Registration No. 333-01241
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
DLJ MORTGAGE ACCEPTANCE CORP.
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
13-3460894
(I.R.S. Employer Identification Number)
277 Park Avenue
New York, New York 10172
212-892-3000
(Address and telephone number of Registrant's principal executive offices)
Leon M. Pollack
DLJ Mortgage Acceptance Corp.
277 Park Avenue
New York, New York 10172
212-892-3000
(Name, address and telephone number of agent for service)
----------------
Copies to:
Stephen S. Kudenholdt, Esq. Mitchell S. Dupler, Esq.
Thacher Proffitt & Wood Cleary, Gottlieb, Steen & Hamilton
Two World Trade Center 1752 N Street, N.W.
New York, New York 10048 Washington, D.C. 20036
Approximate date of commencement of proposed sale to the
public: From time to time on or after the effective date of this
Registration Statement, as determined by market conditions.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment
plans, please check the following box. |_|
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under theSecurities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, please check the following box. |X|
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b)under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
|_|
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. |_|
--------------------------
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission acting
pursuant to said Section 8(a), may determine.
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Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This preliminary prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Subject to Completion Dated January 24, 1997
PROSPECTUS
January 24, 1997
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 __.
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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.
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.
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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.
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
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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 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
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"Description of the Certificates-Optional
Termination."
Redemption
Agreement...... If so specified in the Prospectus Supplement for a
Series, the related Trust Fund will enter into a
redemption agreement pursuant to which the
counterparty to the agreement will have the right to
cause a redemption of the outstanding Certificates,
beginning on the Distribution Date and subject to
payment of the redemption price and other conditions
specified in the Prospectus Supplement. See
"Description of the Certificates-Redemption
Agreement."
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
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Certificates evidencing beneficial 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
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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 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
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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. If the Certificates or the
underlying Mortgage Assets are subject to redemption, the average
life and yield to investors of each Class also will be affected
by the occurrence of such a redemption as described below. 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 and, if
applicable, to the occurrence of a redemption of the Certificates
or the Mortgage Assets. 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 or, if
applicable, a redemption of the Certificates or the underlying
Mortgage Assets occurs, 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 or, if applicable, upon such a
redemption, 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 or, if applicable, redemption of the Certificates or the
underlying Mortgage Assets does not occur, 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 [or, if applicable, the likelihood of a redemption
of the Certificates or the underlying Mortgage Assets]. As
a result, such rating will not address the possibility
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that prepayment rates higher or lower than anticipated
by an investor [or, if applicable, the occurrence or
absence of a redemption of the Certificates or the underlying
Mortgage Assets] 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."
Redemption of Certificates or Underlying Mortgage Assets
If so specified in the Prospectus Supplement for a Series,
the Certificates or the underlying Mortgage Assets may be subject
to redemption at the direction of the holder of certain
redemption rights, beginning on the Distribution Date and subject
to payment of the redemption price and other conditions specified
in the related Prospectus Supplement. A redemption would result
in the concurrent retirement of all outstanding Certificates of
the Series and would decrease the average lives of such
Certificates, perhaps significantly. The earlier after the
Closing Date that a redemption occurs, the greater would be such
effect. In general, a redemption is most likely to occur if
prevailing interest rates have declined. The holder of the
redemption right may also be a Holder of one or more Classes of
the related Series, which may affect such holder's decision
whether to direct a redemption. The effect of a redemption of the
Certificates or underlying Mortgage Assets on interest payments
on the Classes of Certificates of a Series will be described in
the related Prospectus Supplement. See "Description of the
Certificates--Redemption Agreement" and "The Trust Funds--Private
Mortgage-Backed Securities."
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, 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
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insured by the United States, or by any agency or instru-
mentality 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."
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 re-
port on their federal income tax returns as ordinary income their pro
rata share of the taxable income of the related REMIC regardless
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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 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.
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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 cur-
rently entitled to receive interest will be distributed on the Dis-
tribution Date specified in the related Prospectus Supplement, to the
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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 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.
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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 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 transaction by which the Certificates are retired and
the related termination will constitute a "qualified liquidation"
under Section 860F of the Code. See "The Pooling and Servicing
Agreements-Termination."
