Manufactured Home Loans; (f) the
relative percentages (by principal balance as of the Cut-off Date) of
Manufactured Home Loans that were made on new Manufactured Homes and on used
Manufactured Homes; (g) any pool insurance policy, special hazard insurance
policy or bankruptcy bond or other credit support relating to the Manufactured
Home Loans; and (h) the distribution by state of Manufactured Homes securing the
Loans. The related Prospectus Supplement will also specify any other limitations
on the types or characteristics of Manufactured Home Loans which may be included
in the Mortgage Assets for a Series.
If information of the nature specified above respecting the Manufactured
Home Loans is not known to the Depositor at the time the Certificates are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement and the final specific information will
be set forth in a Current Report on Form 8-K to be available to investors on the
date of issuance of the related Series and to be filed with the Commission
within 15 days after the initial issuance of such Certificates.
COLLECTION ACCOUNT AND CERTIFICATE ACCOUNT
Unless otherwise specified in the related Prospectus Supplement, a separate
Collection Account for each Series will be established by the Master Servicer in
the name of the Trustee for deposit of all distributions received with respect
to the Mortgage Assets for such Series, all Advances (other than Advances
deposited into the Certificate Account), the amount of cash to be initially
deposited therein, if any, reinvestment income thereon and certain other amounts
required to be deposited therein pursuant to the Pooling and Servicing
Agreement. Unless otherwise specified in the related Prospectus Supplement or
Pooling and Servicing Agreement, any reinvestment income or other gain from
investments of funds in the Collection Account will be credited to such
Collection Account, and any loss resulting from such investments will be charged
to such Collection Account. Such reinvestment income may, however, be payable to
the Master Servicer or to a Servicer as additional servicing compensation. See
"Servicing of Loans" and "The Pooling and Servicing Agreements--Investment of
Funds." In such a case, such reinvestment income would not be included in
calculation of the Available Distribution Amount. See "Description of the
Certificates-- Distributions on the Certificates."
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Funds on deposit in the Collection Account will be available for deposit
into the Certificate Account for certain payments provided for in the Pooling
and Servicing Agreement. Unless otherwise specified in the Prospectus Supplement
or the Pooling and Servicing Agreement, amounts in the Collection Account
constituting reinvestment income which is payable to the Master Servicer as
additional servicing compensation or for the reimbursement of advances or
expenses, amounts in respect of any Servicing Fee, Retained Interest, and
amounts to be deposited into any reserve fund will not be included in
determining amounts to be remitted to the Trustee for deposit into the
Certificate Account.
A separate Certificate Account will be established by the Trustee or, if so
specified in the related Prospectus Supplement, by the Master Servicer, in
either case in the name of the Trustee for the benefit of the Certificateholders
into which all funds received from the Master Servicer and all required
withdrawals from any reserve funds and any draws on any Certificate Guarantee
Insurance for such Series will be deposited, pending distribution to the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, any reinvestment income or other gain from investments of funds in
the Certificate Account will be credited to the Certificate Account and any loss
resulting from such investments will be charged to such Certificate Account.
Such reinvestment income, may, however, be payable to the Master Servicer or the
Trustee as additional servicing compensation. On each Distribution Date, all
funds on deposit in the Certificate Account, subject to certain permitted
withdrawals by the Trustee as set forth in the Pooling and Servicing Agreement,
will be available for remittance to the Certificateholders; provided that, if it
is specified in the related Prospectus Supplement that the Certificate Account
will be maintained by the Master Servicer in the name of the Trustee, then,
prior to each Distribution Date, funds in the Certificate Account will be
transferred to a separate account established by and in the name of the Trustee
from which the funds on deposit therein will, subject to permitted withdrawals
by the Trustee as specified above, be available for remittance to the
Certificateholders. See also "The Pooling and Servicing Agreements-- Certificate
Account" herein.
OTHER FUNDS OR ACCOUNTS
A Trust Fund may include certain other funds and accounts or a security
interest in certain funds and accounts for the purpose of, among other things,
paying certain administrative fees and expenses of the Trust Fund and
accumulating funds pending their distribution. If so specified in the related
Prospectus Supplement, certain funds may be established with the Trustee with
respect to Buy-Down Loans, GPM Loans, or other Loans having special payment
features included in the Trust Fund in addition to or in lieu of any such
similar funds to be held by the Servicer. See "Servicing of Loans--Payments on
Loans; Deposits to Collection Accounts." If Private Mortgage-Backed Securities
are backed by GPM Loans and the value of a Multiple Class Series is determined
on the basis of the scheduled maximum principal balance of the GPM Loans, a GPM
Fund will be established which will be similar to that which would be
established if GPM Loans constituted the Mortgage Assets. See "Servicing of
Loans--Payments on Loans; Deposits to Collection Accounts" herein. Other similar
accounts may be established as specified in the related Prospectus Supplement.
LOAN UNDERWRITING PROCEDURES AND STANDARDS
UNDERWRITING STANDARDS
The Depositor expects that all Loans comprising the Mortgage Assets for a
Series will have been originated in accordance with the underwriting procedures
and standards described herein, except as otherwise set forth in the related
Prospectus Supplement.
The Seller of the Loans (or other entity specified in the related Prospectus
Supplement, which may be the originator) will make representations and
warranties concerning compliance with such underwriting procedures and
standards. Additionally, unless otherwise specified in the related Prospectus
Supplement, all or a sample of the Loans comprising Mortgage Assets for a Series
will be reviewed by or on behalf of the Depositor to determine compliance with
such underwriting standards and procedures and compliance with other
requirements for inclusion in the Trust Fund.
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Mortgage Loans will have been originated by a savings and loan association,
savings bank, commercial bank, credit union, insurance company or similar
institution which is supervised and examined by a federal or state authority or
by a mortgagee approved by the Secretary of Housing and Urban Development
pursuant to Sections 203 and 211 of the National Housing Act or a wholly-owned
subsidiary thereof. Manufactured Home Loans may have been originated by such
institutions or by a financial institution approved for insurance by the
Secretary of Housing and Urban Development pursuant to Section 2 of the National
Housing Act. Except as otherwise set forth in the related Prospectus Supplement
for a Series of Certificates, the originator of a Loan will have applied
underwriting procedures intended to evaluate the borrower's credit standing and
repayment ability and the value and adequacy of the related property as
collateral. FHA Loans and VA Loans will have been originated in compliance with
the underwriting policies of FHA and VA, respectively.
Each borrower will have been required to complete an application designed to
provide to the original lender pertinent credit information about the borrower.
As part of the description of the borrower's financial condition, the borrower
will have furnished information with respect to its assets, liabilities, income,
credit history, employment history and personal information, and 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. If
the borrower was self-employed, the borrower will have been required to submit
copies of recent tax returns. The borrower may also have been required to
authorize verifications of deposits at financial institutions where the borrower
had demand or savings accounts. Certain considerations may cause an originator
of Loans to depart from these guidelines. For example, when two individuals
co-sign the loan documents, the incomes and expenses of both individuals may be
included in the computation. In the case of a Multifamily Loan, the Mortgagor
will also be required to provide certain information regarding the related
Multifamily Property, including a current rent roll and operating income
statements (which may be pro forma and unaudited). In addition, the originator
will generally also consider the location of the Multifamily Property, the
availability of competitive lease space and rental income of comparable
properties in the relevant market area, the overall economy and demographic
features of the geographic area and the Mortgagor's prior experience in owning
and operating properties similar to the Multifamily Properties.
The adequacy of the property financed by the related Loan as security for
repayment of such Loan will generally have been determined by appraisal in
accordance with pre-established appraisal procedure guidelines for appraisals
established by or acceptable to the originator. Appraisers may be staff
appraisers employed by the Loan originator or independent appraisers selected in
accordance with pre-established guidelines established by the Loan originator.
The appraisal procedure guidelines will have required that the appraiser or an
agent on its behalf to personally inspect the property and to verify that it was
in good condition and that construction, if new, had been completed. The
appraisal will have been based upon a market data analysis of recent sales of
comparable properties and, when deemed applicable, a replacement cost analysis
based on the current cost of constructing or purchasing a similar property. With
respect to Multifamily Properties, the appraisal must specify whether an income
analysis, a market analysis or a cost analysis was used. An appraisal employing
the income approach to value analyzes a property's projected net cash flow,
capitalization and other operational information in determining the property's
value. The market approach to value analyzes the prices paid for the purchase of
similar properties in the property's area, with adjustments made for variations
between those other properties and the property being appraised. The cost
approach to value requires the appraiser to make an estimate of land value and
then determine the current cost of reproducing the improvements less any accrued
depreciation. In any case, the value of the property being financed, as
indicated by the appraisal, must be such that it currently supports, and is
anticipated to support in the future, the outstanding loan balance. Unless
otherwise specified in the related Prospectus Supplement, all appraisals are
required to conform to the Uniform Standards of Professional Appraisal Practice
and the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and must be on forms acceptable to the FNMA and/or FHLMC.
Based on the data provided, certain verifications and the appraisal, a
determination will have been made by the original lender that the borrower's
monthly income would be sufficient to enable the borrower to meet its monthly
obligations on the Loan and other expenses related to the property (such as
property
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taxes, utility costs, standard hazard and primary mortgage insurance and, if
applicable, maintenance fees and other levies assessed by a Cooperative) and
certain other fixed obligations other than housing expenses. The originating
lender's guidelines for Loans secured by Single Family Property generally will
specify that Scheduled Payments plus taxes and insurance and all Scheduled
Payments extending beyond one year (including those mentioned above and other
fixed obligations, such as car payments) would equal no more than specified
percentages of the prospective borrower's gross income. These guidelines will
generally be applied only to the payments to be made during the first year of
the Loan. Except as otherwise specified in the related Prospectus Supplement,
with respect to Mortgage Loans that are Conventional Loans, underwriting
guidelines used to establish the relevant percentages of gross income will be
similar to underwriting guidelines used by FNMA and FHLMC at the time of
origination of the Loan, except that the ratio of Scheduled Payments and certain
other fixed obligations to monthly gross income may exceed the comparable FNMA
or FHLMC limits as specified in the related Prospectus Supplement.
With respect to FHA Loans and VA Loans, traditional underwriting guidelines
used by the FHA and the VA, as the case may be, which were in effect at the time
of origination of each Loan will generally have been applied. With respect to
Manufactured Home Loans that are Conventional Loans, the related Prospectus
Supplement will specify the required minimum downpayment, the maximum amount of
purchase price eligible for financing, the maximum original principal amount
that may be financed, and the limitations on ratios of borrower's Scheduled
Payment to gross monthly income and monthly income net of other fixed payment
obligations.
In the case of the Multifamily Loans, lenders typically look to the Debt
Service Coverage Ratio of a loan as an important measure of the risk of default
on such a loan. Unless otherwise defined in the related Prospectus Supplement,
the "Debt Service Coverage Ratio" of a Multifamily Loan at any given time is the
ratio of (i) the Net Operating Income of the related Mortgaged Property for a
twelve-month period to (ii) the annualized scheduled payments on the Mortgage
Loan and on any other loan that is secured by a lien on the Mortgaged Property
prior to the lien of the related Mortgage. Unless otherwise defined in the
related Prospectus Supplement, "Net Operating Income" means, for any given
period, the total operating revenues derived from a Multifamily Property during
such period, minus the total operating expenses incurred in respect of such
property during such period other than (i) non-cash items such as depreciation
and amortization, (ii) capital expenditures and (iii) debt service on loans
(including the related Mortgage Loan) secured by liens on such property. The Net
Operating Income of a Multifamily Property will fluctuate over time and may or
may not be sufficient to cover debt service on the related Mortgage Loan at any
given time. As the primary source of the operating revenues of a Multifamily
Property, rental income (and maintenance payments from tenant-stockholders of a
cooperatively owned Multifamily Property) may be affected by the condition of
the applicable real estate market and/or area economy. Increases in operating
expenses due to the general economic climate or economic conditions in a
locality or industry segment, such as increases in interest rates, real estate
tax rates, energy costs, labor costs and other operating expenses, and/or to
changes in governmental rules, regulations and fiscal policies, may also affect
the risk of default on a Multifamily Loan. Lenders also look to the
Loan-to-Value Ratio of a Multifamily Loan as a measure of risk of loss if a
property must be liquidated following a default.
If so specified in the related Prospectus Supplement, the underwriting of a
Multifamily Loan may also include environmental testing. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), a lender may be liable, as an
"owner" or "operator", for costs of addressing releases or threatened releases
of hazardous substances at a property, if agents or employees of the lender have
become sufficiently involved in the operations of the borrower, regardless of
whether or not the environmental damage or threat was caused by the borrower or
a prior owner. A lender also risks such liability on foreclosure of the
mortgage. See "Certain Legal Aspects of Mortgage Loans--Environmental
Legislation."
With respect to Multifamily Property, the Loan originator will have made an
assessment of the capabilities of the management of the project, including a
review of management's past performance record,
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its management reporting and control procedures (to determine its ability to
recognize and respond to problems) and its accounting procedures to determine
cash management ability. Income derived from the Mortgaged Property constituting
investment property may have been considered for underwriting purposes, rather
than the income of the borrower from other sources.
With respect to Mortgaged Property consisting of vacation or second homes,
no income derived from the property will have been considered for underwriting
purposes.
Certain types of Loans that may be included in the Mortgage Assets for a
Series are recently developed and may involve additional uncertainties not
present in traditional types of loans. For example, Balloon Loans, Buy-Down
Loans, GEM Loans and GPM Loans provide for escalating or variable payments by
the borrower. These types of Loans are underwritten on the basis of a judgment
that the borrower will have the ability to make larger Scheduled Payments in
subsequent years. ARMs may involve similar assessments.
To the extent specified in the related Prospectus Supplement, the Depositor
may purchase Loans (or participation interests therein) for inclusion in a Trust
Fund that are underwritten under standards and procedures which vary from and
are less stringent than those described herein. For instance, Loans may be
underwritten under a "limited documentation program," if specified in the
Prospectus Supplement. With respect to such Loans, minimal investigation into
the borrowers' credit history and income profile is undertaken by the originator
and such Loans may be underwritten primarily on the basis of an appraisal of the
Mortgaged Property and Loan-to-Value Ratio on origination. Thus, if the
Loan-to-Value Ratio is less than a percentage specified in the related
Prospectus Supplement, the originator may forego certain aspects of the review
relating to monthly income, and traditional ratios of monthly or total expenses
to gross income may not be applied.
In addition, Mortgage Loans may have been originated in connection with a
governmental program under which underwriting standards were significantly less
stringent and designed to promote home ownership or the availability of
affordable residential rental property notwithstanding higher risks of default
and losses. The related Prospectus Supplement will specify the underwriting
standards applicable to such Mortgage Loans.
The underwriting standards applied by the Loan originator 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. Certain
states where the Mortgaged Properties may be located have "antideficiency" laws
requiring, in general, that lenders providing credit on Single Family Property
look solely to the property for repayment in the event of foreclosure. See
"Certain Legal Aspects of Loans" herein.
With respect to the underwriting standards applicable to any Mortgage Loans,
such underwriting standards generally include a set of specific criteria
pursuant to which the underwriting evaluation is made. However, the application
of such underwriting standards does not imply that each specific criterion was
satisfied individually. Rather, a Mortgage Loan will be considered to be
originated in accordance with a given set of underwriting standards if, based on
an overall qualitative evaluation, the loan is in substantial compliance with
such underwriting standards. For example, a Mortgage Loan may be considered to
comply with a set of underwriting standards, even if one or more specific
criteria included in such underwriting standards were not satisfied, if other
factors compensated for the criteria that were not satisfied or if the Mortgage
Loan is considered to be in substantial compliance with the underwriting
standards.
LOSS EXPERIENCE
The general appreciation of real estate values experienced in the past has
been a factor in limiting the general loss experience on Conventional Loans.
However, there can be no assurance that the past pattern of appreciation in
value of the real property securing such Loans will continue. Further, there is
no assurance that appreciation of real estate values generally will limit loss
experiences on non-traditional housing such as Multifamily Property,
Manufactured Homes or Cooperative Dwellings. Similarly, no assurance can be
given that the value of the Mortgaged Property (including Cooperative Dwellings)
securing a Loan has remained
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or will remain at the level existing on the date of origination of such Loan. If
the residential real estate market should experience an overall decline in
property values such that the outstanding balances of the Loans and any
secondary financing on the Mortgaged Properties securing such Loans become equal
to or greater than the value of such Mortgaged Properties, then the actual rates
of delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry. In addition, the value
of property securing Cooperative Loans and the delinquency rates with respect to
Cooperative Loans, could be adversely affected if the current favorable tax
treatment of cooperative tenant stockholders were to become less favorable. See
"Certain Legal Aspects of Loans" herein.
No assurance can be given that values of Manufactured Homes have or will
remain at the levels existing on the dates of origination of the related Loan.
Manufactured Homes are less likely to experience appreciation in value and more
likely to experience depreciation in value over time than other types of
Mortgaged Property. Additionally, delinquency, loss and foreclosure experience
on Manufactured Home Loans may be adversely affected to a greater degree by
regional and local economic conditions than more traditional Mortgaged Property.
Loans secured by Multifamily Property may also be more susceptible to losses due
to changes in local and regional economic conditions than Loans secured by
Single Family Property. For example, unemployment resulting from an economic
downturn in local industry may sharply affect occupancy rates. Also, interest
rate fluctuations can make home ownership a more attractive alternative to
renting, causing occupancy rates and market rents to decline. New construction
can create an oversupply, particularly in a market that has experienced high
vacancy rates.
To the extent that losses resulting from delinquencies, losses and
foreclosures or repossession of Mortgaged Property with respect to Loans
included in the Mortgage Assets for a Series of Certificates are not covered by
the methods of credit support or the insurance policies described herein or in
the related Prospectus Supplement, such losses will be borne by Holders of the
Certificates of such Series. Even where credit support covers all losses
resulting from delinquency and foreclosure or repossession, the effect of
foreclosures and repossessions may be to increase prepayment experience on the
Mortgage Assets, thus reducing average weighted life and affecting yield to
maturity. See "Yield, Prepayment and Maturity Considerations."
REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the related Prospectus Supplement or in the
Pooling and Servicing Agreement, the Seller (or other party as described in the
related Prospectus Supplement) will represent and warrant to the Depositor and
the Trustee with respect to the Mortgage Loans comprising the Mortgage Assets in
a Trust Fund, upon delivery of the Mortgage Loans to the Trustee hereunder,
among other things, generally that: (i) any required hazard and primary mortgage
insurance policies were effective at the origination of such Mortgage Loan, and
each such policy remained in effect on the date of purchase of such Mortgage
Loan from the Seller by or on behalf of the Depositor; (ii) either (A) a title
insurance policy insuring (subject only to permissible title insurance
exceptions) the lien status of the Mortgage was effective at the origination of
such Mortgage Loan and such policy remained in effect on the date of purchase of
the Mortgage Loan from the Seller by or on behalf of the Depositor or (B) if the
Mortgaged Property securing such Mortgage Loan is located in an area where such
policies are generally not available, there is in the related mortgage file an
attorney's certificate of title indicating (subject to such permissible
exceptions set forth therein) the first lien status of the mortgage; (iii) the
Seller has good title to such Mortgage Loan and such Mortgage Loan was subject
to no offsets, defenses or counterclaims except as may be provided under the
Relief Act and except to the extent that any buydown agreement exists for a
Buy-Down Loan; (iv) there are no mechanics' liens or claims for work, labor or
material affecting the related Mortgaged Property which are, or may be a lien
prior to, or equal with, the lien of the related Mortgage (subject only to
permissible title insurance exceptions); (v) the related Mortgaged Property is
free from material damage and at least in adequate repair; (vi) there are no
delinquent tax or assessment liens against the related Mortgaged Property; (vii)
such Mortgage Loan is not more than 30 days' delinquent as to any scheduled
payment of principal and/ or interest; (viii) if a primary mortgage insurance
policy is required with respect to such Mortgage Loan, such Mortgage Loan is the
subject of such a policy; and (ix) such Mortgage Loan was made in compliance
with, and is enforceable under, all applicable local, state and federal laws in
all material respects.
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If the Mortgage Loans include Cooperative Loans, no representations or
warranties with respect to title insurance or hazard insurance will be given. In
addition, if the Mortgage Loans include Condominium Loans, no representation
regarding hazard insurance will be given. Generally, the Cooperative or
Condominium Association itself is responsible for the maintenance of hazard
insurance for property owned by the Cooperative and the Condominium Association
is responsible for maintaining standard hazard insurance, insuring the entire
Condominium Building (including each individual Condominium Unit), and the
borrowers of that Cooperative or Condominium do not maintain separate hazard
insurance on their individual Cooperative Dwellings or Condominium Units. See
"Servicing of Loans--Maintenance of Insurance Policies and Other Servicing
Procedures" herein. With respect to a Cooperative Loan, the Seller (or other
party as described in the related Prospectus Supplement) will represent and
warrant that (i) the security interest created by the cooperative security
agreements is a valid first lien on the collateral securing the Cooperative Loan
(subject to the right of the related Cooperative to cancel shares and terminate
the proprietary lease for unpaid assessments) and (ii) the related Cooperative
Dwelling is free of material damage and in good repair.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Manufactured Home Loan, the Seller (or other party as described
in the related Prospectus Supplement) will represent and warrant, among other
things that (i) immediately prior to the transfer and assignment of the
Manufactured Home Loans to the Trustee, the Seller had good title to, and was
the sole owner of, each Manufactured Home Loan; (ii) as of the date of such
transfer and assignment, the Manufactured Home Loans are subject to no offsets,
defenses or counterclaims; (iii) each Manufactured Home Loan at the time it was
made complied in all material respects with applicable state and federal laws,
including usury, equal credit opportunity and truth-in-lending or similar
disclosure laws; (iv) as of the date of such transfer and assignment, each
Manufactured Home Loan constitutes a valid first lien on the related
Manufactured Home and such Manufactured Home is free of material damage and is
in good repair; (v) as of the date of such representation and warranty, no
Manufactured Home Loan is more than 30 days delinquent and there are no
delinquent tax or assessment liens against the related Manufactured Home; and
(vi) with respect to each Manufactured Home Loan, any required hazard insurance
policy was effective at the origination of each Manufactured Home Loan and
remained in effect on the date of the transfer and assignment of the
Manufactured Home Loan from the Depositor and that all premiums due on such
insurance have been paid in full.
Upon the discovery of the breach of any representation or warranty made by
the Master Servicer in respect of a Loan that materially and adversely affects
the interest of the Certificateholder in such Loan, the Seller (or other party
as described in the Prospectus Supplement) will be obligated to cure such breach
in all material respects, repurchase such Loan from the Trustee, or deliver a
Qualified Substitute Mortgage Loan as described below under "The Pooling and
Servicing Agreements--Assignment of Mortgage Assets." See "Risk Factors--Limited
Obligations and Assets of the Depositor." If the Seller or other party fails to
cure or repurchase, another party may be required to cure or repurchase as
described in the Prospectus Supplement. The PMBS Trustee (in the case of Private
Mortgage-Backed Securities) or the Trustee, as applicable, will be required to
enforce this obligation following the practices it would employ in its good
faith business judgment were it the owner of such Loan. If so specified in the
related Prospectus Supplement, the Master Servicer may be obligated to enforce
such obligations rather than the Trustee or PMBS Trustee.
SERVICING OF LOANS
GENERAL
Customary servicing functions with respect to Loans constituting the
Mortgage Assets in the Trust Fund will be provided by the Master Servicer
directly or through one or more servicers (the "Servicers") subject to
supervision by the Master Servicer. If the Master Servicer is not directly
servicing the Loans, then the Master Servicer will (i) administer and supervise
the performance by the Servicers of their servicing responsibilities under their
servicing agreements ("Servicing Agreements") with the Master Servicer, (ii)
maintain any standard or special hazard insurance policy, primary mortgage
insurance bankruptcy bond or pool insurance policy required for the related
Loans and (iii) advance funds as described below under "Advances." If the
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Master Servicer services the Loans through Servicers as its agents, the Master
Servicer will be ultimately responsible for the performance of all servicing
activities, including those performed by the Servicers, notwithstanding its
delegation of certain responsibilities to such Servicer.
The Master Servicer will be a party to the Pooling and Servicing Agreement
for any Series for which Loans comprise the Mortgage Assets and may be a party
to a Participation Agreement executed with respect to any Participation
Certificates which constitute the Mortgage Assets. The Master Servicer may be an
affiliate of the Depositor. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer and each Servicer will be required to be a FNMA-
or FHLMC-approved seller/servicer and, in the case of FHA Loans, approved by HUD
as an FHA mortgagee.
The Master Servicer will be paid a Servicing Fee for the performance of its
services and duties under each Pooling and Servicing Agreement as specified in
the related Prospectus Supplement. Each Servicer, if any, will be entitled to
receive a portion of the Servicing Fee. In addition, the Master Servicer or
Servicer may be entitled to retain late charges, assumption fees and similar
charges to the extent collected from mortgagors. If a Servicer is terminated by
the Master Servicer, the servicing function of the Servicer will be either
transferred to a substitute Servicer or performed by the Master Servicer. The
Master Servicer will be entitled to retain the portion of the Servicing Fee paid
to the Servicer under a terminated Servicing Agreement if the Master Servicer
elects to perform such servicing functions itself.
The Master Servicer, at its election, may pay itself the Servicing Fee for a
Series with respect to each Mortgage Loan either by (a) withholding the
Servicing Fee from any scheduled payment of interest prior to the deposit of
such payment in the Collection Account for such Series, (b) withdrawing the
Servicing Fee from the Collection Account after the entire Scheduled Payment has
been deposited in the Collection Account, or (c) requesting that the Trustee pay
the Servicing Fee out of amounts in the Certificate Account.
COLLECTION PROCEDURES; ESCROW ACCOUNTS
The Master Servicer will make reasonable efforts to collect all payments
required to be made under the Mortgage Loans and will, consistent with the
Pooling and Servicing Agreement for a Series and any applicable insurance
policies and other forms of credit support, follow such collection procedures as
it follows with respect to comparable loans held in its own portfolio.
Consistent with the above, the Master Servicer may, in its discretion, (i) waive
any assumption fee, late payment charge, or other charge in connection with a
Loan and (ii) arrange with a mortgagor a schedule for the liquidation of
delinquencies by extending the Due Dates for Scheduled Payments on such Loan,
provided, however, that the Master Servicer shall first determine that any such
waiver or extension will not impair the coverage of any related insurance policy
or materially and adversely affect the lien of the related Mortgage or the lien
on any related Additional Collateral. In addition, unless otherwise specified in
the related Prospectus Supplement, if a material default occurs or a payment
default is reasonably foreseeable with respect to a Multifamily Loan, the Master
Servicer will be permitted, subject to any specific limitations set forth in the
related Pooling Agreement and described in the related Prospectus Supplement, to
modify, waive or amend any term of such Mortgage Loan, including deferring
payments, extending the stated maturity date or otherwise adjusting the payment
schedule, provided that such modification, waiver or amendment (i) is reasonably
likely to produce a greater recovery with respect to such Mortgage Loan on a
present value basis than would liquidation and (ii) will not adversely affect
the coverage under any applicable instrument of credit enhancement.
In the case of Multifamily Loans, a Mortgagor's failure to make required
Mortgage Loan payments may mean that operating income is insufficient to service
the mortgage debt, or may reflect the diversion of that income from the
servicing of the mortgage debt. In addition, a Mortgagor under a Multifamily
Loan that is unable to make Mortgage Loan payments may also be unable to make
timely payment of taxes and otherwise to maintain and insure the related
Mortgaged Property. In general, the related Master Servicer will be required to
monitor any Multifamily Loan that is in default, evaluate whether the causes of
the default can be corrected over a reasonable period without significant
impairment of the value of the related Mortgaged Property, initiate corrective
action in cooperation with the Mortgagor if cure is likely, inspect the related
Mortgaged Property and take such other actions as are consistent with the
servicing standard. A significant period of time may elapse before the Master
Servicer is able to assess the success of any such corrective
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action or the need for additional initiatives. The time within which the Master
Servicer can make the initial determination of appropriate action, evaluate the
success of corrective action, develop additional initiatives, institute
foreclosure proceedings and actually foreclose (or accept a deed to a Mortgaged
Property in lieu of foreclosure) on behalf of the Certificateholders of the
related Series may vary considerably depending on the particular Multifamily
Loan, the Mortgaged Property, the Mortgagor, the presence of an acceptable party
to assume the Multifamily Loan and the laws of the jurisdiction in which the
Mortgaged Property is located. If a Mortgagor files a bankruptcy petition, the
Master Servicer may not be permitted to accelerate the maturity of the related
Multifamily Loan or to foreclose on the Mortgaged Property for a considerable
period of time. See "Certain Legal Aspects of Mortgage Loans."