Redemption Agreement
If so specified in the Prospectus Supplement for a Series,
the related Trust Fund will enter into a redemption agreement
pursuant to which the counterparty to the agreement will have the
right to cause a redemption of the outstanding Certificates,
beginning on the Distribution Date and subject to payment of the
redemption price and other conditions specified in the Prospectus
Supplement. In general, the redemption price will equal the
aggregate outstanding Certificate Principal Balance of all
Certificates, plus any interest described in the Prospectus
Supplement. Payment of the redemption price will be in lieu of
any distribution of principal and interest that would otherwise
be made on that Distribution Date. Upon a redemption, the holder
of the redemption right will receive the assets of the Trust Fund
and each Certificateholder will receive the outstanding
Certificate Principal Balance of its Certificate, plus any
interest specified in the Prospectus Supplement. See "Yield,
Prepayment and Maturity Considerations" for a discussion of the
effects of such a redemption on an investor's yield to maturity.
In the case of a Trust Fund for which a REMIC election or
elections have been made, the transaction by which the
Certificates are retired and the related redemption is conducted
will constitute a "qualified liquidation" under Section 860F of
the Code.
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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 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.
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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.
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 or, if applicable, the
absence of a redemption of the Certificates or the underlying
Mortgage Assets will negatively affect the yield to investors in
Principal Weighted Certificates, and a higher rate of principal
prepayments than anticipated or, if applicable, the occurrence of
a redemption of the Certificates or the underlying Mortgage Assets
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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 on yields on such Certificates of (i) various levels of
prepayment and (ii) if applicable, redemption on various
Distribution Dates of the Certificates or the underlying Mortgage
Assets. Such tables will be intended to illustrate the
sensitivity of yields to various prepayment rates and redemption
dates and will not be intended to predict, or provide information
which will enable investors to predict, yields, prepayment rates
or redemption dates.
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 under-
lying the Mortgage Assets. If any Loans comprising or underlying the
Mortgage Assets for a Series have actual terms-to-stated maturity
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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.
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
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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 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
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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 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.
Redemption of Certificates or Underlying Mortgage Assets.
If so specified in the Prospectus Supplement for a Series, the
Certificates or the underlying Mortgage Assets may be subject to
redemption at the direction of the holder of certain redemption
rights, beginning on the Distribution Date and subject to payment
of the redemption price and other conditions specified in the
related Prospectus Supplement. A redemption of the Certificates
would result in the concurrent retirement of all outstanding
Certificates of the Series and would decrease the average lives
of such Certificates, perhaps significantly. A redemption of the
underlying Mortgage Assets would result in the prepayment of all
or the related portion of the outstanding Certificates of the
Series and would decrease the average lives of such Certificates,
perhaps significantly. The earlier after the Closing Date that a
redemption occurs, the greater would be such effect. In general,
a redemption is most likely to occur if prevailing interest rates
have declined. The holder of the redemption right may also be a
Holder of one or more Classes of the related Series, which may
affect such holder's decision whether to direct a redemption. The
effect of a redemption of the Certificates or underlying Mortgage
Assets on interest payments on the Classes of Certificates of a
Series will be described in the related Prospectus Supplement.
See "Description of the Certificates-Redemption Agreement" and
"The Trust Funds-Private Mortgage-Backed Securities."
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
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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.
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
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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.
If so specified in the related Prospectus Supplement, the
Private Mortgage-Backed Securities may consist of one or more
classes entitled to interest and principal payments from a pool
of Loans (each, a "Callable Class"), subject to the right of one
or more other classes (each, a "Call Class") to redeem the
Callable Classes. For any Series in which the Private
Mortgage-Backed Securities are Callable Classes, such classes
will be created by the Depositor pursuant to the Pooling and
Servicing Agreement together with the creation of the
Certificates in order to permit the creation of the separate
right of the related Call Classes to redeem the Callable Classes.
Any such Callable Classes will not include previously issued
securities, but will be issued simultaneously with the
Certificates. Such Callable Classes and Call Classes will not be
offered pursuant to this Prospectus, but may be retained by the
Depositor or sold in privately negotiated transactions.
The holder of a Call Class will have the right to direct
the redemption of the related Callable Class, beginning on the
date and subject to payment of the redemption price and other
conditions specified in the Prospectus Supplement. In general,
the redemption price will equal the aggregate outstanding
principal balance of the underlying Loans, plus any interest
described in the Prospectus Supplement. Payment of the redemption
price will be in lieu of any distribution of principal and
interest that would otherwise be made on that date. Upon a
redemption, the holder of the Call Class will receive the
outstanding Loans and each Certificateholder will receive the
outstanding Certificate Principal Balance of its Certificate,
plus any interest specified in the Prospectus Supplement. See
"Yield, Prepayment and Maturity Considerations" for a discussion
of the effects of such a redemption on an investor's yield to
maturity.
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
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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 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 dispro-
portionate 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. Such Agency Securities may be subject
to a right of redemption by one or more other classes of Agency
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Securities. See "Yield, Prepayment and Maturity Considerations"
for a discussion of the effects of such a redemption on an
investor's yield to maturity. 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.
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
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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. ss. 1716 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 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
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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 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
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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.
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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 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.
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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 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
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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."
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,
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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.
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 perti-
nent 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
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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
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
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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, 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
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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.
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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 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
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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.
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 Certificate-
holder 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,
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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 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.
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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
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,
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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;
(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.
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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.
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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 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 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
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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.
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 other-
wise 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
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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 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 main-
tained on a Condominium Unit relating to any Condominium Loan. Gen-
erally, 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.
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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 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."
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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."
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 compar-
able 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
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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 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.
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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 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.
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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.
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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
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,
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(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
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.
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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
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 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
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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
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
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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 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
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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
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.
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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
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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.
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
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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 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
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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.
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
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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.
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
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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.
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
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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 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
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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.
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
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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;
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(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;
(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
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(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 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.
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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 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.
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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.
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
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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.
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
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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 addition, if so specified in the applicable
Prospectus Supplement for a Series, the underlying Mortgage
Assets may be subject to redemption at the direction of the
holder of certain redemption rights. In the case of a Trust Fund
for which a REMIC election or elections have been made, if the
holder of the redemption right chooses to effect such a
redemption, the transaction by which the Certificates are retired
and the related Trust Fund terminated will constitute a
"qualified liquidation" of the REMIC within the meaning of
Section 860F(a)(4) of the Code. 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
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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.
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
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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 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
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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 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.
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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 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 Cooper-
ative 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 agree-
ment which are owed to the Cooperative are made liens upon
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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 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.
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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 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
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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. 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
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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.
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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 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.
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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 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 express-
ly rejected or a provision limiting discount points or other charges
is adopted, no Mortgage Loans originated after the date of such state
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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 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.
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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.
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
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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.
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
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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 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,
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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 (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
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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 treat 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
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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.
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 "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 Section 856(c)(5)(A)
of the Code.
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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 "real estate assets" within the meaning of
Section 856(c)(5)(A) of 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; however, if such regulations are
issued, they may require that a Certificateholder take into
account for original issue discount accruals the possibility of
the retirement of the Certificate concurrently with the
redemption of the underlying Mortgage Assets by the holder of the
Call Right (as defined below). Certificateholders are therefore
urged to consult their tax advisors regarding these important tax
matters.
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.
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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 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
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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 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.
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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 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.
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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 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
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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.
If so specified in the applicable Prospectus Supplement for
a Series, the underlying Mortgage Assets may be subject to
redemption at the direction of the holder of certain redemption
rights. As a direct owner in the underlying Mortgage Assets for
federal income purposes, the REMIC will also be treated as having
written the call option on such underlying Mortgage Assets. See
"Callable Classes."
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 Certificat-
holder 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
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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."
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" 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
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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 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
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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.
Callable Classes
An entity electing to be treated as a REMIC may either
itself directly, or indirectly through the use of a trust owned
by such entity, enter into a redemption agreement pursuant to
which the counterparty will have the right to cause a redemption
of the outstanding Certificates (as used herein, each such right
a "Call Right", and each such Certificate, a "Callable Class
Certificate") beginning on the Distribution Date and subject to
payment of the redemption price and other conditions that may be
specified in the applicable Prospectus Supplement. See
"Description of the Certificates-Redemption Agreement." In the
event the trust issues the Call Right, 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 trust will be treated as a grantor trust
under subpart E, part 1 of Subchapter J of the Code and, as a
result, the REMIC will be treated as having directly issued the
Call Right.