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer, to the extent permitted by law, will establish and maintain escrow
accounts ("Escrow Accounts") in which payments by borrowers to pay taxes,
assessments, mortgage and hazard insurance premiums, and other comparable items
that are required to be paid to the mortgagee will be deposited. Mortgage Loans
and Manufactured Home Loans may not require such payments under the loan related
documents, in which case the Master Servicer would not be required to establish
any Escrow Account with respect to such Loans. Withdrawals from the Escrow
Accounts are to be made to effect timely payment of taxes, assessments, mortgage
and hazard insurance, to refund to borrowers amounts determined to be overages,
to pay interest to borrowers on balances in the Escrow Account to the extent
required by law, to repair or otherwise protect the property securing the
related Loan and to clear and terminate such Escrow Account. The Master Servicer
will be responsible for the administration of the Escrow Accounts and generally
will make advances to such account when a deficiency exists therein.
DEPOSITS TO AND WITHDRAWALS FROM THE COLLECTION ACCOUNT
Unless otherwise indicated in the related Prospectus Supplement, the
Collection Account will be an Eligible Account and the funds held therein may be
invested, pending remittance to the Trustee, in Eligible Investments. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
will be entitled to receive as additional compensation any interest or other
income earned on funds in the Collection Account.
The Master Servicer will deposit into the Collection Account for each Series
on the Business Day following the Closing Date any amounts representing
Scheduled Payments due after the related Cut-off Date but received by the Master
Servicer on or before the related Cut-off Date, and thereafter, after the date
of receipt thereof, the following payments and collections received or made by
it (other than in respect of principal of and interest on the related Loans due
on or before such Cut-off Date):
(i) All payments on account of principal, including prepayments, on such
Loans;
(ii) All payments on account of interest on such Loans net of any
portion thereof retained by the related Servicer (including the Master
Servicer), if any, as servicing compensation on the Loans in accordance with
the related Pooling and Servicing Agreement;
(iii) All Insurance Proceeds and all amounts received by the Master
Servicer in connection with the liquidation of defaulted Loans or property
acquired in respect thereof, whether through foreclosure sale or otherwise,
including payments in connection with such Loans received from the
mortgagor, other than amounts required to be paid to the mortgagor pursuant
to the terms of the applicable Mortgage or otherwise pursuant to law
("Liquidation Proceeds"), exclusive of proceeds to be applied to the
restoration or repair of the Mortgaged Property or released to the Mortgagor
in accordance with the Master Servicer's normal servicing procedures, net of
expenses incurred by the Master Servicer (or the related Servicer) in
connection with the liquidation of any defaulted Mortgage Loan and not
recovered under a primary mortgage insurance policy ("Liquidation
Expenses");
(iv) Any Buydown Funds (and, if applicable, investment earnings thereon)
required to be paid as described herein;
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(v) All proceeds of any Mortgage Loan in such Trust Fund purchased (or,
in the case of a substitution, certain amounts representing a principal
adjustment) by the Master Servicer, the Seller or any other person pursuant
to the terms of the related Pooling and Servicing Agreement;
(vi) All amounts required to be deposited therein in connection with any
losses on Eligible Investments pursuant to the related Pooling and Servicing
Agreement; and
(vii) All other amounts required to be deposited therein pursuant to the
related Pooling and Servicing Agreement.
The Master Servicer is permitted, from time to time, to make withdrawals
from the Collection Account for certain purposes, as specifically set forth in
the related Pooling and Servicing Agreement, which generally will include the
following, except as otherwise provided therein:
(i) to make deposits to the Certificate Account in the amounts and in
the manner provided in the Pooling and Servicing Agreement;
(ii) to reimburse itself for Advances, including amounts advanced in
respect of taxes, insurance premiums or similar expenses as to any Mortgaged
Property, out of late payments or collections on the related Mortgage Loan
with respect to which such Advances were made;
(iii) to pay to itself unpaid Servicing Fees, out of payments or
collections of interest on each Mortgage Loan;
(iv) to pay to itself as additional servicing compensation any
investment income on funds deposited in the Collection Account, and, if so
provided in the Pooling and Servicing Agreement, any profits realized upon
disposition of a Mortgaged Property acquired by deed in lieu of foreclosure
or otherwise allowed under the Pooling and Servicing Agreement;
(v) to pay to itself or the Seller all amounts received with respect to
each Mortgage Loan purchased, repurchased or removed pursuant to the terms
of the Pooling and Servicing Agreement and not required to be distributed as
of the date on which the related purchase price is determined;
(vi) to reimburse itself for any Advance previously made which the
Master Servicer has determined to not be ultimately recoverable from
Liquidation Proceeds, Insurance Proceeds or otherwise, subject, in the case
of a Series with Senior Certificates and Subordinate Certificates, to
certain limitations set forth in the Pooling and Servicing Agreement as
described in the related Prospectus Supplement;
(vii) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Multifamily
Properties that constitute security for defaulted Mortgage Loans, and for
any containment, clean-up or remediation of hazardous wastes and materials
present on such Mortgaged Properties, as described below under
"--Presentation of Claims; Realization Upon Defaulted Loans";
(viii) to reimburse itself, the Trustee or the Depositor for certain other
expenses incurred for which it, the Trustee or the Depositor is entitled to
reimbursement or against which it, the Trustee or the Depositor is
indemnified pursuant to the Pooling and Servicing Agreement;
(ix) to make any other withdrawals permitted by the related Pooling
Agreement and described in the related Prospectus Supplement; and
(x) to clear the Collection Account of amounts relating to the
corresponding Loans in connection with the termination of the Trust Fund
pursuant to the Pooling and Servicing Agreement.
SERVICING ACCOUNTS
In those cases where a Servicer is servicing a Mortgage Loan, the Servicer
will establish and maintain an account (a "Servicing Account") that will be an
Eligible Account and which is otherwise acceptable to the Master Servicer. The
Servicer is required to deposit into the Servicing Account all proceeds of
Mortgage
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Loans received by the Servicer, less its servicing compensation and any
reimbursed expenses and advances, to the extent permitted by the Servicing
Agreement. On the date specified in the related Prospectus Supplement, the
Servicer will remit to the Master Servicer all funds held in the Servicing
Account with respect to each Mortgage Loan, after deducting from such remittance
an amount equal to the servicing compensation and unreimbursed expenses and
advances to which it is then entitled pursuant to the related Servicing
Agreement, to the extent not previously paid to or retained by it. In addition
on each such date the Servicer will be required to remit to the Master Servicer
any amount required to be advanced pursuant to the related Servicing Agreement,
and the Servicer will also be required to remit to the Master Servicer, within
one business day of receipt, the proceeds of any principal Prepayments and all
Insurance Proceeds and Liquidation Proceeds.
BUY-DOWN LOANS, GPM LOANS AND OTHER SUBSIDIZED LOANS
With respect to each Buy-Down Loan, if any, included in a Trust Fund the
Master Servicer will deposit all Buy-Down Amounts in a custodial account (which
may be interest-bearing) complying with the requirements set forth above for the
Collection Account (the "Buy-Down Fund"). The amount of such deposit, together
with investment earnings thereon at the rate specified in the related Prospectus
Supplement, will provide sufficient funds to support the payments on such
Buy-Down Loan on a level debt service basis. The Master Servicer will not be
obligated to add to the Buy-Down Account should amounts therein and investment
earnings prove insufficient to maintain the scheduled level of payments on the
Buy-Down Loans, in which event distributions to the Certificateholders may be
affected. Unless otherwise provided in the related Prospectus Supplement, a
Buy-Down Fund will not be included in or deemed to be a part of the Trust Fund.
The terms of certain of the Loans may provide for the contribution of
subsidy funds by the seller of the related Mortgaged Property or by another
entity. With respect to each such Loan, the Master Servicer will deposit the
subsidy funds in a custodial account (which may be interest-bearing) complying
with the requirements set forth above for the Collection Account set forth above
(a "Subsidy Fund"). Unless otherwise specified in the related Prospectus
Supplement, the terms of each such Loan will provide for the contribution of the
entire undiscounted amount of subsidy amounts necessary to maintain the
scheduled level of payments due during the early years of such Loan. Neither the
Master Servicer, any Servicer nor the Depositor will be obligated to add to such
Subsidy Fund any of its own funds. Unless otherwise provided in the related
Prospectus Supplement, such Subsidy Fund will not be included in or deemed to be
a part of the Trust Fund.
If the Depositor values any GPM Loans deposited into the Trust Fund for a
Multiple Class Series on the basis of such GPM Loan's scheduled maximum
principal balance, the Master Servicer will, if and to the extent provided in
the related Prospectus Supplement, deposit in a custodial account (which may be
interest-bearing) (the "GPM Fund") complying with the requirements set forth
above for the Collection Account an amount which, together with reinvestment
income thereon at the rate set forth in the related Prospectus Supplement, will
be sufficient to cover the amount by which payments of principal and interest on
such GPM Loans assumed in calculating payments due on the Certificates of such
Multiple Class Series exceed the scheduled payments on such GPM Loans. The
Trustee will withdraw amounts from the GPM Fund for a Series upon a prepayment
of such GPM Loan as necessary and apply such amounts to the payment of principal
and interest on the Certificates of such Series. Neither the Depositor, the
Master Servicer nor any Servicer will be obligated to supplement the GPM Fund
should amounts therein and investment earnings thereon prove insufficient to
maintain the scheduled level of payments, in which event, distributions to the
Certificateholders may be affected. Unless otherwise specified in the related
Prospectus Supplement, such GPM Fund will not be included in or deemed to be
part of the Trust Fund.
With respect to any other type of Loan which provides for payments other
than on the basis of level payments, an account may be established as described
in the related Prospectus Supplement on terms similar to those relating to the
Buy-Down Fund, Subsidiary Fund or the GPM Fund.
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ADVANCES AND LIMITATIONS THEREON
GENERAL. The related Prospectus Supplement will describe the circumstances
under which the Master Servicer or Servicer will make Advances with respect to
delinquent payments on Loans. Unless otherwise specified in the related
Prospectus Supplement, neither the Master Servicer nor any Servicer will be
obligated to make Advances, and such obligation may be limited in amount, may be
limited to advances received from the Servicers, if any, or may not be activated
until a certain portion of a specified reserve fund is depleted. If the Master
Servicer is obligated to make Advances, a surety bond or other credit support
may be provided with respect to such obligation as described in the related
Prospectus Supplement. Advances are intended to provide liquidity and not to
guarantee or insure against losses. Accordingly, any funds advanced are
recoverable by the Servicer or the Master Servicer, as the case may be, out of
amounts received on particular Loans which represent late recoveries of
principal or interest, proceeds of insurance polices or Liquidation Proceeds
respecting which any such Advance was made. If an Advance is made and
subsequently determined to be nonrecoverable from late collections, proceeds of
insurance polices or Liquidation Proceeds from the related Loan, the Servicer or
Master Servicer will be entitled to reimbursement from other funds in the
Certificate Account, Collection Account or Servicing Account, as the case may
be, or from a specified reserve fund as applicable, to the extent specified in
the related Prospectus Supplement. With respect to any Multiple Class Series, so
long as the related Subordinate Certificates remain outstanding and subject to
certain limitations as described in the related Prospectus Supplement, such
Advances by the Master Servicer may also be reimbursable out of amounts
otherwise distributable to holders of the Subordinate Certificates, if any.
ADVANCES IN CONNECTION WITH PREPAID LOANS. In addition when a borrower
makes a principal prepayment in full between Due Dates on the related Loan, the
borrower will generally be required to pay interest on the principal amount
prepaid only to the date of such prepayment. If and to the extent provided in
the related Prospectus Supplement, in order that one or more Classes of the
Certificateholders of a Series will not be adversely affected by any resulting
shortfall in interest, the Master Servicer may be obligated to advance moneys
from its own funds to the extent necessary to include in its remittance to the
Trustee for deposit into the Certificate Account an amount equal to a full
Scheduled Payment of interest on the related Loan (less any related Servicing
Fees). Any such principal prepayment, together with a full Scheduled Payment of
interest thereon (to the extent of such adjustment or advance), will be
distributed to Certificateholders on the related Distribution Date. If the
amount necessary to include a full Scheduled Payment of interest as described
above exceeds the amount which the Master Servicer is obligated to advance, as
applicable, a shortfall may occur as a result of a prepayment in full. See
"Yield, Prepayment and Maturity Considerations."
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
STANDARD HAZARD INSURANCE; FLOOD INSURANCE. Except as otherwise specified
in the related Prospectus Supplement, the Master Servicer will be required to
maintain or to cause the borrower on each Loan to maintain or will use its best
reasonable efforts to cause each Servicer of a Loan to maintain a standard
hazard insurance policy providing coverage of the standard form of fire
insurance with extended coverage for certain other hazards as is customary in
the state in which the property securing the related Loan is located. See
"Description of Mortgage and Other Insurance" herein. Unless otherwise specified
in the related Prospectus Supplement, coverage will be in an amount at least
equal to the greater of (i) the amount necessary to avoid the enforcement of any
co-insurance clause contained in the policy or (ii) the outstanding principal
balance of the related Loan. The Master Servicer will also maintain on REO
Property that secured a defaulted Loan and that has been acquired upon
foreclosure, deed in lieu of foreclosure, or repossession, a standard hazard
insurance policy in an amount that is at least equal to the maximum insurable
value of such REO Property. No earthquake or other additional insurance will be
required of any borrower or will be maintained on REO Property acquired in
respect of a defaulted Loan, other than pursuant to such applicable laws and
regulations as shall at any time be in force and shall require such additional
insurance. When, at the time of origination of a Loan or at any time during the
term of the Loan the Master Servicer or the related Servicer determines that the
related Mortgaged Property is located in an area identified on a Flood Hazard
Boundary Map or Flood Insurance Rate Map issued by the Flood Emergency
Management
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Agency as having special flood hazards and flood insurance has been made
available, the borrower will cause to be maintained a flood insurance policy
meeting the requirements of the current guidelines of the Federal Insurance
Administration with a generally acceptable insurance carrier, in an amount
representing coverage not less than the less of (i) the outstanding principal
balance of the Loan or (ii) the maximum amount of insurance which is available
under the National Flood Insurance Act of 1968, the Flood Disaster Protection
Act of 1983 or the National Flood Insurance Reform Act of 1994, as amended. The
Pooling and Servicing Agreement will obligate the Mortgagor to obtain and
maintain all requisite flood insurance coverage at the Mortgagor's cost and
expense, and on the Mortgagor's failure to do so, authorizes the Master Servicer
or Servicer to obtain and maintain such coverage at the Mortgagor's cost and
expense and to seek reimbursement therefor from the Mortgagor.
Any amounts collected by the Master Servicer or the Servicer, as the case
may be, under any such policies of insurance (other than amounts to be applied
to the restoration or repair of the Mortgaged Property, released to the borrower
in accordance with normal servicing procedures or used to reimburse the Master
Servicer for amounts to which it is entitled to reimbursement) will be deposited
in the Collection Account. In the event that the Master Servicer obtains and
maintains a blanket policy insuring against hazard losses on all of the Loans,
written by an insurer then acceptable to each Rating Agency which assigns a
rating to such Series, it will conclusively be deemed to have satisfied its
obligations to cause to be maintained a standard hazard insurance policy for
each Loan or related REO Property. This blanket policy may contain a deductible
clause, in which case the Master Servicer will, in the event that there has been
a loss that would have been covered by such policy absent such deductible
clause, deposit in the Collection Account the amount not otherwise payable under
the blanket policy because of the application of such deductible clause.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the Cooperative itself is responsible for maintenance of hazard
insurance for the property owned by the cooperative and the tenant-stockholders
of that cooperative do not maintain individual hazard insurance policies. To the
extent, however, that a Cooperative and the related borrower on a Cooperative
Loan do not maintain such insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to such borrower's Cooperative Dwelling or such Cooperative's building
could significantly reduce the value of the collateral securing such Cooperative
Loan to the extent not covered by other credit support. Similarly, the Depositor
will not require that a standard hazard or flood insurance policy be maintained
on a Condominium Unit relating to any Condominium Loan. Generally, the
Condominium Association is responsible for maintenance of hazard insurance
insuring the entire Condominium building (including each individual Condominium
Unit), and the owner(s) of an individual Condominium Unit do not maintain
separate hazard insurance policies. To the extent, however, that a Condominium
Association and the related borrower on a Condominium Loan do not maintain such
insurance or do not maintain adequate coverage or any insurance proceeds are not
applied to the restoration of damaged property, any damage to such borrower's
Condominium Unit or the related Condominium Building could significantly reduce
the value of the collateral securing such Condominium Loan to the extent not
covered by other credit support.
SPECIAL HAZARD INSURANCE POLICY. If, and to the extent specified in the
related Prospectus Supplement, the Master Servicer will maintain a special
hazard insurance policy, in the amount set forth in the related Prospectus
Supplement, in full force and effect with respect to the Loans. Unless otherwise
specified in the related Prospectus Supplement, the special hazard insurance
policy will provide for a fixed premium rate based on the declining aggregate
outstanding principal balance of the Loans. The Master Servicer will agree to
pay the premium for any special hazard insurance policy on a timely basis. If
the special hazard insurance policy is canceled or terminated for any reason
(other than the exhaustion of total policy coverage), the Master Servicer will
exercise its best reasonable efforts to obtain from another insurer a
replacement policy comparable to the special hazard insurance policy with a
total coverage which is equal to the then existing coverage of the terminated
special hazard insurance policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated special hazard
insurance policy, the amount of coverage
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under the replacement policy will, unless otherwise specified in the related
Prospectus Supplement, be reduced to a level such that the applicable premium
does not exceed 150% of the cost of the special hazard insurance policy that was
replaced. Any amounts collected by the Master Servicer under the special hazard
insurance policy in the nature of insurance proceeds will be deposited in the
Collection Account (net of amounts to be used to repair, restore or replace the
related property securing the Loan or to reimburse the Master Servicer (or a
Servicer) for related amounts owed to it). Certain characteristics of the
special hazard insurance policy are described under "Description of Mortgage and
Other Insurance--Hazard Insurance on the Loans."
PRIMARY MORTGAGE INSURANCE. To the extent described in the related
Prospectus Supplement, the Master Servicer will be required to use its best
reasonable efforts to keep, or to cause each Servicer to keep, in full force and
effect, a primary mortgage insurance policy with respect to each Conventional
Loan secured by Single Family Property for which such coverage is required for
as long as the related mortgagor is obligated to maintain such primary mortgage
insurance under the terms of the related Loan. The Master Servicer will not
cancel or refuse to renew any such primary mortgage insurance policy in effect
at the date of the initial issuance of the Certificates that is required to be
kept in force unless a replacement primary mortgage insurance policy for such
cancelled or nonrenewed policy is maintained with a Qualified Insurer.
Primary insurance policies will be required with respect to Manufactured
Home Loans only to the extent described in the related Prospectus Supplement. If
primary mortgage insurance is to be maintained with respect to Manufactured Home
Loans, the Master Servicer will be required to maintain such insurance as
described above. For further information regarding the extent of coverage under
a primary mortgage insurance policy, see "Description of Mortgage and Other
Insurance--Mortgage Insurance on the Loans."
FHA INSURANCE AND VA GUARANTEES. To the extent specified in the related
Prospectus Supplement, all or a portion of the Loans may be insured by the FHA
or guaranteed by the VA. The Master Servicer will be required to take such steps
as are reasonably necessary to keep such insurance and guarantees in full force
and effect. See "Description of Mortgage and Other Insurance--Mortgage Insurance
on the Loans."
POOL INSURANCE POLICY. If so specified in the related Prospectus
Supplement, the Master Servicer will be obligated to use its best reasonable
efforts to maintain a pool insurance policy with respect to the Loans in the
amount and with the coverage described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the pool
insurance policy will provide for a fixed premium rate on the declining
aggregate outstanding principal balance of the Loans. The Master Servicer will
be obligated to pay the premiums for such pool insurance policy on a timely
basis.
The Prospectus Supplement will identify the pool insurer for the related
Series of Certificates. If the pool insurer ceases to be a Qualified Insurer
because it is not approved as an insurer by FHLMC or FNMA or because its
claims-paying ability is no longer rated in the category required by the related
Prospectus Supplement, the Master Servicer will be obligated to review, no less
often than monthly, the financial condition of the pool insurer to determine
whether recoveries under the pool insurance policy are jeopardized by reason of
the financial condition of the pool insurer. If the Master Servicer determines
that recoveries may be so jeopardized or if the pool insurer ceases to be
qualified under applicable law to transact a mortgage guaranty insurance
business, the Master Servicer will exercise its best reasonable efforts to
obtain from another Qualified Insurer a comparable replacement pool insurance
policy with a total coverage equal to the then outstanding coverage of the pool
insurance policy to be replaced; provided that, if the premium rate on the
replacement policy is greater than that of the existing pool insurance policy,
then the coverage of the replacement policy will, unless otherwise specified in
the related Prospectus Supplement, be reduced to a level such that its premium
rate does not exceed 150% of the premium rate on the pool insurance policy to be
replaced. Payments made under a pool insurance policy will be deposited into the
Collection Account (net of expenses of the Master Servicer or any related
unreimbursed Advances or unpaid Servicing Fee). Certain characteristics of the
pool insurance policy are described under "Description of Mortgage and Other
Insurance--Mortgage Insurance on the Loans."
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BANKRUPTCY BOND. If so specified in the related Prospectus Supplement, the
Master Servicer will be obligated to use its best reasonable efforts to obtain
and thereafter maintain a bankruptcy bond or similar insurance or guaranty in
full force and effect throughout the term of the related Pooling and Servicing
Agreement, unless coverage thereunder has been exhausted through payment of
claims. If so specified in the Prospectus Supplement, the Master Servicer will
be required to pay from its servicing compensation the premiums for the
bankruptcy bond on a timely basis. Coverage under the bankruptcy bond may be
cancelled or reduced by the Master Servicer at any time, provided that such
cancellation or reduction does not adversely affect the then current rating of
the related Series of Certificates. See "Description of Mortgage and Other
Insurance--Bankruptcy Bond" herein.
PRESENTATION OF CLAIMS; REALIZATION UPON DEFAULTED LOANS
The Master Servicer, on behalf of the Trustee and the Certificateholders,
will be required to present or cause to be presented, claims with respect to any
standard hazard insurance policy, pool insurance policy, special hazard
insurance policy, bankruptcy bond, or primary mortgage insurance policy, and to
the FHA and the VA, if applicable in respect of any FHA insurance or VA
guarantee respecting defaulted Mortgage Loans.
The Master Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the real properties
securing such of the related Loans as come into and continue in default and as
to which no satisfactory arrangements can be made for collection of delinquent
payments. In connection with such foreclosure or other conversion, the Master
Servicer will follow such practices and procedures as it deems necessary or
advisable and as are normal and usual in its servicing activities with respect
to comparable loans serviced by it. However, the Master Servicer will not be
required to expend its own funds in connection with any foreclosure or towards
the restoration of the property unless it determines: (i) that such restoration
or foreclosure will increase the Liquidation Proceeds in respect of the related
Mortgage Loan available to the Certificateholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable by it either
through Liquidation Proceeds or the proceeds of insurance. Notwithstanding
anything to the contrary herein, in the case of a Trust Fund for which a REMIC
election or elections have been made, the Master Servicer shall not liquidate
any collateral acquired through foreclosure later than two years after the
acquisition of such collateral, unless a longer period of time is necessary for
the orderly liquidation of the collateral and the Master Servicer has obtained
from the IRS an extension of the two year period within which it would otherwise
be required to liquidate the collateral. While the holder of Mortgaged Property
acquired through foreclosure can often maximize its recovery by providing
financing to a new purchaser, the Trust Fund will have no ability to do so and
neither the Master Servicer nor any Servicer will be required to do so.
With respect to a Mortgage Loan in default, the Master Servicer may pursue
foreclosure (or similar remedies) concurrently with pursuing any remedy for a
breach of a representation and warranty. However, the Master Servicer is not
required to continue to pursue both such remedies if it determines that one such
remedy is more likely to result in a greater recovery. If such Mortgage Loan is
an Additional Collateral Loan, the Master Servicer (or the related Servicer, if
the lien on the Additional Collateral for such Additional Collateral Loan is not
assigned to the Trustee on behalf of the Certificateholders) may proceed against
the related Mortgaged Property or the related Additional Collateral first or may
proceed against both concurrently (as permitted by applicable law and the terms
under which such Additional Collateral is held, including any third-party
guarantee). Upon the first to occur of final liquidation (by foreclosure or
otherwise) and a repurchase or substitution pursuant to a breach of a
representation and warranty, such Mortgage Loan will be removed from the related
Trust Fund if it has not been removed previously.
If any property securing a defaulted Loan is damaged and proceeds, if any,
from the related standard hazard insurance policy or the applicable special
hazard insurance policy, if any, are insufficient to restore the damaged
property to a condition sufficient to permit recovery under any pool insurance
policy or any primary mortgage insurance policy, FHA insurance, or VA guarantee,
neither the Master Servicer nor any Servicer will be required to expend its own
funds to restore the damaged property unless it determines (i) that such
restoration will increase the Liquidation Proceeds in respect of the Loan after
reimbursement of
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the expenses incurred by such Servicer or the Master Servicer and (ii) that such
expenses will be recoverable by it through proceeds of the sale of the property
or proceeds of the related pool insurance policy or any related primary mortgage
insurance policy, FHA insurance, or VA guarantee.
As to collateral securing a Cooperative Loan, any prospective purchaser will
generally have to obtain the approval of the board of directors of the relevant
cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing that Cooperative Loan. See
"Certain Legal Aspects of Loans--Foreclosure on Shares of Cooperatives" herein.
This approval is usually based on the purchaser's income and net worth and
numerous other factors. Although the Cooperative's approval is unlikely to be
unreasonably withheld or delayed, the necessity of acquiring such approval could
limit the number of potential purchasers for those shares and otherwise limit
the Trust Fund's ability to sell and realize the value of those shares.
With respect to a defaulted Manufactured Home Loan, the value of the related
Manufactured Home can be expected to be less on resale than a new Manufactured
Home. To the extent equity does not cushion the loss in market value, and such
loss is not covered by other credit support, a loss may be experienced by the
Trust Fund.
Notwithstanding the foregoing, unless otherwise specified in the related
Prospectus Supplement, the Master Servicer may not acquire title to any
Multifamily Property securing a Mortgage Loan or take any other action that
would cause the related Trustee, for the benefit of Certificateholders of the
related series, or any other specified person to be considered to hold title to,
to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator" of
such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Master Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions as
are necessary to bring the Mortgaged Property into compliance therewith is
reasonably likely to produce a greater recovery on a present value basis
than not taking such actions; and
(ii) there are no circumstances or conditions present at the Mortgaged
Property that have resulted in any contamination for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any applicable environmental laws and regulations or, if such
circumstances or conditions are present for which any such action could be
required, taking such actions with respect to the Mortgaged Property is
reasonably likely to produce a greater recovery on a present value basis
than not taking such actions. See "Certain Legal Aspects of Mortgage
Loans--Environmental Legislation."
With respect to a Loan secured by a Multifamily Property, the market value
of any property obtained in foreclosure or by deed in lieu of foreclosure will
be based substantially on the operating income obtained by renting the dwelling
units. As a default on a Loan secured by Multifamily Property is likely to have
occurred because operating income, net of expenses, is insufficient to make debt
service payments on the related Loan, it can be anticipated that the market
value of such property will be less than anticipated when such Loan was
originated. To the extent that equity does not cushion the loss in market value
and such loss is not covered by other credit support, a loss may be experienced
by the related Trust Fund.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement for a
Series, when any Mortgaged Property is about to be conveyed by the borrower, the
Master Servicer will, to the extent it has knowledge of such prospective
conveyance and prior to the time of the consummation of such conveyance,
exercise the Trustee's right to accelerate the maturity of such Loan under the
applicable "due-on-sale" clause, if any, unless the Master Servicer reasonably
believes that such clause is not enforceable under applicable law or if the
enforcement of such clause would result in loss of coverage under any primary
mortgage insurance policy. If such conditions are not met or the Master Servicer
reasonably believes that enforcement of a due-on-sale clause will not be
enforceable, the Master Servicer is authorized to accept from or enter into a
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substitution or assumption agreement, on behalf of the Trustee, with the person
to whom such property has been or is about to be conveyed, pursuant to which
such person becomes liable under the Loan and pursuant to which the original
borrower is released from liability and such person is substituted as the
borrower and becomes liable under the Loan. Any fee collected in connection with
an assumption will be retained by the Master Servicer as additional servicing
compensation. The terms of a Loan may not be changed in connection with a
substitution or assumption.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Except as otherwise provided in the related Prospectus Supplement, the
Master Servicer or any Servicer will be entitled to a servicing fee in an amount
to be determined as specified in the related Prospectus Supplement. The
servicing fee may be fixed or variable, as specified in the related Prospectus
Supplement. The Master Servicer or any Servicer will be entitled to additional
servicing compensation, unless otherwise specified in the related Prospectus
Supplement, in the form of assumption fees, late payment charges, or excess
proceeds following disposition of property in connection with defaulted Loans
and as otherwise specified herein.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will pay the fees of the Servicers, if any, and certain expenses
incurred in connection with the servicing of the Loans, including, without
limitation, the payment of the fees and expenses of the Trustee and independent
accountants, payment of insurance policy premiums and the cost of credit
support, if any, payment of expenses incurred in enforcing the obligations of
Servicers and Sellers and in the preparation of reports to Certificateholders.