The REMIC will be treated as (i) owning an interest in the
underlying Mortgage Assets and (ii) writing a call option on its
interest in the underlying Mortgage Assets, represented by the
right of the holder of the Call Right to direct the Depositor to
redeem the outstanding Certificates as described under
"Description of the Certificates-Redemption Agreement."
Under these circumstances, the REMIC should be considered
to have acquired its interest in the underlying Mortgage Assets
for an amount equal to its initial aggregate basis in its assets,
determined as described more fully under "Taxable Income of the
REMIC," plus the fair market value at the time of purchase of
such REMIC's assets of the call option the REMIC is deemed to
have written, which amount the REMIC is deemed also to have
received. Accordingly, the REMIC's basis in its interest in the
underlying Mortgage Assets will actually be greater than the
aggregate issue price of the REMIC Certificates it issues,
resulting in less discount income or greater premium deductions
to the REMIC than it would have recognized had the call option
not been written. Under current federal income tax law, the REMIC
will not be required to include immediately in income the amount
of the option premium it is deemed to have received. However,
although the treatment of these items is not entirely clear, it
appears that as the REMIC receives principal payments on the
underlying Mortgage Assets, and if the REMIC sells or distributes
in kind any of the underlying Mortgage Assets, the REMIC will be
deemed to have received (in addition to the amount of such
payment, the sales price or the fair market value of the asset,
as the case may be) an amount equal to the corresponding portion
of the payment it was deemed to receive at the time the call
option was originally written. Accordingly, the amount realized
by the REMIC with respect to its interest in the underlying
Mortgage Assets will be greater than the amount of cash received
by it, and over the life of the REMIC the entire amount of the
deemed payment received when the call option was written will be
reported by the REMIC, although not at the times that a
corresponding amount of income would be reported based on a
constant yield method. Investors should be aware that, subject to
certain specific exceptions in the REMIC Regulations, it is not
anticipated that the REMIC will sell or transfer or otherwise
dispose of any of the underlying Mortgage Assets except pursuant
to an exercise of the Call Right. See "Prohibited Transactions
and Other Possible REMIC Taxes." In the event that the holder
of the Call Right chooses to effect such a redemption of
the underlying Mortgage Assets, the transactions by which
the Certificates are retired and the related Trust Fund
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terminated will constitute a "qualified liquidation" of the
REMIC within the meaning of Section 860F(a)(4) of the Code.
Taxation of Call Option Premium. Under current federal
income tax law, the REMIC will not be required to include
immediately in income the option premium with respect to the Call
Right that it is deemed to receive. Instead, such premium will be
taken into account when the Call Right lapses, is exercised or is
otherwise terminated with respect to the REMIC. As indicated
above, an amount equal to the option premium that is deemed to be
received by the REMIC would be included in the REMIC's basis in
the Mortgage Assets. The REMIC's recovery of such basis will not
occur at the same rate as its inclusion in income of the option
premium.
As the grantor of an option, the REMIC must include the
option premium in income when the option lapses, which with
respect to the REMIC is no later than the redemption by a holder
of the Call Right. Although the Call Right will not expire by its
terms during the period in which the Certificates remain
outstanding, the Mortgage Assets to which the Call Right relates
will be reduced over time through principal payments. Although it
is not entirely clear whether the Call Right would thus be deemed
to lapse as the Mortgage Assets are paid down, and if so, at what
rate, the Depositor intends to report income to the REMIC based
on the assumption that the Call Right lapses, and the related
premium is recognized by the REMIC, proportionately as principal
is paid on the Mortgage Assets (whether as scheduled principal
payments or prepayments) after the first date on which the Call
Right may be exercised. There is no assurance that the IRS would
agree with this method of reporting income from the lapse of the
Call Right, and furthermore, it should be noted that the IRS
currently is examining the rules regarding the taxation of option
premiums.
If the Call Right is exercised, the REMIC will add an
amount equal to the unamortized portion of the option premium to
the amount realized from the sale of the underlying Mortgage
Assets.
If the REMIC transfers one of the underlying Mortgage
Assets, such transfer will be treated as a "closing transaction"
with respect to the option the REMIC is deemed to have written.
Accordingly, the REMIC will recognize gain or loss equal to the
difference between the unamortized amount of option premium and
the amount the REMIC is deemed to pay, under the rules discussed
above, to be relieved from its obligations under the option.
However, as discussed above, subject to certain specified
exceptions (including in connection with the issuance of the Call
Right), it is not anticipated that the REMIC will transfer any of
the underlying Mortgage Assets. See "Prohibited Transactions and
Other Possible REMIC Taxes."
Certificateholders are urged to consult their tax advisors
before purchasing an interest in any Callable Class Certificate.
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 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
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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 rules is 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
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. Although it has not done so, the Treasury has
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the 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."
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 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. Furthermore, for purposes of the
alternative minimum tax, (i) excess inclusions will not be
permitted to be offset by the alternative tax net operating loss
deduction and (ii) alternative minimum taxable income may not be
less than the taxpayer's excess inclusions. This last rule has
the effect of preventing nonrefundable tax credits from reducing
the taxpayer's income tax to an amount lower than the alternative
minimum tax on excess inclusions.
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 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.
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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.
Unless otherwise stated in the related Prospectus
Supplement, transfers of REMIC Residual Certificates to investors
that are not United States Persons (as defined below in "-Foreign
Investors in REMIC Certificates") will be prohibited under the
related Pooling Agreement. If transfers of REMIC Residual
Certificates to investors that are not United States Persons are
permitted pursuant to the related Pooling Agreement, the related
Prospectus Supplement will describe additional restrictions
applicable to transfers of certain REMIC Residual Certificates to
such 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 report-
able by holders of such Certificates that are subject to
the limitations of either Section 67 or Section 68 of the
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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
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
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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.
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
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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 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
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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.
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 regula-
tions. 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,
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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 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
whose income is subject to United States federal income tax
regardless of its source, or a trust if a court within the United
States is able to able to exercise primary supervision over the
administration of the trust and one or more United States
fiduciaries have the authority to control all substantial
decisions of the trust. 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
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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.
Call Class
The holder of the Call Right (or as used interchangeably
herein, the "Call Class") will be treated as having purchased a
call option on all the underlying Mortgage Assets. The price paid
by the holder of the Call Class to purchase such call option will
be treated as an option premium and accordingly will be added to
the purchase price of the Mortgage Assets (in addition to any
exchange fee) if the Mortgage Assets are purchased upon exercise
of the Call Right, and will be treated as a loss as the Call
Right lapses. For a discussion of when the Call Right may be
deemed to lapse, see "Callable Classes" above. Assuming that the
underlying Mortgage Assets, if acquired, would be a capital asset
in such holder's hands, then loss recognized with respect to such
lapse will be treated as a capital loss.
In light of the above, a thrift, REMIC, real estate
investment trust or regulated investment company should consult
its tax advisors before purchasing any Call Class.
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".
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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 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.
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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 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
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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 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
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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.
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
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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.
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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.
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
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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.
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.
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"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.
"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.
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"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.
"Call Class" means an interest which is entitled to redeem
a related Callable Class of Private Mortgage-Backed Securities.
"Callable Class" means a class of Private Mortgage-Backed
Securities which receives principal and interest distributions on
the underlying Loans, subject to a right of redemption by the
related Call Class.
"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
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to which no interest or principal will be payable except during the
period or periods specified in the related Prospectus Supplement.
"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.
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<PAGE>
"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 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.
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"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.
"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.
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<PAGE>
"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.
"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.
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<PAGE>
"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.
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<PAGE>
"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.
"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.
"Redemption Agreement" means an agreement entered into by a
Trust Fund pursuant to which the counterparty has the right to
cause a redemption of the related Certificates.
"Regular Interest" means a regular interest in a REMIC as
described herein under "Certain Federal income Tax
Considerations-Tax Status as a REMIC."
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<PAGE>
"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."
"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.
127
<PAGE>
"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 partially guaranteed by the VA.
128
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution (Item 14 of Form S-3).
The expenses expected to be incurred in connection with the
issuance and distribution of the Certificates being registered,
other than underwriting compensation, are as set forth below.
All such expenses, except for the filing fee, are estimated.
Filing Fee for Registration Statement....$ 517,241
Legal Fees and Expenses.................. 600,000
Accounting Fees and Expenses............. 200,000
Trustee's Fees and Expenses
(including counsel fees)............. 90,000
Printing and Engraving Fees.............. 180,000
Rating Agency Fees....................... 240,000
Miscellaneous............................ 100,000
-------
Total..........................$1,827,241
==========
Indemnification of Directors and Officers (Item 15 of Form S-3).