Certain of these expenses may be reimbursable pursuant to the terms of the
Pooling and Servicing Agreement from Liquidation Proceeds and the proceeds of
insurance policies and, in the case of enforcement of the obligations of
Servicers and Sellers, from any recoveries in excess of amounts due with respect
to the related Loans or from specific recoveries of costs.
The Master Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Loans. The
related Trust Fund will suffer no loss by reason of such expenses to the extent
claims are paid under related insurance policies or from the Liquidation
Proceeds. If claims are either not made or paid under the applicable insurance
policies or if coverage thereunder has been exhausted, the related Trust Fund
will suffer a loss to the extent that Liquidation Proceeds, after reimbursement
of the Master Servicer's expenses, are less than the outstanding principal
balance of and unpaid interest on the related Loan which would be distributable
to Certificateholders. In addition, the Master Servicer will be entitled to
reimbursement of expenditures incurred by it in connection with the restoration
of property securing a defaulted Loan, such right of reimbursement being prior
to the rights of the Certificateholders to receive any related proceeds of
insurance policies, Liquidation Proceeds or amounts derived from other forms of
credit support. The Master Servicer is also entitled to reimbursement from the
Collection Account and the Certificate Account for Advances.
Unless otherwise provided in the Prospectus Supplement, the rights of the
Master Servicer to receive funds from the Collection Account or the Certificate
Account for a Series, whether as the Servicing Fee or other compensation, or for
the reimbursement of Advances, expenses or otherwise, are not subordinate to the
rights of Certificateholders of such Series.
EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement will provide for delivery (on or before
a specified date in each year) to the Trustee of an annual statement signed by
an officer of the Master Servicer to the effect that the Master Servicer has
complied in all material respects with the minimum servicing standards set forth
in the Uniform Single Attestation Program for Mortgage Bankers and has fulfilled
in all material respects its obligations under the Pooling and Servicing
Agreement throughout the preceding year or, if there has been material
noncompliance with such servicing standards or a material default in the
fulfillment of any such obligation, such statement shall include a description
of such noncompliance or specify each such known default, as the case may be,
and the nature and status thereof. Such statement may be provided as a single
form making the required statements as to more than one Pooling and Servicing
Agreement.
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Each Pooling and Servicing Agreement will also provide that on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, a firm of independent public
accountants will furnish a report to the Depositor and the Trustee stating the
opinion of such firm that, on the basis of an examination by such firm conducted
substantially in accordance with standards established by the American Institute
of Certified Public Accountants, the assertion by management of the Master
Servicer regarding the Master Servicer's compliance with the minimum servicing
standards set forth in the Uniform Single Attestation Program for Mortgage
Bankers during the preceding year is fairly stated in all material respects,
subject to such exceptions and other qualifications that, in the opinion of such
firm, such accounting standards require it to report. In rendering its statement
such firm may rely, as to the matters relating to the direct servicing of
mortgage loans by Servicers, upon comparable statements for examinations
conducted by independent public accountants substantially in accordance with
standards established by the American Institute of Certified Public Accountants
(rendered within one year of such statement) with respect to those Servicers
which also have been the subject of such an examination.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer for each Series will be identified in the related
Prospectus Supplement. The Master Servicer may be an affiliate of the Depositor
and may have other business relationships with the Depositor and its affiliates.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer may not resign from its obligations and duties under the Pooling and
Servicing Agreement except upon its determination that its duties thereunder are
no longer permissible under applicable law or except in connection with a
permitted transfer of servicing. No such resignation will become effective until
the Trustee or a successor Master Servicer has assumed the Master Servicer's
obligations and duties under the Pooling and Servicing Agreement.
In the event of an Event of Default under the Pooling and Servicing
Agreement, the Master Servicer may be replaced by the Trustee or a successor
Master Servicer. See "The Pooling and Servicing Agreements--Rights upon Events
of Default" herein.
Unless otherwise provided in the Prospectus Supplement, the Master Servicer
has the right, with the consent of the Trustee, which consent shall not be
unreasonably withheld, to assign its rights and delegate its duties and
obligations under the Pooling and Servicing Agreement for each Series; provided
that the purchaser or transferee accepting such assignment or delegation (i) is
qualified to sell loans to and service mortgage loans for FNMA or FHLMC; (ii)
has a net worth of not less than $10,000,000; (iii) is acceptable to each Rating
Agency for purposes of maintaining its then-current ratings of the Certificates;
(iv) is reasonably acceptable to the Trustee; and (v) executes and delivers to
the Depositor and the Trustee an agreement, in form and substance reasonably
satisfactory to the Trustee, which contains an assumption by such purchaser or
transferee of the due and punctual performance and performed or observed by the
Master Servicer under the Pooling and Servicing Agreement from and after the
date of such agreement. To the extent that the Master Servicer transfers its
obligations to a wholly-owned subsidiary or affiliate, such subsidiary or
affiliate need not satisfy the criteria set forth above. However, in such
instance the assigning Master Servicer will remain liable for the servicing
obligations under the Pooling and Servicing Agreement. Any entity into which the
Master Servicer is merged or consolidated or any successor corporation resulting
from any merger, conversion or consolidation will succeed to the Master
Servicer's obligations under the related Pooling and Servicing Agreement,
provided that such successor or surviving entity meets the requirements for a
successor Master Servicer set forth above.
Each Pooling and Servicing Agreement will also provide that neither the
Master Servicer, the Depositor, nor any director, officer, employee or agent of
the Master Servicer or the Depositor, will be under any liability to the related
Trust Fund or the Certificateholders for any action taken or for failing to take
any action in good faith pursuant to the Pooling and Servicing Agreement or for
errors in judgment; provided, however, that neither the Master Servicer, the
Depositor, nor any such person will be protected against any breach of warranty
or representations made by such party under the Pooling and Servicing Agreement
or the failure to perform its obligations in compliance with any standard of
care set forth in the Pooling and
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Servicing Agreement or liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties thereunder.
Each Pooling and Servicing Agreement will further provide that the Master
Servicer, the Depositor and any director, officer, employee or agent of the
Master Servicer or the Depositor is entitled to indemnification from 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 Pooling and
Servicing Agreement or the Certificates, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Pooling and Servicing
Agreement provides that neither the Master Servicer nor the Depositor is under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Pooling and Servicing
Agreement which, in its opinion, may involve it in any expense or liability. The
Master Servicer or the Depositor may, in its discretion, undertake any such
action which it may deem necessary or desirable with respect to the Pooling and
Servicing 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 Master Servicer or
the Depositor will be entitled to be reimbursed therefor out of the Collection
Account (or the Certificate Account, if applicable).
CREDIT SUPPORT
GENERAL
For any Series, credit support may be provided with respect to one or more
Classes thereof or the related Mortgage Assets. Credit support may be in the
form of a letter of credit, the subordination of one or more Classes of the
Certificates of such Series, subordination created through
overcollateralization, the establishment of one or more reserve funds, use of a
pool insurance policy, bankruptcy bond, repurchase bond or special hazard
insurance policy, certificate guarantee insurance, the use of cross-support
features or another method of credit support described in the related Prospectus
Supplement, or any combination of the foregoing, in any case, in such amounts
and having such terms and conditions as are acceptable to each Rating Agency
which assigns a rating to the Certificates of the related Series. Credit support
may also be provided in the form of an insurance policy covering the risk of
collection and adequacy of any Additional Collateral provided in connection with
any Additional Collateral Loan, subject to the limitations set forth in any such
insurance policy.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the credit support will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon at the Pass-Through Rate or Certificate Rate,
as applicable. If losses occur which exceed the amount covered by credit support
or which are not covered by credit support, such losses will be borne by the
Certificateholders. If credit support is provided with respect to a Series, the
related Prospectus Supplement will include a description of (a) the amount
payable under such credit support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions under which the amount payable
under such credit support may be reduced and under which such credit support may
be terminated or replaced and (d) the material provisions of any agreement
relating to such credit support. Additionally, the related Prospectus Supplement
will set forth certain information with respect to the issuer of any third-party
credit support, including (a) a brief description of its principal business
activities, (b) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (c) if
applicable, the identity of regulatory agencies which exercise primary
jurisdiction over the conduct of its business and (d) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the Prospectus Supplement.
SUBORDINATE CERTIFICATES; SUBORDINATION RESERVE FUND
If so specified in the related Prospectus Supplement, one or more Classes of
a Series may be Subordinate Certificates. If so specified in the related
Prospectus Supplement, the rights of the Subordinate Certificateholders to
receive distributions of principal and interest from the Certificate Account on
any
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Distribution Date will be subordinated to such rights of the Senior
Certificateholders to the extent of the then applicable Subordinated Amount as
defined in the related Prospectus Supplement. The Subordinated Amount will
decrease whenever amounts otherwise payable to the Subordinate
Certificateholders are paid to the Senior Certificateholders (including amounts
withdrawn from the Subordination Reserve Fund, if any, and paid to the Senior
Certificateholders), and will (unless otherwise specified in the related
Prospectus Supplement) increase whenever there is distributed to the Subordinate
Certificateholders amounts in respect of which subordination payments have
previously been paid to the Senior Certificateholders (which will occur when
subordination payments in respect of delinquencies and certain other
deficiencies have been recovered).
A Series may include a Class or Subordinate Certificates entitled to receive
cash flows remaining after distributions made to all other Classes. Such right
will effectively be subordinate to the rights of other Certificateholders, but
will not be limited to the Subordinated Amount. If so specified in the related
Prospectus Supplement, the subordination of a Class may apply only in the event
of certain types of losses not covered by insurance policies or other credit
support, such as losses arising from damage to property securing a Loan not
covered by standard hazard insurance policies, losses resulting from the
bankruptcy of a borrower and application of certain provisions of the Bankruptcy
Code, or losses resulting from the denial of insurance coverage due to fraud or
misrepresentation in connection with the origination of a Loan.
With respect to any Series which includes one or more Classes of Subordinate
Certificates, a Subordination Reserve Fund may be established if so specified in
the related Prospectus Supplement. The Subordination Reserve Fund, if any, will
be funded with cash, a letter of credit, a demand note or Eligible Reserve Fund
Investments, or by the retention of amounts of principal or interest otherwise
payable to Holders of Subordinate Certificates, or both, as specified in the
related Prospectus Supplement. The Subordination Reserve Fund will not be a part
of the Trust Fund, unless otherwise specified in the related Prospectus
Supplement. If the Subordination Reserve Fund is not a part of the Trust Fund,
the Trustee will have a security interest therein on behalf of the Senior
Certificateholders. Moneys will be withdrawn from the Subordination Reserve Fund
to make distributions of principal of or interest on Senior Certificates under
the circumstances set forth in the related Prospectus Supplement.
Moneys deposited in any Subordination Reserve Fund will be invested in
Eligible Reserve Fund Investments. Unless otherwise specified in the related
Prospectus Supplement, any reinvestment income or other gain from such
investments will be credited to the Subordination Reserve Fund for such Series,
and any loss resulting from such investments will be charged to such
Subordination Reserve Fund. Amounts in any Subordination Reserve Fund in excess
of the Required Reserve Fund Balance may be periodically released to the
Subordinate Certificateholders under the conditions and to the extent specified
in the related Prospectus Supplement. Additional information concerning any
Subordination Reserve Fund will be set forth in the related Prospectus
Supplement, including the amount of any initial deposit to such Subordination
Reserve Fund, the Required Reserve Fund Balance to be maintained therein, the
purposes for which funds in the Subordination Reserve Fund may be applied to
make distributions to Senior Certificateholders and the employment of
reinvestment earnings on amounts in the Subordination Reserve Fund, if any.
OVERCOLLATERALIZATION
If so specified in the related Prospectus Supplement, subordination may be
provided by one or more Classes of Senior Certificates through
overcollateralization; i.e. by having a greater amount of aggregate principal
balance of the Mortgage Assets for a Series than the aggregate principal balance
of the Certificates of such Series. Such subordination may exist on the Closing
Date or may be effected through the allocation of interest payments on the Loans
to reduce the principal balances of certain Classes of Certificates.
In a Series with overcollateralization, the allocation of losses to the
Certificates is handled through the priority of payment process, first by
interest that otherwise would pay down principal on the Certificates, and then
such losses would be allocated to the Senior Certificates only if the principal
balance of the Mortgage Loans was reduced to less than the principal balance of
the Senior Certificates. If so specified in the related
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Prospectus Supplement, the level of overcollateralization required under the
provisions of the Pooling and Servicing Agreement will be subject to various
tests based primarily on the loss and delinquency experience of the related
Mortgage Assets, and will be raised and lowered accordingly.
CROSS-SUPPORT FEATURES
If the Mortgage Assets for a Series are divided into separate Asset Groups,
the beneficial ownership of which is evidenced by a separate Class or Classes of
a Series, credit support may be provided by a cross-support feature which
requires that distributions be made on Senior Certificates evidencing the
beneficial ownership of one Asset Group prior to distributions on Subordinate
Certificates evidencing the beneficial ownership interest in another Asset Group
within the Trust Fund. The related Prospectus Supplement for a Series which
includes a cross-support feature will describe the manner and conditions for
applying such cross-support feature.
INSURANCE
Credit support with respect to a Series may be provided by various forms of
insurance policies, subject to limits on the aggregate dollar amount of claims
that will be payable under each such insurance policy, with respect to all Loans
comprising or underlying the Mortgage Assets for a Series, or such of the Loans
as have certain characteristics. Such insurance policies include primary
mortgage insurance and standard hazard insurance and may, if specified in the
related Prospectus Supplement, include a pool insurance policy covering losses
in amounts in excess of coverage of any primary insurance policy, a special
hazard insurance policy covering certain risks not covered by standard hazard
insurance policies, a bankruptcy bond covering certain losses resulting from the
bankruptcy of a borrower and application of certain provisions of the Bankruptcy
Code, a repurchase bond covering the repurchase of a Loan for which mortgage
insurance or hazard insurance coverage has been denied due to misrepresentations
in connection with the organization of the related Loan, or other insurance
covering other risks associated with the particular type of Loan. See
"Description of Mortgage and Other Insurance." Copies of the actual pool
insurance policy, special hazard insurance policy, bankruptcy bond or repurchase
bond, if any, relating to the Loans comprising the Mortgage Assets for a Series
will be filed with the Commission as an exhibit to a Current Report on Form 8-K
to be filed within 15 days of issuance of the Certificates of the related
Series.
LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Certificates will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). Under the letter of credit, the L/C Bank
will be obligated to honor drawings thereunder in an aggregate fixed dollar
amount, net of unreimbursed payments thereunder, equal to the percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of the Loans on the related Cut-off Date or of one or more Classes of
Certificates (the "L/C Percentage"). If so specified in the related Prospectus
Supplement, the letter of credit may permit drawings in the event of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies, losses resulting
from the bankruptcy of a borrower and the application of certain provisions of
the Bankruptcy Code, or losses resulting from denial of insurance coverage due
to misrepresentations in connection with the origination of a Loan. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations of the L/C Bank
under the letter of credit for each Series of Certificates will expire at the
earlier of the date specified in the related Prospectus Supplement or the
termination of the Trust Fund. See "Description of the Certificates--Optional
Termination" and "The Pooling and Servicing Agreements--Termination." A copy of
the letter of credit for a Series, if any, will be filed with the Commission as
an exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the Certificates of the related Series.
CERTIFICATE GUARANTEE INSURANCE
Certificate Guarantee Insurance, if any, with respect to a Series of
Certificates will be provided by one or more insurance companies. Such
Certificate Guarantee Insurance will guarantee, with respect to one or more
Classes of Certificates of the related Series, timely distributions of interest
and full distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner
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specified in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, the Certificate Guarantee Insurance will also guarantee
against any payment made to a Certificateholder which is subsequently recovered
as a "voidable preference" payment under the Bankruptcy Code. A copy of the
certificate guarantee insurance for a Series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the Certificates of the related Series.
RESERVE FUNDS
One or more Reserve Funds may be established with respect to a Series, in
which cash, a letter of credit, Eligible Reserve Fund Investments, a demand note
or a combination thereof, in the amounts, if any, so specified in the related
Prospectus Supplement will be deposited. The Reserve Funds for a Series may also
be funded over time by depositing therein a specified amount of the
distributions received on the related Mortgage Assets as specified in the
related Prospectus Supplement.
Amounts on deposit in any reserve fund for a Series, together with the
reinvestment income thereon, will be applied by the Trustee for the purposes, in
the manner, and to the extent specified in the related Prospectus Supplement. A
Reserve Fund may be provided to increase the likelihood of timely payments of
principal of and interest on the Certificates, if required as a condition to the
rating of such Series by each Rating Agency rating such Series. If so specified
in the related Prospectus Supplement, Reserve Funds may be established to
provide limited protection, in an amount satisfactory to each Rating Agency
which assigns a rating to the Certificates, against certain types of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies, losses resulting
from the bankruptcy of a borrower and the application of certain provisions of
the Bankruptcy Code or losses resulting from denial of insurance coverage due to
fraud or misrepresentation in connection with the origination of a Loan.
Following each Distribution Date amounts in such Reserve Fund in excess of any
required reserve fund balance may be released from the Reserve Fund under the
conditions and to the extent specified in the related Prospectus Supplement and
will not be available for further application by the Trustee.
Moneys deposited in any Reserve Funds will be invested in Eligible Reserve
Fund Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement, any
reinvestment income or other gain from such investments will be credited to the
related Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to the Master Servicer or a Servicer as additional servicing
compensation. See "Servicing of Loans" and "The Pooling and Servicing
Agreements--Investment of Funds." The Reserve Fund, if any, for a Series will
not be a part of the Trust Fund unless otherwise specified in the related
Prospectus Supplement.
Additional information concerning any Reserve Fund will be set forth in the
related Prospectus Supplement, including the initial balance of such Reserve
Fund, the required Reserve Fund balance to be maintained, the purposes for which
funds in the Reserve Fund may be applied to make distributions to
Certificateholders and use of investment earnings from the Reserve Fund, if any.
DESCRIPTION OF MORTGAGE AND OTHER INSURANCE
The following descriptions of primary mortgage insurance policies, pool
insurance policies, special hazard insurance policies, standard hazard insurance
policies, bankruptcy bonds, repurchase bonds and other insurance and the
respective coverages thereunder are general descriptions only and do not purport
to be complete.
MORTGAGE INSURANCE ON THE LOANS
GENERAL. Unless otherwise specified in the related Prospectus Supplement,
all Mortgage Loans that are Conventional Loans secured by Single Family Property
and which had initial Loan-to-Value Ratios of greater than 80% will be covered
by primary mortgage insurance policies providing coverage on the amount of each
such Mortgage Loan in excess of 75% of the original Appraised Value of the
related Mortgaged
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Property and remaining in force until the principal balance of such Mortgage
Loan is reduced to 80% of such original Appraised Value. Multifamily Loans will
not be covered by a primary mortgage insurance policy, regardless of the related
Loan-to-Value Ratio.
A pool insurance policy will be obtained if so specified in the related
Prospectus Supplement to cover any loss (subject to limitations described
herein) occurring as a result of default by the borrowers to the extent not
covered by any primary mortgage insurance policy, FHA Insurance or VA Guarantee.
See "Pool Insurance Policy" below. Neither the primary mortgage insurance
policies nor any pool insurance policy will insure against certain losses
sustained in the event of a personal bankruptcy of the borrower under a Mortgage
Loan. See "Certain Legal Aspects of Loans" herein. Such losses will be covered
to the extent described in the related Prospectus Supplement by the bankruptcy
bond or other credit support, if any.
To the extent that the primary mortgage insurance policies do not cover all
losses on a defaulted or foreclosed Mortgage Loan, and to the extent such losses
are not covered by the pool insurance policy or other credit support for such
Series, such losses, if any, would affect payments to Certificateholders. In
addition, the pool insurance policy and primary mortgage insurance policies do
not provide coverage against hazard losses. See "Hazard Insurance on the Loans"
below. Certain hazard risks will not be insured and the occurrence of such
hazards could adversely affect payments to the Certificateholders.
PRIMARY MORTGAGE INSURANCE. While the terms and conditions of the primary
mortgage insurance policies issued by one primary mortgage guaranty insurer (a
"Primary Insurer") will differ from those in primary mortgage insurance policies
issued by other Primary Insurers, each primary mortgage insurance policy
generally will pay either: (i) the insured percentage of the loss on the related
Mortgaged Property; (ii) the entire amount of such loss, after receipt by the
Primary Insurer of good and merchantable title to, and possession of, the
Mortgaged Property; or (iii) at the option of the Primary Insurer under certain
primary mortgage insurance policies, the sum of the delinquent monthly payments
plus any advances made by the insured, both to the date of the claim payment
and, thereafter, monthly payments in the amount that would have become due under
the Mortgage Loan if it had not been discharged plus any advances made by the
insured until the earlier of (a) the date the Mortgage Loan would have been
discharged in full if the default had not occurred or (b) an approved sale. The
amount of the loss as calculated under a primary mortgage insurance policy
covering a Mortgage Loan will generally consist of the unpaid principal amount
of such Mortgage Loan and accrued and unpaid interest thereon and reimbursement
of certain expenses, less (i) rents or other payments collected or received by
the insured (other than the proceeds of hazard insurance) that are derived from
the related Mortgaged Property, (ii) hazard insurance proceeds in excess of the
amount required to restore such Mortgaged Property and which have not been
applied to the payment of the Mortgage Loan, (iii) amounts expended but not
approved by the Primary Insurer, (iv) claim payments previously made on such
Mortgage Loan and (v) unpaid premiums and certain other amounts.
As conditions precedent to the filing or payment of a claim under a primary
mortgage insurance policy, in the event of default by the Mortgagor, the insured
will typically be required, among other things, to: (i) advance or discharge (a)
hazard insurance premiums and (b) as necessary and approved in advance by the
Primary Insurer, real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical loss or damage
to the Mortgaged Property, have the Mortgaged Property restored to at least its
condition at the effective date of the primary mortgage insurance policy
(ordinary wear and tear excepted); and (iii) tender to the Primary Insurer good
and merchantable title to, and possession of, the Mortgaged Property.
The Pooling and Servicing Agreement for a Series generally will require that
the Master Servicer or Servicer maintain, or cause to be maintained, coverage
under a primary mortgage insurance policy to the extent such coverage was in
place on the Cut-off Date. In the event that the Depositor gains knowledge that,
as of the Closing Date, a Mortgage Loan had a Loan-to-Value Ratio at origination
in excess of 80% and was not the subject of a primary mortgage insurance policy
(and was not included in any exception to such standard disclosed in the related
Prospectus Supplement) and that such Mortgage Loan has a then current
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Loan-to-Value Ratio in excess of 80%, then the Master Servicer or the Servicer
is required to use its reasonable efforts to obtain and maintain a primary
mortgage insurance policy to the extent that such a policy is obtainable at a
reasonable price.
Any primary mortgage insurance or primary credit insurance policies relating
to Loans secured by Manufactured Homes will be described in the related
Prospectus Supplement.
FHA INSURANCE AND VA GUARANTEES. The Housing Act authorizes various FHA
mortgage insurance programs. Some of the Mortgage Loans may be insured under
either Section 203(b), Section 234 or Section 235 of the Housing Act. Under
Section 203(b), FHA insures mortgage loans of up to 30 years' duration for the
purchase of one- to four-family dwelling units. Mortgage loans for the purchase
of condominium units are insured by FHA under Section 234. Loans insured under
these programs must bear interest at a rate not exceeding the maximum rate in
effect at the time the loan is made, as established by HUD, and may not exceed
specified percentages of the lesser of the appraised value of the property and
the sales price, less seller paid closing costs for the property, up to certain
specified maximums. In addition, FHA imposes initial investment minimums and
other requirements on mortgage loans insured under the Section 203(b) and
Section 234 programs.
Under Section 235, assistance payments are paid by HUD to the mortgagee on
behalf of eligible mortgagors for as long as the mortgagors continue to be
eligible for the payments. To be eligible, a mortgagor must be part of a family,
have income within the limits prescribed by HUD at the time of initial
occupancy, occupy the property and meet requirements for recertification at
least annually.
The regulations governing these programs provide that insurance benefits are
payable either (i) upon foreclosure (or other acquisition of possession) and
conveyance of the mortgaged premises to HUD or (ii) upon assignment of the
defaulted mortgage loan to HUD. The FHA insurance that may be provided under
these programs upon the conveyance of the home to HUD is equal to 100% of the
outstanding principal balance of the mortgage loan, plus accrued interest, as
described below, and certain additional costs and expenses. When entitlement to
insurance benefits results from assignment of the mortgage loan to HUD, the
insurance payment is computed as of the date of the assignment and includes the
unpaid principal amount of the mortgage loan plus mortgage interest accrued and
unpaid to the assignment date.
When entitlement to insurance benefits results from foreclosure (or other
acquisition of possession) and conveyance, the insurance payment is equal to the
unpaid principal amount of the mortgage loan, adjusted to reimburse the
mortgagee for certain tax, insurance and similar payments made by it and to
deduct certain amounts received or retained by the mortgagee after default, plus
reimbursement not to exceed two-thirds of the mortgagee's foreclosure costs. Any
FHA insurance relating to Loans underlying a Series of Certificates will be
described in the related Prospectus Supplement.
The Servicemen's Readjustment Act of 1944, as amended, permits a veteran
(or, in certain instances, his or her spouse) to obtain a mortgage loan guaranty
by the VA covering mortgage financing of the purchase of a one- to four-family
dwelling unit to be occupied as the veteran's home at an interest rate not
exceeding the maximum rate in effect at the time the loan is made, as
established by HUD. The program has no limit on the amount of a mortgage loan,
requires no down payment from the purchaser and permits the guaranty of mortgage
loans with terms, limited by the estimated economic life of the property, up to
30 years. The maximum guaranty that may be issued by the VA under this program
is 50% of the original principal amount of the mortgage loan up to a certain
dollar limit established by the VA. The liability on the guaranty is reduced or
increased on a pro rata basis with any reduction or increase in the amount of
indebtedness, but in no event will the amount payable on the guaranty exceed the
amount of the original guaranty. Notwithstanding the dollar and percentage
limitations of the guaranty, a mortgagee will ordinarily suffer a monetary loss
only when the difference between the unsatisfied indebtedness and the proceeds
of a foreclosure sale of mortgaged premises is greater than the original
guaranty as adjusted. The VA may, at its option, and without regard to the
guaranty, make full payment to a mortgagee of the unsatisfied indebtedness on a
mortgage upon its assignment to the VA.
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Since there is no limit imposed by the VA on the principal amount of a
VA-guaranteed mortgage loan but there is a limit on the amount of the VA
guaranty, additional coverage under a Primary Mortgage Insurance Policy may be
required by the Depositor for VA loans in excess of certain amounts. The amount
of any such additional coverage will be set forth in the related Prospectus
Supplement. Any VA guaranty relating to Loans underlying a Series of
Certificates will be described in the related Prospectus Supplement.
POOL INSURANCE POLICY. If so specified in the related Prospectus
Supplement, the Master Servicer will be required to maintain the pool insurance
policy and to present or cause the Servicers, if any, to present claims
thereunder on behalf of the Trustee and the Certificateholders. See "Servicing
of Loans--Maintenance of Insurance Policies and Other Servicing Procedures."
Although the terms and conditions of pool insurance policies vary to some
degree, the following describes material aspects of such policies generally. The
related Prospectus Supplement will describe any provisions of a pool insurance
policy which are materially different from those described below.
The responsibilities of the Master Servicer, the amount of claim for
benefits, the conditions precedent to the filing or payment of a claim, the
policy provisions and the payment of claims under a pool insurance policy are
generally similar to those described above for primary mortgage insurance
policies, subject to the aggregate limit on the amount of coverage. It may also
be a condition precedent to the payment of any claim under the pool insurance
policy that the insured maintain a primary mortgage insurance policy that is
acceptable to the pool insurer on all Mortgage Loans in the related Trust Fund
that have Loan-to-Value Ratios at the time of origination in excess of 80% and
that a claim under such primary mortgage insurance policy has been submitted and
settled. FHA Insurance and VA Guarantees will be deemed to be acceptable primary
insurance policies under the pool insurance policy. Assuming satisfaction of
these conditions, the pool insurer will pay to the insured the amount of the
loss which will generally be: (i) the amount of the unpaid principal balance of
the defaulted Mortgage Loan immediately prior to the sale of the Mortgaged
Property, (ii) the amount of the accumulated unpaid interest on such Mortgage
Loan to the date of claim settlement at the contractual rate of interest and
(iii) advances made by the insured as described above less certain payments. An
"approved sale" is (i) a sale of the Mortgaged Property acquired by the insured
because of a default by the borrower to which the pool insurer has given prior
approval, (ii) a foreclosure or trustee's sale of the Mortgaged Property at a
price exceeding the maximum amount specified by the pool insurer, (iii) the
acquisition of the Mortgaged Property under the primary mortgage insurance
policy by the mortgage insurer or (iv) the acquisition of the Mortgaged Property
by the pool insurer.
As a condition precedent to the payment of any loss, the insured must
provide the pool insurer with good and merchantable title to the Mortgaged
Property. If any Mortgaged Property securing a defaulted Mortgage Loan is
damaged and the proceeds, if any, from the related standard hazard insurance
policy or the applicable special hazard insurance policy, if any, are
insufficient to restore the damaged Mortgaged Property to a condition sufficient
to permit recovery under the pool insurance policy, the Master 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 the
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it through liquidation proceeds or insurance proceeds.
The original amount of coverage under the pool insurance policy will be
reduced over the life of the Certificates by the aggregate net dollar amount of
claims paid less the aggregate net dollar amount realized by the pool insurer
upon disposition of all foreclosed Mortgaged Properties covered thereby. The
amount of claims paid includes certain expenses incurred by the Master Servicer
as well as accrued interest at the applicable interest rate on delinquent
Mortgage Loans to the date of payment of the claim. See "Certain Legal Aspects
of Loans" herein. Accordingly, if aggregate net claims paid under a pool
insurance policy reach the original policy limit, coverage under the pool
insurance policy will lapse and any further losses will be borne by the Trust
Fund, and thus will affect adversely payments on the Certificates. In addition,
the exhaustion of coverage under any pool insurance policy may affect the Master
Servicer's or Servicer's willingness or obligation to make Advances. If the
Master Servicer or a Servicer determines that an Advance
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in respect of a delinquent Loan would not be recoverable from the proceeds of
the liquidation of such Loan or otherwise, it will not be obligated to make an
advance respecting any such delinquency since the Advance would not be
ultimately recoverable by it. See "Servicing of Loans--Advances and Limitations
Thereon."
MORTGAGE INSURANCE WITH RESPECT TO MANUFACTURED HOME LOANS. A Manufactured
Home Loan may be an FHA Loan or a VA Loan. Any primary mortgage or similar
insurance and any pool insurance policy with respect to Manufactured Home Loans
will be described in the related Prospectus Supplement.
HAZARD INSURANCE ON THE LOANS
STANDARD HAZARD INSURANCE POLICIES FOR MORTGAGE LOANS. The terms of the
Mortgage Loans require each Mortgagor to maintain a hazard insurance policy
covering the related Mortgaged Property and providing for coverage at least
equal to that of the standard form of fire insurance policy with extended
coverage customary in the state in which the property is located. Such coverage
generally will be in an amount equal to the lesser of the principal balance of
such Mortgage Loan or 100% of the insurable value of the improvements securing
the Mortgage Loan. The Pooling and Servicing Agreement will provide that the
Master Servicer or Servicer shall cause such hazard policies to be maintained or
shall obtain a blanket policy insuring against losses on the Mortgage Loans. The
ability of the Master Servicer or Servicer to ensure that hazard insurance
proceeds are appropriately applied may be dependent on its being named as an
additional insured under any hazard insurance policy and under any flood
insurance policy referred to below, or upon the extent to which information in
this regard is furnished to the Master Servicer or the Servicer by Mortgagors.
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, hail, riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. The policies
relating to the Mortgage Loans will be underwritten by different insurers under
different state laws in accordance with different applicable state forms and
therefore will not contain identical terms and conditions, the basic terms
thereof are dictated by respective state laws. 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 mudflows), nuclear reactions, wet or dry
rot, vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive. Where the improvements securing a
Mortgage Loan are located in a federally designated flood area at the time of
origination of such Mortgage Loan, the Pooling and Servicing Agreement generally
requires the Master Servicer or Servicer to cause to be maintained for each such
Mortgage Loan serviced, flood insurance as described under "Servicing of
Loans--Maintenance of Insurance Policies and Other Servicing Procedures."
STANDARD HAZARD INSURANCE POLICIES FOR MANUFACTURED HOME LOANS. The terms
of the Pooling and Servicing Agreement will require the Servicer or the Master
Servicer, as applicable, to cause to be maintained with respect to each
Manufactured Home Loan one or more standard hazard insurance policies which
provide, at a minimum, the same coverage as a standard form fire and extended
coverage insurance policy that is customary for manufactured housing, issued by
a company authorized to issue such policies in the state in which the
Manufactured Home is located, and in an amount which is not less than the
maximum insurable value of such Manufactured Home or the principal balance due
from the Mortgagor on the related Manufactured Home Loan, whichever is less.
Such coverage may be provided by one or more blanket insurance policies covering
losses on the Manufactured Home Loans resulting from the absence or
insufficiency of individual standard hazard insurance policies. If a
Manufactured Home's location was, at the time of origination of the related
Manufactured Home Loan, within a federally designated flood area, the Servicer
or the Master Servicer also will be required to maintain flood insurance.
If the Servicer or the Master Servicer repossesses a Manufactured Home on
behalf of the Trustee, the Servicer or the Master Servicer will either (i)
maintain at its expense hazard insurance with respect to such Manufactured Home
or (ii) indemnify the Trustee against any damage to such Manufactured Home prior
to resale or other disposition.
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SPECIAL HAZARD INSURANCE POLICY. Although the terms of such policies vary
to some degree, a special hazard insurance policy typically provides that, where
there has been damage to property securing a defaulted or foreclosed Loan (title
to which has been acquired by the insured) and to the extent such damage is not
covered by the standard hazard insurance policy or any flood insurance policy,
if applicable, required to be maintained with respect to such property, or in
connection with partial loss resulting from the application of the coinsurance
clause in a standard hazard insurance policy, 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 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 Master Servicer or the
Servicer with respect to such property. If the unpaid principal balance plus
accrued interest and certain expenses is paid by the special hazard insurer, the
amount of further coverage under the special hazard insurance policy will be
reduced by such amount less any net proceeds from the sale of the property. Any
amount paid as the cost of repair of the property will reduce coverage by such
amount. Special hazard insurance policies typically do 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 in a federally designated
flood area), chemical contamination and certain other risks.
Restoration of the property with the proceeds described under (i) above is
expected to satisfy the condition under the 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 Loan secured by such property.
The payment described under (ii) above will render unnecessary presentation of a
claim in respect of such Loan under the pool insurance policy. Therefore, so
long as the pool insurance policy remains in effect, the payment by the special
hazard insurer of the cost of repair or of the unpaid principal balance of the
related Loan plus accrued interest and certain expenses will not affect the
total insurance proceeds paid to holders of the Certificates, but will affect
the relative amounts of coverage remaining under the special hazard insurance
policy and pool insurance policy.
OTHER HAZARD-RELATED INSURANCE; LIABILITY INSURANCE. With respect to Loans
secured by Multifamily Property, certain additional insurance policies may be
required with respect to the Multifamily Property; for example, general
liability insurance for bodily injury and property damage, steam boiler coverage
where a steam boiler or other pressure vessel is in operation, and rent loss
insurance to cover operating income losses following damage or destruction of
the Mortgaged Property. With respect to a Series for which Loans secured by
Multifamily Property are included in the Trust Fund, the related Prospectus
Supplement will specify the required types and amounts of additional insurance
and describe the general terms of such insurance and conditions to payment
thereunder.
BANKRUPTCY BOND
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the property securing the related Loan (and, if specified
in the related Prospectus Supplement, any related Additional Collateral) at an
amount less than the then outstanding principal balance of such Loan. The amount
of the secured debt could be reduced to such value, and the holder of such Loan
thus would become an unsecured creditor to the extent the outstanding principal
balance of such Loan exceeds the value so assigned to the property (and any
related Additional Collateral) by the bankruptcy court. In addition, certain
other modifications of the terms of a Loan can result from a bankruptcy
proceeding. See "Certain Legal Aspects of Loans" herein. If so provided in the
related Prospectus Supplement, the Master Servicer will obtain a bankruptcy bond
or similar insurance contract (the "bankruptcy bond") for proceedings with
respect to borrowers under the Bankruptcy Code. The bankruptcy bond will cover
certain losses resulting from a reduction by a bankruptcy court of scheduled
payments of principal of and interest on a Loan or a reduction by such court of
the principal amount of a 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.
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The bankruptcy bond will provide coverage in the aggregate amount specified
in the related Prospectus Supplement for all Loans in the Trust Fund secured by
single unit primary residences. Such amount will be reduced by payments made
under such bankruptcy bond in respect of such Loans, unless otherwise specified
in the related Prospectus Supplement, and will not be restored.
REPURCHASE BOND
If so specified in the related Prospectus Supplement, the Seller, the
Depositor or the Master Servicer will be obligated to repurchase any 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 Loan. Such obligation may be
secured by a surety bond guaranteeing payment of the amount to be paid by the
Seller, the Depositor or the Master Servicer.
THE POOLING AND SERVICING AGREEMENTS
The following summaries describe certain provisions of the Pooling and
Servicing Agreements. The summaries do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions of
the Pooling and Servicing Agreements. Where particular provisions or terms used
in the Pooling and Servicing Agreements are referred to, such provisions or
terms are as specified in the Pooling and Servicing Agreements.
ASSIGNMENT OF MORTGAGE ASSETS
GENERAL. The Depositor will transfer, convey and assign to the Trustee all
right, title and interest of the Depositor in the Mortgage Assets and other
property to be included in the Trust Fund for a Series. Such assignment will
include all principal and interest due on or with respect to the Mortgage Assets
after the Cut-off Date specified in the related Prospectus Supplement (except
for any Retained Interests). The Trustee will, concurrently with such
assignment, execute and deliver the Certificates.
ASSIGNMENT OF PRIVATE MORTGAGE-BACKED SECURITIES. The Depositor will cause
Private Mortgage-Backed Securities to be registered in the name of the Trustee
(or its nominee or correspondent). The Trustee (or its agent or correspondent)
will have possession of any certificated Private Mortgage-Backed Securities.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
will not be in possession of or be assignee of record of any underlying assets
for a Private Mortgage-Backed Security. See "The Trust Funds-- Private
Mortgage-Backed Securities" herein. Each Private Mortgage-Backed Security will
be identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement (the "Mortgage Certificate Schedule"), which will specify
the original principal amount, outstanding principal balance as of the Cut-off
Date, annual pass-through rate or interest rate and maturity date for each
Private Mortgage-Backed Security conveyed to the Trustee. In the Pooling and
Servicing Agreement, the Depositor will represent and warrant to the Trustee
regarding the Private Mortgage-Backed Securities: (i) that the information
contained in the Mortgage Certificate Schedule is true and correct in all
material respects; (ii) that, immediately prior to the conveyance of the Private
Mortgage-Backed Securities, the Depositor had good title thereto, and was the
sole owner thereof (subject to any Retained Interests); (iii) that there has
been no other sale by it of such Private Mortgage-Backed Securities and (iv)
that there is no existing lien, charge, security interest or other encumbrance
(other than any Retained Interest) on such Private Mortgage-Backed Securities.
ASSIGNMENT OF AGENCY SECURITIES. The Depositor will transfer, convey and
assign to the Trustee (or its nominee or correspondent) all right, title and
interest of the Depositor in the Agency Securities and other property to be
included in the Trust Fund for a series. Such assignment will include all
principal and interest due on or with respect to the Agency Securities after the
Cut-off Date specified in the related Prospectus Supplement (except for any
Retained Interest). The Depositor will cause the Agency Securities to be
registered in the name of the Trustee (or its nominee or correspondent), and the
Trustee will concurrently authenticate and deliver the Certificates. Each Agency
Security will be identified in a schedule appearing as an exhibit to the related
Pooling and Servicing Agreement, which will specify as to each Agency Security
the original principal amount and outstanding principal balance as of the
Cut-off Date and the annual pass-through rate or interest rate for each Agency
Security conveyed to the Trustee.
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ASSIGNMENT OF MORTGAGE LOANS. In addition, the Depositor will, as to each
Mortgage Loan, deliver or cause to be delivered to the Trustee, or, as specified
in the related Prospectus Supplement, the Custodian, the Mortgage Note endorsed
without recourse to the order of the Trustee or in blank, the original Mortgage
with evidence of recording indicated thereon (except for any Mortgage not
returned from the public recording office, in which case a copy of such Mortgage
will be delivered, together with a certificate that the original of such
mortgage was delivered to such recording office), an assignment of the Mortgage
in recordable form and, if applicable, any riders or modifications to such
Mortgage Note and Mortgage, together with certain other documents as set forth
in the related Pooling and Servicing Agreement. The Trustee, or, if so specified
in the related Prospectus Supplement, the Custodian, will hold such documents in
trust for the benefit of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will, at the time of delivery of the Certificates, cause assignments
to the Trustee of the Mortgage Loans to be recorded in the appropriate public
office for real property records, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the Mortgage Loan. As promptly as possible, the Depositor
will cause such assignments to be so recorded, in which event, the Pooling and
Servicing Agreement may require the Depositor to repurchase from the Trustee any
Mortgage Loan required to be recorded but not recorded within such time, at the
price described above with respect to repurchase by reason of defective
documentation. Unless otherwise provided in the related Prospectus Supplement,
the enforcement of the repurchase obligation would constitute the sole remedy
available to the Certificateholders or the Trustee for the failure of a Mortgage
Loan to be recorded.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee, its agent, or a custodian,
the related original cooperative note endorsed to the order of the Trustee, the
original security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate and related blank stock powers. The Depositor will file in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
Each Mortgage Loan will be identified in a schedule appearing as an exhibit
to the Trust Agreement (the "Mortgage Loan Schedule"). Such Mortgage Loan
Schedule will specify, among other things, with respect to each Mortgage Loan:
the original principal amount and unpaid principal balance as of the Cut-off
Date; the current interest rate; the current Scheduled Payment of principal and
interest; the maturity date of the related mortgage note; if the Mortgage Loan
is an ARM, the Minimum Mortgage Rate, the Maximum Mortgage Rate, if any, and the
Periodic Rate Cap; and whether the Mortgage Loan is an Additional Collateral
Loan, a Balloon Loan, a Cooperative Loan, a GPM Loan, a GEM Loan, a Buy-Down
Loan or a Mortgage Loan with other than fixed Scheduled Payments and level
amortization.
ASSIGNMENT OF MANUFACTURED HOME LOANS. The Depositor will cause any
Manufactured Home Loans included in the Mortgage Assets for a Series of
Certificates to be assigned to the Trustee, together with principal and interest
due on or with respect to the Manufactured Home Loans after the Cut-off Date
specified in the related Prospectus Supplement. Each Manufactured Home Loan will
be identified in a loan schedule (the "Loan Schedule") appearing as an exhibit
to the related Pooling and Servicing Agreement. Such Loan Schedule will specify,
with respect to each Manufactured Home Loan, among other things: the original
principal balance and the outstanding principal balance as of the close of
business on the Cut-off Date; the interest rate; the current Scheduled Payment
of principal and interest; and the maturity date of the Manufactured Home Loan.
In addition, with respect to each Manufactured Home Loan, the Depositor will
deliver or cause to be delivered to the Trustee, or, as specified in the related
Prospectus Supplement, the custodian, the original Manufactured Home Loan and
copies of documents and instruments related to each Manufactured Home Loan and
the security interest in the Manufactured Home securing each Manufactured Home
Loan. To give notice of the right, title and interest of the Certificateholders
to the Manufactured Home Loans, the Depositor will cause a UCC-1 financing
statement to be filed identifying the Trustee as the secured party and
identifying all Manufactured Home Loans as collateral. Unless otherwise
specified in the related Prospectus
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Supplement, the Manufactured Home Loans will not be stamped or otherwise marked
to reflect their assignment from the Depositor to the Trustee. Therefore, if a
subsequent purchaser were able to take physical possession of the Manufactured
Home Loans without notice of such assignment, the interest of the
Certificateholders in the Manufactured Home Loans could be defeated. See
"Certain Legal Aspects of Loans--Manufactured Home Loans."
The Seller (or other party as described in the related Prospectus
Supplement) will provide limited representations and warranties to Depositor and
the Trustee concerning the Manufactured Home Loans. Such representations and
warranties will include: (i) that the information contained in the Loan Schedule
provides an accurate listing of the Manufactured Home Loans and that the
information respecting such Manufactured Home Loans set forth in such Loan
Schedule is true and correct in all material respects at the date or dates
respecting which such information is furnished; (ii) that, immediately prior to
the conveyance of the Manufactured Home Loans, the Depositor had good title to,
and was sole owner of, each such Manufactured Home Loan (subject to any Retained
Interests); (iii) that there has been no other sale by it of such Manufactured
Home Loans and that the Manufactured Home Loan is not subject to any lien,
charge, security interest or other encumbrance; (iv) if the Master Servicer will
not directly service the Manufactured Home Loans, each Servicing Agreement
entered into with a Servicer with respect to Manufactured Home Loans comprising
the Mortgage Assets has been assigned and conveyed to the Trustee and is not
subject to any offset, counterclaim, encumbrance or other charge; and (v) the
Depositor has obtained from each of the Master Servicer, the Servicer, the
originator of the Manufactured Home Loans or such other entity that is the
seller of the related Manufactured Home Loan representations and warranties
relating to certain information respecting the origination of and current status
of the Manufactured Home Loans, and has no knowledge of any fact which would
cause it to believe that such representations and warranties are inaccurate in
any material respect. See "Loan Underwriting Procedures and Standards" herein.
ASSIGNMENT OF PARTICIPATION CERTIFICATES. The Depositor will cause any
Participation Certificates obtained under a participation agreement to be
assigned to the Trustee by delivering to the Trustee the Participation
Certificate, which will be reregistered in the name of the Trustee. Unless
otherwise specified in the related Prospectus Supplement, the Trustee will not
be in possession of or be assignee of record with respect to the Loans
represented by the Participation Certificate. Each Participation Certificate
will be identified in a "Participation Certificate Schedule" which will specify
the original principal balance, outstanding principal balance as of the Cut-off
Date, pass-through rate and maturity date for each Participation Certificate. In
the Pooling and Servicing Agreement, the Depositor will represent and warrant to
the Trustee regarding the Participation Certificate: (i) that the information
contained in the Participation Certificate Schedule is true and correct in all
material respects; (ii) that, immediately prior to the conveyance of the
Participation Certificates, the Depositor had good title to and was sole owner
of the Participation Certificate; (iii) that there has been no other sale by it
of such Participation Certificate and (iv) that such Participation Certificate
is not subject to any existing lien, charge, security interest or other
encumbrance (other than any Retained Interests).
REPURCHASE AND SUBSTITUTION OF LOANS
Unless otherwise provided in the related Prospectus Supplement, if any
document in the Loan file delivered by the Depositor to the Trustee is found by
the Trustee within 90 days of the execution of the related Pooling and Servicing
Agreement (or promptly after the Trustee's receipt of any document permitted to
be delivered after the Closing Date) to be defective in any material respect and
the related Servicer or Seller does not cure such defect within 60 days from the
date the Master Servicer was notified of the defect by the Trustee, or within
such other period specified in the related Prospectus Supplement, the related
Servicer or Seller if, and to the extent it is obligated to do so under the
related servicing agreement or mortgage loan sale agreement will, not later than
90 days or within such other period specified in the related Prospectus
Supplement, from the date the Seller or the Master Servicer was notified of the
defect by the Depositor, the Master Servicer or the Trustee, repurchase the
related Mortgage Loan or any property acquired in respect thereof from the
Trustee at a price equal to the outstanding principal balance of such Mortgage
Loan (or, in the case of a foreclosed Mortgage Loan, the outstanding principal
balance of such Mortgage Loan immediately prior to foreclosure), plus accrued
and unpaid interest to the date of the next scheduled payment on such Mortgage
Loan at the related Mortgage Rate.
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Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer may, rather than repurchase the Loan as described above, remove such
Loan from the Trust Fund (the "Deleted Loan") and substitute in its place one or
more other Loans (each, a "Qualified Substitute Mortgage Loan") provided,
however, that (i) with respect to a Trust Fund for which no REMIC election is
made, such substitution must be effected within 120 days of the date of initial
issuance of the Certificates and (ii) with respect to a Trust Fund for which a
REMIC election or elections are made, the Trustee must have received a
satisfactory opinion of counsel that such substitution will not result in a
prohibited transactions tax under the Code or cause the Trust Fund to lose its
status as a REMIC, or in the case of a Trust Fund consisting of two or more
REMICs, that such substitution will not cause any such REMIC to lose its status
as a REMIC.
Any Qualified Substitute Mortgage Loan will have, unless otherwise specified
in the related Prospectus Supplement, on the date of substitution, (i) an
outstanding principal balance, after deduction of all Scheduled Payments due in
the month of substitution, not in excess of the outstanding principal balance of
the Deleted Loan (the amount of any shortfall to be deposited to the Certificate
Account in the month of substitution for distribution to Certificateholders),
(ii) an interest rate not lower than and not more than 1% of the interest rate
of the Deleted Loan, (iii) have a Loan-to-Value Ratio at the time of
substitution no higher than that of the Deleted Loan at the time of
substitution, (iv) have a remaining term to maturity not greater than (and not
more than one year less than) that of the Deleted Loan, and (v) comply with all
of the representations and warranties set forth in the related Pooling and
Servicing Agreement as of the date of substitution. The related Pooling and
Servicing Agreement may include additional requirements relating to ARMs or
other specific types of Mortgage Loans, or additional provisions relating to
meeting the foregoing requirements on an aggregate basis where a number of
substitutions occur contemporaneously.
Unless otherwise provided in the related Prospectus Supplement, the
above-described cure, repurchase or substitution obligations constitute the sole
remedies available to the Certificateholders or the Trustee for a material
defect in a Loan document.
Unless otherwise specified in the related Prospectus Supplement, the Seller
(or other party as described in the related Prospectus Supplement) will make
representations and warranties with respect to Loans which comprise the Mortgage
Assets for a Series. See "Loan Underwriting Procedures and
Standards--Representations and Warranties" above. If the related Seller (or
other party) cannot cure a breach of any such representations and warranties in
all material respects within 60 days after notification by the Master Servicer,
the Depositor or the Trustee of such breach, and if such breach is of a nature
that materially and adversely affects interest of the Certificateholders in such
Loan, the Seller is obligated to cure, substitute or repurchase the affected
Mortgage Loan if such Seller is required to do so under the applicable
agreement.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer will prepare and will forward or will provide to the
Trustee for forwarding to each Certificateholder on each Distribution Date, or
as soon thereafter as is practicable, a statement setting forth, to the extent
applicable to any Series as specified in the related Pooling and Servicing
Agreement, among other things:
(i) as applicable, either (A) the amount of such distribution allocable
to principal on the Mortgage Assets, separately identifying the aggregate
amount of any principal prepayments included therein and the amount, if any,
advanced by the Master Servicer or by a Servicer or (B) the amount of the
principal distribution in reduction of stated principal amount (or Compound
Value) of each Class and the aggregate unpaid principal amount (or Compound
Value) of each Class following such distribution;
(ii) as applicable, either (A) the amount of such distribution allocable
to interest on the Mortgage Assets and the amount, if any, advanced by the
Master Servicer or a Servicer or (B) the amount of the interest
distribution;
(iii) the amount of servicing compensation with respect to the Mortgage
Assets paid during the Due Period commencing on the Due Date to which such
distribution relates and the amount of servicing compensation during such
period attributable to penalties and fees;
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(iv) with respect to Compound Interest Certificates, prior to the
Accrual Termination Date in addition to the information specified in (i)(B)
above, the amount of interest accrued on such Certificates during the
related Interest Accrual Period and added to the Compound Value thereof;
(v) in the case of Floating Interest Certificates, the Floating Rate
applicable to the distribution being made;
(vi) if applicable, the number and aggregate principal balances of Loans
(A) delinquent for 31 to 60 days, (B) delinquent for 61 days to 90 days and
(C) delinquent 91 days or more, as of the close of business on the
Determination Date to which such distribution relates;
(vii) if applicable, the book value of any REO Property acquired on
behalf of Certificateholders through foreclosure, grant of a deed in lieu of
foreclosure or repossession as of the close of business on the last Business
Day of the calendar month preceding the Distribution Date to which such
distribution relates;
(viii) if applicable, the amount of coverage under any pool insurance
policy as of the close of business on the applicable Distribution Date;
(ix) if applicable, the amount of coverage under any special hazard
insurance policy as of the close of business on the applicable Distribution
Date;
(x) if applicable, the amount of coverage under any bankruptcy bond as
of the close of business on the applicable Distribution Date;
(xi) in the case of any other credit support described in the related
Prospectus Supplement, the amount of coverage of such credit support as of
the close of business on the applicable Distribution Date;
(xii) in the case of any Series which includes a Subordinate Class, the
Subordinated Amount, if any, determined as of the related Determination Date
and if the distribution to the Senior Certificateholders is less than their
required distribution, the amount of the shortfall;
(xiii) the amount of any withdrawal from any applicable Reserve Fund
included in amounts actually distributed to Certificateholders and the
remaining balance of each Reserve Fund (including any Subordination Reserve
Fund), if any, on such Distribution Date, after giving effect to
distributions made on such date; and
(xiv) such other information as specified in the related Pooling and
Servicing Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Master Servicer, unless otherwise specified in the related
Prospectus Supplement, will furnish to each Certificateholder of record at any
time during such calendar year a report summarizing the items provided to
Certificateholders as specified in the Pooling and Servicing Agreement to enable
Certificateholders to prepare their tax returns including, without limitation,
the amount of original issue discount accrued on the Certificates, if
applicable. Information in the Distribution Date and annual reports provided to
the Certificateholders will not have been examined and reported upon by an
independent public accountant. However, the Master Servicer will provide to the
Trustee a report by independent public accountants with respect to the Master
Servicer's servicing of the Loans. See "Servicing of Loans--Evidence as to
Compliance" herein.
INVESTMENT OF FUNDS
The Certificate Account, Collection Account or Custodial Account, if any,
and any other funds and accounts for a Series that may be invested by the
Trustee or by the Master Servicer or by the Servicer, if any, can be invested
only in Eligible Investments acceptable to each Rating Agency rating such
Series, which may include, without limitation, (i) direct obligations of, or
obligations fully guaranteed as to principal and interest by, the United States
of America or any agency or instrumentality thereof, provided that such
obligations are backed by the full faith and credit of the United States of
America; (ii) commercial paper (having original maturities of not more than nine
months) of any corporation incorporated under the laws of
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the United States or any state thereof or the District of Columbia which on the
date of acquisition has been rated by each Rating Agency in its highest
short-term rating, or such lower category as will not result in the downgrading
or withdrawal of the ratings then assigned to the Certificates by each Rating
Agency; (iii) certificates of deposit, demand or time deposits, federal funds or
bankers' acceptances issued by any bank or trust company incorporated under the
laws of the United States of America or of any state thereof or the District of
Columbia, provided that the short-term commercial paper of such bank or trust
company (or in the case of the principal depository institution in a depository
institution holding company, the long-term unsecured debt obligations of such
holding company) at the date of acquisition thereof has been rated by each
Rating Agency in its highest short-term rating; (iv) money market funds or
mutual funds organized under the Investment Company Act of 1940 rated in the
highest rating category by each Rating Agency; (v) repurchase obligations (the
collateral of which is held by a third party or the Trustee) with respect to any
security described in (i) above, provided that the long-term unsecured
obligations of the party agreeing to repurchase such obligations are at the time
rated by each Rating Agency in one of its two highest long-term rating
categories; and (vi) such other investments which do not adversely affect the
rating on the Certificates of such Series as confirmed in writing by each Rating
Agency.