The Pooling and Servicing Agreements will provide that no
director, officer, employee or agent of the Registrant is liable
to the Trust Fund or the Certificateholders, except for such
person's own willful misfeasance, bad faith or gross negligence
in the performance of duties or reckless disregard of obligations
and duties. The Pooling and Servicing Agreements will further
provide that, with the exceptions stated above, a director,
officer, employee or agent of the Registrant is entitled to be
indemnified against any loss, liability or expense incurred in
connection with legal action relating to such Pooling and
Servicing Agreements and related Certificates other than such
expenses related to particular Mortgage Loans.
Any underwriters who execute an Underwriting Agreement in
the form filed as Exhibit 1.1 to this Registration Statement will
agree to indemnify the Registrant's directors and its officers
who signed this Registration Statement against certain
liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on
behalf of such indemnifying party.
Subsection (a) of Section 145 of the General Corporation
Law of Delaware empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that he is or was a director, employee or agent of
the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and
<PAGE>
-2-
in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his
conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that such person acted in any
of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation
and except that no indemnification may be made in respect to any
claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such
action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director,
officer, employee or agent of a corporation has been successful
in the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification or advancement
of expenses provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may
be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against
him or incurred by him in any such capacity or arising out of his
status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section
145.
The Restated Certificate of Incorporation and By-Laws of
the Registrant provide that, to the fullest extent and under the
circumstances permitted by Section 145 of the General Corporation
Law of the State of Delaware, the Registrant shall indemnify any
person who was or is a party or is threatened to be made a party
to any action, suit or proceeding of the type described above by
reason of the fact that he or she is or was a director, officer,
employee or agent of the Registrant or is or was serving at the
request of the Registrant as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise.
Exhibits (Item 16 of Form S-3).
Exhibits--
*1.1 -- Form of Underwriting Agreement.
*3.1 -- Certificate of Incorporation of DLJ Mortgage Corp., as
currently in effect.
<PAGE>
-3-
*3.2 -- Bylaws of DLJ Mortgage Acceptance Corp. as currently in
effect.
*4.1 -- Forms of Trust Agreement including forms of Certificates.
*4.2 -- Form of Sale and Servicing Agreement.
*4.3 -- Form of Standard Provisions for Servicing.
***5.1 -- Opinion of Thacher Proffitt & Wood regarding the legality of
the Certificates.
***8.1 -- Opinion of Thacher Proffitt & Wood as
to certain tax matters (included in Exhibit 5.1).
***23.1 -- Consent of Thacher Proffitt & Wood (included in Exhibit
5.1).
**23.3 -- Consent of Coopers & Lybrand.
***24.1 -- Power of Attorney
* Filed as an exhibit to Registration Statement on Form S-11 (No. 33-22364
and incorporated herein by reference.
** Filed as an exhibit to Registration Statement on Form S-3 (No.
33-77722).
*** Previously filed
Undertakings (Item 17 of Form S-3).
A. Undertakings Pursuant to Rule 415.
The Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement;
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in this Registration Statement; and
(iii) to include any material information with respect
to the plan of distribution not previously disclosed in
this Registration Statement or any material change to such
information in this Registration Statement;
provided however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports
<PAGE>
-4-
filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
B. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3, reasonably believes that the security rating requirement
contained in Transaction Requirement B.5 of Form S-3 will be met
by the time of the sale of the securities registered hereunder,
and has duly caused this Post-Effective Amendment No. 1 to
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York,
State of New York, on January 10, 1997.
DLJ MORTGAGE ACCEPTANCE CORP.
By: /s/ Leon M. Pollack
--------------------------
Leon M. Pollack
President
Pursuant to the requirements of the Securities Act of
1933, this Post- Effective Amendment No. 1 to Registration
Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Leon M. Pollack President and Director January 10, 1997
- --------------------- (Principal Executive
Leon M. Pollack Officer)
/s/ Thomas E. Siegler Secretary, Treasurer and January 10, 1997
- --------------------- Director (Principal
Thomas E. Siegler Financial and Accounting
Officer)
/s/ John M. Eggemeyer Director January 9, 1997
- ---------------------
John M. Eggemeyer
/s/ Steven L. Kantor Director January 10, 1997
- ---------------------
Steven L. Kantor
<PAGE>