Funds held in a Reserve Fund or Subordinated Reserve Fund may be invested in
certain Eligible Reserve Fund Investments which may include Eligible
Investments, mortgage loans, mortgage pass-through or participation securities,
mortgage-backed bonds or notes or other investments to the extent specified in
the related Prospectus Supplement.
Eligible Investments or Eligible Reserve Fund Investments with respect to a
Series will include only obligations or securities that mature on or before the
date on which the amounts in the Collection Account are required to be remitted
to the Trustee and amounts in the Certificate Account, any Reserve Fund or the
Subordinated Reserve Fund for such Series are required or may be anticipated to
be required to be applied for the benefit of Certificateholders of such Series.
Unless provided in the related Prospectus Supplement, the reinvestment
income from the Subordination Reserve Fund, other Reserve Fund, Servicer
Account, Collection Account or the Certificate Account will be property of the
Trustee, the Master Servicer or a Servicer and not available for distributions
to Certificateholders. See "Servicing of Loans" herein.
EVENT OF DEFAULT
Events of Default under the Pooling and Servicing Agreement for each Series
include (i) any failure by the Master Servicer to remit to the Trustee for
distribution to the Certificateholders of such Series any required payment which
continues unremedied for five business days, or one business day for certain
other required payments, after the giving of written notice of such failure,
requiring the same to be remedied, to the Master Servicer by the Trustee or the
Depositor for such Series, or to the Master Servicer, the Depositor and the
Trustee by the Holders of Certificates of such Series evidencing at least 25% of
Voting Rights of the Certificates for such Series, (ii) any failure by the
Master Servicer duly to observe or perform in any material respect any other of
its covenants or agreements in the Pooling and Servicing Agreement which
continues unremedied for 30 days after the giving of written notice of such
failure to the Master Servicer by the Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Trustee by the Holders of Certificates of such
Series evidencing at least 25% of the Voting Rights of the Certificates and
(iii) certain events in insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and certain actions by the Master
Servicer indicating its insolvency, reorganization or inability to pay its
obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series or Holders of
Certificates of such Series evidencing at least 51% of the aggregate outstanding
principal amount of the Certificates for such Series (the first 51% who provide
such notice) or the Depositor may terminate all of the rights and obligations of
the Master Servicer as servicer under the Pooling and Servicing Agreement and in
and to the Mortgage Loans (other than its right as a Certificateholder under the
Pooling and Servicing Agreement which rights the Master Servicer will retain
under all circumstances), whereupon the Trustee will succeed to all the
responsibilities, duties and liabilities
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of the Master Servicer under the Pooling and Servicing Agreement and will be
entitled to reasonable servicing compensation not to exceed the applicable
servicing fee, together with other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided in the Pooling
and Servicing Agreement. In the event that the Trustee would be obligated to
succeed the Master Servicer but is unwilling so to act, it may appoint (or if it
is unable so to act, it shall appoint) or petition a court of competent
jurisdiction for the appointment of, a FNMA- or FHLMC-approved mortgage
servicing institution with a net worth of at least $10,000,000 to act as a
successor to the Master Servicer under the Pooling and Servicing Agreement
(unless otherwise set forth in the Pooling and Servicing Agreement). Pending
such appointment, the Trustee is obligated to act in such capacity.
No Certificateholder of a Series, solely by virtue of such Holder's status
as a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing Agreement, unless such Holder previously has given to the
Trustee for such Series written notice of default and unless the Holders of
Certificates evidencing at least 25% of the aggregate outstanding principal
amount of the Certificates for such Series have made written request upon the
Trustee to institute such proceeding in its own name as Trustee thereunder and
have offered to the Trustee reasonable indemnity, and the Trustee for 60 days
has neglected or refused to institute any such proceeding.
THE TRUSTEE
The identity of the commercial bank, national banking association, banking
corporation, savings and loan association or trust company named as the Trustee
for each Series of Certificates will be set forth in the related Prospectus
Supplement. The entity serving as Trustee may have normal banking relationships
with the Depositor or the Master Servicer. In addition, for the purpose of
meeting the legal requirements of certain local jurisdictions, the Trustee will
have the power to appoint co-trustees or separate trustees of all or any part of
the Trust Fund relating to a Series of Certificates. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Pooling and Servicing Agreement relating to such Series
will be conferred or imposed upon the Trustee and each 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 may also
appoint agents to perform any of the responsibilities of the Trustee, which
agents shall have any or all of the rights, powers, duties and obligations of
the Trustee conferred on them by such appointment; provided that the Trustee
shall continue to be responsible for its duties and obligations under the
Pooling and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Pooling and Servicing Agreement, the Certificates or of any Mortgage Asset
or related documents. If no Event of Default (as defined in the related Pooling
and Servicing Agreement) has occurred, the Trustee is required to perform only
those duties specifically required of it under the Pooling and Servicing
Agreement. Upon receipt of the various certificates, statements, reports or
other instruments required to be furnished to it, the Trustee is required to
examine them to determine whether they are in the form required by the related
Pooling and Servicing Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished by it or the
Certificateholders to the Master Servicer under the Pooling and Servicing
Agreement.
The Trustee may be held liable for its own grossly negligent action or
failure to act, or for its own willful misconduct; provided, however, that the
Trustee will not be personally liable with respect to any action taken, suffered
or omitted to be taken by it in good faith in accordance with the direction of
the Certificateholders in an Event of Default. See "Rights Upon Event of
Default" above. The Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under a Pooling and Servicing Agreement, or in the exercise of any of its rights
or powers, if it has reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
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RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Depositor, the Master Servicer
and to all Certificateholders; provided, that such resignation shall not be
effective until a successor trustee is appointed. If no successor Trustee has
been appointed and has accepted the appointment within 60 days after giving such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee; provided, that such the
resigning Trustee shall not resign and be discharged until such time as the
successor trustee is approved by each Rating Agency. The Trustee may also be
removed at any time (i) by the Depositor, if the Trustee ceases to be eligible
to continue as such under the Pooling and Servicing Agreement, (ii) if the
Trustee becomes insolvent, (iii) if a tax is imposed or threatened with respect
to the Trust Fund by any state in which the Trustee or the Trust Fund held by
the Trustee pursuant to the Pooling and Servicing Agreement is located, or (iv)
by the Holders of Certificates evidencing at least 51% of the aggregate
outstanding principal amount of the Certificates in the Trust Fund upon notice
to the Trustee and to the Depositor. Any resignation or removal of the Trustee
and appointment of a successor Trustee will not become effective until
acceptance of the appointment by the successor Trustee.
CERTIFICATE ACCOUNT
The Trustee will establish a separate account (the "Certificate Account") in
its name as Trustee for the Certificateholders, or if it is so specified in the
related Prospectus Supplement, the Certificate Account may be established by the
Master Servicer in the name of the Trustee. Unless otherwise specified in the
related Prospectus Supplement, the Certificate Account will be an Eligible
Account, and the funds held therein may be invested, pending disbursement to
Certificateholders of the related Series, pursuant to the terms of the Pooling
and Servicing Agreement, in Eligible Investments. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer or the Trustee will be
entitled to receive, as additional compensation, any interest or other income
earned on funds in the Certificate Account. There will be deposited into the
Certificate Account monthly all funds received from the Master Servicer and
required withdrawals from any reserve funds. Unless otherwise specified in the
related Prospectus Supplement, the Trustee is permitted from time to time to
make withdrawals from the Certificate Account for each Series to remove amounts
deposited therein in error, to pay to itself or the Master Servicer any
reinvestment income on funds held in the Certificate Account to the extent it is
entitled, to remit to the Master Servicer its Servicing Fee, assumption or
substitution fees, late payment charges and other mortgagor charges,
reimbursement of Advances and expenses, to make deposits to any reserve fund, to
make regular distributions to the Certificateholders, to clear and terminate the
Certificate Account and to make other withdrawals as required or permitted by
the related Pooling and Servicing Agreement.
EXPENSE RESERVE FUND
If specified in the Prospectus Supplement relating to a Series, the
Depositor may deposit on the related Closing Date in an account to be
established with the Trustee (the "Expense Reserve Fund") cash or Eligible
Investments which will be available to pay anticipated fees and expenses of the
Trustee or other agents. The Expense Reserve Fund for a Series may also be
funded over time through the deposit therein of all or a portion of cash flow,
to the extent described in the related Prospectus Supplement. The Expense
Reserve Fund, if any, will not be part of the Trust Fund held for the benefit of
the Holders. Amounts on deposit in any Expense Reserve Fund will be invested in
one or more Eligible Investments.
AMENDMENT OF POOLING AND SERVICING AGREEMENT
Unless otherwise specified in the Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates may be amended by the
Depositor, the Master Servicer, and the Trustee with respect to such Series,
without notice to or consent of the Certificateholders (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein, (iii) to make any
other provisions with respect to matters or questions arising under such Pooling
and Servicing Agreement which are not inconsistent with any other provisions of
such Pooling and Servicing Agreement or (iv) to comply with any requirements
imposed by the Code; provided that such amendment (other than pursuant to clause
(iv) above) will not adversely affect in any material respect the interests of
any Certificateholders of such Series.
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The Pooling and Servicing Agreement for each Series may also be amended by
the Trustee, the Master Servicer and the Depositor with respect to such Series
with the consent of the Holders possessing not less than 66 2/3% of the
aggregate outstanding principal amount of the Certificates of each Class of such
Series affected thereby, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of such Pooling and Servicing
Agreement or modifying in any manner the rights of Certificateholders of such
Series; provided, however, that no such amendment may (i) reduce the amount or
delay the timing of payments on any Certificate without the consent of the
Holder of such Certificate; (ii) adversely affect the REMIC status, if a REMIC
election or elections have been made, for the related Trust Fund of a Series; or
(iii) reduce the aforesaid percentage of aggregate outstanding principal amount
of Certificates of each Class, the Holders of which are required to consent to
any such amendment without the consent of the Holders of 100% of the aggregate
outstanding principal amount of each Class of Certificates affected thereby.
Notwithstanding the foregoing, if a REMIC election or elections have been
made with respect to the related Trust Fund, the Trustee will not be entitled to
consent to any amendment to a Pooling and Servicing Agreement without having
first received an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Master Servicer, the Depositor or the
Trustee in accordance with such amendment will not result in the imposition of a
tax on the related Trust Fund or any related REMIC or cause such Trust Fund or
any such REMIC to fail to qualify as a REMIC.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method of determining
allocation of voting rights with respect to a Series, if other than as set forth
herein.
REMIC ADMINISTRATOR
With respect to any Multiple Class Series, preparation of certain reports
and certain other administrative duties with respect to the Trust Fund may be
performed by a REMIC administrator, who may be an affiliate of the Depositor.
TERMINATION
The obligations created by the Pooling and Servicing Agreement for a Series
will terminate upon the distribution to Certificateholders of all amounts
distributable to them pursuant to such Pooling and Servicing Agreement after (i)
the later of the final payment or other liquidation of the last Mortgage Loan
remaining in the Trust Fund for such Series or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure in respect of any
Mortgage Loan or (ii) the repurchase by the Master Servicer or the Depositor (or
other party as specified in the Prospectus Supplement) from the Trustee for such
Series of all Mortgage Loans at that time subject to the Pooling and Servicing
Agreement and all property acquired in respect of any Mortgage Loan. The
exercise of such right will effect early retirement of the Certificates of such
Series, but such right to so purchase is subject to the aggregate principal
balances of the Mortgage Loans at the time of repurchase being less than a fixed
percentage, to be set forth in the related Prospectus Supplement, of the Cut-off
Date Aggregate Principal Balance. In no event, however, will the trust created
by the Pooling and Servicing Agreement continue beyond the expiration of 21
years from the death of the last survivor of certain persons identified therein.
For each Series, the Master Servicer or the Trustee, as applicable, will give
written notice of termination of the Pooling and Servicing Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency specified in the
notice of termination. See "Description of the Certificates--Optional
Termination" herein.
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CERTAIN LEGAL ASPECTS OF LOANS
The following discussion contains summaries of certain legal aspects of
housing loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the
properties securing the housing loans are situated. The summaries are qualified
in their entirety by reference to the applicable federal and state laws
governing the Loans.
MORTGAGES
The Mortgage Loans comprising or underlying the Mortgage Assets for a Series
will be secured by either mortgages or deeds of trust or deeds to secure debt,
depending upon the prevailing practice in the state in which the property
subject to a Mortgage Loan is located. The filing of a mortgage, deed of trust
or deed to secure debt creates a lien or title interest upon the real property
covered by such instrument and represents the security for the repayment of an
obligation that is customarily evidenced by a promissory note. It is not prior
to the lien for real estate taxes and assessments or other charges imposed under
governmental police powers. Priority with respect to such instruments depends on
their terms and in some cases the term of separate subordination or
intercreditor agreements, the knowledge of the parties to the mortgage and
generally on the order of recording with the applicable state, county or
municipal office. There are two parties to a mortgage, the mortgagor, who is the
borrower/homeowner or the land trustee (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. A deed of trust transaction normally has
three parties, the trustor, who is the borrower/homeowner, the beneficiary, who
is the lender, and the trustee, a third-party grantee. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the
obligation. A deed to secure debt typically has two parties, pursuant to which
the borrower, or grantor, conveys title to the real property to the grantee, or
lender, generally with a power of sale, until such times as the debt is repaid.
The mortgagee's authority under a mortgage or a deed to secure debt and the
trustee's authority under a deed of trust are governed by the law of the state
in which the real property is located, the express provisions of the mortgage,
the deed to secure debt, or deed of trust, and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced by
promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under the
Code and in the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the corporations'
buildings. The security agreement will create a lien upon, or grant a title
interest in, the cooperative shares and proprietary leases or occupancy
agreements, the priority of which will depend on the terms of the particular
security agreement as well as the order of recordation of the agreement or the
filing of the financing statements related thereto in the appropriate recording
office, or the taking of possession of the cooperative shares; depending on the
law of the state where the cooperative is located. Such a lien or security
interest is not, in general, prior to liens in favor of the cooperative
corporation for unpaid assessments or common charges. Such a lien or security
interest is not prior to the lien for real estate taxes and assessments and
other charges imposed under governmental police powers.
Unless otherwise specified in the related Prospectus Supplement, all
cooperative apartments relating to the Cooperative Loans are located in the
State of New York. A corporation which is entitled to be treated as a housing
cooperative under the Code owns all the real property or some interest therein
sufficient to permit it to own the building and all separate dwelling units
therein. The Cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage or mortgages on the cooperative apartment building
and/or underlying land, as is
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generally the case, or an underlying lease of the land, as is the case in some
instances, the Cooperative, as property mortgagor, is also responsible for
meeting these mortgage or rental obligations. The interest of the occupant under
proprietary leases or occupancy agreements as to which that Cooperative is the
landlord are generally subordinate to the interest of the holder of a blanket
mortgage and to the interest of the holder of a land lease. If the Cooperative
is unable to meet the payment obligations (i) arising under a blanket mortgage,
the mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the land lease could terminate it
and all subordinate proprietary leases and occupancy agreements. Also, a blanket
mortgage on a Cooperative may provide financing in the form of a mortgage that
does not fully amortize, with a significant portion of principal being due in
one final payment at maturity. The inability of the Cooperative to refinance a
mortgage and its consequent inability to make such final payment could lead to
foreclosure by the mortgagee. Similarly, a land lease has an expiration date and
the inability of the Cooperative to extend its term or, in the alternative, to
purchase the land could lead to termination of the Cooperative's interest in the
property and termination of all proprietary leases and occupancy agreements. A
foreclosure by the holder of a blanket mortgage could eliminate or significantly
diminish the value of any collateral held by the lender who financed an
individual tenant-stockholder of Cooperative shares or, in the case of the
Mortgage Loans, the collateral securing the Cooperative Loans. Similarly, the
termination of the land lease by its holder could eliminate or significantly
diminish the value of any collateral held by the lender who financed an
individual tenant-stockholder of the Cooperative shares or, in the case of the
Mortgage Loans, the collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a Cooperative must make a monthly payment to the
Cooperative representing such tenant-stockholder's pro rata share of the
Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying occupancy rights are financed through
a Cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related Cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement and a
financing statement covering the proprietary lease or occupancy agreement and
the Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "Realizing on Cooperative Loan Security" below.
TAX ASPECTS OF COOPERATIVE OWNERSHIP. In general, a "tenant-stockholder"
(as defined in Section 216(b)(2) of the Code) of a corporation that qualifies as
a "cooperative housing corporation" within the meaning of Section 216(b)(1) of
the Code is allowed a deduction for amounts paid or accrued within his taxable
year to the corporation representing his proportionate share of certain interest
expenses and certain real estate taxes allowable as a deduction under Section
216(a) of the Code to the corporation under Sections 163 and 164 of the Code. In
order for a corporation to qualify under Section 216(b)(1) of the Code for its
taxable year in which such items are allowable as a deduction to the
corporation, such section requires, among other things, that at least 80% of the
gross income of the corporation be derived from its tenant-stockholders. By
virtue of this requirement, the status of a corporation for purposes of Section
216(b)(1) of the Code must be determined on a year-to-year basis. Consequently,
there can be no assurance that cooperatives relating to the Cooperative Loans
will qualify under such section for any particular year. In the event that such
a cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Section 216(a) of the Code with respect to those years. In view of the
significance
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of the tax benefits accorded tenant-stockholders of a corporation that qualifies
under Section 216(b)(1) of the Code, the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
FORECLOSURE ON MORTGAGES
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust which authorizes the trustee to sell the property 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 to any person who has recorded a request for a copy of a
notice of default and notice of sale. In addition, the trustee in some states
must provide notice to any other individual having an interest in the real
property, including any junior lienholders. The trustor, borrower, or any person
having a junior encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears plus the costs
and expenses incurred in enforcing the obligation. Generally, state law controls
the amount of foreclosure expenses and costs, including attorney's fees, which
may be recovered by a lender. If the deed of trust is not reinstated, a notice
of sale must be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the property, recorded
and sent to all parties having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage debt
by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the mortgage note and the
mortgage as made and cannot be relieved from his default if the mortgagee has
exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith,
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain circumstances a court
of equity may relieve the mortgagor from an entirely technical default where
such default was not willful.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring up to
several years to complete. Similarly, a suit against the debtor on the mortgage
note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In case of foreclosure under either a mortgage, a deed of trust, or a deed
to secure debt, the sale by the referee or other designated officer or by the
trustee is a public sale. However, because of the difficulty potential third
party purchasers at the sale 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 a foreclosure sale. It is common for the lender to purchase the
property from the trustee or referee for an amount which may be equal to the
principal amount of the mortgage or deed of trust plus accrued and unpaid
interest and the expenses of foreclosure, in which event the mortgagor's debt
will be extinguished or the lender may purchase for a lesser amount in order to
preserve its right against a borrower to seek a deficiency judgment in states
where such a judgment is available. 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 guaranty insurance proceeds.
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
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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 proceedings.
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an interest
in the property which is subordinate to the foreclosing mortgagee, from their
"equity of redemption." The doctrine of equity of redemption provides that,
until the property covered by a mortgage has been sold in accordance with a
properly conducted foreclosure and foreclosure sale, those having an interest
which is subordinate to that of the foreclosing mortgagee have an equity of
redemption and may redeem the property by paying the entire debt with interest.
In addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay certain costs of such action. Those having an equity of
redemption must be made parties and duly summoned to the foreclosure action in
order for their equity of redemption to be barred.
REALIZING UPON COOPERATIVE LOAN SECURITY
The Cooperative shares and proprietary lease or occupancy agreement owned by
the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the Cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the Cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the Cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the Cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the Cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the tenant-
stockholder under the proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between the lender and the
tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from a sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement or which have become liens on the shares relating
to the proprietary lease or occupancy agreement. The total amount owed to the
Cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the Cooperative Loan and accrued and unpaid
interest thereon.
Recognition agreements also generally provide that in the event the lender
succeeds to the tenant-shareholder's shares and proprietary lease or occupancy
agreement as the result of realizing upon its collateral for a Cooperative Loan,
the lender must obtain the approval or consent of the Cooperative as required by
the proprietary lease before transferring the Cooperative shares and assigning
the proprietary lease. Generally, the lender is not limited in any rights it may
have to dispossess the tenant-stockholder.
The terms of the Cooperative Loans do not require either the
tenant-stockholder or the cooperative to obtain title insurance of any type.
Consequently, the existence of any prior liens or other imperfections of title
also may adversely affect the marketability of the cooperative dwelling unit in
the event of foreclosure.
In New York, lenders generally have realized upon the pledged shares and
proprietary lease or occupancy agreement given to secure a Cooperative Loan by
public sale in accordance with the provisions of Article 9 of the New York
Uniform Commercial Code (the "UCC") and the security agreement relating to
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those shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given the
debtor and the method, manner, time, place and terms of the sale. Generally, a
sale conducted according to the usual practice of banks selling similar
collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or a deed to secure
debt or foreclosure of a mortgage, the trustor or mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. The right of redemption should be distinguished from the
equity of redemption, which is a nonstatutory right that must be exercised prior
to the foreclosure sale. 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 right of redemption would defeat the title of any purchaser from
the lender subsequent to foreclosure or sale under a deed of trust or a deed to
secure debt. Consequently, the practical effect of a right of redemption is to
force the lender to retain the property and pay the expenses of ownership until
the redemption period has run. In some states, there is no right to redeem
property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage or a deed
to secure debt. 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 is 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, deed to secure
debt or mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower. In certain other states, the
lender has the option of bringing a personal action against the borrower on the
debt without first exhausting such security; however in some of these states,
the lender, following judgment on such personal action, may be deemed to have
elected a remedy and may be precluded from exercising remedies with respect to
the security. Consequently, the practical effect of the election requirement, in
those states permitting such election, is that lenders will usually proceed
against the security first rather than 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. Certain state laws
also place a limitation on the mortgagee with respect to late payment charges.
With respect to mortgage loans secured by collateral in addition to the
related mortgaged properties, realization upon the additional collateral may be
governed by the Uniform Commercial Code in effect under the law of the state
applicable thereto. Some courts have interpreted the Uniform Commercial Code to
prohibit or limit a deficiency award in certain circumstances, including those
in which the disposition of the collateral was not conducted in a commercially
reasonable manner. In some states, the Uniform Commercial
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Code does not apply to liens upon additional collateral consisting of certain
types of personal property (including, for example, bank accounts and, to a
certain extent, insurance policies and annuities). Realization upon such
additional collateral will be governed by state laws applicable thereto rather
than by the Uniform Commercial Code, and the availability of deficiency awards
under such state laws may be limited. Whether realization upon any Additional
Collateral is governed by the Uniform Commercial Code or by other state laws,
the ability of secured parties to realize upon the additional collateral may be
limited by statutory prohibitions that limit remedies in respect of the related
mortgage loans. Such prohibitions may affect secured parties either
independently or in conjunction with statutory requirements that secured parties
proceed against the related mortgaged properties first or against both such
mortgaged properties and the additional collateral concurrently. Some state
statutes require secured parties to exhaust the security afforded by the
mortgaged properties through foreclosure before attempting to realize upon the
related additional collateral (including any third-party guarantees). Other
state statutes require secured parties to foreclose upon mortgaged properties
and additional collateral concurrently. In states where statutes limit the
rights of secured parties to obtain deficiency judgments against borrowers or
guarantors following foreclosure upon the related mortgaged properties and where
secured parties either are required or elect to proceed against such mortgaged
properties before proceeding against the related additional collateral,
limitations upon the amounts of deficiency judgments may reduce the amounts that
may be realized by the secured parties upon the disposition of such additional
collateral. Further, in certain states where secured parties may choose whether
to proceed against the related mortgaged properties or additional collateral
first or against both concurrently, the secured parties, following a proceeding
against one, may be deemed to have elected a remedy and may be precluded from
exercising remedies with respect to the other. Consequently, the practical
effect of the election requirement, in those states permitting such election, is
that secured parties will usually proceed against both concurrently or against
the mortgaged properties first if prohibited from proceeding against both by
state law.
FOR COOPERATIVE LOANS. Generally, lenders realize on cooperative shares and
the accompanying proprietary lease given to secure a Cooperative Loan under
Article 9 of the UCC. Some courts have interpreted
section 9-504 of the UCC to prohibit a deficiency award unless the creditor
establishes that the sale of the collateral (which, in the case of a Cooperative
Loan, would be the shares of the Cooperative and the related proprietary lease
or occupancy agreement) was conducted in a commercially reasonable manner.
FEDERAL BANKRUPTCY AND OTHER LAWS AFFECTING CREDITORS' RIGHTS. In addition
to laws limiting or prohibiting deficiency judgments, numerous other statutory
provisions, including the federal bankruptcy laws, the Relief Act, and state
laws affording relief to debtors, may interfere with or affect the ability of
the secured 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 for collection of a
debt. Moreover, a court with federal bankruptcy jurisdiction may permit a debtor
through a Chapter 13 under the Bankruptcy Code rehabilitative plan to cure a
monetary default with respect to a loan on a debtor's residence by paying
arrearages within a reasonable time period and reinstating the original loan
payment schedule even though the lender accelerated the loan and the lender has
taken all steps to realize upon his security (provided no sale of the property
has yet occurred) prior to the filing of the debtor's Chapter 13 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 loan
default by permitting the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a loan secured by property of the debtor may be modified if the
borrower has filed a petition under 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. Federal bankruptcy law and
limited case law indicate that the foregoing modifications could not be applied
to the terms of a loan secured 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, attorney's fees and costs to the extent
the value of the security exceeds the debt.
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Therefore, with respect to any Additional Collateral Loan secured by property of
the debtor in addition to the debtor's principal residence, courts with federal
bankruptcy jurisdiction may reduce the amount of each monthly payment, change
the rate of interest, alter the repayment schedule, forgive all or a portion of
the debt, reduce the lender's security interest to the value of the collateral
and otherwise subject such mortgage loan to the cramdown provisions of Chapter
13.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded from
foreclosing without authorization from the bankruptcy court. The lender's lien
may be transferred to other collateral and/or be limited in amount to the value
of the lender's interest in the collateral as of the date of the bankruptcy. The
loan term may be extended, the interest rate may be adjusted to market rates and
the priority of the loan may be subordinated to bankruptcy court-approved
financing. The bankruptcy court can, in effect, invalidate due-on-sale clauses
through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code provides priority to certain tax liens over the lender's
security. This may delay or interfere with the enforcement of rights in respect
of a defaulted Loan. In addition, substantive requirements are imposed upon
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. The laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. These federal laws impose specific statutory
liabilities upon lenders who originate loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
loans. With respect to mortgage loans secured by collateral in addition to the
related mortgaged properties, such tax liens may in certain circumstances
provide priority over the lien on such additional collateral.
Certain of the Mortgage Loans may be subject to special rules, disclosure
requirements and other provisions that were added to the federal
Truth-in-Lending Act by the Homeownership and Equity Protection Act of 1994
(such Mortgage Loans, "High Cost Loans"), if such Mortgage Loans were originated
on or after October 1, 1995, are not mortgaged loans made to finance the
purchase of the mortgaged property and have interest rates or origination costs
in excess of certain prescribed levels. Purchasers or assignees of any High Cost
Loan could be liable for all claims and subject to all defenses arising under
such provisions that the borrower could assert against the originator thereof.
Remedies available to the borrower include monetary penalties, as sell as
rescission rights if the appropriate disclosures were not given as required. See
"Loan Underwriting Procedures and Standards--Representations and Warranties."
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT. Generally, 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 of such borrower's
Mortgage Loan (including a borrower who is a member of the National Guard or is
in reserve status at the time of the origination of the Mortgage Loan and is
later called to active duty) may not be charged interest 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. It is possible that such
interest rate limitation could have an effect, for an indeterminate period of
time, on the ability of the Trust Fund to collect full amounts of interest on
certain of the Mortgage Loans. Unless otherwise provided in the applicable
Prospectus Supplement, any shortfall in interest collections resulting from the
application of the Relief Act could result in losses to the holders of the
Certificates. In addition, the Relief Act imposes limitations which would impair
the ability of the Trust Fund to foreclose on an affected Mortgage Loan during
the borrower's period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgaged Property in a timely fashion.
DUE-ON-SALE CLAUSES IN MORTGAGE LOANS
Unless the Prospectus Supplement indicates otherwise, the Loans generally
contain due-on-sale clauses. These clauses permit the lender to accelerate the
maturity of the loan if the borrower sells, transfers or conveys the property.
The enforceability of these clauses has been the subject of legislation or
litigation in many states, and in some cases the enforceability of these clauses
has been limited or denied. However, the
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Garn-St Germain Depository Institutions Act of 1982 (the "Garn-St Germain Act"),
preempts state constitutional, statutory and case law that prohibit the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. 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.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act 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 fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of a prepayment penalty upon the acceleration of a loan pursuant
to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the average
life of the Mortgage Loans and the number of Mortgage Loans which may be
outstanding until maturity.
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have required that 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 the lender to foreclose if the default under the mortgage
instrument is not monetary, such as the borrower failing to adequately maintain
the property or the borrower executing a second mortgage or deed of trust
affecting the property. Finally, 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.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security, courts
have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of his defaults
under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes for the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that 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 realize upon his
security if the default under the security agreement is not monetary, such as
the borrower's failure to adequately maintain the property or the borrower's
execution of secondary financing affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
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provisions reflecting due process concerns for adequate notice require that
borrowers under security agreements receive notices in addition to the
statutorily-prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that, in cases involving the
sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
The Mortgage Loans may include a debt-acceleration clause, which permits the
lender to accelerate the debt upon a monetary default of the borrower, after the
applicable cure period. The courts of all states will enforce clauses providing
for acceleration in the event of a material payment default. However, courts of
any state, exercising equity jurisdiction, may refuse to allow a lender to
foreclose a mortgage or deed of trust when an acceleration of the indebtedness
would be inequitable or unjust and the circumstances would render the
acceleration unconscionable.
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.
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. Similar federal statutes
were in effect with respect to mortgage loans made during the first three months
of 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. Title V authorizes any state to reimpose
interest rate limits by adopting, before April 1, 1983, a state law, or by
certifying that the voters of such state have voted in favor of any provision,
constitutional or otherwise, which expressly rejects an application of the
federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. 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.
In any state in which application of Title V has been expressly rejected or
a provision limiting discount points or other charges is adopted, no Mortgage
Loans originated after the date of such state action will be eligible as
Mortgage Assets if such Mortgage Loans bear interest or provide for discount
points or charges in excess of permitted levels. No Mortgage Loan originated
prior to January 1, 1980 will bear interest or provide for discount points or
charges in excess of permitted levels.
ADJUSTABLE INTEREST RATE LOANS
ARMs originated by non-federally chartered lenders have historically been
subject to a variety of restrictions. Such restrictions differed from state to
state, resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender complied with
applicable law. These difficulties were alleviated substantially as a result of
the enactment of Title VIII of the Garn-St Germain Act ("Title VIII"). Title
VIII provides that, notwithstanding any state law to the contrary, state-
chartered banks may originate "alternative mortgage instruments" (including
ARMs) in accordance with regulations promulgated by the Comptroller of the
Currency with respect to origination of alternative mortgage instruments by
national banks; state chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National Credit
Union Administration with respect to origination of alternative mortgage
instruments by federal credit unions and all other non-federally chartered
housing creditors, including state-chartered savings and loan associations; and
state-chartered savings banks and mortgage banking companies may originate
alternative mortgage instruments in accordance with the regulations promulgated
by the Federal Home Loan Bank Board, as succeeded by the
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OTS, with respect to origination of alternative mortgage instruments by federal
savings and loan associations. Title VIII provides that any state may reject
applicability of the provisions of Title VIII by adopting, prior to October 15,
1985, a law or constitutional provision expressly rejecting the applicability of
such provisions. Certain states have taken such action.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property that
is the subject of a cleanup action by the state on account of hazardous wastes
or hazardous substances released or disposed of on the property. Such a lien
will generally have priority over all subsequent liens on the property and, in
certain of these states, will have priority over prior recorded liens including
the lien of a mortgage. In addition, under federal environmental legislation and
possibly under state law in a number of states, a secured party which takes a
deed in lieu of foreclosure or acquires a mortgaged property at a foreclosure
sale or otherwise is deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a secured
lender.
MANUFACTURED HOME LOANS
SECURITY INTERESTS IN THE MANUFACTURED HOMES. Law governing perfection of a
security interest in a Manufactured Home varies from state to state. Security
interests in Manufactured Homes may be perfected either by notation of the
secured party's lien on the certificate of title or by delivery of the required
documents and payment of a fee to the state motor vehicle authority, depending
on state law. In some nontitle states, perfection pursuant to the provisions of
the UCC is required. The lender or a servicer may effect such notation or
delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home securing a Manufactured Home Loan is registered. In the event
such notation or delivery is not effected or the security interest is not filed
in accordance with the applicable law (for example, is filed under a motor
vehicle title statute rather than under the UCC, in a few states), a first
priority security interest in the Manufactured Home securing a Manufactured Home
Loan may not be obtained.
As Manufactured Homes have become larger and often have been attached to
their sites without any apparent intention to move them, courts in many states
have held that Manufactured Homes, under certain circumstances, may become
subject to real estate title and recording laws. As a result, a security
interest in a Manufactured Home could be rendered subordinate to the interests
of other parties claiming an interest in the Manufactured Home under applicable
state real estate law. In order to perfect a security interest in a Manufactured
Home under real estate laws, the holder of the security interest must file
either a "fixture filing" under the provisions or the UCC or a real estate
mortgage under the real estate laws of the state where the home is located.
These filings must be made in the real estate records office of the county where
the home is located. Manufactured Home Loans typically contain provisions
prohibiting the borrower from permanently attaching the Manufactured Home to its
site. So long as the borrower does not violate this agreement, a security
interest in the Manufactured Home will be governed by the certificate of title
laws or the UCC, and the notation of the security interest on the certificate of
title or the filing of a UCC financing statement will be effective to maintain
the priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the manufactured home which is prior to the security
interest originally retained by the lender or its assignee.
With respect to a Series of Certificates evidencing interests in a Trust
Fund that includes Manufactured Home Loans and as described in the related
Prospectus Supplement, the Master Servicer may be required to perfect a security
interest in the Manufactured Home under applicable real estate laws. If such
real estate filings are not made and if any of the foregoing events were to
occur, the only recourse of the Certificateholders would be against the Seller
pursuant to its repurchase obligation for breach of warranties. A PMBS Agreement
pursuant to which Private Mortgage-Backed Securities backed by Manufactured Home
Loans are issued will, unless otherwise specified in the related Prospectus
Supplement, have substantially similar requirements for perfection of a security
interest.
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In general, upon an assignment of a Manufactured Home Loan, the certificate
of title relating to the Manufactured Home will not be amended to identify the
assignee as the new secured party. In most states, an assignment is an effective
conveyance of such security interest without amendment of any lien noted on the
related certificate of title and the new secured party succeeds to the
assignor's rights as the secured party. However, in some states there exists a
risk that, in the absence of an amendment to the certificate of title, such
assignment of the security interest might not be held effective against
creditors of the assignor.
RELOCATION OF A MANUFACTURED HOME. In the event that the owner of a
Manufactured Home moves the home to a state other than the state in which such
Manufactured Home initially is registered, under the laws of most states the
perfected security interest in the Manufactured Home would continue for four
months after such relocation and thereafter only if and after the owner
reregisters the Manufactured Home in such state. If the owner were to relocate a
Manufactured Home to another state and not reregister the Manufactured Home in
such state, and if steps are not taken to reperfect the Trustee's security
interest in such state, the security interest in the Manufactured Home would
cease to be perfected. A majority of states generally require surrender of a
certificate of title to reregister a Manufactured Home; accordingly, possession
of the certificate of title to such Manufactured Home must be surrendered or, in
the case of Manufactured Homes registered in states which provide for notation
of lien, the notice of surrender must be given to any person whose security
interest in the Manufactured Home is noted on the certificate of title.
Accordingly, the owner of the Manufactured Home Loan would have the opportunity
to reperfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, reregistration could defeat perfection. In
the ordinary course of servicing the Manufactured Home Loans, the Master
Servicer will be required to take steps to effect reperfection upon receipt of
notice of reregistration or information from the borrower as to relocation.
Similarly, when a borrower under a Manufactured Home Loan sells the related
Manufactured Home, the Trustee must surrender possession of the certificate of
title or the Trustee will receive notice as a result of its lien noted thereon
and accordingly will be an opportunity to require satisfaction of the related
Manufactured Home Loan before release of the lien. Under the Pooling and
Servicing Agreement, the Master Servicer is obligated to take such steps, at the
Master Servicer's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes. PMBS Agreements pursuant to which Private
Mortgage-Backed Securities backed by Manufactured Home Loans are issued will
impose substantially similar requirements.
INTERVENING LIENS. Under the laws of most states, liens for repairs
performed on a Manufactured Home take priority even over a perfected security
interest. The Master Servicer or the originator of such Loans will represent
that it has no knowledge of any such liens with respect to any Manufactured Home
securing payment on any Manufactured Home Loan. However, such liens could arise
at any time during the term of a Manufactured Home Loan. No notice will be given
to the Trustee or Certificateholders in the event such a lien arises. PMBS
Agreements pursuant to which Private Mortgage-Backed Securities backed by
Manufactured Home Loans are issued will contain substantially similar
requirements.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES. So long as the
Manufactured Home has not become subject to the real estate law, a creditor can
repossess a Manufactured Home securing a Manufactured Home Loan by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e., without breach
of the peace) or in the absence of voluntary surrender and the ability to
repossess without breach of the peace, by judicial process. The holder of a
Manufactured Home Loan must give the debtor a number of days notice, which
varies from 10 to 30 days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. The law in most
states also requires that the debtor be given notice of any sale prior to resale
of the unit so that the debtor may redeem at or before such resale. In the event
of such repossession and resale of a Manufactured Home, the holder of a
Manufactured Home Loan would be entitled to be paid out of the sale proceeds
before such proceeds could be applied to the payment of the claims of unsecured
creditors or the holders or subsequently perfected interests or, thereafter, to
the borrower.
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Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a borrower for any deficiency on repossession and
resale of the Manufactured Home securing such borrower's loan. However, some
states impose prohibitions or limitations on deficiency judgments. See
"Anti-deficiency Legislation and Other Limitations on Lenders" above.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment. See "Federal Bankruptcy and Other Laws Affecting Creditors' Rights"
and "Equitable Limitations on Remedies" above.
CONSUMER PROTECTION LAWS. The so-called "Holder-In-Due-Course" rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract who is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the borrower thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the borrower could assert against the seller of goods. Liability under
this rule is limited to amounts paid under a Manufactured Home Loan; however,
the borrower also may be able to assert the rule to set off remaining amounts
due as a defense against a claim brought against such borrower. Numerous other
federal and state consumer protection laws impose requirements applicable to the
origination and lending pursuant to the Manufactured Home Loan, including the
Truth-in-Lending Act, the Federal Trade Commission Act, the Fair Credit Billing
Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair
Debt Collection Practices Act and the Uniform Consumer Credit Code. In the case
of some of these laws, the failure to comply with their provisions may affect
the enforceability of the related Manufactured Home Loan.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES.
Loans and installment sale contracts relating to a Manufactured Home Loan
typically prohibit the sale or transfer of the related Manufactured Homes
without the consent of the lender and permit the acceleration of the maturity of
the Manufactured Home Loans by the lender upon any such sale or transfer for
which no such consent is granted.
In the case of a transfer of a Manufactured Home, the lender's ability to
accelerate the maturity of the related Manufactured Home Loan will depend on the
enforceability under state law of the "due-on-sale" clause. The Garn-St Germain
Depository Institutions Act of 1982 preempts, subject to certain exceptions and
conditions, state laws prohibiting enforcement of "due-on-sale" clauses
applicable to the Manufactured Homes. See "Due-on-Sale Clauses in Mortgage
Loans" above. With respect to any Manufactured Home Loan secured by a
Manufactured Home occupied by the borrower, the ability to accelerate will not
apply to those types of transfers discussed in "Due-on-Sale Clauses in Mortgage
Loans" above. FHA Loans and VA Loans are not permitted to contain "due-on-sale"
clauses, and so are freely assumable.
APPLICABILITY OF USURY LAWS. Title V provides that, subject to the
following conditions, state usury limitations shall not apply to any loan which
is secured by a first lien on certain kinds of Manufactured Homes. The
Manufactured Home Loans would be covered if they satisfy certain conditions,
among other things, governing the terms of any prepayments, late charges and
deferral fees and requiring a 30-day notice period prior to instituting any
action leading to repossession of or foreclosure with respect to the related
unit. See "Applicability of Usury Laws" above.
LOUISIANA LAW. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an installment
sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently affixed
to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the
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motor vehicle registration laws if the obligor executes and files various
documents in the appropriate real estate records and all mortgagees under real
estate mortgages on the property and the land to which it was affixed file
releases with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale (without court
supervision) is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment against the
obligor unless the lender obtained an appraisal of the manufactured home prior
to the sale and the property was sold for at least two-thirds of its appraised
value.
FORMALDEHYDE LITIGATION. A number of lawsuits are pending in the United
States alleging personal injury from exposure to the chemical formaldehyde,
which is present in many building materials, including such components of
manufactured housing as plywood flooring and wall paneling. Some of these
lawsuits are pending against manufacturers of manufactured housing, suppliers of
component parts, and related persons in the distribution process. The Depositor
is aware of a limited number of cases in which plaintiffs have won judgments in
these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Loan secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Loan and may be unable
to collect amounts still due under the Loan. In the event an obligor is
successful in asserting such a claim, the related Certificateholders could
suffer a loss if (i) the related Seller fails or cannot be required to
repurchase the affected Loan for a breach of representation and warranty and
(ii) the Master Servicer or the Trustee were unsuccessful in asserting any claim
of contribution or subrogation on behalf of the Certificateholders against the
manufacturer or other persons who were directly liable to the plaintiff for the
damages. Typical products liability insurance policies held by manufacturers and
component suppliers of manufactured homes may not cover liabilities arising from
formaldehyde in manufactured housing, with the result that recoveries from such
manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT. Generally, under the terms of the
Relief Act, a borrower who enters military service after the origination of such
borrower's Manufactured Home Loan (including a borrower who is a member of the
National Guard or is in reserve status at the time of the origination of the
Manufactured Home Loan and is later called to active duty) may not be charged
interest 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. It
is possible that such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Trust Fund to collect full
amounts of interest on certain of the Manufactured Home Loans. Unless otherwise
provided in the applicable Prospectus Supplement, any shortfall in interest
collections resulting from the application of the Relief Act could result in
losses to the holders of the Certificates. In addition, the Relief Act imposes
limitations which would impair the ability of the Trust Fund to enforce the lien
with respect to an affected Manufactured Home Loan during the borrower's period
of active duty status. Thus, in the event that such a Manufactured Home Loan
goes into default, there may be delays and losses occasioned by the inability to
enforce the lien with respect to the Manufactured Home in a timely fashion.
FORFEITURES IN DRUG AND RICO PROCEEDINGS. Federal law provides that
property owned by persons convicted of drug-related crimes or of 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
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(the "Crime Control Act"), 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 the
commission of the crime upon which the forfeiture is based, or (ii) the lender
was, at the time of the 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereunder where Thacher Proffitt & Wood is identified in
the applicable Prospectus Supplement as counsel to the Depositor (hereinafter
"Counsel to the Depositor"). This discussion is directed solely to
Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code") and
does not purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which (such as banks,
insurance companies and foreign investors) may be subject to special rules.
Further, the authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing interpretations, which could
apply retroactively. Taxpayers should consult their own tax advisors and tax
return preparers regarding the preparation of any item on a tax return, even
where the anticipated tax treatment has been discussed herein. In addition to
the federal income tax consequences described herein, potential investors should
consider the state and local tax consequences, if any, of the purchase,
ownership and disposition of the Certificates. See "State and Other Tax
Consequences." Certificateholders are advised to consult their own tax advisors
concerning the federal, state, local or other tax consequences to them of the
purchase, ownership and disposition of the Certificates offered hereunder.
As to each Series, unless otherwise disclosed in the related Prospectus
Supplement, the Trustee will covenant to elect to have treated the Trust Fund,
or a portion thereof, as one or more real estate mortgage investment conduits
("REMICs") under Sections 860A through 860G (the "REMIC Provisions") of the
Code. The Prospectus Supplement for each series of Certificates will identify
all Certificates representing "regular interests" and the "residual interest" in
each such REMIC. If a REMIC election or elections will not be made for a Trust
Fund, the federal income tax consequences of the purchase, ownership and
disposition of the related Certificates will be set forth in the related
Prospectus Supplement. For purposes of this tax discussion, references to a
"Certificateholder" or a "holder" are to the beneficial owner of a Certificate.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271-1273 and 1275 of the Code and
in the Treasury regulations issued thereunder (the "OID Regulations"), and in
part upon the REMIC Provisions and the Treasury regulations issued thereunder
(the "REMIC Regulations"). The OID Regulations do not adequately address certain
issues relevant to, and in some instances provide that they are not applicable
to, securities such as the Certificates.
REMICS
CLASSIFICATION OF REMICS
Upon the issuance of each series of REMIC Certificates, Counsel to the
Depositor will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the related Trust Fund (or each applicable portion thereof) will qualify as a
REMIC and the REMIC Certificates offered with respect thereto will be considered
to evidence ownership of "regular interests" ("REMIC Regular Certificates") or
"residual interests" ("REMIC Residual Certificates") in that REMIC within the
meaning of the REMIC Provisions.
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If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year or thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any Trust Fund as
a REMIC will be terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, the REMIC Certificates will be "qualifying real property loans"
within the meaning of Section 593(d) of the Code, "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. Moreover, if 95% or more of
the assets of the REMIC qualify for any of the foregoing treatments at all times
during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and income
allocated to the class of REMIC Residual Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. In addition, the REMIC Regular Certificates will be "qualified
mortgages" within the meaning of Section 860G(a)(3) of the Code. The
determination as to the percentage of the REMIC's assets that constitute assets
described in the foregoing sections of the Code will be made with respect to
each calendar quarter based on the average adjusted basis of each category of
the assets held by the REMIC during such calendar quarter. The REMIC will report
those determinations to Certificateholders in the manner and at the times
required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Loans, payments on
Loans held pending distribution on the REMIC Certificates and may include
property acquired by foreclosure held pending sale, and amounts in reserve
accounts. It is unclear whether property acquired by foreclosure held pending
sale, or amounts in reserve accounts would be considered to be part of the
Loans, or whether such assets (to the extent not invested in assets described in
the foregoing sections) otherwise would receive the same treatment as the Loans
for purposes of all the foregoing sections. In addition, in some instances Loans
(including Additional Collateral Loans) may not be treated entirely as assets
described in the foregoing sections. If the assets of a REMIC include Additional
Collateral Loans, the non-real property collateral, while itself not an asset of
the REMIC, could cause the Loans not to qualify for one or more of such
characterizations. If so, the related Prospectus Supplement will describe the
Loans (including Additional Collateral Loans) that may not be so treated. The
REMIC Regulations do provide, however, that payments on Loans held pending
distribution are considered part of the Loans for purposes of Sections 593(d)
and 856(c)(5)(A) of the Code.
TIERED REMIC STRUCTURES
For certain series of REMIC Certificates, two or more separate elections may
be made to treat designated portions of the related Trust Fund as REMICs
("Tiered REMICs") for federal income tax purposes. Upon the issuance of any such
series of REMIC Certificates, Counsel to the Depositor will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement, the Tiered REMICs will each qualify as
a REMIC and the REMIC Certificates issued by the Tiered REMICs will be
considered to evidence ownership of REMIC regular interests or REMIC residual
interests in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of
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the Code, and "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code, and whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code, the Tiered REMICs will
be treated as one REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
GENERAL
Except as otherwise stated in this discussion, REMIC Regular Certificates
will be treated for federal income tax purposes as debt instruments issued by
the REMIC and not as ownership interests in the REMIC or its assets. Moreover,
holders of REMIC Regular Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to REMIC
Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Section 1273(a) of the Code. Any holders of
REMIC Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with the method described below, in advance of the receipt of the
cash attributable to such income. In addition, Section 1272(a)(6) of the Code
provides special rules applicable to REMIC Regular Certificates and certain
other debt instruments issued with original issue discount. Regulations have not
been issued under that section.
The Code requires that a prepayment assumption be used with respect to Loans
held by, or Loans underlying Mortgage Assets held by, a REMIC in computing the
accrual of original issue discount on REMIC Regular Certificates issued by that
REMIC, and that adjustments be made in the amount and rate of accrual of such
discount to reflect differences between the actual prepayment rate and the
prepayment assumption. The prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; as noted above, those regulations have not
been issued. The Conference Committee Report (the "Committee Report")
accompanying the Tax Reform Act of 1986 indicates that the regulations will
provide that the prepayment assumption used with respect to a REMIC Regular
Certificate must be the same as that used in pricing the initial offering of
such REMIC Regular Certificate. The prepayment assumption (the "Prepayment
Assumption") used in reporting original issue discount for each Series will be
consistent with this standard and will be disclosed in the related Prospectus
Supplement. However, neither the Depositor, any Master Servicer nor the Trustee
will make any representation that the Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price over its issue price. The issue price
of a particular class of REMIC Regular Certificates will be the first cash price
at which a substantial amount of REMIC Regular Certificates of that class is
sold (excluding sales to bond houses, brokers and underwriters). If less than a
substantial amount of a particular class of REMIC Regular Certificates is sold
for cash on or prior to the date of their initial issuance (the "Closing Date"),
the issue price for such class will be the fair market value of such class on
the Closing Date. Under the OID Regulations, the stated redemption price of a
REMIC Regular Certificate is equal to the total of all payments to be made on
such Certificate other than "qualified stated interest." "Qualified stated
interest" includes interest that is unconditionally payable at least annually at
a single fixed rate, at a "qualified floating rate," a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating rates" or at an
"objective rate" that does not operate in a manner that accelerates or defers
interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest rates,
the determination of the total amount of original issue discount and the timing
of the inclusion thereof will vary according to the characteristics of such
REMIC Regular Certificates. If the original issue discount rules apply to such
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Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the Internal Revenue Service
(the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on a
Distribution Date, in some cases, as a consequence of this "long first accrual
period," all interest payments may be required to be included in the stated
redemption price of the REMIC Regular Certificate and accounted for as original
issue discount. Because interest on REMIC Regular Certificates must in any event
be accounted for under an accrual method, applying this analysis would result in
only a slight difference in the timing of the inclusion in income of the yield
on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that the portion of the interest paid on the first Distribution Date in excess
of interest accrued for a number of days corresponding to the number of days
from the Closing Date to the first Distribution Date should be included in the
stated redemption price of such REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of such accrued interest may be
treated as a separate asset the cost of which is recovered entirely out of
interest paid on the first Distribution Date. It is unclear how an election to
do so would be made under the OID Regulations and whether such an election could
be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be DE
MINIMIS if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a DE MINIMIS amount (other than DE MINIMIS original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such DE MINIMIS original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue DE MINIMIS original issue
discount into income currently based on a constant yield method. See "Taxation
of Owners of REMIC Regular Certificates--Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
DE MINIMIS amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the related
Prospectus Supplement, each period that ends on a date that corresponds to a
Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a
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calculation will be made of the portion of the original issue discount that
accrued during such accrual period. The portion of original issue discount that
accrues in any accrual period will equal the excess, if any, of (i) the sum of
(A) the present value, as of the end of the accrual period, of all of the
distributions remaining to be made on the REMIC Regular Certificate, if any, in
future periods and (B) the distributions made on such REMIC Regular Certificate
during the accrual period of amounts included in the stated redemption price,
over (ii) the adjusted issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that distributions on the REMIC Regular Certificate will be received in
future periods based on the Loans being prepaid at a rate equal to the
Prepayment Assumption, and in the case of Mortgage Assets other than Loans, that
distributions will be made with respect to each Mortgage Asset in accordance
with the participation agreement or other organizational document under which
such Mortgage Asset was issued, and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the original
yield to maturity of the Certificate will be calculated based on its issue price
and assuming that distributions on the Certificate will be made in all accrual
periods based on the Loans being prepaid at a rate equal to the Prepayment
Assumption, and in the case of Mortgage Assets other than Loans, that
distributions will be made with respect to each Mortgage Asset in accordance
with the participation agreement or other organizational document under which
such Mortgage Asset was issued. The adjusted issue price of a REMIC Regular
Certificate at the beginning of any accrual period will equal the issue price of
such Certificate, increased by the aggregate amount of original issue discount
that accrued with respect to such Certificate in prior accrual periods, and
reduced by the amount of any distributions made on such REMIC Regular
Certificate in prior accrual periods of amounts included in the stated
redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of the REMIC Regular
Certificate's "adjusted issue price," in proportion to the ratio such excess
bears to the aggregate original issue discount remaining to be accrued on such
REMIC Regular Certificate. The adjusted issue price of a REMIC Regular
Certificate on any given day equals the sum of (i) the adjusted issue price (or,
in the case of the first accrual period, the issue price) of such Certificate at
the beginning of the accrual period which includes such day and (ii) the daily
portions of original issue discount for all days during such accrual period
prior to such day.
MARKET DISCOUNT
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, in the case of a REMIC Regular Certificate issued without
original issue discount, at a purchase price less than its remaining stated
principal amount, or in the case of a REMIC Regular Certificate issued with
original issue discount, at a purchase price less than its adjusted issue price
will recognize gain upon receipt of each distribution representing stated
redemption price. In particular, under Section 1276 of the Code such a
Certificateholder generally will be required to allocate the portion of each
such distribution representing stated redemption price first to accrued market
discount not previously included in income, and to recognize ordinary income to
that extent. A Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including DE MINIMIS market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a
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Certificate that is acquired at a premium would be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"Taxation of Owners of REMIC Regular Certificates--Premium." Each of these
elections to accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will be
considered to be DE MINIMIS for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as DE MINIMIS under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a DE MINIMIS amount. See "Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." Such treatment would result in discount
being included in income at a slower rate than discount would be required to be
included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department certain
rules described in the Committee Report will apply. The Committee Report
indicates that in each accrual period market discount on REMIC Regular
Certificates should accrue, at the Certificateholder's option: (i) on the basis
of a constant yield method, (ii) in the case of a REMIC Regular Certificate
issued without original issue discount, in an amount that bears the same ratio
to the total remaining market discount as the stated interest paid in the
accrual period bears to the total amount of stated interest remaining to be paid
on the REMIC Regular Certificate as of the beginning of the accrual period, or
(iii) in the case of a REMIC Regular Certificate issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining on the REMIC Regular Certificate at
the beginning of the accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is also used in calculating
the accrual of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a REMIC Regular Certificate
purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry such a REMIC Regular Certificate purchased with market
discount. For these purposes, the DE MINIMIS rule referred to above applies. Any
such deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
PREMIUM
A REMIC Regular Certificate purchased at a cost (excluding any portion of
such cost attributable to accrued qualified stated interest) greater than its
remaining stated redemption price will be considered to be
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purchased at a premium. The holder of such a REMIC Regular Certificate may elect
under Section 171 of the Code to amortize such premium under the constant yield
method over the life of the Certificate. If made, such an election will apply to
all debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to account for all interest, discount and premium based on a constant yield
method, further treating the Certificateholder as having made the election to
amortize premium generally. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount." The Committee Report states that the same rules
that apply to accrual of market discount (which rules will require use of a
prepayment assumption in accruing market discount with respect to REMIC Regular
Certificates without regard to whether such Certificates have original issue
discount) will also apply in amortizing bond premium under Section 171 of the
Code.
REALIZED LOSSES
Under Section 166 of the Code, both corporate holders of the REMIC Regular
Certificates and noncorporate holders of the REMIC Regular Certificates that
acquire such Certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their Certificates become wholly or partially worthless as the
result of one or more realized losses on the Loans. However, it appears that a
noncorporate holder that does not acquire a REMIC Regular Certificate in
connection with a trade or business will not be entitled to deduct a loss under
Section 166 of the Code until such holder's Certificate becomes wholly worthless
(i.e., until its outstanding principal balance has been reduced to zero) and
that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificates, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Loans until it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of a REMIC Regular Certificate could exceed
the amount of economic income actually realized by the holder in such period.
Although the holder of a REMIC Regular Certificate eventually will recognize a
loss or reduction in income attributable to previously accrued and included
income that as the result of a realized loss ultimately will not be realized,
the law is unclear with respect to the timing and character of such loss or
reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL
As residual interests, the REMIC Residual Certificates will be subject to
tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Loans or as debt instruments issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income of or
allowed as a loss to any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive losses."
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A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder also will be required to report on its federal income tax
return amounts representing its daily share of the taxable income (or net loss)
of the REMIC for each day that it holds such Certificate. Those daily amounts
generally will equal the amounts of taxable income or net loss determined as
described above. The Committee Report indicates that certain modifications of
the general rules may be made, by regulations, legislation or otherwise, to
reduce (or increase) the income of a REMIC Residual Certificateholder that
purchased such Certificate from a prior holder of such Certificate at a price
greater than (or less than) the adjusted basis (as defined below) such REMIC
Residual Certificate would have had in the hands of an original holder of such
Certificate. The REMIC Regulations, however, do not provide for any such
modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions,"
residual interests without "significant value" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return, and may cause such after-tax rate
of return to be negative.
TAXABLE INCOME OF THE REMIC
The taxable income of the REMIC will equal the income from the Loans and
other assets of the REMIC plus any cancellation of indebtedness income due to
the allocation of realized losses to REMIC Regular Certificates, less the
deductions allowed to the REMIC for interest (including original issue discount
and reduced by any premium on issuance) on the REMIC Regular Certificates (and
any other class of REMIC Certificates constituting "regular interests" in the
REMIC not offered hereby), amortization of any premium on the Loans, bad debt
losses with respect to the Loans and, except as described below, servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under "
- --Taxation of Owners of REMIC Regular Certificates-- Original Issue Discount."
The issue price of a REMIC Certificate received in exchange for an interest in
the Loans or other property will equal the fair market value of such interests
in the Loans or other property. Accordingly, if one or more classes of REMIC
Certificates are retained initially rather than sold, the Trustee may be
required to estimate the fair market value of such interests in order to
determine the basis of the REMIC in the Loans and other property held by the
REMIC.
Subject to possible application of the DE MINIMIS rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Loans that it holds will be equivalent to the method for
accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently as it accrues, on
a
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constant yield basis. See " --Taxation of Owners of REMIC Regular Certificates"
above, which describes a method for accruing such discount income that is
analogous to that required to be used by a REMIC as to Loans with market
discount that it holds.
A Loan will be deemed to have been acquired with discount (or premium) to
the extent that the REMIC's basis therein, determined as described above, is
less than (or greater than) its stated redemption price. Any such discount will
be includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to such income, under a method similar to the method
described above for accruing original issue discount on the REMIC Regular
Certificates. It is anticipated that each REMIC will elect under Section 171 of
the Code to amortize any premium on the Loans. Premium on any Loan to which such
election applies may be amortized under a constant yield method, presumably
taking into account the Prepayment Assumption. Further, such an election would
not apply to any Loan originated on or before September 27, 1985. Instead,
premium on such a Loan should be allocated among the principal payments thereon
and be deductible by the REMIC as those payments become due or upon the
prepayment of such Loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under " --Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount," except that the DE MINIMIS rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the net
amount of interest deductions that are allowed the REMIC in each taxable year
with respect to the REMIC Regular Certificates of such class will be reduced by
an amount equal to the portion of the Issue Premium that is considered to be
amortized or repaid in that year. Although the matter is not entirely certain,
it is likely that Issue Premium would be amortized under a constant yield method
in a manner analogous to the method of accruing original issue discount
described above under " --Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount."
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See " --Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the holders of REMIC Certificates, subject to the
limitation of Section 67 of the Code. See " --Possible Pass-Through of
Miscellaneous Itemized Deductions." If the deductions allowed to the REMIC
exceed its gross income for a calendar quarter, such excess will be the net loss
for the REMIC for that calendar quarter.
BASIS RULES, NET LOSSES AND DISTRIBUTIONS
The adjusted basis of a REMIC Residual Certificate will be equal to the
amount paid for such Certificate, increased by amounts included in the income of
the REMIC Residual Certificateholder and decreased (but not below zero) by
distributions made, and by net losses allocated, to such REMIC Residual
Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its
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REMIC Residual Certificate as of the close of such calendar quarter (determined
without regard to such net loss). Any loss that is not currently deductible by
reason of this limitation may be carried forward indefinitely to future calendar
quarters and, subject to the same limitation, may be used only to offset income
from the REMIC Residual Certificate. The ability of REMIC Residual
Certificateholders to deduct net losses may be subject to additional limitations
under the Code, as to which REMIC Residual Certificateholders should consult
their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such Certificate. To the extent a distribution on a REMIC
Residual Certificate exceeds such adjusted basis, it will be treated as gain
from the sale of such Certificate. Holders of certain REMIC Residual
Certificates may be entitled to distributions early in the term of the related
REMIC under circumstances in which their basis in such REMIC Residual
Certificates will not be sufficiently large that such distributions will be
treated as nontaxable returns of capital. Their basis in such REMIC Residual
Certificates will initially equal the amount paid for such REMIC Residual
Certificates and will be increased by their allocable shares of the taxable
income of the REMIC. However, such basis increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial basis is less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial basis either occur after such
distributions or (together with their initial basis) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rulesis that a REMIC Residual Certificateholder may not
amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See " --Sales of REMIC
Certificates," below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have had in the hands of an original holder, see " --Taxation of Owners of REMIC
Residual Certificates--General."
EXCESS INCLUSIONS
Any "excess inclusions" with respect to a REMIC Residual Certificate will,
with an exception discussed below for certain REMIC Residual Certificates held
by thrift institutions, be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
the REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable
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income" to an otherwise tax-exempt organization and (iii) will not be eligible
for any rate reduction or exemption under any applicable tax treaty with respect
to the 30% United States withholding tax imposed on distributions to REMIC
Residual Certificateholders that are foreign investors. See, however, "
- --Foreign Investors in REMIC Certificates," below.
As an exception to the general rules described above, thrift institutions
are allowed to offset their excess inclusions with unrelated deductions, losses
or loss carryovers, but only if the REMIC Residual Certificates are considered
to have "significant value." The REMIC Regulations provide that in order to be
treated as having significant value, the REMIC Residual Certificates must have
an aggregate issue price at least equal to two percent of the aggregate issue
prices of all of the related REMIC's Regular and Residual Certificates. In
addition, based on the Prepayment Assumption, the anticipated weighted average
life of the REMIC Residual Certificates must equal or exceed 20 percent of the
anticipated weighted average life of the REMIC, based on the Prepayment
Assumption and on any required or permitted clean up calls or required qualified
liquidation provided for in the REMIC's organizational documents. Although it
has not done so, the Treasury also has authority to issue regulations that would
treat the entire amount of income accruing on a REMIC Residual Certificate as an
excess inclusion if the REMIC Residual Certificates are considered not to have
"significant value." The related Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered to have "significant
value" under the REMIC Regulations; provided, however, that any disclosure that
a REMIC Residual Certificate will have "significant value" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will have "significant value" for purposes of the
above-described rules. The above-described exception for thrift institutions
applies only to those residual interests held directly by, and deductions,
losses and loss carryovers incurred by, such institutions (and not by other
members of an affiliated group of corporations filing a consolidated income tax
return) or by certain wholly owned direct subsidiaries of such institutions
formed or operated exclusively in connection with the organization and operation
of one or more REMICs.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such
Certificates, reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of Section 857(b)(2) of the Code, excluding
any net capital gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from such trust, and
any amount so allocated will be treated as an excess inclusion with respect to a
REMIC Residual Certificate as if held directly by such shareholder. Treasury
regulations yet to be issued could apply a similar rule to regulated investment
companies, common trust funds and certain cooperatives; the REMIC Regulations
currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES
Under the REMIC Regulations, a transfer of a "noneconomic" REMIC Residual
Certificate will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted clean up calls or
required qualified liquidation provided for in the REMIC's organizational
documents, (1) the present value of the expected future distributions
(discounted using the "applicable Federal rate" for obligations whose term ends
on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) on the REMIC Residual Certificate equals at
least the present value of the expected tax on the anticipated excess
inclusions, and (2) the transferor reasonably expects that the transferee will
receive distributions with respect to the REMIC Residual Certificate at or after
the time the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. Accordingly, all transfers of REMIC
Residual Certificates that may constitute noneconomic residual interests will be
subject to certain restrictions under the terms of the related Pooling and
Servicing Agreement that are intended to reduce the possibility of any such
transfer being disregarded. Such restrictions will require each party to a
transfer to provide an affidavit
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that no purpose of such transfer is to impede the assessment or collection of
tax, including certain representations as to the financial condition of the
prospective transferee, as to which the transferor will also be required to make
a reasonable investigation to determine such transferee's historic payments of
its debts and ability to continue to pay its debts as they come due in the
future. Prior to purchasing a REMIC Residual Certificate, prospective purchasers
should consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date might
be disregarded in accordance with the above-described rules, which would result
in the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See " --Foreign Investors In REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES
On December 28, 1993, the IRS released temporary regulations (the
"Mark-to-Market Regulations") relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-market
requirement applies to all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as held for investment.
The Mark-to-Market Regulations provide that for purposes of this mark-to-market
requirement, a "negative value" REMIC Residual Certificate is not treated as a
security and thus generally may not be marked to market. This exclusion from the
mark-to-market requirement is expanded to include all REMIC Residual
Certificates under proposed Treasury regulations published January 4, 1995 which
provide that any REMIC Residual Certificate acquired after January 4, 1995 will
not be treated as a security and therefore generally may not be marked to
market. Prospective purchasers of a REMIC Residual Certificate should consult
their tax advisors regarding the possible application of the mark-to-market
requirement to REMIC Residual Certificates.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS
Fees and expenses of a REMIC generally will be allocated to the holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
the holders of the related REMIC Regular Certificates. Unless otherwise stated
in the related Prospectus Supplement, such fees and expenses will be allocated
to holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (ii) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate two percent of a taxpayer's adjusted gross
income. In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of such Certificates
that are subject to the limitations of either Section 67 or Section 68 of the
Code may be substantial. Furthermore, in determining the alternative minimum
taxable income of such a holder of a REMIC Certificate that is an individual,
estate or trust, or a "pass-through entity" beneficially owned by one or more
individuals, estates or trusts, no deduction will be allowed for such holder's
allocable portion of servicing fees and other
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miscellaneous itemized deductions of the REMIC, even though an amount equal to
the amount of such fees and other deductions will be included in such holder's
gross income. Accordingly, such REMIC Certificates may not be appropriate
investments for individuals, estates or trusts, or pass-through entities
beneficially owned by one or more individuals, estates or trusts. Such
prospective investors should carefully consult with their own tax advisors prior
to making an investment in such Certificates.
SALES OF REMIC CERTIFICATES
If a REMIC Certificate is sold, the selling Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale and
its adjusted basis in the REMIC Regular Certificate. The adjusted basis of a
REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under " --Taxation of
Owners of REMIC Residual Certificates--Basis Rules, Net Losses and
Distributions." Except as provided in the following two paragraphs, any such
gain or loss will be capital gain or loss provided such REMIC Certificate is
held as a capital asset (generally property held for investment) within the
meaning of Section 1221 of the Code. The Code as of the date of this prospectus
provides for a top marginal tax rate of 39.6% for individuals and a maximum
marginal rate for long-term capital gains of individuals of 28%. No such rate
differential exists for corporations. In addition, the distinction between a
capital gain or loss and ordinary income or loss remains relevant for other
purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Certificate based on the
application of the Prepayment Assumption to such Certificate, which rate is
computed and published monthly by the IRS), determined as of the date of
purchase of such Certificate, over (ii) the amount of ordinary income actually
includible in the seller's income prior to such sale. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
such Certificate at a market discount will be taxable as ordinary income in an
amount not exceeding the portion of such discount that accrued during the period
such REMIC Certificate was held by such holder, reduced by any market discount
included in income under the rules described above under " --Taxation of Owners
of REMIC Regular Certificates--Market Discount and--Premium."
REMIC Certificates will be "evidences of indebtedness" within the meaning of
Section 582(c)(1) of the Code, so that gain or loss recognized from the sale of
a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
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Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires a REMIC Residual Certificate,
or acquires any other residual interest in a REMIC or any similar interest in a
"taxable mortgage pool" (as defined in Section 7701(i) of the Code) during the
period beginning six months before, and ending six months after, the date of
such sale, such sale will be subject to the "wash sale" rules of Section 1091 of
the Code. In that event, any loss realized by the Residual Certificateholder on
the sale will not be deductible, but instead will be added to such REMIC
Residual Certificateholder's adjusted basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (a "Prohibited Transaction Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Loan, the receipt of income from a source other than a Loan or
certain other permitted investments, the receipt of compensation for services,
or gain from the disposition of an asset purchased with the payments on the
Loans for temporary investment pending distribution on the REMIC Certificates.
It is not anticipated that any REMIC will engage in any prohibited transactions
in which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or Trustee, in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by the
Master Servicer or the Trustee will be charged against the related Trust Fund,
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO CERTAIN
ORGANIZATIONS.
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) of the total anticipated excess inclusions
with respect to such REMIC Residual Certificate for periods after the transfer
and (ii) the highest marginal federal income tax rate applicable to
corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required qualified
liquidation provided for in the REMIC's organizational documents. Such a tax
would be generally imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be
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imposed on such agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for such tax with respect to a transfer 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
did not have actual knowledge that such affidavit was false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that (i) residual interests in such entity are not held by disqualified
organizations and (ii) information necessary for the application of the tax
described herein will be made available. Restrictions on the transfer of REMIC
Residual Certificates and certain other provisions that are intended to meet
this requirement will be included in the related Pooling and Servicing
Agreement, and will be discussed more fully in any Prospectus Supplement
relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalty of perjury that such social security number is that of the record
holder or (ii) a statement under penalty of perjury that such record holder is
not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(not including instrumentalities described in Section 168(h)(2)(D) of the Code
or the Federal Home Loan Mortgage Corporation), (ii) any organization (other
than a cooperative described in Section 521 of the Code) that is exempt from
federal income tax, unless it is subject to the tax imposed by Section 511 of
the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
TERMINATION AND LIQUIDATION
A REMIC will terminate immediately after the Distribution Date following
receipt by the REMIC of the final payment in respect of the Loans or upon a sale
of the REMIC's assets following the adoption by the REMIC of a plan of complete
liquidation. The last distribution on a REMIC Regular Certificate will be
treated as a payment in retirement of a debt instrument. In the case of a REMIC
Residual Certificate, if the last distribution on such REMIC Residual
Certificate is less than the REMIC Residual Certificateholder's adjusted basis
in such Certificate, such REMIC Residual Certificateholder should (but may not)
be treated as realizing a loss equal to the amount of such difference, and such
loss may be treated as a capital loss. If the REMIC adopts a plan of complete
liquidation, within the meaning of Section 860F(a)(4)(A)(i) of the Code, which
may be accomplished by designating in the REMIC's final tax return a date on
which such adoption is deemed to occur, and sells all of its assets (other than
cash) within a 90-day period beginning on such date, the REMIC will not be
subjected to any "prohibited transactions taxes" solely on account of such
qualified liquidation, provided that the REMIC credits or distributes in
liquidation all of the sale proceeds plus its cash (other than the amounts
retained to meet claims) to holders of Regular and Residual Certificates within
the 90-day period.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Solely for purposes of the administrative provisions of the Code, the REMIC
will be treated as a partnership and REMIC Residual Certificateholders will be
treated as partners. Unless otherwise stated in the related Prospectus
Supplement, the Trustee will file REMIC federal income tax returns on behalf of
the REMIC, will generally hold at least a nominal amount of REMIC Residual
Certificates, and will be designated as and will act as the "tax matters person"
with respect to the REMIC in all respects.
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As the tax matters person, the Trustee will, subject to certain notice
requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the Trustee, as tax matters person, and the IRS concerning any such
REMIC item. Adjustments made to the REMIC tax return may require a REMIC
Residual Certificateholder to make corresponding adjustments on its return, and
an audit of the REMIC's tax return, or the adjustments resulting from such an
audit, could result in an audit of a REMIC Residual Certificateholder's return.
No REMIC will be registered as a tax shelter pursuant to Section 6111 of the
Code because it is not anticipated that any REMIC will have a net loss for any
of the first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, with
the name and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported to the IRS. Reporting with respect
to the REMIC Residual Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
REMIC's assets, will be made as required under the Treasury regulations,
generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the Trustee will not have, such regulations only require
that information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount."
The responsibility for complying with the foregoing reporting rules will be
borne by the Trustee.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES
Payments of interest and principal, as well as payments of proceeds from the
sale of REMIC Certificates, may be subject to the "backup withholding tax" under
Section 3406 of the Code at a rate of 31% if recipients of such payments fail to
furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of payments that is
required to supply information but that does not do so in the proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES
A REMIC Regular Certificateholder that is not a "United States person" (as
defined below) and 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 REMIC Regular Certificate will not, unless otherwise disclosed in the
related Prospectus Supplement, be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with certain
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identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a United States person and providing the name and
address of such Certificateholder). For these purposes, "United States person"
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in, or under the laws of, the United States or
any political subdivision thereof, or an estate or trust whose income from
sources without the United States is includible in gross income for United
States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States. It is possible that the IRS may
assert that the foregoing tax exemption should not apply with respect to a REMIC
Regular Certificate held by a REMIC Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the related REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are non-resident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of REMIC
Residual Certificates to investors that are not United States persons will be
prohibited under the related Pooling and Servicing Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Certificates offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and this discussion does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their own tax advisors with respect to the
various tax consequences of investments in the Certificates offered hereunder.
ERISA CONSIDERATIONS
ERISA imposes certain fiduciary and prohibited transaction restrictions on
employee pension and welfare benefit plans subject to ERISA ("ERISA Plans").
Section 4975 of the Code imposes similar prohibited transaction restrictions on
tax-qualified retirement plans described in Section 401(a) of the Code
("Qualified Retirement Plans") and on Individual Retirement Accounts ("IRAs")
described in Section 408 of the Code (collectively, "Tax-Favored Plans")
Tax-Favored Plans and ERISA Plans, collectively, "Plans".
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA), and, if no election has been made under Section 410(d)
of the Code, church plans (as defined in Section 3(33) of ERISA, are not subject
to the ERISA requirements discussed herein. Accordingly, assets of such plans
may be invested in Certificates without regard to the ERISA considerations
described below, subject to the provisions of applicable federal and state law.
Any such plan that is a Qualified Retirement Plan and exempt from taxation under
Sections 401(a) and 501(a) of the Code, however, is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
In addition to imposing general fiduciary requirements, including those of
investment prudence and diversification and the requirement that a Plan's
investment be made in accordance with the documents governing the Plan, Section
406 of ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving "plan assets" of ERISA Plans and Tax-Favored Plans (collectively,
"Plans") and persons ("parties in interest" under Section 3(14) of ERISA or
"disqualified persons" under Section 4975(e)(2) of the Code; collectively,
"Parties In Interest") who have certain specified relationships to the
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Plans, unless a statutory or administrative exemption is available. Certain
Parties in Interest that participate in a prohibited transaction may be subject
to a penalty, or an excise tax, imposed pursuant to Section 502(i) of ERISA or
Section 4975 of the Code, unless a statutory or administrative exemption is
available.
PLAN ASSET REGULATIONS. A Plan's investment in Certificates may cause the
underlying Mortgage Assets and other assets included in a related Trust Fund to
be deemed assets of such Plan. Section 2510.3-101 of the regulations (the "Plan
Asset Regulations") of the United States Department of Labor (the "DOL")
provides that, for purposes of applying the general fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and the
Code, when a Plan acquires an equity interest in an entity (such as a
Certificate), the Plan's assets include both such equity interest and an
undivided interest in each of the underlying assets of the entity, unless
certain exceptions not applicable here apply, or unless the equity participation
in the entity by "benefit plan investors" (I.E., Plans and certain employee
benefit plans not subject to ERISA) is not "significant", both as defined
therein. For this purpose, in general, equity participation by benefit plan
investors will be "significant" on any date if 25% or more of the value of any
class of equity interests in the entity is held by benefit plan investors.
Equity participation in a Trust Fund will be significant on any date if
immediately after the most recent acquisition of any Certificate, 25% or more of
any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Assets and other assets included in a Trust Fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the Master Servicer, any Servicer, any
sub-servicer, the Trustee, the obligor under any credit enhancement mechanism,
or certain affiliates thereof may be deemed to be a Plan "fiduciary" and thus
subject to the fiduciary responsibility provisions and prohibited transaction
provisions of ERISA and the Code with respect to the investing Plan. In
addition, if the Mortgage Assets and other assets included in a Trust Fund
constitute Plan assets, the purchase of Certificates by a Plan, as well as the
operation of the Trust Fund, may constitute or involve a prohibited transaction
under ERISA or the Code.
The Plan Asset Regulations provide that where a Plan acquires a "guaranteed
governmental mortgage pool certificate", the Plan's assets include such
certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" FHLMC Certificates, GNMA Certificates and FNMA
Certificates. Accordingly, even if such Agency Securities included in a Trust
Fund were deemed to be assets of Plan investors, the mortgages underlying such
Agency Securities would not be treated as assets of such Plans. Private Mortgage
Backed Securities are not "guaranteed governmental mortgage pool certificates"
within the meaning of the Plan Asset Regulations. Potential Plan investors
should consult their counsel and review the ERISA discussion in the related
Prospectus Supplement before purchasing any such Certificates.
PROHIBITED TRANSACTION EXEMPTION. The DOL has granted to Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ") an individual prohibited transaction
exemption (Prohibited Transaction Exemption 90-83, the "Exemption"), which
generally exempts from the application of the prohibited transaction provisions
of Section 406 of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Section 4975(a) and (b) of the Code, certain
transactions, among others, relating to the servicing and operation of mortgage
pools and the purchase, sale and holding of mortgage pass-through certificates
underwritten by an Underwriter (as hereinafter defined), provided that certain
conditions set forth in the Exemption are satisfied. For purposes of this
Section "ERISA Considerations," the term "Underwriter" includes (a) DLJ, (b) any
person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with DLJ and (c) any member of the
underwriting syndicate or selling group of which a person described in (a) or
(b) is a manager or co-manager with respect to a class of Certificates.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of Certificates to be
eligible for exemptive relief thereunder. First, the acquisition of Certificates
by a Plan or with Plan assets must be on terms that are at least as favorable to
the Plan as they
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would be in an arm's-length transaction with an unrelated party. Second, the
Exemption only applies to Certificates evidencing rights and interests that are
not subordinated to the rights and interests evidenced by the other Certificates
of the same Trust Fund. Third, the Certificates at the time of acquisition by or
with Plan assets must be rated in one of the three highest generic rating
categories by Standard and Poor's, a Division of the McGraw-Hill Companies, Inc.
("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff &
Phelps, Inc. ("DCR") or Fitch Investors Service, L.P. ("Fitch"). Fourth, the
Trustee cannot be an affiliate of any other member of the "Restricted Group"
which consists of any Underwriter, the Master Servicer, any Servicer, any
subservicer, the Trustee and any obligor with respect to assets of a Trust Fund
constituting more than 5% of the aggregate unamortized principal balance of the
assets in the related Trust Fund as of the date of initial issuance of the
Certificates. Fifth, the sum of all payments made to and retained by the
Underwriters must represent not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and retained by
the Depositor pursuant to the assignment of the assets to the related Trust Fund
must represent not more than the fair market value of such obligations, and the
sum of all payments made to and retained by the Master Servicer, any Servicer
and any subservicer must represent not more than reasonable compensation for
such person's services under the related Pooling and Servicing Agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the Exemption requires that the investing Plan be an accredited investor
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
The Exemption also requires that a Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Standard & Poor's, Moody's, Duff & Phelps or Fitch for at least one year prior
to the Plan's acquisition of Certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Certificates.
A fiduciary of any Plan or other investor of Plan assets contemplating
purchasing a Certificate must make its own determination that the general
conditions set forth above will be satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407 of
ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in connection
with the direct or indirect sale, exchange, transfer, holding or the direct or
indirect acquisition or disposition in the secondary market of Certificates by
Plans or with Plan assets. However, no exemption is provided from the
restrictions of Sections 406(a)(1)(E) and 406(a)(2) of ERISA for the acquisition
or holding of a Certificate by a Plan or with Plan assets of an "Excluded Plan"
(as hereinafter defined) by any person who has discretionary authority or
renders investment advice with respect to Plan assets of such Excluded Plan. For
purposes of the Certificates, an Excluded Plan is a Plan sponsored by any member
of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (i) the direct or indirect sale, exchange or
transfer of Certificates in the initial issuance of Certificates between the
Company or an Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of the
relevant Plan assets in the Certificates is (a) a mortgagor with respect to 5%
or less of the fair market value of the assets of the related Trust Fund or (b)
an affiliate of such a person, (ii) the direct or indirect acquisition or
disposition in the secondary market of Certificates by or with Plan assets and
(iii) the holding of Certificates by or with Plan assets.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Trust Funds. The
Depositor expects that
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the specific conditions of the Exemption required for this purpose will be
satisfied with respect to the Certificates so that the Exemption would provide
an exemption from the restrictions imposed by Sections 406(a) and (b) of ERISA
(as well as the excise taxes imposed by Sections 4975(a) and (b) of the Code by
reason of Section 4975(c) of the Code) for transactions in connection with the
servicing, management and operation of the Trust Funds, provided that the
general conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Section 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a Party In Interest with respect to an investing Plan (or the
investing entity holding Plan assets) by virtue of providing services to the
Plan (or by virtue of having certain specified relationships to such a person)
solely as a result of the ownership of Certificates by a Plan or the investment
of Plan assets in Certificates.
Before purchasing a Certificate, a fiduciary of a Plan or other investor of
Plan assets should itself confirm (a) that the Certificates constitute
"certificates" for purposes of the Exemption and (b) that the specific and
general conditions set forth in the Exemption and the other requirements 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 any
Certificates by or with Plan assets.
Any fiduciary or other Plan investor which proposes to purchase Certificates
on behalf of or with Plan assets should consult with its counsel with respect to
the potential applicability of ERISA and the Code to such investment and the
availability of the Exemption or any other prohibited transaction exemption in
connection therewith. In particular, in connection with a contemplated purchase
of Certificates representing a beneficial ownership interest in a pool of
single-family residential first mortgage loans, such fiduciary or other Plan
investor should consider the availability of the Exemption or Prohibited
Transaction Class Exemption ("PTCE") 83-1 ("PTCE 83-1") for certain transactions
involving mortgage pool investment trusts. However, PTCE 83-1 does not provide
exemptive relief with respect to Certificates evidencing interests in Trust
Funds which include Cooperative Loans and may not provide exemptive relief for
Certificates having certain cash-flow characteristics that may be issued by a
Trust Fund. In addition, such fiduciary or other Plan investor should consider
the availability of PTCE 95-60, regarding investments by insurance company
general accounts, PTCE 90-1, regarding investments by insurance company pooled
separate accounts, PTCE 91-38, regarding investments by bank collective
investment funds, and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers." The Prospectus Supplement with respect to a series
of Certificates may contain additional information regarding the application of
the Exemption, PTCE 83-1, or any other exemption, with respect to the
Certificates offered thereby. There can be no assurance that any of these
exemptions will apply with respect to any particular Plan's or other Plan
investor's investment in the Certificates or, even if an exemption were deemed
to apply, that any exemption would apply to all prohibited transactions that may
occur in connection with such investment.
TAX EXEMPT INVESTORS. A Plan that is exempt from federal income taxation
pursuant to Section 501 of the Code (a "Tax Exempt Investor") nonetheless will
be subject to federal income taxation to the extent that its income is
"unrelated business taxable income" ("UBTI") within the meaning of Section 512
of the Code. All "excess inclusions" of a REMIC allocated to a REMIC Residual
Certificate held by a Tax-Exempt Investor will be considered UBTI and thus will
be subject to federal income tax. See "Certain Federal Income Tax
Consequences--Taxation of Owners of REMIC Residual Certificates--Excess
Inclusions."
CONSULTATION WITH COUNSEL. Any fiduciary of a Plan or other Plan investor
that proposes to acquire or hold Certificates on behalf of or with Plan assets
should consult with its counsel with respect to the potential applicability of
the fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and the Code to the proposed investment and the Exemption,
the availability of PTCE 83-1 or any other prohibited transaction exemption.
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LEGAL INVESTMENT
Each class of Certificates offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. Unless otherwise set forth in
the related Prospectus Supplement, Certificates of any Series will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as they are rated by a Rating Agency
in one of its two highest categories and, as such, will be 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.
Under SMMEA, if a State enacted legislation prior to October 4, 1991
specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities," the Certificates will constitute legal
investments for entities subject to such legislation only to the extent provided
in such legislation. Certain States have enacted legislation which overrides the
preemption provisions of SMMEA. SMMEA provides, however, that in no event will
the enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related securities," or
require the sale or other disposition of such securities so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with
mortgage-related securities without limitations as to the percentage of their
assets represented thereby; federal credit unions may invest in mortgage-related
securities, and national banks may purchase mortgage-related securities for
their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. 24 (Seventh), subject in each case
to such regulations as the applicable federal regulatory authority may
prescribe.
The Federal Financial Institution Examination Council has adopted a
supervisory policy statement (the "Policy Statement"), applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of Thrift Supervision with
an effective date of February 10, 1992. The Policy Statement generally indicates
that a mortgage derivative product will be deemed to be high risk if it exhibits
greater price volatility than a standard fixed rate thirty-year mortgage
security. According to the Policy Statement, prior to purchase, a depository
institution will be required to determine whether a mortgage derivative product
that it is considering acquiring is high-risk, and if so that the proposed
acquisition would reduce the institution's overall interest rate risk. Reliance
on analysis and documentation obtained from a securities dealer or other outside
party without internal analysis by the institution would be unacceptable. There
can be no assurance as to which Classes of the Certificates of any Series will
be treated as high-risk under the Policy Statement.
The predecessor to the OTS issued a bulletin, entitled, "Mortgage Derivative
Products and Mortgage Swaps," which is applicable to thrift institutions
regulated by the OTS. The bulletin established guidelines for the investment by
savings institutions in certain "high-risk" mortgage derivative securities and
limitations on the use of such securities by insolvent, undercapitalized or
otherwise "troubled" institutions. According to the bulletin, such "high-risk"
mortgage derivative securities include securities having certain specified
characteristics, which my include certain classes of Certificates. In addition,
the National Credit Union Administration has issued regulations governing
federal credit union investments which prohibit investment in certain specified
types of securities, which may include certain Classes of Certificates. Similar
policy statements have been issued by regulators having jurisdiction over other
types of depository institutions.
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Certain classes of Certificates offered hereby, including any class that is
not rated in one of the two highest categories by at least one Rating Agency,
will not constitute "mortgage related securities" for purposes of SMMEA. Any
such class of Certificates will be identified in the related Prospectus
Supplement. Prospective investors in such classes of Certificates, in
particular, should consider the matters discussed in the following paragraph.
There may be other restrictions on the ability of certain investors either
to purchase certain Classes of Certificates or to purchase any Class of
Certificates representing more than a specified percentage of the investors'
assets. The Depositor will make no representations as to the proper
characterization of any Class of Certificates for legal investment or other
purposes, or as to the ability of particular investors to purchase any Class of
Certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any Class of Certificates. Accordingly,
all investors whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent the Certificates of any Class constitute legal investments
under SMMEA or are subject to investment, capital or other restrictions, and, if
applicable, whether SMMEA has been overridden in any jurisdiction applicable to
such investor.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters by Thacher
Proffitt & Wood, New York, New York.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on April 14, 1988
and is a wholly-owned subsidiary of Donaldson, Lufkin & Jenrette Inc., a
Delaware corporation. The principal executive offices of the Depositor are
located at 277 Park Avenue, New York, New York 10172. Its telephone number is
(212) 504-3000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. The Depositor has one class of common
stock, all of which is owned by Donaldson, Lufkin & Jenrette Inc.
Neither the Depositor, its parent nor any of the Depositor's affiliates will
ensure or guarantee distributions on the Certificates of any Series.
As described herein, the only obligations of the Depositor will be pursuant
to certain representations and warranties with respect to the Mortgage Assets.
See "Loan Underwriting Standards--Representations and Warranties" and "The
Pooling and Servicing Agreements--Assignment of Mortgage Assets" herein. The
Depositor will have no ongoing servicing responsibilities or other
responsibilities with respect to any Mortgage Asset. The Depositor does not have
nor is it expected in the future to have any significant assets with which to
meet any obligations with respect to any Trust Fund. If the Depositor were
required to repurchase or substitute a Loan, its only source of funds to make
the required payment would be funds obtained from the Seller of such Loan, or if
applicable, the Master Servicer or, the Servicer. See "Risk Factors" herein.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus Supplement
to purchase the Mortgage Assets, to repay indebtedness which has been incurred
to obtain funds to acquire the Mortgage Assets, to establish the reserve funds,
if any, for the Series and to pay costs of structuring, guaranteeing and issuing
the Certificates. If so specified in the related Prospectus Supplement,
Certificates may be exchanged by the Depositor for Mortgage Assets. The
Depositor expects that it will make additional sales of securities similar to
the Certificates from time to time, but the timing and amount of any such
additional offerings will be dependent upon a number of factors, including the
volume of mortgage loans purchased by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
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PLAN OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series may be sold directly by the Depositor or may be
offered through Donaldson, Lufkin & Jenrette Securities Corporation, an
affiliate of the Depositor, or through underwriting syndicates represented by
Donaldson, Lufkin & Jenrette Securities Corporation (the "Underwriters") through
one or more of the methods described below. The Prospectus Supplement prepared
for each Series will describe the method of offering being utilized for that
Series and will state the net proceeds to the Depositor from such sale.
The Depositor intends that Certificates will be offered through the
following 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 two or more of these
methods. Such methods are as follows:
1. by negotiated firm commitment or best efforts underwriting and
public re-offering by the Underwriters;
2. by placements by the Depositor with institutional investors through
dealers; and
3. by direct placements by the Depositor with institutional investors.
In addition, if specified in the related Prospectus Supplement, a Series of
Certificates may be offered in whole or in part in exchange for the Loans (and
other assets, if applicable) that would comprise the Trust Fund for such
Certificates.
If Underwriters are used in a sale of any Certificates (other than in
connection with an underwriting on a best efforts basis), such Certificates will
be acquired by the Underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The managing underwriter or
underwriters with respect to the offer and sale of a particular Series of
Certificates will be set forth on the cover of the Prospectus Supplement
relating to such Series and the members of the underwriting syndicate, if any,
will be named in such Prospectus Supplement.
In connection with the sale of the Certificates, the Underwriters may
receive compensation from the Depositor or from purchasers of the Certificates
in the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the Certificates may be deemed to be
underwriters in connection with such Certificates, and any discounts or
commissions received by them from the Depositor and any profit on the resale of
Certificates by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
any Series of Certificates will provide that the obligations of the Underwriters
will be subject to certain conditions precedent, that the Underwriters will be
obligated to purchase all such Certificates if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Depositor will indemnify the several Underwriters and the
Underwriters will indemnify the Depositor against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended, or will
contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any Series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Certificates of such Series.
The Depositor anticipates that the Certificates offered hereby will be sold
primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended, in connection with
reoffers and sales by them of Certificates. Holders of Certificates should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
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GLOSSARY
The following are abbreviated definitions of certain capitalized terms used
in this Prospectus. Unless otherwise defined in the Prospectus Supplement for a
Series, such definitions will apply to capitalized terms used in such Prospectus
Supplement. The definitions may vary from those in the Pooling and Servicing
Agreement and the Pooling and Servicing Agreement generally provides a more
complete definition of certain of the terms. Reference should be made to the
Pooling and Servicing Agreement for a more complete definition of such terms.
"Accrual Date" means, with respect to any Multiple Class Series, the date
upon which interest begins accruing on the Certificates of the Series, as
specified in such Certificates and the related Prospectus Supplement.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Certificates, the Distribution Date on which all Certificates of the
related Series with Final Scheduled Distribution Dates earlier than that of such
Class of Compound Interest Certificates have been fully paid, or such other date
or period as may be specified in the related Prospectus Supplement.
"Additional Collateral" means marketable securities, insurance policies,
annuities, certificates of deposit, cash, accounts or other personal property
and, in the case of Additional Collateral owned by any guarantor, may consist of
real estate.
"Additional Collateral Loan" means a Mortgage Loan that, in addition to
being secured by the related Mortgaged Property, is secured by other collateral
owned by the related Mortgagors or are supported by third-party guarantees
secured by collateral owned by the related guarantors.
"Advance" means a cash advance by the Master Servicer or a Servicer in
respect of delinquent payments of principal of and interest on a Loan, and for
the other purposes specified herein and in the related Prospectus Supplement.
"Agency Securities" means mortgage pass-through securities issued or
guaranteed by GNMA, FNMA, FHLMC or other government agencies or
government-sponsored agencies.
"Appraised Value" means, unless otherwise specified in the related
Prospectus Supplement (i) with respect to a Mortgaged Property securing a Single
Family or Multifamily Property, the lesser of (x) the appraised value determined
in an appraisal obtained at origination of such Mortgage Loan, if any, or, if
the related Mortgaged Property has been appraised subsequent to origination, the
value determined in such subsequent appraisal and (y) the sales price for the
related Mortgaged Property (except in certain circumstances in which there has
been a subsequent appraisal); (ii) with respect to certain refinanced, modified
or converted Single Family or Multifamily Properties, the lesser of (x) the
appraised value of the related Mortgaged Property determined at origination or
in an appraisal, if any, obtained at the time of refinancing, modification or
conversion and (y) the sales price of the related Mortgage Property or, if the
Mortgage Loan is not a rate and term refinance Mortgage Loan and if the
Mortgaged Property was owned for a relatively short period of time prior to
refinancing, modification or conversion, the sum of the sales price of the
related Mortgaged Property plus the added value of any improvements; and (iii)
with respect to a Mortgaged Property securing a Manufactured Home Loan, the
least of the sale price, the appraised value, and the National Automobile
Dealer's Association book value plus prepaid taxes and hazard insurance
premiums.
"ARM" or "Adjustable Rate Mortgage" means a Mortgage Loan as to which the
related Mortgage Note provides for periodic adjustments in the interest rate
component of the Scheduled Payment pursuant to an Index as described in the
related Prospectus Supplement.
"Asset Group" means a group of individual Mortgage Assets which share
similar characteristics and are aggregated into one group.
"Available Distribution Amount" means the amount in the Certificate Account
(including amounts deposited therein from any reserve fund or other fund or
account) eligible for distribution to Certificateholders on a Distribution Date.
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"Balloon Loan" means Mortgage Loan with payments similar to a Conventional
Loan, calculated on the basis of an assumed amortization term, but providing for
a Balloon Payment of all outstanding principal and interest to be made at the
end of a specified term that is shorter than such assumed amortization term.
"Balloon Payment" means the payment of all outstanding principal and
interest made at the end of the term of a Balloon Loan.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States Code
101 et seq., and regulations promulgated thereunder.
"Bi-Weekly Loan" means a Mortgage Loan which provides for payments of
principal and interest by the borrower once every two weeks.
"Business Day" means a day that, in the City of New York or in the city or
cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulation or executive order to be closed.
"Buy-Down Fund" means a custodial account, established by the Master
Servicer or the Servicer for a Buy-Down Loan, that meets the requirements set
forth herein.
"Buy-Down Loan" means a level payment Mortgage Loan for which funds have
been provided by a Person other than the mortgagor to reduce the mortgagor's
Scheduled Payment during the early years of such Mortgage Loan.
"Certificate Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Master Servicer in respect of the Mortgage Assets in a Trust Fund.
"Certificate Guarantee Insurance" means an insurance policy issued by one or
more insurance companies which will guarantee timely distributions of interest
and full distributions of principal of a Series on the basis of a schedule of
principal distributions set forth in or determined in the manner specified in
the related Prospectus Supplement for the Series.
"Certificateholder" or "Holder" means the Person in whose name a Certificate
is registered in the Certificate register.
"Certificate Rate" means, with respect to any Multiple Class Series, the per
annum rate at which interest accrues on the principal balance of the
Certificates of such Series or a Class of such Series, which rate may be fixed
or variable, as specified in the related Prospectus Supplement.
"Certificates" means the Mortgage Pass-Through Certificates.
"Class" means a Class of Certificates of a Series.
"Closing Date" means, with respect to a Series, the date specified in the
related Prospectus Supplement as the date on which Certificates of such Series
are first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder.
"Collection Account" means, with respect to a Series, the account
established in the name of the Master Servicer for the deposit by the Master
Servicer of payments received from the Mortgage Assets in a Trust Fund (or from
the Servicers, if any).
"Compound Interest Certificate" means any Certificate of a Multiple Class
Series on which interest accrues and is added to the principal balance of such
Certificate periodically, but with respect to which no interest or principal
will be payable except during the period or periods specified in the related
Prospectus Supplement.
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"Compound Value" means, with respect to a Class of Compound Interest
Certificates, as of any Determination Date, the original principal balance of
such Class, plus all accrued and unpaid interest, if any, previously added to
the principal balance thereof and reduced by any payments of principal
previously made on such Class of Compound Interest Certificates.
"Condominium" means a form of ownership of real property wherein each owner
is entitled to the exclusive ownership and possession of his or her individual
Condominium Unit and also owns a proportionate undivided interest in all parts
of the Condominium Building (other than the individual Condominium Units) and
all areas or facilities, if any, for the common use of the Condominium Units.
"Condominium Association" means the person(s) appointed or elected by the
Condominium Unit owners to govern the affairs of the Condominium.
"Condominium Building" means a multi-unit building or buildings, or a group
of buildings whether or not attached to each other, located on property subject
to Condominium ownership.
"Condominium Loan" means a Loan secured by a Mortgage on a Condominium Unit
(together with its appurtenant interest in the common elements).
"Condominium Unit" means an individual housing unit in a Condominium
Building.
"Conventional Loan" means a Loan that is not insured or guaranteed by the
FHA or the VA.
"Cooperative" means a corporation owned by tenant-stockholders who, through
the ownership of stock, shares or membership certificates in the corporation,
receive proprietary leases or occupancy agreements which confer exclusive rights
to occupy specific units.
"Cooperative Dwelling" means an individual housing unit in a building owned
by a cooperative.
"Cooperative Loan" means a housing loan made with respect to a Cooperative
Dwelling and secured by an assignment by the borrower (tenant-stockholder) of a
security interest in shares issued by the applicable Cooperative.
"Cut-off Date" means the date designated in the Pooling and Servicing
Agreement for a Series on or before which amounts due and payable with respect
to a Mortgage Asset will not inure to the benefit of Certificateholders of the
Series.
"Deferred Interest" means excess interest resulting when the amount of
interest paid by a Mortgagor on a Negatively Amortizing ARM in any month is less
than the amount of interest accrued on the Stated Principal Balance thereof.
"Depositor" means DLJ Mortgage Acceptance Corp.
"Determination Date" means the day specified in the related Prospectus
Supplement as the day on which the Master Servicer calculates the amounts to be
distributed to Certificateholders on the next succeeding Distribution Date.
"Distribution Date" means, with respect to a Series or Class, each date
specified as a distribution date for such Series or Class in the related
Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable to the Trustee or its nominee on any Mortgage Asset.
"Eligible Account" means an account maintained with a federal or state
chartered depository institution (i) the short-term obligations of which are
rated by each Rating Agency in its highest rating at the time of any deposit
therein, or (ii) insured by the FDIC (to the limits established by such
Corporation), the uninsured deposits in which account are otherwise secured such
that, as evidenced by an opinion of counsel delivered to the Trustee prior to
the establishment of such account, the holders of the Certificates will have a
claim with respect to the funds in such account and a perfected first priority
security interest against any collateral securing such funds that is superior to
claims of any other depositors or general creditors of the depository
institution with which such account is maintained or (iii) a trust account or
accounts maintained
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with a federal or state chartered depository institution or trust company with
trust powers acting in its fiduciary capacity or (iv) an account or accounts of
a depository institution acceptable to the Rating Agencies. Eligible Accounts
may bear interest.
"Eligible Investments" means any one or more of the obligations or
securities described as such at "The Pooling and Servicing
Agreements--Investment of Funds."
"Eligible Reserve Fund Investments" means Eligible Investments and any other
obligations or securities described as Eligible Reserve Fund Investments in the
Applicable Pooling and Servicing Agreement, as described in the related
Prospectus Supplement for a Series.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the Master
Servicer or the Servicer for a Loan, into which payments by borrowers to pay
taxes, assessments, mortgage and hazard insurance premium and other comparable
items that are required to be paid to the mortgagee are deposited.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration, a division of HUD.
"FHA Loan" means a fixed-rate housing loan insured by the FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a Class of a
Series, the date after which no Certificates of such Class will remain
outstanding assuming timely payments or distributions are made on the Mortgage
Assets in the related Trust Fund.
"Floating Interest Certificate" means any Certificate of a Multiple Class
Series which accrues interest at a Floating Rate.
"Floating Interest Period" means the period of time during which a given
Certificate Rate applies to a Class of Floating Interest Certificates.
"Floating Rate" means a Certificate Rate which is subject to change from
time to time.
"FNMA" means the Federal National Mortgage Association.
"GEM Loan" means, unless specified otherwise in the related Prospectus
Supplement for a Series, a fixed rate, fully amortizing mortgage loan providing
for monthly payments based on a 10- to 30-year amortization schedule, with
further provisions for scheduled annual payment increases for a number of years
with the full amount of such increases being applied to principal, and with
further provision for level payments thereafter.
"GNMA" means the Government National Mortgage Association.
"GPM Certificate" means a Certificate backed by GPM Loans.
"GPM Fund" means a trust account established by the Master Servicer or the
Servicer of a GPM Loan into which funds sufficient to cover the amount by which
payments of principal and interest on such GPM Loan assumed in calculating
payments due on the Certificates of the related Multiple Class Series exceed
scheduled payments on such GPM Loan.
"GPM Loan" means a mortgage loan providing for graduated payments, having an
amortization schedule (a) requiring the mortgagor's monthly installments of
principal and interest to increase at a predetermined rate annually for a
predetermined period of time after which the monthly installments became fixed
for the remainder of the mortgage term, (b) providing for deferred payment of a
portion of the interest due monthly during such period of time and (c) providing
for recoupment of the interest deferred through negative amortization whereby
the difference between the scheduled payment of interest on the mortgage note
and the amount of interest actually accrued is added monthly to the outstanding
principal balance of the mortgage note.
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"Guaranteed Investment Contract" means a guaranteed investment contract or
reinvestment agreement providing for the investment of funds held in a fund or
account, guaranteeing a minimum or a fixed rate of return on the investment of
moneys deposited therein.
"HUD" means the United States Department of Housing and Urban Development.
"Index" means the index applicable to any adjustments in the Mortgage Rates
of any ARMs included in the Mortgage Assets.
"Insurance Policies" means certain mortgage insurance, hazard insurance and
other insurance policies required to be maintained with respect to Loans.
"Insurance Proceeds" means amounts paid by the insurer under any of the
Insurance Policies covering any Loan or Mortgaged Property.
"Interest Accrual Period" means the period specified in the related
Prospectus Supplement for a Multiple Class Series, during which interest accrues
on the Certificates or a Class of Certificates of such Series with respect to
any Distribution Date.
"Interest Weighted Certificates" means a Class of Certificates entitled to a
greater percentage of interest on the Loans underlying or comprising the
Mortgage Assets for the Series than the percentage of principal, if any, on such
Loans to which it is entitled.
"IRS" means the Internal Revenue Service.
"L/C Bank" means the issuer of a letter of credit.
"L/C Percentage" means the maximum liability of an L/C Bank under a letter
of credit, equal to the percentage specified in the related Prospectus
Supplement for a Series for which a letter of credit is issued of the initial
aggregate principal balance of the Loans in the related Trust Fund or one or
more Classes of Certificates of the Series.
"Letter of Credit" means an irrevocable letter of credit issued by the L/C
Bank to provide limited protection against certain losses relating to Loans, as
described in the related Prospectus Supplement for a Series.
"Liquidation Proceeds" means amounts received by the Master Servicer or
Servicer in connection with the liquidation of a mortgage, net of liquidation
expenses.
"Loan" means a Mortgage Loan (including an interest therein) or a
Manufactured Home Loan (including an interest therein) that is deposited by the
Depositor into the Trust Fund for a Series.
"Loan-to-Value Ratio" means the ratio, expressed as a percentage, of the
principal amount of a Loan at the date of determination to the Appraised Value.
"Manufactured Home" means a manufactured home within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems
contained therein; except that such term shall include any structure which meets
all the requirements of this paragraph except the size requirements and with
respect to which the manufacturer voluntarily files a certification required by
the Secretary of Housing and Urban Development and complies with the standards
established under this chapter."
"Manufactured Home Loan" means a loan secured by a Manufactured Home.
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"Master Servicer" means, with respect to a Series secured by Loans, the
Person, if any, designated in the related Prospectus Supplement to manage and
supervise the administration and servicing by the Servicers of the Loans
comprising or underlying the Mortgage Assets for that Series, or the successors
or assigns of such Person.
"Maximum Floating Rate" means, as to any Multiple Class Series, the per
annum interest rate cap specified for any Floating Rate Certificates of such
Series in the related Prospectus Supplement.
"Maximum Mortgage Rate" means the maximum permissible Mortgage Rate during
the life of each ARM.
"Minimum Floating Rate" means, as to any Multiple Class Series, the per
annum interest rate floor specified for any Floating Rate Certificate of such
Series in the related Prospectus Supplement.
"Minimum Mortgage Rate" means the lifetime minimum Mortgage Rate during the
life of each ARM.
"Mortgage" means the mortgage, deed of trust or other instrument securing a
Mortgage Note.
"Mortgage Assets" means the Private Mortgage-Backed Securities, Agency
Securities or Loans, as the case may be, which are included in the Trust Fund
for such Series. A Mortgage Asset refers to a specific Private Mortgage-Backed
Security, Agency Security or Loan, as the case may be.
"Mortgage Loan" means a mortgage loan (including an interest therein)
secured by Mortgaged Property including Cooperative Loans and Condominium Loans.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Mortgage Loan.
"Mortgage Rate" means, unless otherwise indicated herein or in the
Prospectus Supplement, the interest rate borne by each Loan.
"Mortgaged Property" means the real property securing a Mortgage.
"Multifamily Loan" means any Loan secured by a Multifamily Property.
"Multifamily Property" means any property securing a Loan consisting of
multifamily residential rental property or cooperatively owned multifamily
property consisting of five or more dwelling units.
"Multiple Class Series" means a Series of Certificates that may include
Floating Interest Certificates, Compound Interest Certificates and Planned
Amortization Certificates, and/or Subordinate and Senior Classes embodying a
subordination feature which protects the Senior Class or Classes in the event of
failure of timely payment of Mortgage Assets.
"1986 Act" means the Tax Reform Act of 1986.
"Negatively Amortizing ARMs" means ARMs which provide for limitations on
changes in the Scheduled Payment which can result in Scheduled Payments which
are greater or less than the amount necessary to amortize such ARM by its stated
maturity at the Mortgage Rate in effect in any particular month.
"Nest Egg Mortgage Loan-SM-" means a Mortgage Loan originated under the Nest
Egg Mortgage Loan Program-SM-, a mortgage loan origination program of DLJ
Mortgage Capital, Inc., an affiliate of the Depositor, and the Nest Egg Mortgage
Company LLC.
"OTS" means the Office of Thrift Supervision.
"Participation Certificate" means a certificate evidencing a participation
interest in a pool of Loans.
"Pass-Through Rate" means, with respect to a Series of a single Class, the
rate of interest paid to the Certificateholders in respect of the Mortgage
Assets.
"Percentage Interest" means, with respect to a Certificate, the proportion
(expressed as a percentage) of the percentage amounts of all of the Certificates
in the related Class represented by such Certificate, as specified in the
related Prospectus Supplement.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
"PMBS Agreement" means the pooling and servicing agreement, indenture, trust
agreement or similar agreement pursuant to which a Private Mortgaged-Backed
Security is issued.
"PMBS Issuer" means, with respect to Private Mortgage-Backed Securities, the
depositor or seller/ servicer under a PMBS Agreement.
"PMBS Servicer" means the servicer of the housing loans underlying a Private
Mortgage-Backed Security.
"PMBS Trustee" means the trustee designated under a PMBS Agreement.
"Pooling and Servicing Agreement" means the agreement relating to a Series
among the Depositor, the Master Servicer and the Trustee.
"Prepayment Assumption" means the prepayment standard or model used with
respect to the Certificates of a Series, such as the Constant Prepayment
Assumption or the Standard Prepayment Assumption, as described in "Yield,
Prepayment and Maturity Considerations--Prepayments and Weighted Average Life."
"Prepayment Period" means with respect to any Distribution Date, the period
specified in the related Prospectus Supplement for a Series.
"Principal Weighted Certificate" means a Class of Certificates entitled to a
greater percentage of principal on the Loans underlying or comprising the
Mortgage Assets in the Trust Fund for the related Series than the percentage of
interest to which it is entitled.
"Private Mortgage-Backed Security" means a mortgage participation or
pass-through certificate representing a fractional, undivided interest in (i)
Loans, (ii) collateralized mortgage obligations secured by Loans or (iii) Agency
Securities.
"Qualified Insurer" means a mortgage guarantee or insurance company duly
qualified as such under the laws of the states in which the Mortgaged Properties
are located, duly authorized and licensed in such states to transact the
applicable insurance business and to write the insurance provided.
"Rating Agency" means a nationally recognized statistical rating
organization.
"Regular Interest" means a regular interest in a REMIC as described herein
under "Certain Federal income Tax Considerations--Tax Status as a REMIC."
"Reinvestment Income" means any interest or other earnings on funds or
accounts that are part of the Trust Fund for a Series.
"REMIC" means a real estate mortgage investment conduit under Section 860D
of the Code.
"REMIC Administrator" means the Person, if any, specified in the related
Prospectus Supplement for a Series for which a REMIC election is made, to serve
as administrator of the Series.
"Remittance Date" means the calendar day or days of each month, as specified
in the related Prospectus Supplement for a Series, on which the Servicer is
required to withdraw funds from the related Servicer Account for remittance to
the Master Servicer.
"REO Property" means real property which secured a defaulted Loan which has
been acquired upon foreclosure, deed in lieu of foreclosure or repossession.
"Reserve Fund" means, with respect to a Series, any Reserve Fund established
pursuant to the Pooling and Servicing Agreement.
"Residual Interest" means a residual interest in a REMIC as described herein
under "Certain Federal Income Tax Considerations--Tax Status as a REMIC."
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"Retained Interest" means, with respect to a Mortgage Asset, the amount or
percentage specified in the related Prospectus Supplement which is not sold by
the Depositor or seller of the Mortgage Asset and, therefore, is not included in
the Trust Fund for the related Series.
"Scheduled Payments" means the scheduled payments of principal and interest
to be made by the borrower on a Mortgage Loan in accordance with the terms of
the related Mortgage Note.
"Seller" means the Person or Persons, which may include banks, savings and
loan associations, mortgage bankers, investment banking firms, the Resolution
Trust Corporation (the "RTC"), the Federal Deposit Insurance Corporation (the
"FDIC") and other mortgage loan originators or sellers affiliated or not
affiliated with the Depositor, or who may be the Master Servicer or a Servicer,
who sell the Loans to the Depositor for deposit into the Trust Fund.
"Senior Certificateholder" means the Holder of a Senior Certificate.
"Senior Certificates" means a Class of Certificates as to which the Holders'
rights to receive distributions of principal and interest are senior to the
rights of Holders of Subordinate Certificates, to the extent specified in the
related Prospectus Supplement.
"Servicer" means the entity which has primary liability for servicing Loans
if other than the Master Servicer.
"Servicer Account" means an account established by a Servicer (other than
the Master Servicer) who is directly servicing Loans, into which such Servicer
will be required to deposit all receipts received by it with respect to the
Mortgage Assets serviced by such Servicer.
"Servicing Fee" means the amount paid to the Master Servicer on a given
Distribution Date, generally determined on a loan-by-loan basis, and calculated
at a specified per annum rate.
"Single Family Property" means property securing a Loan consisting of one-
to four-family attached or detached residential housing, including Cooperative
Dwellings.
"Subordinate Certificateholder" means a Holder of a Subordinate Certificate.
"Subordinate Certificates" means a Class of Certificates as to which the
rights of Holders to receive distributions of principal and interest are
subordinated to the rights of Holders of Senior Certificates, to the extent and
under the circumstances specified in the related Prospectus Supplement.
"Subordinated Amount" means the amount, if any, specified in the related
Prospectus Supplement for a Series with a Class of Subordinated Certificates,
that the Subordinate Certificates are subordinated to the Senior Certificates of
the same Series.
"Subordination Reserve Fund" means the subordination reserve fund, if any,
for a Series with a Class of Subordinate Certificates, established pursuant to
the related Pooling and Servicing Agreement.
"Trustee" means the trustee under a Pooling and Servicing Agreement, and its
successors.
"Trust Fund" means all property and assets held for the benefit of the
Certificateholders by the Trustee under the Pooling and Servicing Agreement for
a Series of Certificates as described under "The Trust Funds--General."
"UCC" means the Uniform Commercial Code.
"VA" means the Department of Veterans Affairs.
"VA Loans" means housing loans partically guaranteed by the VA.
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DLJ MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
$64,599,280
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-Q6
$ 0 CLASS SA CERTIFICATES, VARIABLE RATE*
$53,917,509 CLASS A-1 CERTIFICATES, ADJUSTABLE RATE
$ 8,477,596 CLASS A-2 CERTIFICATES, ADJUSTABLE RATE
$ 2,204,175 CLASS B-1 CERTIFICATES, ADJUSTABLE RATE
*Based on the Notional Amount as described herein.
___________
PROSPECTUS SUPPLEMENT
___________
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
June 24, 1996
